01—Abstract
Summary
Summary of the 10-K filed September 22, 1999. Cited figures are marked; the original filing is the authoritative source.
Archer-Daniels-Midland's fiscal 1999 10-K (year ended June 30, 1999) shows a year of falling revenue and profit.
Net sales and other operating income fell 11% to $14.3 billiona, driven by an 11% drop in average selling prices and a 7% drop in volumes. Net earnings declined 34% to $266 million, or $0.43 per share, down from $404 million ($0.65 per share) in fiscal 1998. Oilseed products, the largest segment at 59% of sales, fell 16%.
Corn products fell 14% on weak alcohol and amino acid pricing, and wheat and milled products fell 8%. Gross profit dropped about 11% to $1.2 billion, and SG&A rose to $701 millionb, partly from acquisitions. Balance sheet strength remains a key positive.
Shareholders' equity was $6.24 billionc, working capital $1.9 billion, and the long-term debt-to-capital ratio about 31%. The company holds $2.4 billion of short-term bank lines, and its ratings are AA- (S&P) and Aa3 (Moody's). Cash flow from operations rose sharply to $1.22 billion from $613 million, helped by lower working capital needs.
Capital spending was $671 milliond in property, plant and equipment, and the company repurchased about $314 million of stock. The main investor concern is legal exposure from antitrust matters.
These include U.S. and foreign class actions over high fructose corn syrup, citric acid, lysine, and sodium gluconate, plus an EU Commission investigation into lysine, a Canadian lawsuit seeking C$25 million plus C$10 million in punitive damages, and a DOJ resolution already paid at $100 million. ADM has booked $21 million of provisions for fiscal 1999 but says the ultimate outcome of the pending high fructose corn syrup and other cases cannot yet be determined, so no further liability has been recorded.
02—Key points
Key Highlights
- Net sales and other operating income fell 11% to $14.28 billion, reflecting lower average selling prices (down 11%) and lower volumes (down 7%), partly offset by $852 million from recent acquisitions.
- Net earnings declined 34% to $266 million ($0.43 per share), compared with $404 million ($0.65 per share) in fiscal 1998, and included a $15 million after-tax extraordinary loss from debt repurchases.
- Oilseed products, 59% of sales, fell 16% to $8.5 billion, while corn products dropped 14% to $1.9 billion due to excess industry capacity in amino acids, alcohol and sweeteners.
- Balance sheet remains solid, with shareholders' equity of $6.24 billion, working capital of $1.9 billion, a long-term debt-to-capital ratio of about 31%, and $2.4 billion in committed credit lines.
- Operating cash flow more than doubled to $1.22 billion from $613 million, and ADM issued $300 million of 6.625% debentures due 2029.
- Antitrust exposure continues: ADM faces multiple U.S., Canadian and EU class actions and investigations involving high fructose corn syrup, lysine, citric acid and sodium gluconate, with an EU Statement of Objections issued in October 1998 and expanded in August 1999.
- Returned capital to shareholders through $117 million in dividends ($0.19 per share) and about $314 million in share repurchases, with a 5% stock dividend declared in July 1999.
03—Questions
Frequently Asked Questions
Why did ADM's earnings fall so sharply in fiscal 1999?
Lower average selling prices across the company, especially in oilseed, corn and wheat products, outpaced the drop in raw material costs. Volumes also fell because of weak demand in Asia and Eastern Europe and excess industry capacity, notably in amino acids, alcohol and sweeteners. Gross profit fell about $149 million, and SG&A rose to $701 million, with $78 million from recently acquired operations.
How serious are ADM's antitrust legal risks?
Substantial but not yet quantifiable. ADM faces dozens of class actions over high fructose corn syrup, citric acid, lysine and sodium gluconate, plus an EU investigation (lysine), a Canadian suit seeking C$35 million including punitive damages, and a Mexican citric acid probe. Management says the outcomes cannot yet be determined, and the company has booked only $21 million of provisions for fiscal 1999 after $200 million in 1997 and $48 million in 1998.
Is ADM's balance sheet strong enough to absorb these risks?
Yes, based on the filing. Shareholders' equity is $6.24 billion, working capital is $1.9 billion, and the company has $2.4 billion of bank lines. Its credit ratings are AA- from S&P and Aa3 from Moody's, and the debt-to-capital ratio is about 31%. Operating cash flow of $1.22 billion also strengthened liquidity.
What is the outlook for ADM's core businesses?
The filing does not give formal guidance. Management points to continued investment in value-added products, including nutraceuticals, vitamins, soy protein and isoflavones, and it expects environmental spending to stay near current levels for the next two years. Oilseed and corn results are tied to commodity prices, excess global capacity and demand in Asia and Eastern Europe, so investors should watch those factors closely.
Did ADM change its dividend or capital return policy?
The dividend was modestly higher, rising to $0.19 per share in fiscal 1999 from $0.18, and total cash dividends were about $117 million. ADM also repurchased roughly $314 million of its own stock, and it declared a 5% stock dividend in July 1999, payable in September 1999. The company says it intends to continue its policy of regular cash dividends.
04—Continue