PAGE 1
Archer Daniels Midland Company
MANAGEMENT'S DISCUSSION OF
OPERATIONS AND FINANCIAL CONDITION - June 30, 1996
The Company is in one business segment - procuring,
transporting, storing, processing and merchandising agricultural
commodities and products. The availability and price of
agricultural commodities are subject to wide fluctuations due to
unpredictable factors such as weather, plantings, government
(domestic and foreign) farm programs and policies, changes in
global demand created by population growth and higher standards
of living, and global production of similar and competitive
crops. Generally, changes in the price of agricultural
commodities can be passed through to the price of processed
products. Ethanol is one of a limited few of the Company's
processed products which must be priced to compete with products
produced from other raw materials. To reduce price risk of
market fluctuations, the Company follows a policy of hedging
substantially all inventory and related purchase and sales
contracts. In addition, the Company from time to time will hedge
portions of its anticipated production requirements. The
instruments used are principally readily marketable exchange
traded futures contracts which are designated as hedges. The
changes in market value of such contracts have a high
correlation to the price changes of the hedged commodity. Also,
the underlying commodity can be delivered against such
contracts. To obtain a proper matching of revenue and expense,
gains or losses arising from open and closed hedging
transactions are included in inventory as a cost of the
commodities and reflected in the income statement when the
product is sold. Inflation, over time, has an impact on
agricultural commodity prices. The Company's business is capital
intensive and inflation could impact the cost of capital
investment.
OPERATIONS
A summary of net sales and other operating income by classes of
products and services is as follows:
1996 1995 1994
________________________________
(In millions)
Oilseed products $ 8,125 7,643$ 6,656
Corn products 2,561 2,477 2,294
Wheat and other milled products 1,644 1,384 1,394
Other products 984 1,168 1,030
________ ________ ________
$ 13,314 $ 12,672 $ 11,374
======== ======== ========
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1996 compared to 1995
Net sales and other operating income increased $642 million to a
record high
$13.3 billion for 1996 due principally to a 7% increase in
average selling prices. This increase was partially offset by
the decrease due to the sale of the Company's Supreme Sugar
subsidiary and British Arkady bakery ingredient business and the
contribution of the Company's formula feed operation to an
unconsolidated subsidiary. Sales of oilseed products increased
6% to $8.1 billion due primarily to higher average selling
prices reflecting relatively strong demand for protein meal in
the domestic market and the higher cost of raw materials. Sales
volumes of oilseed products were up slightly for the year as the
aforementioned meal demand more than offset the weaker export
vegetable oil demand. Sales of corn products increased 3% to
$2.6 billion due primarily to increased sales volumes resulting
from good demand for the Company's fuel, beverage and industrial
alcohol as well as for various bioproducts, including citric
acid, lysine and MSG. These volume increases were partially
offset by lower average selling prices and lower sales volumes
for the Company's sweetener products. Sales of wheat and other
milled products increased 19% to $1.6 billion due principally to
increased average selling prices reflecting the higher costs of
raw materials. These increased average selling prices were
partially offset by decreased sales volumes reflecting reduced
export flour demand. The decrease in sales of other products
and services for the year was due principally to the sale of the
Company's Supreme Sugar subsidiary and British Arkady bakery
ingredient business as well as the contribution of the Company's
formula feed operation to an unconsolidated joint venture.
These decreases were partially offset by increased merchandising
and transporting revenues.
Cost of products sold and other operating costs increased $920
million to $11.9 billion due primarily to a 16% increase in
average raw material commodity prices partially offset by cost
attributable to recently divested operations.
The $278 million decrease in gross profit to $1.4 billion in
1996 resulted primarily from a $244 million decrease due to the
net effect of higher raw material commodity prices versus
increased average selling prices and to a lesser extent gross
profit attributable to recently divested operations.
Selling, general and administrative expenses increased $21
million to $450 million in 1996 due primarily to an increase in
legal and litigation related expenses which were partially
offset by $29 million of expenses attributable to recently
divested operations and by an $8 million decrease in bad debt
expense.
The increase in other income for 1996 was due principally to
increased gains on marketable securities transactions and, to a
lesser extent, increased equity in earnings of unconsolidated
affiliates. Other income for 1996 included a $15 million gain
on the sale of the Company's Supreme Sugar subsidiary.
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The decrease in income taxes for 1996 was the result of lower
pretax earnings partially offset by a higher effective income
tax rate. The Company's effective income tax rate for 1996 was
34% compared to an effective rate of 33% for 1995.
