UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended June 30, 2008
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from________ to _________
Commission
file number 1-44
ARCHER-DANIELS-MIDLAND
COMPANY
(Exact
name of registrant as specified in its charter)
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Delaware
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41-0129150
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(State
or other jurisdiction of
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(I.
R. S. Employer
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incorporation
or organization)
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Identification
No.)
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4666
Faries Parkway Box 1470 Decatur,
Illinois
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62525
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(Address
of principal executive offices)
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(Zip
Code)
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217-424-5200
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(Registrant's
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each exchange
on which registered
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Common
Stock, no par value
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New
York Stock Exchange
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Frankfurt
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer x Accelerated
Filer o
Non-accelerated
Filer o Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
Common
Stock, no par value--$29.2 billion
(Based on
the closing sale price of Common Stock as reported on the New York Stock
Exchange
as of
December 31, 2007)
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
Common
Stock, no par value—644,267,509 shares
(July 31,
2008)
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the proxy statement for the annual meeting of stockholders to be held
November 6, 2008, are incorporated by reference into Part III.
SAFE
HARBOR STATEMENT
This Form
10-K contains forward-looking information that is subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected, expressed, or implied by such forward-looking
information. In some cases, you can identify forward-looking
statements by our use of words such as “may, will, should, anticipates,
believes, expects, plans, future, intends, could, estimate, predict, potential
or contingent,” the negative of these terms or other similar
expressions. The Company’s actual results could differ materially
from those discussed or implied herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this Form 10-K for the fiscal year ended June 30, 2008. Among
these risks are legislative acts; changes in the prices of food, feed, and other
commodities, including gasoline; and macroeconomic conditions in various parts
of the world. To the extent permitted under applicable law, the
Company assumes no obligation to update any forward-looking statements as a
result of new information or future events.
Table of
Contents
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Item
No.
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Description
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Page
No.
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Part
I
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||
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1.
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Business
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4
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1A.
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Risk
Factors
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10
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1B.
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Unresolved
Staff Comments
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12
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2.
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Properties
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13
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3.
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Legal
Proceedings
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15
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4.
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Submission
of Matters to a Vote of Security Holders
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15
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Part
II
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5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters,
and
Issuer Purchases of Equity Securities
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16
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6.
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Selected
Financial Data
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19
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7.
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Management’s
Discussion and Analysis of Financial Condition and
Results
of Operations
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20
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7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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34
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8.
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Financial
Statements and Supplementary Data
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36
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9.
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Changes
in and Disagreements With Accountants on Accounting
and
Financial Disclosure
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75
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9A.
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Controls
and Procedures
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75
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9B.
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Other
Information
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75
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Part
III
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||
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10.
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Directors,
Executive Officers and Corporate Governance
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76
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11.
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Executive
Compensation
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78
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12.
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Security
Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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79
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
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79
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14.
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Principal
Accounting Fees and Services
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79
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Part
IV
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15.
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Exhibits
and Financial Statement Schedules
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79
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Signatures
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84
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PART
I
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Item
1.
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BUSINESS
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Company
Overview
Archer
Daniels Midland Company (the Company) was incorporated in Delaware in 1923,
successor to the Daniels Linseed Co. founded in 1902. The Company is
one of the world’s largest processors of oilseeds, corn, wheat, cocoa, and other
feedstuffs and is a leading manufacturer of soybean oil and protein meal, corn
sweeteners, flour, biodiesel, ethanol, and other value-added food and
feed ingredients. The Company also has an extensive grain elevator
and transportation network to procure, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, and barley.
During
the past five years, the Company has experienced significant growth, spending
approximately $5.3 billion for construction of new plants, maintenance and
expansions of existing plants, and the acquisitions of plants and transportation
equipment. The Company is constructing two dry corn milling plants
which will increase the Company’s annual ethanol production capacity by 550
million gallons to 1.7 billion gallons. In addition, the Company is
currently constructing a polyhydroxy alkanoate (PHA) natural plastics production
facility, a propylene/ethylene glycol production facility, two cocoa processing
facilities, and two coal cogeneration facilities. Construction of
these plants is expected to be completed during the next two fiscal
years. The Company expects to spend approximately $2.5 billion to
complete construction of these facilities and other approved capital projects
over the next five years. There have been no significant dispositions
during the last five years.
