PAGE 1
MANAGEMENT'S DISCUSSION OF
OPERATIONS AND FINANCIAL CONDITION - JUNE 30, 1997
Operations
The Company is in one business segment - procuring,
transporting, storing, processing and merchandising agricultural
commodities and products. A summary of net sales and other
operating income by classes of products and services is as
follows:
1997 1996 1995
---------------------
-----
(in millions)
Oilseed products $8,860 $8,027 $7,620
Corn products 2,171 2,431 2,368
Wheat and other milled 1,631 1,662 1,371
products
Other products
1,191 1,120 1,196
------ ------ ------
$13,85 $13,24 $12,55
3 0 5
====== ====== ======
= = =
1997 compared to 1996
Net sales and other operating income increased $613 million to
a record high $13.9 billion for 1997 due principally to a 4%
increase in average selling prices and to a lesser extent sales
attributable to recently acquired operations. Sales of oilseed
products increased 10% to $8.9 billion due primarily to higher
average selling prices reflecting relatively strong demand for
protein meal in the domestic market and the higher cost of raw
materials. Sales volumes of oilseed products were up for the
year due principally to improved export vegetable oil demand.
Sales of corn products decreased 11% to $2.2 billion due
primarily to decreased sales volumes of fuel alcohol as reduced
corn supplies and the resulting higher cost of corn resulted in
the Company reducing its production of fuel alcohol. Average
selling prices of corn products were up 3% for the year due to
the good demand for the Company's fuel alcohol and bioproducts,
including lysine and threonine. These average selling price
increases were partially offset by lower average selling prices
for the Company's sweetener products as a result of the start-up
of new corn wet milling facilities in the industry and the
resulting overcapacity in the marketplace. Sales of wheat and
other milled products decreased 2% to $1.6 billion due to both
decreased volumes of products sold and to lower average selling
prices reflecting excess milling capacity in the industry. This
volume decrease was partially offset by sales related to
recently acquired operations in Canada and the Caribbean. The
increase in other products and services was due principally to
the sales related to the Company's recently acquired cocoa
business partially offset by lower merchandising and
transportation revenues.
Cost of products sold and other operating costs increased $700
million to $12.6 billion due principally to a 5% increase in
average raw material commodity prices and to costs attributable
to recently acquired operations.
1
PAGE 2
The $86 million decrease in gross profit to $1.3 billion
resulted primarily from decreased merchandising and
transportation margins and the net effect of increased raw
material costs versus higher sales prices. These decreases were
partially offset by gross profit attributable to recently
acquired operations.
Selling, general and administrative expenses increased $202
million to $675 million due primarily to increased legal and
litigation related costs of $171 million including provisions
related to fines and litigation settlements arising out of the
United States Department of Justice antitrust investigation of
the Company's lysine and citric acid products, as well as a
securities suit brought by shareholders (see note 11 to the
financial statements). Additionally, selling, general and
administrative expenses increased $26 million due to expenses
attributable to recently acquired operations.
The decrease in other income for 1997 was due principally to
decreased gains on marketable securities transactions, decreased
investment income due to both lower invested funds and lower
interest rates, increased interest expense due primarily to
increased levels of borrowings, and a decrease in other income
as 1996 results included a $15 million gain on the sale of the
Company's Supreme Sugar subsidiary.
The decrease in income taxes for 1997 resulted primarily from
lower pretax earnings. The increase in the Company's effective
income tax rate to 41% for the year compared to an effective
rate of 34% last year was due principally to the non-
deductibility for income tax purposes of a portion of the
Company's litigation settlements and fines.
1996 compared to 1995
Net sales and other operating income increased $685 million to
$13.2 billion for 1996 due principally to a 6% increase in
average selling prices. This increase was partially offset by
the decrease due to the sale of the Company's Supreme Sugar
subsidiary and British Arkady bakery ingredient business, and
the contribution of the Company's formula feed operation to an
unconsolidated subsidiary. Sales of oilseed products increased
5% to $8 billion due primarily to higher average selling prices
reflecting relatively strong demand for protein meal in the
domestic market and the higher cost of raw materials. Sales
volumes of oilseed products were up slightly for the year as the
aforementioned meal demand more than offset the weaker export
vegetable oil demand. Sales of corn products increased 3% to
$2.4 billion due primarily to increased sales volumes resulting
from good demand for the Company's fuel, beverage, and
industrial alcohol, as well as for various bioproducts,
including citric acid, lysine, and MSG. These volume increases
were partially offset by lower average selling prices and lower
sales volumes for the Company's sweetener products. Sales of
wheat and other milled products increased 21% to $1.7 billion
due principally to increased average selling prices reflecting
the higher costs of raw materials. These increased average
selling prices were partially offset by decreased sales volumes
reflecting reduced export flour demand. The decrease in sales of
other products and services for the year was due principally to
the sale of the Company's Supreme Sugar subsidiary and British
Arkady bakery ingredient business as well as the contribution of
the Company's formula feed operation to an unconsolidated joint
venture. These decreases were partially offset by increased
merchandising and transportation revenues.
