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Lacey Frantz

Brian Adams

Carol Jackson

Desiree Martin

AB116: Accounting II - 1502A-01

Kaplan University

Unit 7 Group Annual Report Project

May 6, 2015

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Annual Report ProjectNancy A. Herring, PhD, CPA

Cover page image ©2010 PhotoDisc/Getty ImagesCopyright © 2010 by John Wiley & Sons, Inc.All rights reserved.No part of this publication may be reproduced, stored in a retrieval system or transmittedin any form or by any means, electronic, mechanical, photocopying, recording, scanningor otherwise, except as permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, or authorization throughpayment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive,Danvers, MA 01923, website www.copyright.com. Requests to the Publisher for permission should beaddressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748-6008, website http://www.wiley.com/go/permissions.To order books or for customer service, please call 1(800)-CALL-WILEY (225-5945).Printed in the United States of America.ISBN 978-0-470-87479-0

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Annual Report ProjectThe Annual Report Project (ARP) provides you and your group the opportunity to analyze a corporate annual report. You will obtain the annual report of a Fortune 500 company (top 500 from their current list) and answer questions regarding the application of concepts studied in your financial accounting course.The Annual Report Project:

Will increase your interest in financial accounting by allowing you to personally choose the annual report you will review as part of your group

Provides hands-on exposure to financial statements of real-world companies Emphasizes the importance of the notes to the financial statements Provides an opportunity to examine the application of procedures and

methods discussed in your accounting textbook Encourages you to work with spreadsheets and co-workers

The Annual Report Project consists of five sections and is designed to be a useful supplement for undergraduate financial accounting courses. The following is a list of the topics covered in each Annual Report Project assignment:

1 Obtaining the Annual Report 2 Company Information 3 Overview of the Annual Report 4 The Balance Sheet 5 The Income Statement

ANNUAL REPORT PROJECT - Section 1 – completed by groupGroup Members: Brian AdamsLacey FrantzDesiree MartinCarol Jackson

Company name and Fortune 500 Rank

1. Archer Daniels Midland Ranked # 272. The Mosaic Company Ranked # 283

Website location of each annual report.1. http://www.adm.com/en-US/investors/Documents/2014-ADM-Annual-Report.pdf 2. http://investors.mosaicco.com/interactive/lookandfeel/4097833/2014_Annual_Report_and_10_K.pdf

Why did you select these particular companies?1. Archer Daniels is one of the world’s largest agricultural processors established in 1902 where George

A. Archer and John W. Daniels began a linseed crushing business and later opens the Midland plant in 1923. (ADM 2015) This company has stood the test of time and is a strong partner with farmers and agriculture.

Ref: ADM. (2015), Our History, retrieved from http://www.adm.com/en-US/company/history/Pages/default.aspx

2. Increasing needs of food and crop demands, the Mosaic Company provides farmers with a naturally alternative fertilizer and crop nutrition minerals mined in North American, mainly Florida. (Mosaic 2015). Rising amounts of companies transferring business overseas, it’s nice to see a younger company based in America.

Ref: The Mosaic Company. (2015), Who Are We, Company overview, retrieved from http://www.mosaicco.com/Who_We_Are/overview.htm

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Section 2 Completed by Lacey Frantz Reviewed by Carol Jackson

INFORMATION ABOUT THE COMPANY

GUIDANCE FOR THIS AND THE FOLLOWING ASSIGNMENTS:• When a question asks you to explain, describe, analyze, etc., use complete sentences and well-organized paragraphs.• The space provided for the answer indicates the expected length of your answer.

1. Name of company chosen to complete entire assignment: The name of the company our group has chosen to analyses is Archer Daniels Midland.

