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 December 31, 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 - 592,071,513 shares
(January 29, 1999)
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PART I - FINANCIAL INFORMATION
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
--------------------------
(In thousands, except
per share amounts)
<S> <C>
<C>
Net sales and other operating income $3,911,53
9 $4,130,2
98
Cost of products sold and other
operating costs 3,490,209
3,767,93
9
_________
________
_
Gross Profit 421,330
362,359
Selling, general and administrative 182,246
expenses 136,745
_________
________
_
Earnings From Operations 239,084
225,614
Other income (expense) (69,191)
(16,209)
_________
________
_
Earnings Before Income Taxes and
Extraordinary Loss 169,893
209,405
Income taxes 59,459
70,197
_________
________
_
Earnings Before Extraordinary 110,434
Loss 139,208
Extraordinary loss, net of tax, on
debt (15,324) -
Repurchase
_________
________
_
Net Earnings $ 95,1 $ 139,20
10 8
========= =========
Average number of shares outstanding 593,580 585,697
Basic and diluted earnings per common
share
Before extraordinary loss $.19 $.24
Extraordinary loss on debt (.03) -
repurchase
____ ____
_
After Extraordinary Loss $.16 $.24
==== =
===
Dividends per common share $.05 $.04
8
</TABLE>
See notes to consolidated financial statements.
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ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION> SIX MONTHS ENDED
DECEMBER 31,
1998 1997
--------------------------
(In thousands, except
per share amounts)
<S> <C>
<C>
Net sales and other operating income $7,712,96
0 $7,781,6
00
Cost of products sold and other
operating costs 6,997,994
7,094,07
3
_________
________
_
Gross Profit 714,966
687,527
Selling, general and administrative 349,062
expenses 271,731
_________
________
_
Earnings From Operations 365,904
415,796
Other income (expense) (17,607)
(7,376)
_________
________
_
Earnings Before Income Taxes and
Extraordinary Loss 348,297
408,420
Income taxes 121,008
137,862
_________
________
_
Earnings Before Extraordinary 227,289
Loss 270,558
Extraordinary loss, net of tax, on
debt (15,324) -
Repurchase
_________
________
_
Net Earnings $ 211,9 $ 270,55
65 8
========= =========
Average number of shares outstanding 595,373 585,640
Basic and diluted earnings per common
share
Before extraordinary loss $.39 $.46
Extraordinary loss on debt (.03) -
repurchase
____ ____
_
After Extraordinary Loss $.36 $.46
==== =
===
Dividends per common share $.098 $.09
4
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
DECEMBER 31, JUNE 30,
1998 1998
-------------------------
--
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 476,357 $ 346,325
Marketable securities 335,835 379,169
Receivables 1,879,282 1,990,686
Inventories 3,123,744 2,562,650
Prepaid expenses 181,097 172,884
__________ __________
Total Current Assets 5,996,315 5,451,714
Investments and Other Assets
Investments in and advances to 1,481,970 1,473,364
affiliates
Long-term marketable securities 838,855 1,168,380
Other assets 400,000 417,372
__________ __________
2,720,825 3,059,116
Property, Plant and Equipment
Land 162,051 148,135
Buildings 1,944,194 1,777,146
Machinery and equipment 8,310,485 7,901,309
Construction in progress 614,583 613,792
Less allowances for depreciation (5,494,964) (5,117,678)
__________ __________
5,536,349 5,322,704
__________ __________
$14,253,489 $13,833,534
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
DECEMBER 31, JUNE 30,
1998 1998
------------------------
--
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $1,490,100 $1,545,276
Accounts payable 1,991,543 1,634,681
Accrued expenses 540,538 516,287
Current maturities of long-term debt 22,248 21,059
__________ __________
Total Current Liabilities 4,044,429 3,717,303
Long-term Debt 2,908,976 2,847,130
Deferred Credits
Income taxes 631,044 632,893
Other 136,450 131,296
__________ __________
767,494 764,189
Shareholders' Equity
Common stock 4,834,548 4,936,649
Reinvested earnings 1,816,157 1,662,563
Accumulated other comprehensive loss (118,115) (94,300)
__________ __________
6,532,590 6,504,912
__________ __________
$14,253,489 $13,833,534
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
-------------------------
(In thousands)
<S> <C> <C>
Operating Activities
Net earnings $ 211,965 $ 270,558
Adjustments to reconcile to net cash
provided
by operations