Cost of products sold and other operating costs increased $961
million to $11.9 billion due primarily to a 16% increase in
average raw material commodity prices, partially offset by costs
attributable to recently divested operations.
The $276 million decrease in gross profit to $1.4 billion in
1996 resulted primarily from a $242 million decrease due to the
net effect of higher raw material commodity prices versus
increased average selling prices and, to a lesser extent, gross
profit attributable to recently divested operations.
Selling, general and administrative expenses increased $23
million to $473 million in 1996 due primarily to an increase in
legal and litigation related expenses which were partially
offset by $29 million of expenses attributable to recently
divested operations and by an $8 million decrease in bad debt
expense.
The increase in other income for 1996 was due principally to
increased gains on marketable securities transactions and, to a
lesser extent, increased equity in earnings of unconsolidated
affiliates. Other income for 1996 included a $15 million gain on
the sale of the Company's Supreme Sugar subsidiary.
The decrease in income taxes for 1996 was the result of lower
pretax earnings partially offset by a higher effective income
tax rate. The Company's effective income tax rate for 1996 was
34% compared to an effective rate of 33% for 1995.
Liquidity and Capital Resources
At June 30, 1997, the Company continued to show substantial
liquidity with working capital of $2 billion, including cash and
marketable securities of $728 million. Working capital also
includes inventory with a replacement cost in excess of its LIFO
carrying value of approximately $45 million. During 1997, the
Company's cash and marketable securities net of short-term debt
decreased $1.3 billion, working capital decreased $716 million
and shareholders' equity decreased $95 million reflecting the
Company's investments in property, plant and equipment
expansions, investments in affiliates, business acquisitions,
and purchases of the Company's common stock. Capital resources
remained strong as reflected in the Company's net worth of $6.1
billion. The principal sources of capital during the year were
funds generated from operations and funds generated from the
issuance of $350 million of 7.5% debentures due in 2027. The
Company's ratio of long-term debt to total capital at year end
was approximately 26%. Annual maturities of long-term debt range
from $11 million to $24 million during the next four years and
will be $428 million in 2002.
2
PAGE 3
Commercial paper and commercial bank lines of credit are
available to meet seasonal cash requirements. At June 30, 1997,
the Company had $864 million of short-term bank credit lines.
Both Standard & Poor's and Moody's continue to assign their
highest ratings to the Company's commercial paper and to rate
the Company's long-term debt as AA- and Aa3, respectively. In
addition to the cash flow generated from operations, the Company
has access to equity and debt capital through numerous
alternatives from public and private sources in the domestic and
international markets.
As discussed in Note 11 to the consolidated financial
statements, various grand juries under the direction of the
United States Department of Justice ("DOJ") have been conducting
investigations into possible violations by the Company and
others of federal antitrust laws and related matters with
respect to the sale of lysine, citric acid and high fructose
corn syrup. In connection with an agreement with the DOJ, the
Company has paid the United States a fine of $100 million. This
agreement constitutes a global resolution of all matters between
the DOJ and the Company and brings to a close all DOJ
investigations of the Company. In addition, related civil class
actions and other proceedings have been filed against the
Company, which could result in the Company being subject to
monetary damages, other sanctions and expenses. As also
discussed in Note 11 to the consolidated financial statements,
the Company has settled certain civil federal class action suits
involving lysine, citric acid, and securities, and certain state
actions filed by indirect purchasers of lysine. The Company made
provisions of $200 million in fiscal 1997 and $31 million in
fiscal 1996 to cover such fines and settlements and related
costs and expenses. Because of the early stage of other putative
class actions and proceedings, including those related to high
fructose corn syrup, the ultimate outcome and materiality of
these matters cannot presently be determined. Accordingly, no
provision for any liability that may result therefrom has been
made in the consolidated financial statements.
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company's market risk
sensitive instruments and positions is the potential loss
arising from adverse changes in commodity prices, marketable
equity security prices, foreign currency exchange rates, and
interest rates as discussed below.
Commodities
The availability and price of agricultural commodities are
subject to wide fluctuations due to unpredictable factors such
as weather, plantings, government (domestic and foreign) farm
programs and policies, changes in global demand created by
population growth and higher standards of living, and global
production of similar and competitive crops. To reduce price
risk caused by market fluctuations, the Company generally
follows a policy of hedging its inventories and related purchase
and sale contracts. In addition, the Company from time to time
will hedge portions of its production requirements. The
instruments used are principally readily marketable exchange
traded futures contracts which are designated as hedges. The
changes in market value of such contracts have a high
correlation to the price changes of the hedged commodity. To
obtain a proper matching of revenue and expense, gains or losses
arising from open and closed hedging transactions are included
in inventories as a cost of the commodities and reflected in the
statement of earnings when the product is sold.
A sensitivity analysis has been prepared to estimate the
Company's exposure to market risk of its commodity position. The
Company's daily net commodity position consists of inventories,
related purchase and sales contracts, and exchange traded
contracts, including those to hedge portions of production
requirements. The fair value of such position is a summation of
the fair values calculated for each commodity by valuing each
net position at quoted futures prices. Market risk is estimated
as the potential loss in fair value resulting from a
hypothetical 10% adverse change in such prices. The results of
this analysis, which may differ from actual results, are as
follows for fiscal 1997:
Fair Value Market
Risk
--------------------------------
-----
(in millions)
Highest long position $468 $47
Highest short position 314 31
Average position (long) 123 12
Marketable Equity Securities
Marketable equity securities at June 30, 1997, which are
recorded at a fair value of $911 million and include net
unrealized gains of $183 million, have exposure to price risk.
This risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in prices
quoted by stock exchanges and amounts to $91 million. Actual
results may differ.
Currencies
In order to reduce the risk of foreign currency exchange rate
fluctuations, the Company follows a policy of hedging
substantially all transactions, except for amounts permanently
invested as described below, denominated in a currency other
than the functional currencies applicable to each of its various
entities. The instruments used for hedging are readily
marketable exchange traded futures contracts and forward
contracts with banks. The changes in market value of such
contracts have a high correlation to the price changes in the
currency of the related hedged transactions. The potential loss
in fair value for such net currency position resulting from 10%
adverse change in foreign currency exchange rates is not
material.
The amount permanently invested in foreign subsidiaries and
affiliates and translated into dollars using the year end
exchange rate is $1.7 billion at June 30, 1997. The potential
loss in fair value resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rates amounts to $167
million. Actual results may differ.
3
PAGE 4
Interest
At June 30, 1997, the fair value of the Company's long-term
debt is estimated at $2.7 billion using quoted market prices or
discounted future cash flows based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements. Such fair value exceeded the long-term debt
carrying value by $336 million. Market risk is estimated as the
potential increase in fair value resulting from a hypothetical
one-half percent decrease in interest rates and amounts to $107
million.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is in one business segment - procuring,
transporting, storing, processing, and merchandising
agricultural commodities and products. The availability and
price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather,
plantings, government (domestic and foreign) farm programs and
policies, changes in global demand created by population growth
and higher standards of living, and global production of similar
and competitive crops.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. Investments in
affiliates are carried at cost plus equity in undistributed
earnings since acquisition.
Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect amounts reported in its consolidated financial statements
and accompanying notes. Actual results could differ from those
estimates.
Reclassification
Certain items in prior year financial statements have been
reclassified to conform to the current year's presentation.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be
cash equivalents.
Marketable Securities
The Company classifies all of its marketable securities as
available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of income
taxes, reported as a component of shareholders' equity.
4
PAGE 5
Inventories
Inventories, consisting primarily of merchandisable agricultural
commodities and related value-added products, are carried at
cost, which is not in excess of market prices. Inventory cost
methods include the last-in, first-out (LIFO) method, the first-
in, first-out (FIFO) method and the hedging procedure method.
The hedging procedure method approximates FIFO cost.
To reduce price risk caused by market fluctuations, the Company
generally follows a policy of hedging its inventories and
related purchase and sale contracts. In addition, the Company
from time to time will hedge portions of its production
requirements. The instruments used are readily marketable
exchange traded futures contracts which are designated as
hedges. The changes in market value of such contracts have a
high correlation to the price changes of the hedged commodity.
Also, the underlying commodity can be delivered against such
contracts. To obtain a proper matching of revenue and expense,
gains or losses arising from open and closed hedging
transactions are included in inventories as a cost of the
commodities and reflected in the statement of earnings when the
product is sold.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. The Company
generally uses the straight line method in computing
depreciation for financial reporting purposes and generally uses
accelerated methods for income tax purposes. The annual
provisions for depreciation have been computed principally in
accordance with the following ranges of asset lives: buildings -
10 to 50 years; machinery and equipment - 3 to 30 years.
Net Sales
The Company follows a policy of recognizing sales at the time of
product shipment. Net margins from grain merchandised, rather
than the total sales value thereof, are included in net sales in
the consolidated statements of earnings. Sales of the Company,
including the sales value of grain merchandised, were $18.1
billion in 1997, $18.0 billion in 1996, and $15.6 billion in
1995, and such sales include export sales of $5.4 billion in
1997, $5.7 billion in 1996 and $4.3 billion in 1995.
Per Share Data
Share and per share information have been adjusted to give
effect to all stock dividends, including the 5% stock dividend
declared in July 1997 and payable in September 1997. Net
earnings per common share is determined by dividing net earnings
by the weighted average number of common shares outstanding. The
impact of common stock equivalents is not material.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Number 128
(SFAS 128) "Earnings Per Share." This statement establishes
standards for computing and presenting basic and diluted
earnings per share (EPS) for financial statements issued for
periods ending after December 15, 1997. The adoption of SFAS 128
will not have a material effect on the Company's reported EPS.