1995 compared to 1994
Net sales and other operating income for 1995 increased $1.3
billion to $12.7 billion. The increase is primarily due to a 9%
increase in volume and to a lesser extent a 2% increase in
average selling prices. Sales of oilseed products increased 15%
to $7.6 billion due primarily to increased volume as strong
export demand for vegetable oils and good domestic demand for
meal products contributed to favorable oilseed processing market
conditions. Sales of corn products increased 8% to $2.5 billion
due primarily to increased average selling prices resulting from
strong demand from the food and beverage industry for sweetener
products and increased demand for ethanol. Sales of wheat and
other milled products were at levels comparable to last year as
sales attributable to acquired companies were offset by the
Company's contribution of its rice milling operations to a joint
venture in 1995. The increase in sales of other products is due
primarily to feed operations acquired in 1994, a portion of
which were contributed to a joint venture in 1995.
Cost of products sold and other operating costs increased $793
million to $11 billion in 1995 due primarily to the 9% increase
in volumes partially offset by declines in average raw material
commodity prices.
The combined effect of increased sales volumes, higher average
selling prices and lower raw material commodity prices resulted
in gross profits increasing $505 million to $1.6 billion in
1995. Approximately $360 million of the increase can be
attributed to improved gross profits resulting from the net
price effect of higher average selling prices and lower average
raw material commodity prices. The remaining increase is due
primarily to sales volume increases.
Selling, general and administrative expenses increased $58
million to $429 million in 1995 due principally to general cost
increases in support of the increased sales volumes, a $12
million increase in bad debt expense and a $6 million increase
in charitable contribution expense.
The decrease in other income for 1995 resulted primarily from
losses on marketable securities transactions and decreased
equity in earnings of unconsolidated affiliates. These
decreases were partially offset by increased investment income,
due to both higher levels of invested funds and higher interest
rates, and by the $43 million gain on the sale of the Company's
British Arkady bakery ingredient business.
Excluding the effect in 1994 of the increase in the statutory
federal income tax rate from 34% to 35%, which resulted in
additional income tax accruals and a non-recurring income tax
charge of $14 million, the Company's 1995 effective tax rate of
33% approximates the 1994 effective rate.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company continued to show substantial
liquidity with working capital of $2.8 billion, including cash
and marketable securities of $1.4 billion. Working capital also
includes inventory with a replacement cost in excess of its LIFO
carrying value of approximately $191 million. The cash and
marketable securities, consisting principally of United States
government obligations, are available for working capital,
future expansion and stock repurchase plans. Capital resources
were strengthened as shown by the increase in net worth to $6.1
billion. The principal source of capital during the year was
funds generated from operations. The Company's ratio of long-
term debt to total capital at year end was approximately 23%.
Annual maturities of long-term debt range from $13 million to
$34 million during the next five years except for 1997 when $115
million is due.
Commercial paper and commercial bank lines of credit are
available to meet seasonal cash requirements. At June 30, 1996,
the Company had $370 million of unused short-term bank credit
lines. Both Standard & Poor's and Moody's continue to assign
their highest ratings to the Company's commercial paper and to
rate the Company's long-term debt as AA- and Aa2, respectively.
In addition to the cash flow generated from operations, the
Company has access to equity and debt capital through numerous
alternatives from public and private sources in the domestic and
international markets.
As discussed in Note 11 to the consolidated financial
statements, the Company, along with a number of other domestic
and foreign companies, is the subject of grand jury
investigation into possible violations of federal antitrust laws
and related crimes in the food additives industry. Neither the
Company nor any director, officer or employee has been charged
in connection with the investigations. The Company and two of
its executive officers have been informed that they are targets
of the lysine investigation and indictments are being considered
against them. In addition, related civil class action suits for
alleged violations of federal securities and antitrust laws are
pending. The ultimate outcome of the investigations and the
putative class actions cannot presently be determined. However,
the Company, without admitting the alleged violations of the
law, has paid $25 million in full settlement of the federal
lysine class action antitrust suit filed in the Northern
District of Illinois. Several plaintiffs have opted out of this
settlement and numerous state class action antitrust cases
involving the sale of lysine remain pending. In the Company's
opinion the ultimate resolution of the lysine contingency, to
the extent not provided for, will not have a material adverse
effect on the Company's consolidated financial condition or
annual results of operations, but it could be material to the
consolidated operating results of a particular future quarter if
resolved unfavorably. Because of the early stage of the other
investigations and putative class actions, the ultimate outcome
of these matters cannot presently be determined and accordingly
no provision for any liability that may result therefrom has
been made in the accompanying consolidated financial statements.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is in one business segment - procuring,
transporting, storing, processing, and merchandising
agricultural commodities and products. The availability and
price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather,
plantings, government (domestic and foreign) farm programs and
policies, changes in global demand created by population growth
and higher standards of living, and global production of similar
and competitive crops. Generally, changes in the price of
agricultural commodities can be passed through to the price of
processed products. Ethanol is one of a limited few of the
Company's processed products which must be priced to compete
with products produced from other raw materials.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. Investments in
affiliates are carried at cost plus equity in undistributed
earnings since acquisition.
Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be
cash equivalents.