2. Information about the company:

What is the industry classification for the company (according to Fortune )? According to Fortune, Archer Daniels Midland ranks number twenty-seven among the list of

Fortune 500 companies. The company’s ranking stayed consistent from the following year, 2013, holding at twenty-seven. Archer Daniels industry classification is farm products, such as oilseeds, wheat and also manufactures vegetable oils and protein meals. They have made recent additions to production and resume, including biodiesels and ethanol. (NYSE 2015) Archers Daniels Standard Industrial Classification (SIC) code is 2075 for Soybean Oil Mills. In addition, the North American Industry Classification System (NAICS) code is 311222 for Soybean Oil Mills. (ADM Permit 2009)References:

- Air Quality Division, Kaderly, S. (2009) Air Quality Constructions Permit (PDF) pg.1 (fact sheet), Para.1 retrieved from http://www.epa.gov/region07/air/nsr/archives/2009/finalpermits/adm_fremont_revised_final_psd_permit.pdf

- Fortune 500 (2014), Archer Daniels Midland, Retrieved from website http://fortune.com/fortune500/archer-daniels-midland-company-27/

- New York Stock Exchange (2015), Archer Daniels Midland Company, Retrieved from website

https://www.nyse.com/quote/XNYS:ADM/company

Describe the nature of the company’s business.

Archer Daniels specializes in processing food ingredients, animal feed, and biofuels for manufactures, both in the United States and internationally and is one of the world’s leading agricultural processors. They transform crops into something we all utilize, sometimes without even knowing it. Archer Daniels creates ingredients that are used to enhance the health and meet the nutritional demands of both farm animals, as well as your typical companion pets; like cat and dog foods. (ADM Feeds 2015), Archer Daniels didn’t stop there. According to Archer Daniels Midland (ADM Fuels 2015), the world’s consumption of energy is going to be fifty-five percent more in 2030 than what was used in 2005. This is where they come in to production of biofuels. References:

- ADM Corp., (2015), ADM Products & Services, dropdown feed, fuels. Retrieved from company website http://www.adm.com/en-US/products/Pages/default.aspx

List the company’s primary products or services (use brand names where available).The primary products and services are to transform crops into products that are used as additives

in feeds for life stocks and other animal nutrition. They produce many name brands that are probably recognized more by farmers and manufactures, such as soy proteins NutriSoy and Arcon, which are used to increase protein in food and improve freeze-thaw stabilities by retaining moisture (NutriSoy 2015). These are both used in products such as salad dressings and beverages. References:

- ADM Corp., (2015) NutriSoy, retrieved from company website http://www.adm.com/en-US/products/brands/nutrisoy/Pages/default.aspx

- International Directory of Company Histories; Encyclopedia, 2000; Archer-Daniels-Midland Company, retrieved from website http://www.encyclopedia.com/topic/Archer-Daniels-Midland_Company.aspx

What is the address of the company’s corporate headquarters?Global Headquarters and Customer Service Centers address: 77 West Wacker Drive, Suite 4600

Chicago, Illinois 60601Reference:

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- ADM Corp., (2015), Global Headquarters and Customer Center, retrieved from corporate website http://www.adm.com/en-us/_layouts/ContactUs.aspx

List other countries in which the company operates:As mentioned prior in this analysis, ADM is prominent in both the United States and

internationally, including Africa, Asia, Australia, Europe, Canada and South America. This also includes one hundred-forty countries and counting. They have three hundred manufacturing facilities and forty innovational centers (ADM 2015)Reference:

- ADM Corp., (2015), ADM Worldwide, retrieved from corporate website http://www.adm.com/en-US/worldwide/Pages/default.aspx

What were the company’s revenues for the most recent fiscal year? In 2014, according to Fortune 500, the company’s revenues showed $89,809 (0.9% increase from 2013) ($ millions)Reference:

- Fortune 500 (2014), Archer Daniels Midland, Retrieved from website http://fortune.com/fortune500/archer-daniels-midland-company-27/

Who is the chairman of the company’s board of directors?In 2014, ADM named Patricia A. Woertz the board of director’s chairman; this became effective on January 1, 2015.