5
PAGE 6
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30
------------------------------
-------
1997 1996 1995
-------------------------------
------
(In thousands, except per share
amounts)
Net sales and other operating $13,853,2 $13,239,8 $12,555,4
income 62 39 03
Cost of products sold and other 12,552,71 11,853,07 10,892,47
operating costs 8 0 6
--------- --------- ---------
- - -
Gross Profit 1,300,544 1,386,769 1,662,927
Selling, general and administrative 675,103 473,294 450,365
expenses
--------- --------- ---------
- - -
Earnings From Operations 625,441 913,475 1,212,562
Other income (expense) 18,964 140,938 (31,039)
--------- --------- ---------
- - -
Earnings Before Income Taxes 644,405 1,054,413 1,181,523
Income taxes 267,096 358,501 385,608
--------- --------- ---------
- - -
Net Earnings $ $ $
377,309 695,912 795,915
========= ========= =========
= = =
Net earnings per common share $ $ $
.66 1.20 1.34
========= ========= =========
= =
Average number of shares outstanding 567,954 577,547 596,139
========= ========= =========
See notes to consolidated financial statements.
6
PAGE 7
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
-----
1997 1996
----------------------
----
Assets (In thousands)
Current Assets
Cash and cash equivalents $ $
397,788 534,702
Marketable securities 330,208 820,147
Receivables 1,329,350 1,131,591
Inventories 2,094,092 1,790,636
Prepaid expenses 132,897 107,607
---------- ----------
Total Current Assets 4,284,335 4,384,683
Investments and Other Assets
Investments in and advances to 1,102,420 624,305
affiliates
Long-term marketable securities 987,665 1,092,969
Other assets 271,352 233,611
---------- ----------
2,361,437 1,950,885
Property, Plant and Equipment
Land 118,898 114,542
Buildings 1,448,945 1,245,662
Machinery and equipment 6,841,225 6,034,979
Construction in progress 765,720 588,711
Less allowances for depreciation (4,466,193 (3,869,593
) )
---------- ----------
- -
4,708,595 4,114,301
---------- ----------
- -
$11,354,36 $10,449,86
7 9
========== ==========
= =
7
PAGE 8
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
--
1997 1996
----------------------
--
(In thousands)
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $ 604,831 $ -
Accounts payable 1,126,313 993,403
Accrued expenses 493,944 525,626
Current maturities of long-term debt 23,667 114,522
---------- ----------
Total Current Liabilities 2,248,755 1,633,551
Long-Term Debt 2,344,949 2,002,979
Deferred Liabilities
Income taxes 597,514 562,362
Other 113,020 106,165
---------- ----------
710,534 668,527
Shareholders' Equity
Common stock 4,192,321 3,869,875
Reinvested earnings 1,857,808 2,274,937
---------- ----------
6,050,129 6,144,812
---------- ----------
$11,354,37 $10,449,869
8
========== ==========
See notes to consolidated financial statements.
8
PAGE 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
-----------------------------
-----
1997 1996 1995
-----------------------------
-----
(In thousands)
Operating Activities
Net earnings $ $ $ 795,915
377,309 695,912
Adjustments to reconcile to net cash
provided by operations
Depreciation and amortization 446,412 393,605 384,872
Deferred income taxes (12,235) 72,673 25,421
Amortization of long-term debt 29,094 25,584 21,908
discount
(Gain) loss on marketable securities (59,549) (109,359 27,633
transactions )
Other (40,758) (33,243) 8,432
Changes in operating assets and
liabilities
Receivables (23,225) (183,569 (82,203)
)
Inventories 23,046 (320,529 (41,561)
)
Prepaid expenses (18,760) (1,683) 5,219
Accounts payable and accrued (110,653 314,494 45,611
expenses )
-------- -------- ---------
- -
Total Operating Activities 610,681 853,885 1,191,247
Investing Activities
Purchases of property, plant and (779,508 (754,268 (558,604)
equipment ) )
Net assets of businesses acquired (429,940 (28,612) (55,126)
)
Investments in and advances to (416,861 (110,615 (122,565)
affiliates ) )
Purchases of marketable securities (966,203 (816,401 (2,017,619
) ) )
Proceeds from sales of marketable 1,607,63 1,260,71 1,940,370
securities 1 0
-------- -------- ---------
- -
Total Investing Activities (984,881 (449,186 (813,544)
) )
Financing Activities
Long-term debt borrowings 348,695 42,066 17,626
Long-term debt payments (115,853 (22,233) (32,304)
)
Net borrowings under line of credit 421,046 - -
agreements
Purchases of treasury stock (312,525 (259,980 (179,613)
) )
Cash dividends and other (104,077 (84,443) (45,213)
)
-------- -------- ---------
- -
Total Financing Activities 237,286 (324,590 (239,504)
)
-------- -------- ---------
- -
Increase (Decrease) In Cash And Cash (136,914 80,109 138,199
Equivalents )
Cash And Cash Equivalents Beginning Of 534,702 454,593 316,394
Period
-------- -------- --------
- -
Cash And Cash Equivalents End Of $ $ $ 454,593
Period 397,788 534,702
======== ======== =========
= =
See notes to consolidated financial statements.