Segment
Descriptions
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’s remaining operations are aggregated and
classified as Other. Financial information with respect to the
Company’s reportable business segments is set forth in “Note 14 of Notes to
Consolidated Financial Statements” included in Item 8 herein, “Financial
Statements and Supplementary Data.”
Oilseeds
Processing
The
Company is engaged in processing oilseeds such as soybeans, cottonseed,
sunflower seeds, canola, peanuts, and flaxseed into vegetable oils and protein
meals in North America, Europe, South America and Asia principally for the food
and feed industries. Crude vegetable oil is sold “as is” or is
further processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food
products. Partially refined oil is sold for use in chemicals, paints
and other industrial products. Refined oil can be further processed
for use in the production of biodiesel. Oilseed meals are primary
ingredients used in the manufacture of commercial livestock and poultry
feeds. Cottonseed flour is produced and sold primarily to the
pharmaceutical industry. Cotton cellulose pulp is manufactured and
sold to the chemical, paper, and filter markets. Lecithin, an
emulsifier produced in the vegetable oil refining process, is marketed as a food
and animal feed ingredient.
The
Company produces a wide range of edible soy protein products including soy
flour, soy grits, soy protein concentrates and soy isolates that are used in
processed meats, baked foods, nutritional products, snacks, and dairy and meat
analogs.
The
Company produces natural source vitamin E, tocopherol antioxidants and
phytosterols from co-products of oilseeds which are marketed to the dietary
supplement and food industry. The Company produces soy isoflavones, a
dietary supplement, from a co-product of edible soy processing.
In South
America, the Company is also a supplier of fertilizer products.
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Item
1.
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BUSINESS
(Continued)
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Golden
Peanut Company LLC, a joint venture between the Company and Alimenta (U.S.A.),
Inc., is a major supplier of peanuts to both the domestic and export
markets. The Company has a 50% ownership interest in this joint
venture.
The
Company has a 16.1% ownership interest in Wilmar International Limited, a
Singapore publicly-listed company. Wilmar International Limited is
the largest agricultural processing business in Asia and operates palm
plantations; soybean, rapeseed, cottonseed, sunflower seed, peanut, palm kernel,
and sesame seed crushing facilities and related vegetable oil refineries and
packaging facilities; an oleochemical plant that produces fatty acids, glycerin,
and soap noodles; a soy protein plant; wheat flour mills; rice mills; feed
mills; fertilizer operations; and related silos and storage
facilities.
Corn
Processing
The
Company is engaged in wet milling and dry milling corn operations primarily in
the United States. Products produced for use in the food and beverage
industry include syrup, starch, glucose, dextrose, and
sweeteners. Dextrose is also produced for use by the Company as a
feedstock for its bioproducts operations. Corn gluten feed and meal
as well as distillers grains are produced for use as animal feed
ingredients. Corn germ, a by-product of the wet milling process, is
further processed as an oilseed into vegetable oil and protein
meal.
By
fermentation of dextrose, the Company produces alcohol, amino acids, and other
specialty food and animal feed ingredients. Ethyl alcohol is produced
to beverage grade or for industrial use as ethanol. In gasoline,
ethanol increases octane and is used as an extender and
oxygenate. Amino acids, such as lysine and threonine, are vital
compounds used in swine feeds to produce leaner animals and in poultry feeds to
enhance the speed and efficiency of poultry production. The Company
also produces, by fermentation, astaxanthin, a product used in aquaculture to
enhance flesh coloration. The Company produces citric and lactic
acids, lactates, sorbitol and xanthan gum which are used in various food and
industrial products.
Almidones
Mexicanos S.A., in which the Company has a 50% interest, operates a wet corn
milling plant in Mexico.
Eaststarch
C.V. (Netherlands), in which the Company has a 50% interest, owns interests in
companies that operate wet corn milling plants in Bulgaria, Hungary, Romania,
Slovakia, and Turkey.
The
Company has a 50% interest in Telles, LLC (Telles), a joint venture formed
between the Company and Metabolix to market and sell PHA, which will be produced
in a facility being constructed by the Company which is expected to be completed
during fiscal 2009.
Red Star
Yeast Company, LLC produces and sells fresh and dry yeast in the United States
and Canada. The Company has a 40% ownership interest in this joint
venture.