Reference: - ADM Corp. News, (2015), ADM Names Juan Luciano Next CEO; Pat Woertz Remains Chairman, retrieved from

corporate website http://www.adm.com/news/_layouts/PressReleaseDetail.aspx?ID=611

Who is the company’s CEO?Juan R. LucianoReference:

- ADM Corp. News, (2015), ADM Names Juan Luciano Next CEO; Pat Woertz Remains Chairman, retrieved from corporate website http://www.adm.com/news/_layouts/PressReleaseDetail.aspx?ID=611

_________________________________________________3. Provide the following market data:

On what stock exchange is the company’s stock traded? New York Stock Exchange

What is the ticker symbol for the company? ADM

What was the price of the company’s stock at the end of one day during this past week?Price: $49.63 Date: May 1, 2015

What were the lowest and highest stock prices during the past year?52-week low: October 15, 2014- $42.98 52-week high: December 3, 2014- $53.71Reference:

- New York Stock Exchange (2015), Archer Daniels Midland Company, Retrieved from website https://www.nyse.com/quote/XNYS:ADM/company

4. Obtain a copy of an article about the company. Attach a copy of the article (required for credit).Name of article: ADM Announces Plan to Fight Deforestation

Source of article (name of magazine or newspaper, date, page numbers):The New York Times, March 31, 2015, Page B7

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Summarize the article. Use complete sentences and well-organized paragraphs. Your summary should be no fewer than 100 words in length.

Being one of the words largest food processors, Archer Daniels made a great achievement taking steps toward conservation and fighting against deforestation. To begin, Archer Daniels has plans to work with environmental experts to evaluate the impact their largest production has on the environment and ecosystems. The chief communications officer for Archer Daniels spoke to The New York Times about their actions towards deforestation and focusing on the more critical supply chains. Working alongside Forest Trust, Archer Daniels began efforts in planning a course to determine where and what production chains are affecting the ecosystems. One way Archer Daniels plans to conserve is by degrading land instead of forests

Many other large food production companies, aside from Archer Daniels, are taking the same actions against deforestation. Their main goal and reasoning is conservation and the ability it has to reducing costs. Reducing cost is the effects conservation has in the public eye and towards their customers; this coming from consumers being more interested in the way foods are processed and the ingredients that are going into the foods we eat. Forest Hero’s spoke on behalf of Archer Daniels and their competitors that are also taking actions toward conservation by saying these companies will be focusing on the Brazilian Amazon and use land that has already been cleared years ago. Conserving and in return also conserving the ecosystems that live within the forests, is a step in the right direction for all companies involved,; both environmentally and financially.

Reference:- The New York Times; Strom, S., (2015), ADM Announces Plan to Fight Deforestation, page B7, retrieved from

website http://www.nytimes.com/2015/04/01/business/adm-announces-plan-to-fight-deforestation.html?_r=0

Section 3 Completed by Carol Jackson Reviewed by Lacey Frantz

OVERVIEW OF ANNUAL REPORT

HELPFUL ADVICE: You will be able to complete the remaining assignments more readily if you take the time now to:

a. Save a copy of the five-year (or more) summary of selected financial data from your annual report. It contains several key numbers that will be required in future assignments.b. Print industry comparisons. One useful Web site is Reuters.com.*

Under the “News and Markets” tab, click on Stocks. Enter either the ticker symbol or company name. Across the top of the next screen, you will see an extensive menu of options for obtaining more

information about your company. You will find much of this useful. For ratios and industry comparisons, choose the Financials option from this menu.

*Another useful Web site is finance.yahoo.com

Name of company chosen: Archer Daniels Midland Company (ADM)

1. REVIEW THE ANNUAL REPORT, IT WILL CONTAIN SEVERAL SECTIONS:

a. FINANCIAL HIGHLIGHTS. This section provides a summary of selected financial results over a number of years. You may find two schedules providing highlights: one brief summary near the front of the annual report and a more detailed summary in the financial section.This second schedule may be called Five-Year Summary of Selected Financial Data.Note its page number here. Part I, Item 6; Pages 25-26

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b. THE CHAIRMAN’S LETTER. This letter provides the chairman’s overview of the past year and developments which will affect the next year. Part I, Item 1; Pages 4-14

c. THE COMPANY, ITS PRODUCTS, ITS EMPLOYEES. This section may contain a number of color photographs and will highlight the products and accomplishments of the company. Pages 4-9; Part I, Item 1

d. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating results, industries in which the company operates, financing and investing activities, significant events, trends and developments. Pages 27-48; Part II, Item 7

e. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS.This section contains the balance sheet (also called statement of financial position), income statement, statement of cash flows and statement of stockholders’ equity. The accompanying notes, as indicated at the bottom of each of the above statements, are an integral part of the financial statements. The financial statements cannot be understood without reference to the notes.