9
PAGE 10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
---------
--
Shares Amount Reinvest
ed
Earnings
-----------------------------
------
(In thousands)
Balance July 1, 1994 $ 343,639 $3,415,9 $1,629,4
55 66
Net earnings - - 795,915
Cash dividends paid - $.08 per - - (46,825)
share
3-for-2 stock split 172,030 - -
5% stock dividend 25,358 406,019 (406,019
)
Treasury stock purchases (9,756) (179,613 -
)
Foreign currency translation - - 66,005
Unrealized net gains on marketable
securities - - 147,118
Other 1,253 26,616 (472)
--------- -------- --------
- -
Balance June 30, 1995 532,524 3,668,97 2,185,18
7 8
Net earnings - - 695,912
Cash dividends paid - $.16 per - - (90,860)
share
5% stock dividend 25,991 411,542 (411,542
)
Treasury stock purchases (15,632) (259,980 -
)
Foreign currency translation - - (96,101)
Change in unrealized net gains on
marketable securities - - (7,421)
Other 2,938 49,336 (239)
--------- -------- --------
- -
Balance June 30, 1996 545,821 3,869,87 2,274,93
5 7
Net earnings - - 377,309
Cash dividends paid - $.19 per - - (106,990
share )
5% stock dividend 26,565 594,590 (594,590
)
Treasury stock purchases (16,707) (312,525 -
)
Foreign currency translation - - (73,393)
Change in unrealized net gains on
marketable securities - - (19,199)
--------- -------- --------
-- -
Other 2,195 40,381 (266)
--------- -------- --------
--
Balance June 30, 1997 557,874 $4,192,32 $1,857,8
1 08
========= ======== ========
= ==
See notes to consolidated financial statements.
10
PAGE 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Marketable Securities and Cash Equivalents
Unrealiz Unrealize Fair
ed d
Cost Gains Losses Value
--------------------------------------
--------
(In thousands)
1997
United States government
obligations
Maturity less than 1 year $ $ $ $
455,657 66 19 455,704
Maturity 1 year to 5 74,332 70 108 74,294
years
Other debt securities
Maturity less than 1 year 157,588 435 - 158,023
Equity securities 728,448 186,551 3,540 911,459
-------- -------- -------- --------
-- -- -- --
$1,416,0 $187,122 $ 3,667 $1,599,4
25 80
======== ======== ======== ========
== == == ==
1996
United States government obligations
Maturity less than 1 year $1,184,2 $ $ $1,188,0
16 4,027 235 08
Maturity 1 year to 5 19,026 - 201 18,825
years
Other debt securities
Maturity less than 1 year 148,345 716 - 149,061
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
======== ======== ======== ========
== == == ==
11
PAGE 12
Note 2-Inventories
1997 1996
----------------------
-----
(In thousands)
LIFO inventories
FIFO value $ 521,277 $ 705,814
LIFO valuation reserve (44,811) (190,641)
---------- ----------
LIFO carrying value 476,466 515,173
FIFO inventories, including
hedging procedure method 1,617,626 1,275,463
---------- ----------
$2,094,092 $1,790,636
========== ==========
Note 3-Accrued Expenses
1997 1996
----------------------
-----
(In thousands)
Payroll and employee benefits $ $
128,205 117,211
Income taxes 99,744 175,603
Other 265,995 232,812
---------- ----------
-
$ $
493,944 525,626
========== ==========
12
PAGE 13
Note 4-Debt and Financing Arrangements
1997 1996
------------------------
-----
(In thousands)
7.5% Debentures $350 million face
amount, due in 2027 $ 347,860 $ -
8.875% Debentures $300 million face
amount, due in 2011 298,331 298,271
8.125% Debentures $300 million face
amount, due in 2012 298,079 298,015
8.375% Debentures $300 million face
amount, due in 2017 294,285 294,178
7.125% Debentures $250 million face
amount, due in 2013 249,416 249,397
6.25% Notes $250 million
face amount, due in 2003 249,353 249,280
Zero Coupon Debt $400 million face
amount, due in 2002 209,967 183,736
7% Debentures $250 million face
amount,
due in 2011 131,486 129,083
10.25% Debentures $100 million
face amount, due in 2006 98,847 98,767
6% Bonds 150 million Deutsche Mark
face amount, due in June 1997 - 98,370
Industrial Revenue Bonds at various
rates from 5.30% to 13.25% and due
in varying amounts to 2011 74,571 76,498
Other 116,421 141,906
---------- ----------
Total long-term debt 2,368,616 2,117,501
Less current maturities (23,667) (114,522)
---------- ----------
$2,344,949 $2,002,979
========== ==========
13
PAGE 14
At June 30, 1997, the fair value of the Company's long-term debt
exceeded the carrying value by $336 million, as estimated by
using quoted market prices or discounted future cash flows based
on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Unamortized original issue discounts on the 7% Debentures and
Zero Coupon Debt issues are being amortized at 15.35% and
13.80%, respectively. Accelerated amortization of the discounts
for tax purposes has the effect of lowering the actual rate of
interest to be paid over the remaining lives of the issues to
approximately 10.33% and 5.36%, respectively.
The aggregate maturities for long-term debt for the five years
after June 30, 1997 are $24 million, $15 million, $11 million,
$21 million and $428 million, respectively.
At June 30, 1997 the Company had lines of credit totaling $864
million. The weighted average interest rate on short-term
borrowings outstanding at June 30, 1997 was 4.81%.
Note 5-Shareholders' Equity
The Company has authorized 800 million shares of common stock
and 500,000 shares of preferred stock, both without par value.