Agricultural
Services
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network in the United States to buy, store, clean, and
transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats,
and barley, and resells these commodities primarily as animal feed ingredients
and as raw materials for the agricultural processing
industry. Agricultural Services’ grain sourcing and transportation
network provides reliable and efficient services to the Company’s agricultural
processing operations. Agricultural Services’ transportation network
capabilities include ground, river, rail, and ocean services which provide the
flexibility to transport agricultural commodities timely and efficiently to the
end consumer or the Company’s agricultural processing operations.
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Item
1.
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BUSINESS
(Continued)
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The
Company processes and distributes edible beans in the United States for use as a
food ingredient. The Company produces and distributes formula feeds
and animal health and nutrition products to the livestock, dairy, poultry, and
pet food industries.
A.C.
Toepfer International (Toepfer), in which the Company has an 80% interest, is a
global merchandiser of agricultural commodities and processed
products. Toepfer has 38 sales offices worldwide and operates export,
river, and country elevators in Argentina, Romania, Ukraine, and the United
States.
The
Company has a 45% interest in Kalama Export Company, a grain export elevator in
Washington.
Other
The
Company is engaged in milling wheat, corn, and milo into flour in the United
States, Canada, the Caribbean, and the United Kingdom. Wheat flour is
sold primarily to commercial bakeries, food companies, food service companies,
and retailers. Bulgur, a gelatinized wheat food, is sold to both the
export and the domestic food markets. Corn meal and flour is sold
primarily to the cereal, snack, and bakery mix markets. The Company
produces bakery products and mixes, wheat starch, and gluten which are sold to
the baking industry. The Company also mills milo to produce
industrial flour used in the manufacturing of wallboard for the building
industry.
Gruma
S.A. de C.V.(Gruma), in which the Company has a 23% interest, is the world’s
largest producer and marketer of corn flour and tortillas with operations in the
United States, Mexico, Central America, South America, and
Europe. Additionally, the Company has a 20% share, through a joint
venture with Gruma, in six U.S. corn flour mills. The Company
also has a 40% share, through a joint venture with Gruma, in nine Mexican-based
wheat flour mills.
The
Company processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa
powder, chocolate, and various compounds in North America, South America,
Europe, Asia, and Africa for the food processing industry.
The
Company sold its interest in International Malting Company (IMC), a wholly-owned
subsidiary of the Company, which operated malting barley plants in the United
States, Australia, New Zealand, and Canada on July 31, 2008.
Hickory
Point Bank and Trust Company, fsb, a wholly-owned subsidiary of the Company,
furnishes public banking and trust services, as well as cash management,
transfer agency, and securities safekeeping services, for the
Company.
ADM
Investor Services, Inc., a wholly-owned subsidiary of the Company, is a
registered futures commission merchant and a clearing member of all principal
commodities exchanges. ADM Investor Services International, Ltd.,
ADMIS Hong Kong Limited, and ADM Investor Services Taiwan are wholly-owned
subsidiaries of the Company offering broker services in Europe and
Asia. ADM Derivatives, Inc. offers foreign exchange services to
institutional and retail clients.
Agrinational
Insurance Company, a wholly-owned subsidiary of the Company, provides insurance
coverage for certain property, casualty, marine, and other miscellaneous risks
of the Company and participates in certain third-party reinsurance
arrangements.
The
Company is a limited partner in various private equity funds which invest
primarily in emerging markets.
|
Item
1.
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BUSINESS
(Continued)
|
Corporate
Compagnie
Industrielle et Financiere des produits Amylaces SA (Luxembourg) and affiliates,
of which the Company has a 41.5% interest, is a joint venture which targets
investments in food, feed ingredients and bioenergy businesses.
Methods
of Distribution
Since the
Company’s customers are principally other manufacturers and processors, the
Company’s products are distributed mainly in bulk from processing plants or
storage facilities directly to the customers’ facilities. The Company
has developed a comprehensive transportation system utilizing trucks, railcars,
river barges, and ocean-going vessels to efficiently move both commodities and
processed products virtually anywhere in the world. The Company owns
or leases large numbers of the trucks, trailers, railroad tank and hopper cars,
river barges, and towboats used in this transportation system.