Marketable Securities
The Company classifies all of its marketable securities as
available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of
income taxes, reported as a component of shareholders' equity.
Inventories
Inventories, consisting primarily of merchandisable agricultural
commodities and related value-added products, are carried at
cost, which is not in excess of market prices. Inventory cost
methods include the last-in, first-out (LIFO) method, the first-
in, first-out (FIFO) method and the hedging procedure method.
The hedging procedure method approximates FIFO cost.
To reduce price risk of market fluctuations, the Company follows
a policy of hedging substantially all inventory and related
purchase and sales contracts. In addition, the Company from
time to time will hedge portions of its anticipated production
requirements. The instruments used are readily marketable
exchange traded futures contracts which are designated as
hedges. The changes in market value of such contracts have a
high correlation to the price changes of the hedged commodity.
Also, the underlying commodity can be delivered against such
contracts. To obtain a proper matching of revenue and expense,
gains or losses arising from open and closed hedging
transactions are included in inventory as a cost of the
commodities and reflected in the statement of earnings when the
product is sold.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. The
Company uses the straight line method in computing depreciation
for financial reporting purposes and generally uses accelerated
methods for income tax purposes. The annual provisions for
depreciation have been computed principally in accordance with
the following ranges of asset lives: buildings - 10 to 50 years;
machinery and equipment - 3 to 20 years.
Net Sales
The Company follows a policy of recognizing sales at the time of
product shipment. Net margins from grain merchandised, rather
than the total sales value thereof, are included in net sales in
the consolidated statements of earnings. Gross sales of the
Company, including the total sales value of grain merchandised,
were $18.1 billion in 1996, $15.9 billion in 1995, and $14.1
billion in 1994, and include export sales of $5.7 billion in
1996, $4.2 billion in 1995 and $3.2 billion in 1994.
Per Share Data
Share and per share information have been adjusted to give
effect to the 50% stock dividend in the form of a three-for-two
stock split paid in December 1994 and to the 5% stock dividends
in the three years ended June 30, 1996, including the 5% stock
dividend declared in July 1996 and payable in September 1996.
Net earnings per common share is determined by dividing net
earnings by the weighted average number of common shares
outstanding. The impact of common stock equivalents is not
material.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 121 (SFAS
121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Management believes that
the adoption of SFAS 121 in fiscal 1997 will not have a material
adverse effect on the Company's consolidated financial
statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 123 (SFAS
123) "Accounting for Stock-Based Compensation." SFAS 123 allows
companies to choose whether to account for stock-based
compensation under the current method as prescribed in
Accounting Principles Board Opinion Number 25 (APB 25) or use
the fair value method described in SFAS 123. The Company plans
to continue to follow the accounting measurement provisions of
APB 25 and believes the impact of implementing the disclosure
provisions of SFAS 123 will not be material to its consolidated
financial statements.
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PAGE 6
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30
_________________________________
1996 1995 1994
_________________________________
(In thousands, except
per share amounts)
Net sales and other operating income$ 13,314,049$12,671,868$11
,374,372
Cost of products sold and other
operating costs 11,949,61111,029,38410,236,737
______________________________
Gross Profit 1,364,438 1,642,484 1,137,635
Selling, general and administrative
expenses 450,010 429,358 371,237
______________________________
Earnings From Operations 914,428 1,213,126 766,398
Other income (expense) 139,985 (31,603) (28,095)
______________________________
Earnings Before Income Taxes 1,054,413 1,181,523 738,303
Income taxes 358,501 385,608 254,234
______________________________
Net Earnings 695,912 795,915 484,069
========== ====================
Net earnings per common share $ 1.27$ 1.40$ .84
==============================
Average number of shares outstanding550,045 567,751 573,626
==============================
See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
June 30
__________________________________
1996 1995
__________________________________
Assets (In thousands)
Current Assets
Cash and cash equivalents $ 534,702 $ 454,593
Marketable securities 820,147 664,690
Receivables 1,131,591 1,013,562
Inventories 1,790,636 1,473,896
Prepaid expenses 107,607 105,904
