How did ADM perform financially in fiscal 1998?

Net sales and other operating income reached a record $16.1 billion, up 16%. Net earnings were $403.6 million, or $0.68 per share, up about 7% from $377.3 million in fiscal 1997. Growth came mainly from acquisitions and higher volumes, while average selling prices fell 8%. Interest expense and litigation costs weighed on the bottom line, although a lower tax rate helped.

What are the biggest legal risks facing ADM?

ADM is facing multiple antitrust matters involving high fructose corn syrup, citric acid, and lysine. Most federal DOJ investigations are resolved after the $100 million fine paid in fiscal 1997. However, dozens of civil class actions and foreign investigations, including by the European Commission, remain at an early stage. Management says it cannot predict their outcome or materiality, and it has recorded no provision for most of them beyond the $48 million set aside in fiscal 1998.

Is ADM's debt level a concern for investors?

Debt has risen substantially. Short-term debt increased to $1.5 billion and long-term debt to $2.8 billion, and interest expense climbed to $293 million. Still, long-term debt is about 28% of total capital, shareholders' equity is $6.5 billion, and the company's credit ratings are AA- (S&P) and Aa3 (Moody's). Investors should note that operating cash flow of $613 million did not fully cover capital spending and acquisitions, so borrowing funded the difference.

What drove the revenue increase, and is it sustainable?

Most of the 16% increase came from recently acquired businesses and a 13% rise in volumes. Oilseed sales grew 15% on strong protein meal demand, while corn and wheat sales fell because of lower prices and sweetener overcapacity. Revenue growth is largely acquisition-driven, so its sustainability depends on whether acquired operations keep performing and whether volumes hold up in weak Asian markets.

What is ADM's dividend and share activity?

Cash dividends were $0.19 per share for fiscal 1998, up from $0.18, totaling $111.6 million. The company paid 5% stock dividends in each year, including one declared in July 1998. It bought back $81 million of treasury stock during the year and issued 14 million shares, worth $298 million, to complete an acquisition. Shares outstanding were about 567.6 million as of August 31, 1998.

ADM 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed September 24, 1998. Cited figures are marked; the original filing is the authoritative source.

Archer-Daniels-Midland (ADM) reported record fiscal 1998 (year ended June 30, 1998) net sales and other operating income of $16.1 billion^a, up 16% from $13.9 billion, driven mainly by acquisitions and a 13% increase in volumes, partly offset by an 8% decline in average selling prices.

Oilseed products, at $10.2 billion^b, remain the core business at 63% of sales. However, profitability was weak: net earnings rose only about 7% to $403.6 million ($0.68 per share), and that figure was held back by a 15% jump in interest expense to $293 million from higher borrowings. Gross profit increased to $1.38 billion, while SG&A fell to $661 million, largely because litigation costs dropped $133 million.

The effective tax rate fell to 34% from 41%, which helped earnings. The main investor concern in this filing is the antitrust overhang. ADM paid a $100 million^c DOJ fine in fiscal 1997 and has set aside $48 million in fiscal 1998 for fines, settlements, and related costs.

Numerous civil class actions over high fructose corn syrup, citric acid, and lysine remain at an early stage, and the company says it cannot yet determine their outcome or materiality, so no provision has been recorded for them. Balance sheet metrics are sound: shareholders' equity is $6.5 billion^d, working capital is $1.7 billion, long-term debt is 28% of total capital, and the company holds AA-/Aa3 ratings. Total debt has risen, though, with short-term debt up to $1.5 billion and long-term debt to $2.8 billion, and the company issued $450 million in new debentures during the year.

Operating cash flow was $613 million, a level that does not clearly cover the $703 million of capital spending and $371 million of acquisitions. For investors, the central questions are whether ADM can turn its revenue growth into stronger margins and whether the antitrust litigation will impose costs beyond what has already been reserved. Growth is being bought through acquisitions and heavier borrowing, and reported earnings are carrying a lot of legal and interest drag.

02—Key points

Key Highlights

Record net sales and other operating income of $16.1 billion, up 16% year over year, mostly from recent acquisitions and a 13% rise in volumes, partly offset by an 8% drop in average selling prices.
Net earnings of $403.6 million, or $0.68 per share, up about 7% from $377.3 million; the effective tax rate fell to 34% from 41%, and interest expense rose 49% to $293 million.
Oilseed products were the core business at $10.2 billion (63% of sales), up 15%, while corn products declined 1% to $2.2 billion on lower sweetener and amino acid prices.
Antitrust exposure is still significant: the company paid a $100 million DOJ fine in fiscal 1997, recorded $48 million in provisions for fiscal 1998, and faces many pending civil class actions (including high fructose corn syrup) with no provision yet made for them.
Balance sheet remains strong with $6.5 billion in shareholders' equity, $1.7 billion in working capital, long-term debt at about 28% of total capital, and AA-/Aa3 credit ratings.
Borrowing increased, with short-term debt up to $1.5 billion from $605 million and long-term debt up to $2.8 billion, and $450 million of new debentures were issued; operating cash flow of $613 million was below capital spending of $703 million plus $371 million of acquisitions.
Operating costs and litigation trends improved: SG&A fell to $661 million from $675 million as litigation costs dropped $133 million, and the company's 1998 equity base included $298 million of stock issued in an acquisition.

03—Questions

Frequently Asked Questions

How did ADM perform financially in fiscal 1998?
Net sales and other operating income reached a record $16.1 billion, up 16%. Net earnings were $403.6 million, or $0.68 per share, up about 7% from $377.3 million in fiscal 1997. Growth came mainly from acquisitions and higher volumes, while average selling prices fell 8%. Interest expense and litigation costs weighed on the bottom line, although a lower tax rate helped.
What are the biggest legal risks facing ADM?
ADM is facing multiple antitrust matters involving high fructose corn syrup, citric acid, and lysine. Most federal DOJ investigations are resolved after the $100 million fine paid in fiscal 1997. However, dozens of civil class actions and foreign investigations, including by the European Commission, remain at an early stage. Management says it cannot predict their outcome or materiality, and it has recorded no provision for most of them beyond the $48 million set aside in fiscal 1998.
Is ADM's debt level a concern for investors?
Debt has risen substantially. Short-term debt increased to $1.5 billion and long-term debt to $2.8 billion, and interest expense climbed to $293 million. Still, long-term debt is about 28% of total capital, shareholders' equity is $6.5 billion, and the company's credit ratings are AA- (S&P) and Aa3 (Moody's). Investors should note that operating cash flow of $613 million did not fully cover capital spending and acquisitions, so borrowing funded the difference.
What drove the revenue increase, and is it sustainable?
Most of the 16% increase came from recently acquired businesses and a 13% rise in volumes. Oilseed sales grew 15% on strong protein meal demand, while corn and wheat sales fell because of lower prices and sweetener overcapacity. Revenue growth is largely acquisition-driven, so its sustainability depends on whether acquired operations keep performing and whether volumes hold up in weak Asian markets.
What is ADM's dividend and share activity?
Cash dividends were $0.19 per share for fiscal 1998, up from $0.18, totaling $111.6 million. The company paid 5% stock dividends in each year, including one declared in July 1998. It bought back $81 million of treasury stock during the year and issued 14 million shares, worth $298 million, to complete an acquisition. Shares outstanding were about 567.6 million as of August 31, 1998.

04—Continue

← View all 10-K filings