Concentration
of Sales by Product
The
following products account for 10% or more of net sales and other operating
income for the last three fiscal years:
| % of Net Sales and Other Operating Income | ||||||||||||
|
2008
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2007
|
2006
|
||||||||||
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Soybeans
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16%
|
12%
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14%
|
|||||||||
|
Corn
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14%
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15%
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12%
|
|||||||||
|
Soybean
Meal
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11%
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12%
|
13%
|
|||||||||
|
Wheat
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10%
|
8%
|
8%
|
|||||||||
Status
of New Products
The
Company continues to expand its business through the development of new products
to meet the growing demands for food, animal feed, chemicals and
energy.
The
Company’s researchers continue to develop custom low-trans fats and oils for
bakery and quick-service restaurants that utilize the Company’s Novalipid
portfolio of low-trans fats and oils. These products have enabled
customers to comply with various municipal trans fat bans.
The
Company’s cooked, dried edible bean products are finding a number of new
applications due to the increased interest among our customers in improving
nutrition, especially in the area of foods designed for children.
The
Company’s alliance with Metabolix for production of PHA, a biodegradable
plastic, is proceeding. Semi-works production of PHA is being used
for market development by Telles, a joint-venture company between the Company
and Metabolix. The construction of the Company’s 50,000 metric ton per year
commercial manufacturing facility is scheduled for completion in fiscal
2009.
The
Company is proceeding with construction of a 100,000 metric ton per year
commercial propylene/ethylene glycol facility. These products are
principally used in industrial applications such as antifreeze and coolants, the
manufacture of certain plastics, and paints and coatings.
The
Company has entered into a joint development agreement with ConocoPhillips that
will develop renewable transportation fuels from agriculture, forestry, and
crops grown specifically for energy. This development effort is focused on the
production of bio-crude oil that can be used by conventional petroleum
refineries to produce transportation fuels.
|
Item
1.
|
BUSINESS
(Continued)
|
Source
and Availability of Raw Materials
Substantially
all of the Company’s raw materials are agricultural commodities. In
any single year, the availability and price of these commodities are subject to
unpredictable factors such as weather, plantings, government programs
and policies, changes in global demand created by population growth and changes
in standards of living, and global production of similar and competitive
crops. The Company’s raw materials are procured from thousands of
growers, grain elevators, and wholesale merchants, principally in North America,
South America, and Europe, pursuant to short-term agreements (less than one
year) or on a spot basis. The Company is not dependent upon any
particular grower, elevator, or merchant as a source for its raw
materials.
Patents,
Trademarks, and Licenses
The
Company owns several valuable patents, trademarks, and licenses but does not
consider any segment of its business dependent upon any single or group of
patents, trademarks or licenses.
Seasonality,
Working Capital Needs, and Significant Customers
Since the
Company is so widely diversified in global agribusiness markets, there are no
material seasonal fluctuations in the manufacture, sale, and distribution of its
products and services. There is a degree of seasonality in the
growing cycles, procurement, and transportation of the Company’s principal raw
materials: oilseeds, corn, wheat, cocoa beans, and other
grains. However, the physical movement of the millions of bushels of
these crops through the Company’s processing facilities is reasonably constant
throughout the year.
Price
variations and availability of raw agricultural commodities may cause
fluctuations in the Company’s working capital levels. No material
part of the Company’s business in any segment is dependent upon a single
customer or very few customers.
Competition
The
Company has significant competition in the markets in which it operates based
principally on price, quality, products and alternative products, some of which
are made from different raw materials than those utilized by the
Company. Given the commodity-based nature of many of its businesses,
the Company, on an ongoing basis, focuses on managing unit
costs and improving efficiency through technology improvements, productivity
enhancements, and regular evaluation of the Company’s asset
portfolio.
Research
and Development Expenditures
The
Company’s research and development expenditures are focused on developing food,
animal feed, chemical, and energy products from renewable agricultural
crops.
