Archer Daniels Midland 2005 Annual Report Download

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A r c h e r D a n i e l s M i d l a n d C o m p a n y
2 0 0 5 A n n u a l R e p o r t

Table of contents

  • Page 1
    Archer Daniels Midland Company 2005 Annual Report

  • Page 2
    ...Shareholder Letter ...Resourceful by Nature ...1 2 4 Financial Review (MD&A) ...23 Financial Statements and Notes ...35 Quarterly Financial Data ...54 Common Stock Market Prices and Dividends ...55 Ten-Year Summary ...56 Directors ...58 Executive Committee ...60 Corporate Officers ...61 Stockholder...

  • Page 3
    Archer Daniels Midland Company 2005 Annual R e p o r t Financial Highlights 2005 Net sales and other operating income ...Net earnings ...Cash dividends ...Gross additions to property, plant, and equipment ...Depreciation ...Working capital ...Net property, plant and equipment ...Long-term debt ......

  • Page 4
    Archer Daniels Midland Company 2005 Annual R e p o r t Dear Shareholders: This past year ADM reported record earnings of $1 ...seize future opportunities in our markets. The foundation for our business is agricultural processing. Whether we are creating ethanol from corn, protein meal from oilseeds...

  • Page 5
    ...and Europe, global energy markets are creating new opportunities for fuel derived from renewable crops. Technology completes the equation for expanded agricultural value. In addition to... create growing returns for our shareholders. Sincerely, G. Allen Andreas Chairman and Chief Executive P a g e 3

  • Page 6
    Archer Daniels Midland Company 2005 Annual R e p o r t Resourceful by Nature Intellectual Capital Drives Higher Returns from ADM's Global Facilities and Investments ntellectual capital is the difference between a piano and a concert, the ingredient that transforms cloth into clothes and paint into...

  • Page 7
    ... record of customer service, agricultural processing and financial performance results from both an unsurpassed network of facilities and the powerful insights of more than 25,000 employees. Most people look at a farm and see corn, or soybeans or wheat. At Archer Daniels Midland, we see opportunity...

  • Page 8
    Archer Daniels Midland Company 2005 Annual R e p o r t "ADM recognizes that you can sell a commodity product, but you don't have to treat it like a commodity. That makes a difference for us." Quality Manager Major Beverage Company The intellectual capital that delivers success is difficult to ...

  • Page 9
    ... markets for ADM, from soybean meals used in animal feeds to refined soy oils sold in retail stores.... ADM's expansion of sourcing facilities in South America and joint venture investments in processing facilities in China comprise a strong commitment of capital and talent to one of the world...

  • Page 10
    ... of ADM is strengthened by the Company's ability to manage distribution logistics, ensuring timely delivery when truck or railroad service is less than optimal. Others note the support they receive in securing longterm pricing or effective hedges of their commodity costs. ADM consistently delivers...

  • Page 11
    ... fairly simple, but the process of developing a new snack line is highly complex. In 2005, as Flowers Foods developed its new Mrs. Freshley's Snack-Away line of healthier snack cakes, ADM's research team worked closely with Flowers' R&D and marketing team to perfect the balance of nutrition, taste...

  • Page 12
    Archer Daniels Midland Company 2005 Annual R e p o r t industrial companies. Experience shows that successful collaboration creates the potential to expand the customer relationship. "We certainly feel comfortable after we make a trade with ADM that they'll deliver what they committed to. The best...

  • Page 13
    When drivers have a choice of fuels to power their vehicles, they often select the value offered by ethanol. In Brazil, where many cars can run on any blend of gasoline and ethanol, the economics of locally produced ethanol drive strong demand ...

  • Page 14
    Archer Daniels Midland Company 2005 Annual R e p o r t Taken together, these trends have the potential to generate sustainable increases in the price of oil, leading to relatively higher costs for both fuels and other products made from petroleum.These higher costs result in attractive comparative...

  • Page 15
    ..., such as biodiesel derived from oilseeds. In Germany and France, where biodiesel makes up approximately 3% of the fuel supply, government policy and driver preferences support the growth of this alternative fuel. ADM delivers biodiesel in European markets, raising total demand for farmers' crops.

  • Page 16
    Archer Daniels Midland Company 2005 Annual R e p o r t "ADM makes the ongoing commitment to collaborate on science-based new product ideas and improvements. The focus is connecting what the consumer needs with what is possible. That is also our approach." Tom Zimmerman Vice President, Business ...