No preferred stock has been issued. At June 30, 1997 and 1996,
the Company had approximately 19.7 million and 33.4 million
common shares, respectively, in treasury. Treasury stock is
recorded at cost, $327 million at June 30, 1997, as a reduction
of common stock.
Stock option plans provide for the granting of options to
employees to purchase common stock of the Company at market
value on the date of grant. Options expire five to ten years
after the date of grant. At June 30, 1997, options for 4,320,588
shares at a weighted average price of $14.39 per share were
outstanding of which 1,616,528 shares were exercisable at a
weighted average price of $13.16 per share. There were 3,958,635
shares available for future grant at June 30, 1997. The Company
accounts for its stock option plans in accordance with
Accounting Principles Board (APB) Opinion Number 25 "Accounting
for Stock Issued to Employees." Under APB 25 no compensation
expense is recognized if the exercise price of the employee
stock option equals the market price on the grant date.
Statement of Financial Accounting Standards Number 123
"Accounting for Stock-Based Compensation" requires the fair
value of options granted and the pro forma impact on earnings
and earnings per share be disclosed when material. The pro forma
impact for 1997 and 1996 is not material.
Cumulative foreign currency translation losses of $107 million
and unrealized gains on securities of $120 million at June 30,
1997, net of applicable taxes, are included as components of
reinvested earnings.
14
PAGE 15
Note 6-Other Income (Expense)
1997 1996 1995
(In thousands)
Investment income $ $ $
121,991 150,446 147,133
Interest expense (197,214) (170,089) (170,88
6)
Gain (loss) on marketable
securities transactions 59,810 109,359 (27,633
)
Equity in earnings (losses) 35,243 31,780 (19,801
of affiliates )
Other (866) 19,442 40,148
_________ ________ _______
_ __ __
$ $ $
18,994 140,938 (31,039
)
====== ===== =====
Interest expense is net of interest capitalized of $41 million,
$43 million and $32 million in 1997, 1996 and 1995,
respectively.
The Company made interest payments of $198 million, $188 million
and $181 million in 1997, 1996 and 1995 respectively.
The realized gains on sales of available-for-sale marketable
securities totaled $63 million, $109 million and $18 million in
1997, 1996 and 1995, respectively. The realized losses totaled
$3 million and $46 million in 1997 and 1995, respectively.
15
PAGE 16
Note 7-Income Taxes
For financial reporting purposes, earnings before income taxes
includes the following components:
1997 1996 1995
________________________________
(In thousands)
United States $ $ $1,022,2
563,086 907,376 45
Foreign 81,319 147,037 159,278
________ ________ ________
__ __ _
$ $1,054,4 $1,181,5
644,405 13 23
====== ====== ======
Significant components of income taxes are as follows:
1997 1996 1995
______________________________________
(In thousands)
Current
Federal $ $ $
216,641 207,166 271,702
State 29,440 29,604 38,768
Foreign 27,352 46,646 42,085
Deferred
Federal (5,357) 69,253 30,191
State (2,910) 6,467 2,108
Foreign 1,930 (635) 754
_________ _________ _________
_
$ $ $
267,096 358,501 385,608
====== ====== =====
Significant components of the Company's deferred tax liabilities
and assets are as follows:
1997 1996
__________________________
(In
thousands)
Deferred tax liabilities
Depreciation $446,083 $413,792
Unrealized gain on marketable 62,957 73,727
securities
Bond discount amortization 56,312 60,659
Other 76,992 66,812
________ ________
642,344 614,990
Deferred tax assets
Postretirement benefits 29,318 27,822
Other 64,186 76,337
________ ________
93,504 104,159
________ ________
Net deferred tax liabilities 548,840 510,831
Current net deferred tax assets included
in prepaid expenses 48,674 51,531
________ ________
Non-current net deferred tax $597,514 $562,362
liabilities
===== =====
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:
1997 1996 1995
Statutory rate 35.0% 35.0% 35.0%
Litigation settlements and fines 7.5 - -
State income taxes, net of
federal tax benefit 2.7 2.2 2.3
Foreign sales corporation (3.4) (2.4) (1.8)
Other (0.4) (0.8) (2.9)
_____ _____
____
Effective rate 41.4 % 34.0% 32.6%
==== ====
====
The Company made income tax payments of $312 million, $268
million and $354 million in 1997, 1996 and 1995, respectively.
Undistributed earnings of the Company's foreign subsidiaries
amounting to approximately $460 million at June 30, 1997, are
considered to be permanently reinvested and, accordingly, no
provision for U.S. income taxes has been provided thereon. It is
not practicable to determine the deferred tax liability for
temporary differences related to these undistributed earnings.
Note 8-Leases
The Company has noncancellable operating leases with total
future rental commitments of $161 million, which range from $7
million to $31 million during each of the next five years, and
expire on various dates through 2026. Rent expense for 1997,
1996 and 1995 was $69 million, $73 million and $73 million,
respectively.
16
PAGE 17
Note 9-Employee Benefit Plans
The Company has noncontributory and trusteed pension plans
covering substantially all employees. It is the Company's policy
to fund pension costs as required by the Employee Retirement
Income Security Act. At June 30, 1997, the plans had assets at
fair value of $432 million and projected benefit obligations of
$458 million based on a discount rate of 7.5%. Pension expense
is not material.