The
Company maintains a research laboratory in Decatur, Illinois, where product and
process development activities are conducted. Activities include the
development of new bioproducts and the improvement of existing bioproducts, by
utilizing new microbial strains that are developed using classical mutation and
genetic engineering. Protein and vegetable oil research is also
conducted in Decatur where bakery, meat and dairy pilot plants support food
ingredient research. Vegetable oil research is also conducted in
Hamburg, Germany; Erith, UK; and Arras, France. Research in Hamburg,
Germany was expanded this year to include capabilities for biodiesel and
oleochemicals. Research to support sales and development of flour and
bakery products is conducted at a newly-constructed laboratory in Overland Park,
Kansas. Sales and development support for cocoa and chocolate
products is performed in Milwaukee, Wisconsin, and the
Netherlands. Research and technical support for industrial and food
wheat starch applications is conducted in Montreal, Canada. The
Company has consolidated its research facilities by closing the Clinton, Iowa
and Decatur, Indiana research locations and relocating staff to the research
center in Decatur, Illinois.
|
Item
1.
|
BUSINESS
(Continued)
|
The
Company uses technical services representatives to interact with customers to
understand the customers’ product needs. These technical service
representatives then interact with researchers who are familiar with the
Company’s wide range of products as well as applications
technology. These individuals form quick-acting teams to develop
solutions to customer needs.
The
Company has entered into a new cooperative research and development agreement
with Pacific Northwest National Laboratory which is focused on hydrothermal
liquefaction of biomass to biocrude oils. This agreement is part of
the effort being undertaken to support a joint development project with
ConocoPhillips.
The
Company has begun research related to the recently awarded funding from the
Department of Energy to develop yeasts capable of fermenting 5-carbon sugars,
which is a key technology for producing ethanol from lignocellulosic
biomass. The Company is partnered with Purdue University on this
project.
The
amounts spent during the three years ended June 30, 2008, 2007 and 2006 for such
technical efforts were approximately $49 million, $45 million, and $45 million,
respectively.
Environmental
Compliance
During
the year ended June 30, 2008, $125 million was spent for equipment, facilities,
and programs for pollution control and compliance with the requirements of
various environmental agencies.
There
have been no material effects upon the earnings and competitive position of the
Company resulting from compliance with federal, state, and local laws or
regulations enacted or adopted relating to the protection of the
environment.
Number
of Employees
The
number of persons employed by the Company was approximately 27,600 at June 30,
2008.
Financial
Information About Foreign and Domestic Operations
Item 1A,
“Risk Factors,” and Item 2, “Properties,” includes information relating to the
Company’s foreign operations. Geographic financial information is set
forth in “Note 14 of Notes to Consolidated Financial Statements” included in
Item 8 herein, “Financial Statements and Supplementary Data”.
Available
Information
The
Company’s Internet address is http://www.admworld.com. The Company
makes available, free of charge, through its Internet site, the Company’s annual
reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form
8-K; Directors and Officers Forms 3, 4, and 5; and amendments to those reports,
as soon as reasonably practicable after electronically filing such materials
with, or furnishing them to, the Securities and Exchange Commission
(SEC).
In
addition, the Company makes available, through its Internet site, the Company’s
Business Code of Conduct and Ethics, Corporate Governance Guidelines, and the
written charters of the Audit, Compensation/Succession, Nominating/Corporate
Governance, and Executive Committees.
References
to our website addressed in this report are provided as a convenience and do not
constitute, or should not be viewed as, an incorporation by reference of the
information contained on, or available through, the
website. Therefore, such information should not be considered part of
this report.
|
Item
1.
|
BUSINESS
(Continued)
|
The
public may read and copy any materials filed by the Company with the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site which contains reports, proxy and information
statements, and other information regarding issuers that file information
electronically with the SEC. The SEC’s Internet address is
http://www.sec.gov.
|
Item
1A.
|
RISK
FACTORS
|
The
availability and price of the agricultural commodities and agricultural
commodity products the Company produces and merchandises can be affected by
weather, disease, government programs, competition, and various other factors
beyond the Company’s control and could adversely affect the Company’s operating
results.
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, government
programs and policies, changes in global demand resulting from population growth
and changes in standards of living, and global production of similar and
competitive crops. These factors have historically caused volatility
in the agricultural commodities industry and, consequently, in the Company’s
operating results. Reduced supply of agricultural commodities due to
weather-related factors or other reasons could adversely affect the Company’s
profitability by increasing the cost of raw materials used in the Company’s
agricultural processing operations. Reduced supplies of agricultural
commodities could also limit the Company’s ability to procure, transport, store,
process, and merchandise agricultural commodities in an efficient manner which
could adversely affect the Company’s profitability. In addition, the
availability and price of agricultural commodities can be affected by other
factors, such as plant disease, which can result in crop failures and reduced
harvests.
