Archer-Daniels-Midland Company — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2011. The supplied filing is an annual Form 10-K, not a 2010 fourth-quarter filing; quarterly data for fiscal 2011 are included. ADM is a global processor, merchandiser, transporter and storage operator for oilseeds, corn, wheat, cocoa and other agricultural commodities, organized into Oilseeds Processing, Corn Processing, Agricultural Services and Other.
Key Financial Metrics
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales and other operating income | $80.676 billion | $61.682 billion | Up 31% |
| Gross profit | $4.300 billion | $3.843 billion | Up 12% |
| Gross margin | 5.3% | 6.2% | Down approximately 0.9 percentage points |
| Earnings before income taxes | $3.015 billion | $2.585 billion | Up $430 million |
| Net earnings attributable to controlling interests | $2.036 billion | $1.930 billion | Up 5% |
| Basic EPS | $3.17 | $3.00 | Up 6% |
| Diluted EPS | $3.13 | $3.00 | Up 4% |
| Operating cash flow | $(2.340) billion | $2.684 billion | Declined $5.024 billion |
| Capital expenditures | $1.247 billion cash purchases | $1.607 billion | Down 22% |
| Cash, cash equivalents and short-term securities | $1.354 billion | $1.440 billion | Down modestly |
| Working capital | $14.286 billion | $9.561 billion | Up $4.725 billion |
| Current ratio | 2.1x | 2.1x | Unchanged |
| Long-term debt excluding current maturities | $8.266 billion | $6.830 billion | Up $1.436 billion |
| Shareholders’ equity | $18.838 billion | $14.631 billion | Up $4.207 billion |
Net margin was approximately 2.5% in FY2011 versus 3.1% in FY2010. The company reported $7.1 billion of readily marketable commodity inventories within working capital. Long-term debt represented 30% of total capital, compared with 32% in the prior year.
Segment Performance
| Segment | FY2011 Sales | FY2011 Operating Profit | Year-over-year profit change |
|---|---|---|---|
| Oilseeds Processing | $26.662 billion | $1.524 billion | Up $124 million |
| Corn Processing | $9.908 billion | $1.062 billion | Up $340 million |
| Agricultural Services | $37.927 billion | $922 million | Up $254 million |
| Other | $6.179 billion | $513 million | Up $64 million |
Segment operating profit increased $782 million to $4.021 billion. Corn Processing benefited substantially from ethanol and other bioproducts, while Agricultural Services benefited from higher volumes, margins and export activity. Oilseeds Processing improved overall, although earnings from the Wilmar investment declined.
Material Changes Versus FY2010
- Higher commodity prices and increased volumes drove the 31% increase in sales. Approximately $14.2 billion of the increase reflected higher average selling prices and approximately $4.8 billion reflected higher volumes, including acquisitions.
- Commodity-price inflation produced a $368 million LIFO inventory charge in FY2011, compared with a $42 million LIFO credit in FY2010, materially reducing reported corporate results.
- The effective tax rate increased to 33.1% from 25.8%, primarily due to geographic earnings mix, higher U.S. taxes, Brazilian foreign-currency remeasurement and deferred-tax adjustments.
- ADM acquired the remaining interest in Golden Peanut effective December 31, 2010 and began consolidating it in the third fiscal quarter. The transaction generated a $71 million pretax revaluation gain.
- ADM issued $1.5 billion of floating-rate notes due in 2012 and completed the remarketing of the $1.75 billion Equity Units. The related forward purchase contracts were settled for 44 million common shares and $1.75 billion in cash.
- Depreciation expense benefited by $133 million pretax from a change in estimated useful lives of certain machinery and equipment.
- Cash flow was pressured by higher commodity prices and working-capital investment: receivables used $2.882 billion and inventories used $3.412 billion of cash.
Liquidity, Debt and Capital Commitments
- ADM had $6.9 billion of credit lines, of which $5.7 billion was unused at June 30, 2011. The commercial-paper facility was supported by $4.6 billion of these lines, with $620 million outstanding.
- Financing activities provided $3.584 billion, including new debt, increased line-of-credit borrowings and $1.75 billion received from the Equity Units conversion.
- Contractual obligations totaled $37.137 billion, including $18.311 billion of purchase commitments, $8.444 billion of long-term debt, $7.177 billion of estimated interest and $1.163 billion of operating leases.
- Management expected approximately $2.0 billion of fiscal 2012 capital expenditures and estimated $2.8 billion through calendar 2014 to complete approved projects.
- On July 1, 2011, ADM entered a 364-day accounts-receivable securitization facility providing up to $1.0 billion of additional liquidity; it was unused as of August 24, 2011.
Outlook, Commentary, Risks and Unusual Items
ADM does not provide forward-looking financial information in MD&A because results are highly sensitive to commodity prices, weather, crop conditions, government policies, energy costs, foreign exchange and global economic conditions. Management’s strategy emphasizes expanding crop merchandising and processing capacity, geographic reach and value-added products.
- Primary risks include agricultural commodity availability and price volatility, weather and disease, energy and transportation costs, competition, global economic and political conditions, trade and renewable-fuel policies, environmental regulation and greenhouse-gas requirements.
- The company is exposed to counterparty, derivative, foreign-currency and interest-rate risks. A hypothetical 10% adverse commodity-price change implied approximately $164 million of market risk based on the FY2011 average position.
- ADM had $3.2 billion invested in or advanced to joint ventures and other affiliates and reported $7.1 billion of sales to unconsolidated affiliates, creating exposure to partners over which it has limited control.
- An anti-corruption review involving possible Foreign Corrupt Practices Act and other legal violations remained ongoing. Management stated that potential penalties or disgorgement were not expected to materially affect the business or financial condition.
- ADM’s Brazilian subsidiary faced tax assessments totaling approximately $665 million, including tax, penalties and interest, concerning the deductibility of commodity-hedging losses. ADM had not recorded a liability and intended to contest the assessments.
- Other unusual FY2011 items included $94 million of plant start-up costs, $15 million of debt-extinguishment charges, $30 million of interest-rate-swap gains, a $78 million gain associated with the sale of securities by Gruma, and the $133 million depreciation-estimate benefit.
- The company spent $91 million on environmental compliance during FY2011 and identified potential future costs from greenhouse-gas regulation, although no material current environmental effect was reported.
Important Facts for Investors to Verify
- Confirm that the intended comparison is FY2011 versus FY2010 rather than 2010 Q4; the filing’s reporting period is the year ended June 30, 2011.
- Reconcile earnings quality by adjusting for LIFO charges, the Golden Peanut revaluation gain, depreciation-estimate changes, start-up costs, swap gains and Gruma-related gains.
- Assess whether working-capital cash use and increased short-term borrowing normalize as commodity prices and inventories change.
- Review debt maturities, particularly the $1.5 billion floating-rate notes due in 2012 and the $1.8 billion of aggregate long-term debt maturities in the following maturity period.
- Monitor the Brazilian tax assessments, anti-corruption investigation, joint-venture exposure and contingent guarantees totaling $121 million.
- Evaluate segment sensitivity to ethanol economics, protein-meal demand, crop supplies, export flows, energy prices and government renewable-fuel policies.
- Verify the company’s planned fiscal 2012 capital spending and the availability and conditions of its credit and receivables-securitization facilities.