__________
Total Current Assets 4,384,683 3,712,645
Investments and Other Assets
Investments in and advances
to affiliates 624,305 502,698
Long-term marketable securities1,092,969 1,604,219
Other assets 233,611 175,044
__________ __________
1,950,885 2,281,961
Property, Plant and Equipment
Land 114,542 113,098
Buildings 1,245,662 1,109,249
Machinery and equipment 6,034,979 5,443,561
Construction in progress 588,711 642,825
Less allowances for depreciation(3,869,593) (3,546,452)
__________ __________
4,114,301 3,762,281
__________ __________
$10,449,869 $9,756,887
=========== ==========
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CONSOLIDATED BALANCE SHEETS
June 30
_________________________________
1996 1995
_________________________________
(In thousands)
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 993,403 $ 725,046
Accrued expenses 525,626 431,725
Current maturities of long-term debt114,522 15,614
__________ __________
Total Current Liabilities 1,633,551 1,172,385
Long-Term Debt 2,002,979 2,070,095
Deferred Credits
Income taxes 562,362 538,351
Other 106,165 121,891
__________ __________
668,527 660,242
Shareholders' Equity
Common stock 3,869,875 3,668,977
Reinvested earnings 2,274,937 2,185,188
__________ __________
6,144,812 5,854,165
__________ __________
$10,449,869 $9,756,887
=========== ==========
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
1996 1995 1994
(In thousands)
Operating Activities
Net earnings $ 695,912$ 795,915$ 484,069
Adjustments to reconcile to net
cash provided by operations
Depreciation and amortization 393,605 384,872 354,463
Deferred income taxes 72,673 25,421 22,009
Amortization of long-term debt discount25,58421,908 19,613
(Gain) loss on marketable securities
transactions (109,359) 27,633 (25,785)
Other (33,243) 8,432 2,555
Changes in operating assets and liabilities
Receivables (183,569) (82,203) (114,741)
Inventories (320,529) (41,561) (172,649)
Prepaid expenses (1,683) 5,219 (13,450)
Accounts payable and accrued expenses314,49445,611 74,287
_________ ________ ________
Total Operating Activities 853,885 1,191,247 630,371
Investing Activities
Purchases of property, plant and equipment(754,268) (558,604)
(514,364)
Business acquisitions (28,612) (55,126) (257,731)
Investments in and advances to affiliates(110,615)(122,565)16,
506
Purchases of marketable securities(816,401)(2,017,619)(2,136,5
53)
Proceeds from sales of marketable
securities 1,260,710 1,940,370 2,643,368
_________ _________ _________
Total Investing Activities (449,186) (813,544) (248,774)
Financing Activities
Long-term debt borrowings 42,066 17,626 12,001
Long-term debt payments (22,233) (32,304) (76,133)
Purchases of treasury stock (259,980) (179,613) (355,226)
Cash dividends and other (84,443) (45,213) (32,328)
_________ _________ _________
Total Financing Activities (324,590) (239,504) (451,686)
_________ _________ _________
Increase (Decrease) In Cash And Cash
Equivalents 80,109 138,199 (70,089)
Cash And Cash Equivalents Beginning Of
Period 454,593 316,394 386,483
__________ _________ _________
Cash And Cash Equivalents End Of Period$534,702$ 454,593$ 316
,394
========== ========= =========
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
___________________________________
Reinvested
Shares Amount Earnings
___________________________________
(In thousands)
Balance July 1, 1993 $ 342,299 $3,366,622$ 1,516,629
Net earnings - - 484,069
Cash dividends - $.06 per share - - (32,586)
5% stock dividend 16,364 381,707 (381,707)
Treasury stock purchases (15,597) (355,226) -
Foreign currency translation - - 43,363
Other 573 22,852 (302)
_______ __________ __________
Balance June 30, 1994 343,639 3,415,955 1,629,466
Net earnings - - 795,915
Cash dividends - $.08 per share - - (46,825)
3-for-2 stock split 172,030 - -
5% stock dividend 25,358 406,019 (406,019)
Treasury stock purchases (9,756) (179,613) -
Foreign currency translation - - 66,005
Unrealized net gains on
marketable securities - - 147,118
Other 1,253 26,616 (472)
_______ __________ __________
Balance June 30, 1995 532,524 3,668,977 2,185,188
Net earnings - - 695,912
Cash dividends - $.17 per share - - (90,860)
5% stock dividend 25,991 411,542 (411,542)
Treasury stock purchases (15,632) (259,980) -
Foreign currency translation - - (96,101)
Change in unrealized net
gains on marketable securities - - (7,421)
Other 2,938 49,336 (239)
_______ _________ _________
Balance June 30, 1996 545,821 $3,869,875 $2,274,937
======= ========== ==========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Marketable Securities
Unrealize Unrealiz Fair
d ed
Cost Gains Losses Value
_________________________________________________________
(In thousands)
1996
United States
government
obligations
Maturity less than 1 $1,184,2 $ 4,027 $ $1,188,0
year 16 235 08
Maturity 1 year to 5 19,026 - 201 18,825
years
Other debt securities
Maturity less than 1 148,345 716 - 149,061
year
Maturity 1 year to 5 58,962 1,813 - 60,775
years
Equity securities 804,052 212,906 5,602 1,011,35
6
________ _________ ________ ________
__ _ __ __
$2,214,6 $219,462 $ 6,038 $2,428,0