The Company has postretirement health care and life insurance
plans covering substantially all employees. The fully accrued
accumulated postretirement benefit obligations (APBO) for the
unfunded plans at June 30, 1997 were $59 million, based on a
discount rate of 7.5% and an assumed health care cost trend rate
of 9.7% for 1998 gradually decreasing to 5.5% by 2004. Expense
of these plans is not material. A 1% increase in the health care
cost trend rate assumption would not have had a material impact
on the APBO or expense for the year.
In addition, the Company has savings and investment plans
available to eligible employees with one year of service.
Employees may contribute up to 6% of their salaries, not to
exceed $9,500. The Company matches these contributions, at
various levels, to a maximum of $6,333.
Note 10-Geographic Information
1997 1996 1995
(In millions)
Net sales and other operating
income:
United States $ 9,733 $ 9,661 $ 9,052
Europe 3,039 2,753 2,754
Other foreign 1,041 826 749
_______ _______ _______
$13,853 $13,240 $12,555
==== ==== ====
Sales or transfers between
geographic areas:
United States $ 354 $ 282 $ 166
Europe 51 108 115
Other foreign 146 133 54
_______ ______ ______
$ 551 $ 523 $ 335
==== ==== ====
Earnings from operations:
United States $ 550 $ 805 $ 1,089
Europe 46 69 77
Other foreign 29 39 47
_______ ______ ______
$ 625 $ 913 $ 1,213
==== ==== ====
Identifiable assets:
United States $ 6,663 $ 6,025 $ 5,351
Europe 1,288 929 846
Other foreign 585 418 334
_______ ______ ______
$ 8,536 $ 7,372 $ 6,531
==== ==== ====
Earnings from operations represent earnings before other income
and income taxes.
Sales or transfers between geographic areas are made at
established transfer prices.
Identifiable assets exclude cash and cash equivalents,
marketable securities and investments in and advances to
affiliates. At June 30, 1997, approximately $1.3 billion of the
Company's cash and cash equivalents, marketable securities and
investments in affiliates were foreign assets, of which $697
million were in Europe.
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PAGE 18
Note 11. Antitrust Investigation and Related Litigation
Federal grand juries in the Northern Districts of Illinois,
California and Georgia, under the direction of the United States
Department of Justice ("DOJ"), have been investigating possible
violations by the Company and others with respect to the sale of
lysine, citric acid and high fructose corn syrup, respectively.
In connection with an agreement with the DOJ, the Company has
paid the United States a fine of $100 million. This agreement
constitutes a global resolution of all matters between the DOJ
and the Company and brings to a close all DOJ investigations of
the Company.
Following public announcement in June 1995 of these
investigations, the Company and certain of its then current
directors and executive officers were named as defendants in a
number of putative class action suits for alleged violations of
federal securities laws on behalf of all purchasers of
securities of the Company during the period between certain
dates in 1992 and 1995. The Company, along with other domestic
and foreign companies, was named as a defendant in a number of
putative class action antitrust suits and other proceedings
involving the sale of lysine, citric acid, and high fructose
corn syrup. The plaintiffs generally request unspecified
compensatory damages, costs, expenses and unspecified relief.
The Company and the individuals named as defendants intend to
vigorously defend these actions and proceedings unless they can
be settled on terms deemed acceptable by the parties. These
matters have resulted and could result in the Company being
subject to monetary damages, other sanctions and expenses.
The Company has made provisions of $200 million in fiscal 1997
and $31 million in fiscal 1996 to cover the fine, litigation
settlements related to the federal lysine class action, federal
securities class action, the federal citric class action and
certain state actions filed by indirect purchasers of lysine,
and related costs and expenses associated with the litigation
described in the proceeding paragraph. Because of the early
stage of other putative class actions and proceedings, including
those related to high fructose corn syrup, the ultimate outcome
and materiality of these matters cannot presently be determined.
Accordingly, no provision for any liability that may result
therefrom has been made in the consolidated financial
statements.
The Company and its directors have also been named as defendants
in a putative class action suit which alleges violations of
Delaware state law and seeks invalidation of the election of the
Company's directors on the basis of alleged omissions from the
proxy statement issued by the Company prior to its 1995 Annual
Meeting of Shareholders. This case was dismissed and is now on
appeal in the Supreme Court of Delaware.
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PAGE 19
QUARTERLY FINANCIAL DATA (Unaudited)
Quarter
---------------------------------------
--------
First Second Third Fourth Total
------- ------- ------- ------- -------
(In thousands, except per share amounts)
Fiscal 1997
Net sales $3,330,47 $3,514,9 $3,414,8 $3,593,03 $13,853,2
5 38 18 1 62
Gross profit 370,000 386,463 216,407 327,674 1,300,544
Net earnings 3,553 189,941 61,167 122,648 377,309
Per common 0.01 0.33 0.10 .022 0.66
share
Fiscal 1996
Net sales $3,078,58 $3,424,6 $3,433,4 $3,303,13 $13,239,8
6 85 35 3 39
Gross profit 329,244 402,790 344,877 309,858 1,386,769
Net earnings 163,102 225,970 163,285 143,555 695,912
Per common 0.28 0.39 0.28 0.25 1.20
share
Results for the first quarter of fiscal 1997 include a charge of
$.31 per share for fines and litigation settlements arising out
of the United States Department of Justice antitrust
investigation of the Company's lysine and citric acid products
as well as resolution of a securities suit brought by
shareholders.