Depreciation and amortization 285,517 241,530
Deferred income taxes 25,757 11,667
Amortization of long-term debt discount 17,535 16,063
Gain on marketable securities (101,674) (36,147)
transactions
Extraordinary loss on debt repurchase 15,324 -
Other 99,455 (8,393)
Changes in operating assets and
liabilities
Receivables 134,012 (302,148)
Inventories (448,298) (135,479)
Prepaid expenses (8,065) (46,531)
Accounts payable and accrued expenses 294,532 144,188
________ ________
Total Operating Activities 526,060 155,308
Investing Activities
Purchases of property, plant and equipment (359,797) (320,081)
Net assets of businesses acquired (60,316) (368,371)
Investments in and advances to affiliates (91,378) (253,142)
Purchases of marketable securities (377,995) (696,257)
Proceeds from sales of marketable 774,179 489,413
securities
________ ________
Total Investing Activities (115,307) (1,148,43
8)
Financing Activities
Long-term debt borrowings 83,020 441,464
Long-term debt payments (65,509) (7,316)
Net borrowings (payments) under line of
credit (103,848) 703,214
Agreements
Purchases of treasury stock (137,445) (42,135)
Cash dividends and other (56,939) (52,473)
________ ________
Total Financing Activities (280,721) 1,042,754
________ ________
Increase In Cash and Cash Equivalents 130,032 49,624
Cash and Cash Equivalents Beginning of 346,325 397,788
Period
________ ________
Cash and Cash Equivalents End of Period $ 476,357 $ 447,412
======== ========
Supplemental Cash Flow Information
Noncash Investing and Financing Activities
Common stock issued in purchase - $298,244
acquisition
</TABLE>
See notes to consolidated financial statements.
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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 and six months ended December 31, 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.
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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 $171 million and $83 million
for the quarter ended December 31, 1998 and 1997, respectively.
Comprehensive income was $188 million and $204 million for the
six months ended December 31, 1998 and 1997, respectively.
Note 5. Other Income (Expense)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
__________________ __________________
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Investment income $ 27,274 $ 25,602 $ 56,411 $ 53,804
Interest expense (84,512) (72,334) (164,539 (127,753
) )
Gain on marketable securities
Transactions 1,972 12,449 101,685 36,150
Equity in earnings (losses) of
Affiliates (15,032) 16,397 (11,190) 26,954
Other 1,107 1,677 26 3,469
______ ______ ______ ______
$(69,191 $(16,209 $(17,607 $
) ) ) (7,376)
====== ====== ====== ======
</TABLE>
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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.
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ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
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:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1998
1998 1997
1997
---------------- ----------------
--- -
(In millions) (In millions)
<S> <C> <C> <C>
<C>
Oilseed products $2,314 $2,587 $4,639 $4,896
Corn products 475 556 988 1,091
Wheat and other milled 353 393 714 780
products
Other products and 770 594 1,372 1,015
services
----- ----- ----- -----
$3,912 $4,130 $7,713 $7,782
===== ===== ===== =====
</TABLE>
Net sales and other operating income decreased 5 percent to $3.9
billion for the quarter and decreased 1 percent to $7.7 billion
for the six months due principally to decreases in average
selling prices of 13 percent and 9 percent, respectively. Sales
of oilseed products decreased 11 percent to $2.3 billion for the
quarter and decreased 5 percent to $4.6 billion for the six
months due primarily to lower average selling prices resulting
from the lower cost of raw materials. For both the quarter and
six months, these decreases were partially offset by sales
attributable to recently acquired operations. Sales volumes of
oilseed products increased slightly for both the quarter and six
months as good product demand in both Europe and North American
was offset by weak Asian demand. Sales of corn products
decreased 15 percent for the quarter and 9 percent for the six
months as lower average selling prices for the Company's alcohol
and amino acid products more than offset the increases in both
sales volume and price of the Company's sweetener products.