01 25
======== ========= ======== ========
== = == ==
Unrealize Unrealiz Fair
d ed
Cost Gains Losses Value
_________________________________________________________
(In thousands)
1995
United States
government
obligations
Maturity less than 1 $1,057,1 $ $ $1,057,6
year 89 731 281 39
Maturity 1 year to 5 453,276 9,719 - 462,995
years
Other debt securities
Maturity less than 1 59,319 - 61 59,258
year
Maturity 1 year to 5 174,811 2,441 - 177,252
years
Equity securities 751,344 217,014 6,495 961,863
________ _________ ________ ________
__ _ __ __
$2,495,9 $ $ $2,719,0
39 229,905 6,837 07
======== ========= ======== ========
== = == ==
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Note 2-Inventories
1996 1995
(In thousands)
LIFO inventories
FIFO value $ 705,814 $ 416,804
LIFO valuation reserve (190,641) (56,036)
__________ __________
LIFO carrying value 515,173 360,768
FIFO inventories, including
hedging procedure method 1,275,463 1,113,128
__________ __________
$1,790,636 $1,473,896
========== ==========
Note 3-Accrued Expenses
1996 1995
(In thousands)
Income taxes $ 175,603 $ 109,323
Payroll and employee benefits 117,211 111,452
Insurance loss reserves 78,611 76,987
Other 154,201 133,963
__________ __________
$ 525,626 $ 431,725
========== ==========
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Note 4-Long-Term Debt and Financing Arrangements
1996 1995
_____________________
(In thousands)
8.875% Debentures $300 million face
amount, due in 2011 $ 298,271 $ 298,216
8.125% Debentures $300 million face
amount, due in 2012 298,015 297,955
8.375% Debentures $300 million face
amount, due in 2017 294,178 294,079
7.125% Debentures $250 million face
amount, due in 2013 249,397 249,378
6.25% Notes $250 million
face amount, due in 2003 249,280 248,998
Zero Coupon Debt $400 million face
amount, due in 2002 183,736 160,855
7% Debentures $250 million face amount,
due in 2011 129,083 127,017
10.25% Debentures $100 million
face amount, due in 2006 98,767 98,693
6% Bonds 150 million Deutsche Mark
face amount, due in June 1997 98,370 108,424
Industrial Revenue Bonds at various
rates from 5.30% to 13.25% and due
in varying amounts to 2011 76,498 78,253
Other 141,906 123,841
__________ __________
Total long-term debt 2,117,501 2,085,709
Less current maturities (114,522) (15,614)
__________ __________
$2,002,979 $2,070,095
========== ==========
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At June 30, 1996, the fair value of the Company's long-term debt
exceeded the carrying value by $298 million, as estimated by
using quoted market prices or discounted future cash flows based
on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Unamortized original issue discounts on the 7% Debentures and
Zero Coupon Debt issues are being amortized at 15.35% and
13.80%, respectively. Accelerated amortization of the discounts
for tax purposes has the effect of lowering the actual rate of
interest to be paid over the remaining lives of the issues to
approximately 10.48% and 5.52%, respectively.
The aggregate maturities for long-term debt for the five years
after June 30, 1996 are $115 million, $34 million, $18 million,
$13 million and $19 million, respectively.
At June 30, 1996 the Company had unused lines of credit totaling
$370 million.
Note 5-Shareholders' Equity
The Company has authorized 800 million shares of common stock
and 500,000 shares of preferred stock, both without par value.
No preferred stock has been issued. At June 30, 1996 and 1995,
the Company had approximately 31.8 million and 35.2 million
common shares, respectively, in treasury. Treasury stock is
recorded at cost, $495 million at June 30, 1996, as a reduction
of common stock.
Stock option plans provide for the granting of options to
employees to purchase common stock of the Company at market
value on the date of grant. Options expire five to ten years
after the date of grant. At June 30, 1996 options for 3,327,393
shares at prices ranging from $11.60 to $18.26 per share were
outstanding, of which 1,139,031 shares were exercisable. There
were 623,726 shares available for future grant at June 30, 1996.
Cumulative foreign currency translation losses of $34 million
and unrealized gains on securities of $140 million at June 30,
1996, net of applicable taxes, are included as components of
reinvested earnings.
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Note 6-Other Income (Expense)
1996 1995 1994
________________________________
(In thousands)
Investment income $ $ $
150,446 147,133 100,706
Interest expense (170,089 (170,886 (173,429
) ) ))
Gain (loss) on marketable
securities transactions 109,359 (27,633) 25,785
Equity in earnings of 31,780 (19,801) 24,230
affiliates
Other 18,489 39,584 (5,387)
________ ________ ________
__ __ __
$ $ $
139,985 (31,603) (28,095)
======== ======== ========
== == ==
Interest expense is net of interest capitalized of $43 million,
$32 million and $26 million in 1996, 1995 and 1994,
respectively.
The Company made interest payments of $188 million, $181 million
and $180 million in 1996, 1995 and 1994 respectively.