  • Page 17
    ... of customer service, but it's merely the first step when building a long-term relationship. ADM works with customers large and small to help manage transportation logistics, inventory, quality control and staff education. At Hilliard's House of Candy, a fourth-generation candy company in Easton...

  • Page 18
    Archer Daniels Midland Company 2005 Annual R e p o r t Metabolix PHA technology received a Presidential Green Chemistry Challenge Award from the Environmental Protection Agency in 2005, and ADM earned two of the six awards issued by the EPA this year, a first since the awards began ten years ago. ...

  • Page 19
    ... latex paint dries, but ADM's Archer RCâ„¢ coalescent provides a safe alternative recognized in 2005 with the EPA's Presidential Green Chemistry Challenge Award. Increasingly, crops offer attractive alternatives in applications as diverse as packaging foam, strand board used in construction, circuit...

  • Page 20
    ... of each crop is diverted to a new market. That's just part of what it means to be Resourceful by Nature. Beyond the initiatives noted above, ADM is working independently or with research partners in a number of intriguing areas. Propylene glycol, a 2.6 billion pound global market, finds broad...

  • Page 21
    ...processors to adapt nutrition and taste to changing market demands. As new regulations mandate the labeling of trans fat content in processed foods, ADM has worked with hundreds of customers to adapt or reformulate their products for the new market environment.The challenge for food processors is to...

  • Page 22
    Archer Daniels Midland Company 2005 Annual R e p o r t "I rely on my contacts at ADM to help me serve my own customers better. The people on my team at ADM are some of the best I've ever worked with." Commodity Buyer Agricultural Cooperative Volatility is the norm in energy and crop pricing. ADM ...

  • Page 23
    ... of starch is expanding rapidly as new technologies multiply the market opportunities for this renewable resource. ADM and Metabolix are working together to develop starch-based products that can replace petroleum-based plastics - expanding markets for crops and reducing dependence on foreign oil...

  • Page 24
    ...39 Notes to Consolidated Financial Statements ...40 Management's Report on Internal Control Over Financial Reporting ...51 Reports of Independent Registered Public Accounting Firm ...52 Quarterly Financial Data (Unaudited) ...54 Common Stock Market Prices and Dividends ...55 Ten-Year Summary ...56...

  • Page 25
    Archer Daniels Midland Company 2005 Annual Report MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION - JUNE 30, 2005 COMPANY OVERVIEW The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company's...

  • Page 26
    ...-related lawsuit pertaining to the flood of 1993. Analysis of Statements of Earnings Net sales and other operating income decreased slightly to $35.9 billion principally due to lower average selling prices of agricultural commodities. This decrease was partially offset by currency exchange rate...

  • Page 27
    Archer Daniels Midland Company 2005 Annual Report $383 million from prior year levels primarily due to increased energy and personnel-related costs. Manufacturing costs for 2005 and 2004 include a $42 million and $51 million charge, respectively, for abandonment and write-down of long-lived assets....

  • Page 28
    ... into a settlement agreement related to a class action lawsuit involving the sale of high-fructose corn syrup pursuant to which the Company paid $400 million. Net earnings for fiscal 2004 increased principally due to improved Corn Processing and Agricultural Services operating results and improved...

  • Page 29
    Archer Daniels Midland Company 2005 Annual Report acquired businesses. In addition, net sales and other operating income increased $1.5 billion, or 5%, due to currency exchange rate fluctuations. These increases were partially offset by reduced sales volumes of soybeans and commodity-based oilseeds...

  • Page 30
    ... were $1.4 billion in 2005 compared to borrowings of $484 million in 2004 due to increased net earnings and decreased working capital requirements resulting from decreased commodity prices. Capital resources were strengthened as shown by the increase in the Company's net worth to $8.4 billion. The...

  • Page 31
    ... the Company's merchandisable agricultural commodity inventories, forward fixed-price purchase and sale contracts, and exchange-traded futures and options contracts are valued at estimated market values. These merchandisable agricultural commodities are freely-traded, have quoted market prices, and...

  • Page 32
    ... to fix the purchase price of anticipated volumes of commodities to be purchased and processed in a future month and to fix the purchase price of the Company's anticipated natural gas requirements for certain production facilities. The Company also uses derivative contracts to fix the sales price of...