The financial statements and accompanying notes will be the focus of your Annual Report Project.Balance Sheet Page 54Income Statement Page 52Statement of Cash Flows Page 55Statement of Stockholders’ Equity Page 56Notes to the financial statements:(Include ALL notes. Attach an additional page if necessary.)Summary of significant accounting policies Note # 1 Pages 57-63Acquisitions Note # 2 Pages 63-65Fair Value Measurements Note # 3 Pages 66-71Derivative Instruments & Hedging Activities Note # 4 Pages 71-74Marketable Securities Note # 5 Page 75 Other Current Assets Note # 6 Pages 76Accrued Expenses and Other Payables Note # 7 Pages 76 Investments in and Advances to Affiliate Note # 8 Page 77Goodwill and Other Intangible Assets Note # 9 Pages 78Debt Financing Arrangements Note # 10 Pages 79-80Stock Compensation Note # 11 Pages 80-82Other (Income) Expense Note # 12 Pages 82-83 Income taxes Note # 13 Pages 84-88Leases Note # 14 Pages 89Employee benefit plans Note # 15 Pages 90-98Shareholder Equity Note # 16 Page 99Segment and Geographic Information Note # 17 Pages 100-105Assets and Liabilities Held for Sale Note # 18 Pages 105-106Asset Impairment, Exit, and Restructuring Cost Note # 19 Pages 106-107Sale of Accounts Receivable Note # 20 Pages 107-108Legal Proceedings, Guarantees, and Commitments Note # 21 Pages 108-109Quarterly Financial Data Note # 22 Pages 109-110Subsequent Event Note # 23 Page 110

f. MANAGEMENT REPORT ON INTERNAL CONTROL Part 1, Item 7; Pages 27-48

g. THE INDEPENDENT AUDITOR’S REPORT:REPORT ON INTERNAL CONTROL Page 112REPORT ON THE FINANCIAL STATEMENTS Page 111

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2. REVIEW THE CHAIRMAN’S LETTER TO THE SHAREHOLDERS.Summarize the major points made in the letter. Located at the beginning of the document no page numbers.

The major points, made in this letter to the shareholders, are the transformation of a stronger and more disciplined enterprise, better able to capitalize on global market trends with strong earning by rejuvenating their product mix, enhancing the efficiency of operations, and with continuing growth within the company and with room for expansion of the company.

Locate the management report(s) and the independent auditor’s report(s). Answer the following questions. a) Who is responsible for the preparation and integrity of the financial statements? This would be the responsibility of management to providing sound financial information to the internal auditors so that they can complete the financial statements.

b) Does the company maintain a system of internal controls? Why?Yes. Archer Daniels maintains a system of internal controls. The management is responsible for

day to day assessment and mitigation activities whereas the board of director is responsible for any risk oversight and focuses on the company’s overall risk management strategies.

c) Does the company have an audit committee? What is its purpose?Yes. Archer Daniels Midland has an audit committee. Its purpose is to maintain responsibility for

overseeing the company’s enterprise risk management process and regularly discusses the major risk exposures. They periodically report to board of directors significant matters identified. The audit committee reviews the overall plan of the annual independent audit, financial statements, the performance of the independent auditors and internal auditors, the auditor’s evaluation of internal controls, matters of legal and regulatory compliance, the performance of the company’s compliance functions, and certain relationships and related transactions.(ADM 2014)

d) What is the name of the independent public accountant (auditor)?The independent public accounting firm for Archer Daniels Midland Company is Ernst & Young LLP.

(Note: There are two independent auditor’s reports: (1) a report on internal control, and (2) a reporton the financial statements. The following questions relate to the financial statement audit.)

e) According to the auditor’s report on the financial statements, what is the auditor’s responsibility?