The realized gains on sales of available-for-sale marketable
securities totaled $109 million, $18 million and $36 million in
1996, 1995 and 1994, respectively. The realized losses totaled
$46 million and $10 million in 1995 and 1994, respectively.
15
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Note 7-Income Taxes
For financial reporting purposes, earnings before income taxes
includes the following components:
1996 1995 1994
________________________________
(In thousands)
United States $ $1,022,2 $
907,376 45 662,709
Foreign 147,037 159,278 75,594
________ ________ ________
__ __ _
$1,054,4 $1,181,5 $
13 23 738,303
======== ======== ========
== == =
Significant components of income taxes are as follows:
1996 1995 1994
_______________________________________
(In thousands)
Current
Federal $ $271,702 $202,708
207,166
State 29,604 38,768 30,969
Foreign 46,646 42,085 14,460
Deferred
Federal 69,253 30,191 4,102
State 6,467 2,108 (3,036)
Foreign (635) 754 5,031
_________ _________ _________
_
$ $ 385,608 $254,234
358,501
========= ========= =========
=
Significant components of the Company's deferred tax liabilities
and assets are as follows:
1996 1995
__________________________
(In thousands)
Deferred tax liabilities
Depreciation $413,792 $386,883
Unrealized gain on marketable 73,727 75,978
securities
Bond discount amortization 60,659 62,941
Other 66,812 62,036
________ ________
614,990 587,838
Deferred tax assets
Postretirement benefits 27,822 26,274
Other 76,337 79,829
________ ________
104,159 106,103
________ ________
Net deferred tax liabilities 510,831 481,735
Current net deferred tax assets included
in prepaid expenses 51,531 56,616
________ ________
Non-current net deferred tax $562,362 538,351
liabilities
======== ========
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Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:
1996 1995 1994
_____ ____ _____
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 2.2 2.3 2.3
Foreign sales corporation (2.4) (1.8) (2.7)
Federal tax rate increase - - (1.8)
Other (0.8) (2.9) (2.0)
____ ____ ____
Effective rate 34.0 % 32.6% 34.4%
==== ==== ====
The Company made income tax payments of $268 million, $354
million and $250 million in 1996, 1995 and 1994, respectively.
In 1994, the federal income tax rate increase resulted in
additional income tax accruals and a non-recurring income tax
charge of $14 million, or $.02 per share.
Undistributed earnings of the Company's foreign subsidiaries
amounting to approximately $400 million at June 30, 1996, are
considered to be indefinitely reinvested and, accordingly, no
provision for U. S. income taxes has been provided thereon. It
is not practicable to determine the deferred tax liability for
temporary differences related to these undistributed earnings.
Note 8-Leases
The Company has noncancellable operating leases with total
future rental commitments of $146 million, which range from $7
million to $26 million during each of the next five years, and
expire on various dates through 2026. Rent expense for 1996,
1995 and 1994 was $73 million, $73 million and $69 million,
respectively.
Note 9-Employee Benefit Plans
The Company has noncontributory and trusteed pension plans
covering substantially all employees. It is the Company's
policy to fund pension costs as required by the Employee
Retirement Income Security Act. At June 30, 1996, the plans had
assets at fair value of $295 million and projected benefit
obligations of $352 million based on a discount rate of 7.5%.
Pension expense is not material.
The Company has postretirement health care and life insurance
plans covering substantially all employees. The accumulated
postretirement benefit obligations (APBO) for the unfunded plans
at June 30, 1996, were $76 million, based on a discount rate of
7.5% and an assumed health care cost trend rate of 10.4% for
1997 gradually decreasing to 5.5% by 2004. Expense of these
plans is not material. A 1% increase in the health care cost
trend rate assumption would not have had a material impact on
the APBO or expense for the year.
In addition, the Company has savings and investment plans
available to eligible employees with one year of service.
Employees may contribute up to 6% of their salaries, not to
exceed $9,000. The Company matches these contributions, at
various levels, to a maximum of $6,000.
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PAGE 18
Note 10-Geographic Information
Net Sales
and Other Earnings
Operating From Identifiable
Income Operations Assets
_________ __________ ____________
(In millions)
1996
United States $ 9,733 $806 $6,025
Foreign 3,581 108 1,347
_______ ____ ______
$13,314 $914 $7,372
======= ==== ======
1995
United States $ 9,177 $1,089 $5,350
Foreign 3,495 124 1,181
_______ ______ ______
$12,672 $1,213 $6,531
======= ====== ======
1994
United States $ 8,365 $704 $5,140
Foreign 3,009 62 1,083
_______ ____ ______
$11,374 $766 $6,223
======= ==== ======
Earnings from operations represent earnings before other income
and income taxes.
Identifiable assets exclude cash and cash equivalents,
marketable securities and investments in and advances to
affiliates. At June 30, 1996, approximately $900 million of the
Company's cash and cash equivalents, marketable securities, and
investments in and advances to affiliates were foreign assets.