  • Page 33
    Archer Daniels Midland Company 2005 Annual Report commodities and products. These new products are not always successful from either a commercial production or marketing perspective. Management evaluates the Company's property, plant, and equipment for impairment whenever indicators of impairment ...

  • Page 34
    ... analysis has been prepared to estimate the Company's exposure to market risk of its daily net commodity position. The Company's daily net commodity position consists of inventories, related purchase and sale contracts, and exchange-traded futures contracts, including those contracts used to...

  • Page 35
    Archer Daniels Midland Company 2005 Annual Report SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. Receivables The Company records trade ...

  • Page 36
    .... Net sales to unconsolidated affiliates during the year ended June 30, 2005, were $2.9 billion. Stock Compensation Effective July 1, 2004, the Company adopted the fair value recognition provisions of SFAS Number 123, Accounting for Stock-Based Compensation, for stock-based employee compensation...

  • Page 37
    Archer Daniels Midland Company 2005 Annual Report CONSOLIDATED STATEMENTS OF EARNINGS 2005 Net sales and other operating income ...Cost of products sold ...Gross Profit ...Selling, general, and administrative expenses ...Other expense (income) - net ...Earnings Before Income Taxes ...Income taxes ...

  • Page 38
    Archer Daniels Midland Company 2005 Annual Report CONSOLIDATED BALANCE SHEETS June 30 ASSETS 2005 (In thousands) 2004 Current Assets Cash and cash equivalents ...Segregated cash and investments ...Receivables ...Inventories ...Other assets ...Total Current Assets ...Investments and Other Assets ...

  • Page 39
    ...' EQUITY 2005 (In thousands) 2004 Current Liabilities Short-term debt ...Accounts payable ...Accrued expenses ...Current maturities of long-term debt ...Total Current Liabilities ...Long-Term Liabilities Long-term debt ...Deferred income taxes ...Other ...Shareholders' Equity Common stock...

  • Page 40
    Archer Daniels Midland Company 2005 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS 2005 Operating Activities Net earnings ...Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation ...Asset abandonments ...Deferred income taxes ...(Gain) loss on ...

  • Page 41
    Archer Daniels Midland Company 2005 Annual Report CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Shares Amount Balance June 30, 2002 ...Comprehensive income Net earnings ...Other comprehensive income ...Total comprehensive income ...Cash dividends paid - $.24 per share ...Treasury ...

  • Page 42
    Archer Daniels Midland Company 2005 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1-Acquisitions The 2005, 2004, and 2003 acquisitions were accounted for as purchases in accordance with SFAS Number 141, Business Combinations. Accordingly, the tangible assets and liabilities have ...

  • Page 43
    ... To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. The Company will also...

  • Page 44
    ... 2004 Oilseeds Processing ...Corn Processing ...Agricultural Services ...Other ...Total ... The changes in goodwill during 2005 are principally related to the finalization of allocations of purchase prices for acquisitions and foreign currency translation adjustments. The Company's other intangible...

  • Page 45
    Archer Daniels Midland Company 2005 Annual Report Note 7-Shareholders' Equity The Company has authorized one billion shares of common stock and 500,000 shares of preferred stock, each without par value. No preferred stock has been issued. At June 30, 2005 and 2004, the Company had approximately 21...

  • Page 46
    ... the statutory federal income tax rate to the Company's effective tax rate on earnings is as follows: Statutory rate ...Export tax incentives ...State income taxes, net of federal tax benefit ...Foreign earnings taxed at rates other than the U.S. statutory rate ...Other ...Effective rate ...2005 35...

  • Page 47
    Archer Daniels Midland Company 2005 Annual Report Note 11-Leases The Company leases manufacturing and warehouse facilities, real estate, transportation assets, and other equipment under operating leases which expire at various dates through the year 2076. Rent expense for 2005, 2004, and 2003 was $...

  • Page 48
    ... ...Unamortized transition amount ...Unrecognized net loss ...Unrecognized prior service costs ...Adjustment for fourth quarter contributions ...Pension liability recognized in the balance sheet ...Prepaid benefit cost ...Accrued benefit liability - current ...Accrued benefit liability - long-term...

  • Page 49
    Archer Daniels Midland Company 2005 Annual Report The following table sets forth the principal assumptions used in developing the benefit obligation and the net periodic pension expense: Pension Benefits 2005 2004 5.4% 5.6% 7.2% 7.4% 3.7% 4.1% Postretirement Benefits 2005 2004 5.8% 5.8% N/A N/A N/A...