Demand for the Company's fuel alcohol has been steady, but low
gasoline prices continue to negatively affect average sales
prices. Sweetener sales volumes and prices have been positively
impacted by good demand from the U.S. soft drink industry.
Excess production capacity in the industry as well as low
protein meal and corn prices have depressed selling prices of
amino acid products. Sales of wheat and other milled products
decreased 10 percent for the quarter and 8 percent for the six
months due principally to lower average selling prices resulting
from the lower cost of raw materials. The increase in other
products and services for the quarter and six months was due
primarily to the sales related to the Company's recently
acquired feed and cocoa businesses as well as increased
merchandising and transportation revenues.
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Cost of products sold and other operating costs decreased $278
million for the quarter to $3.5 billion and decreased $96
million for the six months to $7 billion due to lower average
raw material costs. For both the quarter and six months, these
decreases were partially offset by increased costs related to
recently acquired operations.
Gross profit increased $59 million to $421 million for the
quarter and increased $27 million to $715 million for the six
months due principally to gross profit attributable to recently
acquired operations and to increased merchandising and
transportation margins. For the six months, these increases were
partially offset by a decline in gross profit due to the net
effect of decreased sales prices versus lower raw material
costs.
Selling, general and administrative expenses increased $46
million for the quarter to $182 million and increased $77
million for the six months to $349 million due principally to
expenses attributable to recently acquired
operations.
The increase in other expense for the quarter and six months
resulted principally from decreased equity in earnings of
unconsolidated affiliates due primarily to lowered valuations of
the Company's private equity fund investments and to increased
interest expense due to higher average borrowing levels. Gains
on marketable securities transactions were lower for the
quarter, but higher for the six month period.
The decrease in income taxes for the quarter and six months
resulted primarily from lower pretax earnings. The Company's
effective income tax rate for the quarter and six months was 35
percent compared to an effective rate of 34 percent for the
comparable periods of a year ago.
During the quarter, the Company incurred an extraordinary
charge, net of tax, of $15 million resulting from the repurchase
of a portion of its outstanding 7 percent debentures due May
2011.
Liquidity and Capital Resources
At December 31, 1998, the Company continued to show substantial
liquidity with working capital of approximately $2 billion.
Capital resources remained strong as reflected in the Company's
net worth of $6.5 billion. The Company's ratio of long-term debt
to total capital at December 31, 1998 was approximately 29%.
As described 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 described in Note 6 to the unaudited
consolidated financial statements, the Company has settled
certain civil
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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 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's internal business and technical information system
year 2000 compliance issues are substantially remediated. Any
remaining remediation is expected to occur during 1999.
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. This verification process is
expected to be completed by the third quarter of 1999.
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 and reviewing the year
2000 preparedness of critical third parties. This identification
and review process is expected to be completed by the third
quarter of 1999.
Pending the results of that review, the Company will then
determine what course of action and contingencies may need to be
made.
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Euro Conversion
On January 1, 1999, certain member countries of the European
Union established 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
prepared for the introduction of the Euro and has evaluated
methods to address the many issues involved 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 the Euro conversion will not have a material
impact on its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
There were no material changes during the quarter ended
December 31, 1998.
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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 two of the Company's processing facilities in Illinois.
The Company and IEPA have executed settlement agreements
with respect to both of these proceedings. The agreements
are currently before the Illinois Pollution Control Board
for approval. 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. Also in 1998, the State
of Illinois filed a civil administrative action alleging
violations of the Illinois Environmental Protection Act,
and regulations promulgated thereunder, arising from a one
time release of denatured ethanol at one of its Illinois
distribution facilities. In management's opinion the
settlements and the remaining proceedings, all seeking
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 thousand 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. ADM and USEPA have reached a non-
monetary settlement requiring the appropriate reports to
be 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.