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PAGE 19
Note 11-Antitrust Investigation and Related Litigation
The Company, along with a number of other domestic and foreign
companies, is the subject of an investigation being conducted by
a grand jury in the Northern District of Illinois into possible
violations of federal antitrust laws and related crimes in the
food additives industry. The investigation in Chicago is
directed towards possible price fixing with respect to lysine.
A federal grand jury in San Francisco is investigating possible
price fixing with respect to citric acid and a federal grand
jury in Atlanta is investigating possible price fixing with
respect to high fructose corn syrup. Neither the Company nor
any director, officer or employee of the Company has been
charged in connection with these investigations. The Company
and two of its executive officers have been informed that they
are targets of the lysine investigation and indictments are
being considered against them.
Following public announcement in June 1995 of these
investigations, the Company and certain of its directors and
executive officers were named as defendants in a number of
putative class action suits for alleged violations of federal
securities laws on behalf of all purchasers of securities of the
Company during the period between certain dates in 1992 and
1995. The Company along with other domestic and foreign
companies, has been named as a defendant in a number of putative
class action antitrust suits involving the sale of lysine,
citric acid, and high fructose corn syrup. The plaintiffs
generally request unspecified compensatory damages, costs,
expenses and unspecified relief. The Company and the
individuals named as defendants intend to vigorously defend
these class actions unless they can be settled on terms deemed
acceptable by the parties.
These matters could result in the Company being subject to
monetary damages, fines, penalties and other sanctions and
expenses. On July 20, 1996, Federal District Court Judge Milton
Shadur approved a settlement in the federal lysine class action
antitrust suit filed in the Northern District of Illinois
(consolidated as In Re Amino Acid Lysine Antitrust Litigation
MDL No. 1083) and the Company has paid $25 million in full
settlement thereof without admitting the alleged violations of
law. Several plaintiffs have opted out of this settlement and
numerous state class action antitrust cases involving the sale
of lysine remain pending. In fiscal year 1996, the Company made
provisions sufficient to cover the amount of such settlement and
related costs and expenses in its consolidated financial
statements which amount is not material. In the Company's
opinion the ultimate resolution of the lysine contingency, to
the extent not provided for, will not have a material adverse
effect on the Company's consolidated financial condition or
annual results of operations, but it could be material to the
consolidated operating results of a particular future quarter if
resolved unfavorably. Because of the early stage of the other
investigations and putative class actions, the ultimate outcome
of these matters cannot presently be determined. Accordingly,
no provision for any liability that may result therefrom has
been named in the accompanying consolidated financial
statements.
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PAGE 20
The Company and its directors also have been named as defendants
in two putative class action suits, one of which alleges
violations of Delaware state law and a similar case in District
Court in Illinois which alleges violations of federal securities
laws. Both cases seek invalidation of the election of the
Company's directors on the basis of alleged omissions from the
proxy statement issued by the Company prior to its 1995 Annual
Meeting of Shareholders. The case relating to violations of
Delaware law has been dismissed and is now on appeal in the
Supreme Court of Delaware. The case filed in Federal District
Court in Illinois has likewise been dismissed and has been
appealed to the Seventh Circuit Court of Appeals. The Company
and the individuals named as defendants intend to vigorously
defend these actions.
Shareholder derivative actions also have been filed against
certain of the Company's directors and executive officers and
nominally against the Company alleging that the individuals
named as defendants breached their fiduciary duties to the
Company and seeking monetary damages and other relief on behalf
of the Company from the individuals named as defendants. The
Company has sought or intends to seek dismissal of these
derivative actions on the ground that they cannot be maintained
unless the plaintiffs first brought their complaints to the
Company's Board of Directors, which they did not.
The Company from time to time, in the ordinary course of
business, is named as a defendant in various other lawsuits. In
the Company's opinion, the gross liability from such other
lawsuits, including environmental exposure, with or without
insurance recoveries is not considered to be material to the
Company's consolidated financial condition or results of
operations.
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PAGE 21
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Archer Daniels Midland Company
Decatur, Illinois
We have audited the accompanying consolidated balance
sheets of Archer Daniels Midland Company and subsidiaries as of
June 30, 1996 and 1995, and the related consolidated statements
of earnings, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Archer Daniels Midland Company and its
subsidiaries at June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG, LLP
Minneapolis, Minnesota
August 1, 1996
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PAGE 22
QUARTERLY FINANCIAL DATA (Unaudited)
Quarter
___________________________________________________________
First Second Third Fourth Total
___________________________________________________________
(In thousands, except per share amounts)
Fiscal 1996
Net sales $3,120,738$3,415,058$3,486,665$3,291,588$13,314,049
Gross profit 324,331 396,852 338,871 304,384 1,364,438
Net earnings 163,102 225,970 163,285 143,555 695,912
Per common share .29 .41 .30 .27 1.27
Fiscal 1995
Net sales $3,015,223$3,221,804$3,299,662$3,135,179$12,671,868
Gross profit 344,819 477,625 425,513 394,527 1,642,484
Net earnings 154,544 220,098 195,701 225,572 795,915
Per common share .27 .39 .34 .40 1.40
Results for the fourth quarter of fiscal 1995 included a $36 million, or $.06
per share, after tax gain from the sale of the Company's British Arkady bakery
ingredient business.
