Deciphering Financial Statements (Archer Daniels Midland Company)
The Investing Activities section of the statement of cash flows of Archer Daniels Midland
Company (ADM), seller of agricultural commodities and products, follows.
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Archer Daniels Midland Company |
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Consolidated Statements of Cash Flows |
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Year ended June 30 |
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(In thousands) |
2004 |
2003 |
2002 |
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Investing Activities |
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Purchases of property, plant and equipment |
$(509,237) |
$ (435,952) |
$(362,974) |
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Proceeds from sales of property, plant and equipment |
57,226 |
40,061 |
16,553 |
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Net assets of businesses acquired |
(93,022) |
(526,970) |
(40,012) |
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Investments in and advances to affiliates, net |
(112,984) |
(130,096) |
(65,928) |
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Distributions from affiliates, excluding dividends |
122,778 |
40,113 |
68,891 |
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Purchases of marketable securities |
(857,786) |
(328,852) |
(384,149) |
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Proceeds from sales of marketable securities |
786,492 |
271,340 |
345,004 |
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Other, net |
32,098 |
11,258 |
(11,108) |
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Total Investing Activities |
$(574,435) |
$(1,059,098) |
$(433,723) |
Based on the information given, answer the following questions.
Instructions:
1. Based on all the buying and selling activity associated with ADM’s marketable securities, how do you think the company classifies the bulk of its $3.0 billion portfolio of securities—as trading, available for sale, or held to maturity? Now, take a look at ADM’s note relating to its classification of all of its marketable securities.
Marketable Securities The Company classifies its marketable securities as available for sale, except for certain designated securities which are classified as trading securities. Available for sale securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a component of other comprehensive income (loss). Unrealized gains and losses related to trading securities are included in income on a current basis. The Company uses the specific identification method when securities are sold or classified out of accumulated other comprehensive income (loss) into earnings.
2. Was your answer to (1) the same as ADM’s classification policy? With the company selling one third of its investment portfolio in 2004, are the company’s actions consistent with its classification policy? Finally, take a look at a portion of ADM’s consolidated statements of shareholders’ equity from its 2004 annual report.
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Archer Daniels Midland Company |
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Consolidated Statements of Shareholders’ Equity |
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Accumulated |
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Common Stock |
Reinvested |
Other Comprehensive |
Total Shareholders’ |
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(In thousands) |
Shares |
Amount |
Earnings |
Income (Loss) |
Equity |
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Balance June 30, 2003 |
644,855 |
$5,373,005 |
$1,863,150 |
$(166,958) |
$7,069,197 |
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Comprehensive income |
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Net earnings |
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494,710 |
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Other comprehensive income |
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249,913 |
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Total comprehensive income |
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744,623 |
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Cash dividends paid— |
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$024 per share |
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(174,109) |
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(174,109) |
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Treasury stock purchases |
(309) |
(4,113) |
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(4,113) |
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Other |
6,202 |
62,618 |
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62,618 |
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Balance June 30, 2004 |
650,748 |
$5,431,510 |
$2,183,751 |
$ 82,955 |
$7,698,216 |
3. Assume that, other than available for sale securities, ADM had no other items that impacted other comprehensive income. Did the company’s portfolio of marketable securities experience an unrealized net gain or an unrealized net loss for the year? If these securities had been classified as trading, where would this amount have been reported?