LITIGATION REGARDING ALLEGED ANTICOMPETITIVE PRACTICES
The Company and certain of its current and former officers
and
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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 a fine 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 reply of the Company was filed on February
1, 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. In November 1998, a
European subsidiary of 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 sodium
gluconate market in the European Union. On February 11,
1999 a Mexican subsidiary of the Company was notified that
the Mexican Federal Competition Commission had initiated an
investigation as to possible anticompetitive practices in
the citric acid market in Mexico. The ultimate outcome and
materiality of the proceedings of the Commission of the
European Communities cannot presently be determined. The
Company may become the subject of similar antitrust
investigations conducted by the applicable regulatory
authorities of other countries.
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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
16
Page 17
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
17
Page 18
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 300 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, was
dismissed on January 5, 1999.
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 received final court approval and the case
was dismissed on November 16, 1998.
18
Page 19
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. As noted in prior
filings, the Company accepted a settlement agreement with
counsel for the citric acid plaintiff class. This
settlement received final court approval and the case was
dismissed on September 30, 1998. 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 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
19
Page 20
for the District of Columbia, and is encaptioned Holder v.
Archer-Daniels-Midland Co., et al., Civil Action No. 96-
2975. On November 13, 1998, Plaintiff's motion for class
certification was granted. 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 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
20
Page 21
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 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-
21
Page 22
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 January 20, 1999, the judgement of the Court
of Appeals was affirmed by an equally divided United States
Supreme Court. The parties will soon seek dismissal of the
Delaware actions with prejudice.
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 4. Submission of matters to a vote of
Security Holders:
The Annual Meeting of Shareholders was held on
October 22, 1998. Proxies for the Annual Meeting were
solicited pursuant to Regulation 14. There was no
solicitation in opposition to the Board of Director
nominees as listed in the proxy statement and all of
such nominees were elected as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Nominee Shares Cast
Shares
For
Withheld
D. O. Andreas 482,077,823 21,653,524
G. O. Coan 485,743,648 17,987,699
G. A. Andreas 482,737,726 20,993,621
J. K. Vanier 485,442,806 18,288,541
R. Burt 485,510,703 18,220,644
A. Young 483,767,145 19,964,202
O. G. Webb 485,740,225 17,991,122
F. Ross Johnson 484,985,993 18,745,354
R. S. Strauss 485,070,485 18,660,862
M. B. Mulroney 484,433,925 19,297,422
J. R. Block 485,808,624 17,922,723
M. H. Carter 485,867,076 17,864,271
</TABLE>
There were no abstentions or broker non-votes
regarding the election of directors.
The appointment by the Board of Directors of Ernst &
Young LLP as Independent Accountants to audit the
accounts of the Company for the fiscal year ending
June 30, 1999 was ratified as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
For Against Abstain
499,214,837 3,426,770 1,089,740
</TABLE>
The Stockholder's Proposal relative to cumulative
voting was defeated as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
For Against Abstain
125,935,045 301,443,304 8,732,005
</TABLE>
22
Page 23
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 December 31,
1998.
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: February 12, 1999
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 476,357
<SECURITIES> 335,835
<RECEIVABLES> 1,879,282
<ALLOWANCES> 0
<INVENTORY> 3,123,744
<CURRENT-ASSETS> 5,996,315
<PP&E> 11,031,313
<DEPRECIATION> 5,494,964
<TOTAL-ASSETS> 14,253,489
<CURRENT-LIABILITIES> 4,044,429
<BONDS> 2,908,976
0
0
<COMMON> 4,834,548
<OTHER-SE> 1,698,042
<TOTAL-LIABILITY-AND-EQUITY> 14,253,489
<SALES> 7,712,960
<TOTAL-REVENUES> 7,712,960
<CGS> 6,997,994
<TOTAL-COSTS> 6,997,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,539
<INCOME-PRETAX> 348,297
<INCOME-TAX> 121,008
<INCOME-CONTINUING> 227,289
<DISCONTINUED> 0
<EXTRAORDINARY> (15,324)
<CHANGES> 0
<NET-INCOME> 211,965
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