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PAGE 23
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is listed and traded on the New York Stock Exchange,
Chicago Stock Exchange, Tokyo Stock Exchange, Frankfurt Stock Exchange and the
Swiss Exchange. The following table sets forth, for the periods indicated, the
high and low market prices of the common stock and common stock cash dividends.
Cash
Market Price Dividends
High Low Per Share
Fiscal 1996--Quarter Ended
June 30 19 1/4 17 0.048
March 31 18 3/4 16 0.048
December 31 17 1/2 14 1/8 0.048
September 30 17 1/4 13 5/8 0.023
Fiscal 1995--Quarter Ended
June 30 18 16 3/8 0.023
March 31 19 16 1/2 0.023
December 31 19 1/8 15 0.023
September 30 15 7/8 13 1/2 0.014
The number of shareholders of the Company's common stock at June 30, 1996 was
35,431. The Company expects to continue its policy of paying regular cash
dividends, although there is no assurance as to future dividends because they
are dependent on future earnings, capital requirements and financial condition.
23
PAGE 24
TEN-YEAR SUMMARY
Operating, Financial and Other Data (Dollars in thousands, except per share
data)
1996 1995 1994
Operating
Net sales and other operating income $13,314,049 $12,671,868 $11,374,372
Depreciation and amortization 393,605 384,872 354,463
Net earnings 695,912 795,915 484,069
Per common share 1.27 1.47 .84
Cash dividends 90,860 46,825 32,586
Per common share .17 .08 .06
Financial
Working capital $ 2,751,132 $2,540,260 $2,783,817
Per common share 5.04 4.54 4.90
Current ratio 2.7 3.2 3.5
Inventories 1,790,636 1,473,896 1,422,147
Net property, plant and equipment 4,114,301 3,762,281 3,538,575
Gross additions to property, plant
and equipment 801,426 657,915 682,485
Total assets 10,449,869 9,756,887 8,746,853
Long-term debt 2,002,979 2,070,095 2,021,417
Shareholders' equity 6,144,812 5,854,165 5,045,421
Per common share 11.26 10.47 8.88
Other
Weighted average shares outstanding (000's) 550,045 567,751 573,626
Number of shareholders 35,431 34,385 33,940
Number of employees 14,811 14,833 16,013
Share and per share data have been adjusted for three-for-two stock splits in
December 1989 and December 1994, and annual 5% stock dividends through September
1996.
Net earnings for 1993 includes a credit of $68 million or $.11 per share and a
charge of $35 million or $.06 per share for the cumulative effects of changes in
accounting for income taxes and postretirement benefits, respectively.
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PAGE 25
1993 1992 1991 1990 1989 1988 1987
9,811,362 $9,231,50 $8,468,1 $7,751,3 $7,928,8 $6,798,3 $5,774,6
2 98 41 36 94 21
328,549 293,729 261,367 248,113 220,538 183,952 155,899
567,527 503,757 466,678 483,522 424,673 353,058 265,355
.95 .84 .78 .81 .72 .59 .44
32,266 30,789 29,527 25,976 17,271 17,095 16,189
.05 .05 .05 .04 .03 .03 .03
$2,961,50 $2,276,56 $1,674,7 $1,627,4 $1,487,1 $1,408,6 $1,252,4
3 4 35 59 51 64 06
4.98 3.82 2.81 2.72 2.51 2.39 2.08
4.1 3.4 3.0 3.4 3.4 3.0 3.5
1,131,787 1,025,030 917,495 771,233 694,998 773,702 784,338
3,214,834 3,060,096 2,695,62 2,131,80 1,832,25 1,661,22 1,478,45
5 7 8 0 8
572,022 614,844 911,586 550,851 405,888 370,295 314,730
8,404,111 7,524,530 6,260,60 5,450,01 4,728,30 4,397,56 3,862,09
7 0 8 4 1
2,039,143 1,562,491 980,273 750,901 690,052 692,878 657,465
4,883,251 4,492,353 3,922,29 3,573,22 3,033,50 2,630,52 2,367,67
5 8 3 9 3
8.22 7.55 6.59 5.97 5.11 4.46 3.93
595,208 596,801 598,867 596,771 591,209 601,496 600,734
33,654 32,277 28,981 26,076 20,382 18,491 17,199
14,168 13,524 13,049 11,861 10,214 9,631 10,573
25