The independent auditor’s responsibility is to express an opinion on the financial information listed on the financial statements and schedule based on their findings of the audit.(ADM 2014)

f) According to the audit report, what is an audit? An audit is to obtain reasonable assurance about whether the financial statements are free of material misstatements.

g) Summarize the auditor’s opinion.In the auditor’s opinion, the Archer Daniels Midland Company presents “fairly in all material

respects, the financial position of the company in conformity with U.S. generally accepted accounting principles.”

Reference: - Archer Daniels Midland Company, (2014) 2014 ADM Annual Report (pdf. Format) Retrieved from ADM Corp website

http://origin.adm.com/en-US/investors/Documents/2014-ADM-Annual-Report.pdf

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Section 4 Completed by Desiree Martin Reviewed by Brian Adams

THE BALANCE SHEETName of company chosen: Archer Daniels Midland Ranked # 27 (ADM)

THE BASICSLocate the company’s balance sheet. Balance sheet date: December 31, 2014, Page on which balance sheet appears: 54

1. The accounting equation is Assets = Liabilities + Stockholders’ Equity. Replacing the words in the accounting equation with dollar amounts; give the company’s accounting equation at the end of the current and prior years.

Assets = Liabilities + Equity

This year (2014): 44,027 = 24,397 + 19,630Last year (2013): 43,752 = 23,558 + 20,194

2. Calculate the company’s current ratio (XX: 1) for both this year and the prior year. Show your computations.

This year (2014): 44,027 / 24,397 = 1.80:1

Last year (2013): 43,752 / 23,558 = 1.86:1

Explain what information this ratio provides. (Hint: See the Financial Statement Analysis from your textbook.) Use complete sentences .

This ratio provides measures of the company’s ability to pay short-term liabilities with its short-term assets.

Has the current ratio improved or worsened? Explain . Use complete sentences. The current ratio has worsened since last year. The higher the current ratio the more capable the

company is of paying its obligations. Last year ratio was higher than this years.

Calculate the company’s debt to total assets ratio (also called total debt to equity) for both this year and the prior year. The result will be a %. Show your computations.

This year: 15,602 + 8,795 / 44,027 = 55%

Last year: 15,658 + 7,900 / 43,752 = 53%

Explain what information this ratio provides. Use complete sentences .This ratio defines the total amount of debt relative to assets. This allows comparisons of leverage to be made across different companies.

Has the ratio improved or worsened? Explain. Use complete sentences .The ratio has worsened since last year. The higher the ratio is the higher the degree of leverage and the higher the financial risk.

3. Compare these ratios to industry averages.Use the ratios you researched in Section 3.

Your company IndustryCurrent ratio 1.80:1 2.9:1Debt to equity ratio 55% 35.46%

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How do the results for your company compare to industry averages?

Even though Archer Daniel Midland’s ratios are much lower than the industry average, Archer Daniels has a solid balance sheet when comparing its price to earnings ratio. According to a case study done by Han Kang (2010), Archer Daniels current ration in 2009 was in better standing at 2.2:1than it is today, but the company’s debt to equity ratio was at 60% for both long and short term equity. When we compare 2013 ratios we find that when compared to 2014 the Debt to Equity ratio was lower by 2 percent at 53% and the current ratio was respectively higher. It looks as though, over the last few years, the business has been losing their current ratio and everywhere on the chart for debt ratio.

References:

- Kang, H.B.; Journal of Business Case Studies (May/June 2010); A Case Study on The Archer DanielsMidland (ADM) Company’s Financial Statement Analysis: Strengths and Weaknesses (PDF File), Volume 6, Number 3, table2; Retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=8&ved=0CE8QFjAH&url=http%3A%2F%2Fwww.cluteinstitute.com%2Fojs%2Findex.php%2FJBCS%2Farticle%2Fdownload%2F879%2F863&ei=xv9JVezBMsifgwSEm4CgAw&usg=AFQjCNHLx1tmXUg-7UOyPbOAFDfh3n7o3A&sig2=0oEU_0HsnuzcPaNlDENkVg&bvm=bv.92291466,d.eXY