  • Page 50
    ... agricultural commodities and products. The Company's operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company...

  • Page 51
    Archer Daniels Midland Company 2005 Annual Report 2005 Interest expense Oilseeds Processing ...Corn Processing ...Agricultural Services ...Other ...Corporate ...Total ...Depreciation Oilseeds Processing ...Corn Processing ...Agricultural Services ...Other ...Corporate ...Total ...Equity in earnings...

  • Page 52
    ... 10,049 $30,708 Note 15-Antitrust Litigation Settlement In 2004, the Company entered into a settlement agreement related to a class action antitrust suit involving the sale of high-fructose corn syrup pursuant to which the Company accrued $400 million ($252 million after tax). The $400 million was...

  • Page 53
    ...public accounting firm, has issued an attestation report on management's assessment of the Company's internal control over financial reporting as of June 30, 2005. That report is included herein. G. Allen Andreas Chairman and Chief Executive Officer Douglas J. Schmalz Senior Vice President & Chief...

  • Page 54
    ... U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Archer Daniels Midland Company and subsidiaries' internal control over financial reporting as of June 30, 2005...

  • Page 55
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Archer Daniels Midland Company Decatur, Illinois We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Archer Daniels Midland Company and...

  • Page 56
    Archer Daniels Midland Company 2005 Annual Report QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter First Fiscal 2005 Net Sales ...Gross Profit ...Net Earnings (Loss) ...Diluted Earnings (Loss) Per Common Share ...Fiscal 2004 Net Sales ...Gross Profit ...Net Earnings (Loss) ...Diluted Earnings (Loss) ...

  • Page 57
    Archer Daniels Midland Company 2005 Annual Report COMMON STOCK MARKET PRICES AND DIVIDENDS The Company's common stock is listed and traded on the New York Stock Exchange, Chicago Stock Exchange, Frankfurt Stock Exchange, and Swiss Stock Exchange. The following table sets forth, for the periods ...

  • Page 58
    Archer Daniels Midland Company 2005 Annual Report TEN-YEAR SUMMARY Operating, Financial, and Other Data (Dollars in thousands, except per share data) 2005 Operating Net sales and other operating income ...Depreciation ...Net earnings ...Basic earnings per common share ...Diluted earnings per ...

  • Page 59
    2002 2001 2000 1999 1998 1997 1996 $22,611,894 566,576 511,093 0.78 0.78 130,000 0.20 $19,483,211 572,390 383,284 0.58 0.58 125,053 0.19 $18,612,423 604,229 300,903 0.45 0.45 120,001 0.18 $18,509,903 584,965 265,964 0.39 0.39 117,089 0.17 $19,832,594 526,813 403,609 0.59 0.59 111,551 0.16...

  • Page 60
    Archer Daniels Midland Company 2005 Annual Report DIRECTORS G. Allen Andreas Chairman and Chief Executive Officer Mr. Andreas, 62, joined ADM in 1973 and served in both domestic and international positions before being named President and Chief Executive in 1997. He was first elected a Director in...

  • Page 61
    ... Nominating/Corporate Governance Committees. Kelvin R. Westbrook President and Chief Executive Officer of Millennium Digital Media, LLC (a broadband services company) Mr. Westbrook, 50, is also a Director of Angelica Corporation. He joined ADM's Board in 2003. Mr. Westbrook serves on the Audit and...

  • Page 62
    Archer Daniels Midland Company 2005 Annual Report EXECUTIVE COMMITTEE G. Allen Andreas Chairman and Chief Executive Officer Chairman, Executive Committee Paul B. Mulhollem President and Chief Operating Officer Steven R. Mills Group Vice President and Controller John D. Rice Executive Vice ...

  • Page 63
    Archer Daniels Midland Company 2005 Annual Report CORPORATE OFFICERS G. Allen Andreas Chairman and Chief Executive Officer Paul B. Mulhollem President and Chief Operating Officer David J. Smith Executive Vice President, Secretary and General Counsel William H. Camp Executive Vice President (Global...

  • Page 64
    ... 2005 Annual Report STOCKHOLDER INFORMATION Stock Exchanges Archer Daniels Midland Company Common Stock is listed and traded on the New York Stock Exchange, Chicago Stock Exchange, Frankfurt Stock Exchange and the Swiss Stock Exchange. Ticker symbol: ADM. Transfer Agent and Registrar Hickory Point...

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