Archer-Daniels-Midland Company: 2013 Form 10-K Summary
Business context and reporting period
ADM is a global processor, merchandiser, transporter and storage provider for oilseeds, corn, wheat, cocoa and other agricultural commodities. Reportable segments are Oilseeds Processing, Corn Processing and Agricultural Services; Other primarily includes financial and captive-insurance operations.
The filing covers the fiscal year ended December 31, 2013. ADM changed its fiscal year-end from June 30 to December 31 beginning in 2013. Calendar-year 2012 is management’s most directly comparable period, but the 2012 comparative data are unaudited and compiled from quarterly filings. Fourth-quarter 2013 revenue was $24.1 billion, net earnings attributable to controlling interests were $374 million and diluted EPS was $0.56.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $89.8 billion | $90.6 billion | Down 1% |
| Gross profit | $3.9 billion | $3.6 billion | Up $266 million |
| Gross margin | 4.3% | 4.0% | Improved |
| Earnings before income taxes | $2.0 billion | $2.0 billion | Up $43 million |
| Net earnings attributable to controlling interests | $1.342 billion | $1.375 billion | Down $33 million |
| Diluted EPS | $2.02 | $2.08 | Down $0.06 |
| Net margin | 1.5% | 1.5% | Broadly stable |
| Operating cash flow | $5.226 billion | $2.332 billion | Up $2.894 billion |
| Capital expenditures | $913 million | $1.240 billion | Down $327 million |
Segment operating profit was $2.708 billion, down $60 million. Oilseeds Processing contributed $1.473 billion, Corn Processing $814 million, Agricultural Services $380 million and Other $41 million. Corn Processing improved substantially, primarily from stronger ethanol margins, lower net corn costs and solid sweetener demand. Oilseeds Processing declined because of weaker crushing, cocoa and peanut results, while Agricultural Services declined because of lower U.S. volumes, merchandising opportunities and transportation utilization.
At December 31, 2013, working capital was $12.872 billion and the current ratio was 1.8. Cash, cash equivalents and short-term marketable securities totaled $3.6 billion. Shareholders’ equity was $20.2 billion. Long-term debt excluding current maturities was $5.347 billion, and total long-term debt including current maturities was $6.512 billion. Lines of credit totaled $6.9 billion, of which $6.6 billion was unused; no commercial paper was outstanding under the $4.0 billion commercial-paper facility.
Debt-to-total-capital was 21%, compared with 25% in 2012, and net debt-to-capital was 14%, compared with 27%. ADM paid $501 million in dividends and repurchased $101 million of stock during 2013. The quarterly dividend was increased from $0.19 to $0.24 per share in December 2013.
Material changes versus the prior comparable period
- Revenue decreased $755 million, mainly because lower commodity prices and lower Agricultural Services and Oilseeds Processing volumes outweighed favorable foreign-exchange translation.
- Corn Processing revenue increased 11% to $13.1 billion and operating profit increased $536 million to $814 million, reflecting a sharp recovery in ethanol profitability and strong sweetener demand.
- Agricultural Services revenue decreased 4% to $41.5 billion and operating profit decreased $399 million to $380 million.
- Oilseeds Processing operating profit decreased $147 million to $1.473 billion. Refining, packaging and biodiesel improved, but cocoa and crushing results weakened.
- Cash from operations increased to $5.2 billion, aided by a $2.4 billion reduction in inventories and a $2.9 billion favorable working-capital change.
- Financing activities used $3.2 billion, principally because ADM reduced borrowings as working-capital needs declined.
- Interest expense decreased 7% to $413 million, primarily because of lower average debt balances.
- The effective tax rate increased to 33.1% from 29.7%, primarily because of valuation allowances and geographic earnings mix, partly offset by biodiesel-related tax benefits.
Guidance, outlook, commentary, risks and unusual items
ADM does not provide forward-looking information in MD&A because results are highly sensitive to weather, crop availability, commodity prices, energy costs, government programs, global demand and foreign exchange. Management reported strong protein-meal and vegetable-oil demand, improved biodiesel and ethanol margins, tight U.S. sweetener capacity and weaker cocoa margins caused by excess processing capacity and competition.
- ADM expected 2014 capital expenditures of approximately $1.4 billion.
- Dividends and the planned repurchase of 18 million shares were expected to require approximately $1.4 billion of additional cash in 2014, assuming share prices comparable to late-January 2014 levels.
- ADM expected to spend approximately $1.5 billion through 2018 on currently approved capital projects not yet included in the contractual-obligations table.
- The accounts-receivable securitization program provided up to $1.1 billion and was fully utilized at year-end; it was scheduled to terminate June 28, 2014 unless extended.
- The $1.15 billion convertible senior notes were repaid with available funds on February 18, 2014.
- ADM’s proposed acquisition of GrainCorp was prohibited by the Australian Federal Treasurer. ADM recognized a $155 million impairment and $40 million of foreign-exchange hedge losses related to the transaction.
- 2013 included $259 million of asset impairment, exit and restructuring costs, including the GrainCorp impairment, Brazilian sugar-milling impairments and other asset write-downs.
- ADM settled FCPA matters with the DOJ and SEC in December 2013, recording approximately $54 million of monetary relief, plus a $1 million German fine included in SG&A.
- ADM was exploring a possible sale of its cocoa business, but had not reached a definitive agreement and did not classify the business as held for sale.
- Brazilian tax assessments totaled approximately $528 million, and Argentine assessments totaled $44 million, with potential additional Argentine assessments estimated at $534 million. ADM had not recorded liabilities for these matters because management believed its positions were more likely than not to prevail.
- Other principal risks include agricultural and energy-price volatility, commodity and derivative-market exposure, adverse regulation or trade policies, food safety and product liability, foreign-exchange and geopolitical risk, transportation and operational disruptions, information-security incidents, litigation, tax disputes and dependence on external financing.
Most important facts for investors to verify
- Reconcile calendar-year 2013 results with the unaudited calendar-year 2012 comparison and distinguish them from the six-month transition period.
- Assess underlying earnings excluding the $155 million GrainCorp impairment, Brazilian sugar and other asset impairments, FCPA costs, GrainCorp hedge losses and tax valuation allowances.
- Monitor sustainability of the 2013 recovery in ethanol and biodiesel margins and the performance of cocoa and Agricultural Services.
- Review liquidity after repayment of the convertible notes, planned 2014 capital spending, dividends and share repurchases.
- Evaluate continued reliance on the $1.1 billion receivables securitization program and the effects of its scheduled termination or renewal.
- Review exposure to the Brazil and Argentina tax assessments, FCPA compliance obligations and other legal proceedings.
- Examine commodity-price, basis, derivative, foreign-exchange and working-capital sensitivities, including the $7.5 billion of permanently reinvested foreign earnings and related potential U.S. tax exposure.
- Confirm the status and economics of the proposed cocoa-business sale and the company’s joint ventures and other equity investments.