- Archer Daniels Midland Company, (2014) 2014 ADM Annual Report (pdf. Format) Retrieved from ADM Corp website http://origin.adm.com/en-US/investors/Documents/2014-ADM-Annual-Report.pdf

Section 5 Completed by Brian Adams Reviewed by Desiree Martin

THE INCOME STATEMENTName of company chosen: Archer Daniels Midland Company

Locate the company’s income statement.What is the period covered by the income statement? The income statement (or Consolidated Statement of Earnings) covers 2012 through 2014.What is the page on which the income statement appears? Page 52

THE BASICS1. Does the format of the statement more closely follow a single-step or a multiple-step format? Archer Daniels Midland Company uses the multi-step format for their Income Statement.

How can you tell?The difference between a single-step format and a multi-step format is how the information is broken down. The single-step format will just show Revenues and Gains, Expenses and Losses, and the Net Income. Archer Daniels Midland Company’s income statement shows how where their information derived from like Revenues; Cost of Products sold, Interest Expense, and so on.

2. Calculate the following ratios for each of the three years presented.Show your computations. Gross Profit Rate = Net Sales/Gross Profit*100

Current year (2014) Last year (2013) Two years ago(2012)

• Gross profit rate (%) ($4,768/$81,201)*100= 5.87% ($3,889/$89,804)*100= 4.33 % ($1,802/$46,729)*100=3.86%

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• Ratio of operating expenses to sales (or operating revenue) (%)

[(COGS + Selling and Administrative Expense) / Net Sales] * 100 = Operating Ratio

For 2014 [(76433+1907) / 81201] * 100 = 96.5%

For 2013 [(85915+1759) / 89804] * 100 = 97.6%

For 2012 [(44927+1802) / 46729] * 100 = 100%

• Profit margin (%) Net income/sales or operating revenues Gross Profit / Revenue = Profit Margin Percentage

For 2014 4768 / 81201 * 100 = 5.87%

For 2013 3889 / 89804 * 100 = 4.33% For 2012 1802 / 46729 * 100 = 3.86%

• Return on assets Net income/average total assets

For 2014 Average Total Assets = (44027 + 43752) / 2 = 43889.5 Return On Assets = 4768 / 43889.5 = 10.86%

For 2013 Average Total Assets = (43752 + 45136) / 2 = 44444 Return On Assets = 3889 / 44444 = 8.75%

For 2012 Average Total Assets = (45136 + 42193) / 2 = 43664.5 Return On Assets = 1802 / 43664.5 = 4.13%

References:

Yahoo Finance, U.D.(2014), Archer Daniels Midland company balance sheet. Retrieved from http://finance.yahoo.com/q/bs?s=ADM+Balance+Sheet&annual. Retrieved on May 1, 2015.

ADM, (2015). Archer Daniels Midland company 2011 annual report: selected financial data. Retrieved from http://www.adm.com/en-us/investors/shareholder_reports/2011ar/financial_highlights/Pages/default.aspx. Retrieved on May 1, 2015.

You will find prior years’ assets in the Five-Year Summary of Selected Financial Data.

3. Comment on these ratios. What can you tell about the health of this company based on the calculations from the previous question? Use complete sentences.

Starting with the Gross Profit Ratio we can see that it has declined a little bit over the last couple years. What this may tell us is that the cost of producing the goods may have gone up. We can also see on the Income Statement that Archer Daniels did not generate quite as much revenues as the previous year but almost doubled their revenue from 2011 and 2012. The Operating Ratio shows Archer Daniels has become a little more efficient (by 3.5%) over the 2 previous years. The smaller the ratio the better the company can still make a profit if revenue does fall. We can

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notice that 2012 looks to break even with a 100% Operating Ratio. Profit margin shows how well a company generates a profit. Here we see Archer Daniels has improved a little bit over the last 3 years and is making more per dollar. Finally, the return on assets shows an improvement over the last couple years, more than doubling from 2012. This improvement means the money and assets Archer Daniels is putting into the company is making a difference in their profit. So from my overall summary of the company, we can see that Archer Daniels Midland is working more efficiently, and generating a little more profit for the company each year.