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is listed and traded on the New York
Stock Exchange, Chicago Stock Exchange, Tokyo Stock Exchange,
Frankfurt Stock Exchange and the Swiss Exchange. The following
table sets forth, for the periods indicated, the high and low
market prices of the common stock and common stock cash
dividends.
<CAPTION
Cash
Market Price Dividends
High Low Per Share
Fiscal 1997--Quarter Ended
June 30 22 7/8 16 1/4 0.048
March 31 21 7/8 16 1/2 0.048
December 31 22 18 1/8 0.048
September 30 18 3/8 14 7/8 0.046
Fiscal 1996--Quarter Ended
June 30 18 3/8 16 1/4 0.046
March 31 17 3/4 15 1/4 0.046
December 31 16 5/8 13 1/2 0.046
September 30 16 3/8 13 0.022
The number of shareholders of the Company's common stock at June
30, 1997 was 33,834. The Company expects to continue its policy
of paying regular cash dividends, although there is no assurance
as to future dividends because they are dependent on future
earnings, capital requirements and financial condition.
19
PAGE 20
Archer Daniels Midland Company
TEN-YEAR SUMMARY
Operating, Financial and Other Data (Dollars in thousands,
except per share data)
1997 1996 1995
Operating
Net sales and other operating income $13,853,262 $13,239,839 $12,555,403
Depreciation and amortization 446,412 393,605 384,872
Net earnings 377,309 695,912 795,915
Per common share .66 1.20 1.34
Cash dividends 106,990 90,860 46,825
Per common share .19 .16 .08
Financial
Working capital $2,035,580 $ 2,751,132 $2,540,260
Per common share 3.65 4.80 4.33
Current ratio 1.9 2.7 3.2
Inventories 2,094,092 1,790,636 1,473,896
Net property, plant and equipment 4,708,595 4,114,301 3,762,281
Gross additions to property, plant
and equipment 1,127,360 801,426 657,915
Total assets 11,354,367 10,449,869 9,756,887
Long-term debt 2,344,949 2,002,979 2,070,095
Shareholders' equity 6,050,129 6,144,812 5,854,165
Per common share 10.85 10.72 9.97
Other
Weighted average shares outstanding (000's) 567,954 577,547 596,139
Number of shareholders 33,834 35,431 34,385
Number of employees 17,160 14,811 14,833
Certain items in prior year financial statements have been
reclassified to conform to the current year's presentation.
Share and per share data have been adjusted for three-for-two
stock splits in December 1989 and December 1994, and annual 5%
stock dividends through September 1997.
Net earnings for 1997 include a charge of $.31 per share for
fines and litigation settlements arising out of the United
States Department of Justice antitrust investigation of the
Company's lysine and citric acid products as well as resolution
of a securities suit brought by shareholders.
Net earnings for 1993 includes a credit of $68 million or $.11
per share and a charge of $35 million or $.06 per share for the
cumulative effects of changes in accounting for income taxes and
postretirement benefits, respectively.
20
PAGE 21
1994 1993 1992 1991 1990 1989 1988
$11,158,4 $9,578,37 $9,026,17 $8,271,5 $7,551,9 $7,729,6 $6,808,6
79 0 7 88 72 20 32
354,463 328,549 293,729 261,367 248,113 220,538 183,952
484,069 567,527 503,757 466,678 483,522 424,673 353,058
.80 .91 .80 .74 .77 .68 .56
32,586 32,266 30,789 29,527 25,976 17,271 17,095
.05 .05 .05 .05 .04 .03 .03
$2,783,81 $2,961,50 $2,276,56 $1,674,7 $1,627,4 $1,487,1 $1,408,6
7 3 4 35 59 51 64
4.67 4.75 3.64 2.68 2.59 2.39 2.27
3.5 4.1 3.4 3.0 3.4 3.4 3.0
1,422,147 1,131,787 1,025,030 917,495 771,233 694,998 773,702
3,538,575 3,214,834 3,060,096 2,695,62 2,131,80 1,832,25 1,661,22
5 7 8 0
682,485 572,022 614,844 911,586 550,851 405,888 370,295
8,746,853 8,404,111 7,524,530 6,260,60 5,450,01 4,728,30 4,397,56
7 0 8 4
2,021,417 2,039,143 1,562,491 980,273 750,901 690,052 692,878
5,045,421 4,883,251 4,492,353 3,922,29 3,573,22 3,033,50 2,630,52
5 8 3 9
8.46 7.82 7.19 6.28 5.68 4.87 4.25
602,307 624,968 626,641 628,811 626,610 620,769 631,571
33,940 33,654 32,277 28,981 26,076 20,382 18,491
16,013 14,168 13,524 13,049 11,861 10,214 9,631
21