Also,
with respect to prices, to the extent production capacity is added within the
agricultural processing industry, the disruption to the balance of supply and
demand may result in increased raw material costs and/or downward pressure on
the relevant product selling prices, thereby adversely affecting revenues and
operating results.
Fluctuations
in energy prices could adversely affect the Company’s operating
results.
The
Company’s operating costs and the selling prices of certain finished products
are sensitive to changes in energy prices. The Company’s processing
plants are powered principally by electricity, natural gas, and
coal. The Company’s transportation operations are dependent upon
diesel fuel and other petroleum products. Significant increases in
the cost of these items could adversely affect the Company’s production costs
and operating results.
The
Company has certain finished products, such as ethanol and biodiesel, which are
closely related to, or may be substituted for, petroleum
products. Therefore, the selling prices of ethanol and biodiesel can
be impacted by the selling prices of gasoline and diesel fuel. A
significant decrease in the price of gasoline or diesel fuel could result in a
significant decrease in the selling price of the Company’s ethanol and biodiesel
and could adversely affect the Company’s revenues and operating
results.
The
Company is subject to economic downturns, political instability and other risks
of doing business globally which could adversely affect the Company’s operating
results.
The
Company conducts its business and has substantial assets located in many
countries and geographic areas. The Company’s operations are principally in the
United States and developed countries in Western Europe and South
America, but the Company also operates in, or plans to expand or develop its
business in, emerging market areas such as Asia, Eastern Europe, and Africa.
Both developed and emerging market areas are subject to economic downturns and
emerging market areas could be subject to more volatile economic, political and
market conditions. Such economic downturns and volatile conditions may have a
negative impact on the Company’s ability to execute its business strategies and
on its operating results.
|
Item
1A.
|
RISK
FACTORS (Continued)
|
The
Company’s operating results could be affected by changes in trade, monetary and
fiscal policies, laws and regulations, and other activities of governments,
agencies, and similar organizations. These conditions include but are
not limited to changes in a country’s or region’s economic or political
conditions, trade regulations affecting production, pricing and marketing of
products, local labor conditions and regulations, reduced protection of
intellectual property rights, changes in the regulatory or legal environment,
restrictions on currency exchange activities, currency exchange fluctuations,
burdensome taxes and tariffs, enforceability of legal agreements and judgments,
and other trade barriers. International risks and uncertainties,
including changing social and economic conditions as well as terrorism,
political hostilities, and war, could limit the Company’s ability to transact
business in these markets and could adversely affect the Company’s revenues and
operating results.
Government
policies and regulations, in general, and specifically affecting the
agricultural sector and related industries, could adversely affect the
Company’s operating results.
Agricultural
production and trade flows are subject to government policies and regulations.
Governmental policies affecting the agricultural industry, such as taxes,
tariffs, duties, subsidies, incentives, and import and export restrictions on
agricultural commodities and commodity products, can influence the planting of
certain crops, the location and size of crop production, whether unprocessed or
processed commodity products are traded, the volume and types of imports and
exports, the availability and competitiveness of feedstocks as raw materials,
and industry profitability. In addition, international trade disputes can
adversely affect agricultural commodity trade flows by limiting or disrupting
trade between countries or regions. Future government policies may adversely
affect the supply of, demand for, and prices of the Company’s products, restrict
the Company’s ability to do business in its existing and target markets, and
could negatively impact revenues and operating results.
The Company is subject to industry -
specific risks which could adversely affect the Company’s operating
results.
The
Company is subject to risks which include, but are not limited to, product
quality or contamination, shifting consumer preferences, federal, state, and
local food processing regulations, and customer product liability
claims. The liability which could result from these risks may not
always be covered by, or could exceed liability insurance related to product
liability and food safety matters maintained by the Company. The
occurrence of any of the matters described above could adversely affect the
Company’s revenues and operating results.
Certain
of the Company’s merchandised commodities and finished products are used as
ingredients in livestock and poultry feed. The Company is subject to
risks associated with the outbreak of disease in livestock and poultry,
including, but not limited to, mad-cow disease and avian
influenza. The outbreak of disease could adversely affect demand for
the Company’s products used as ingredients in livestock and poultry
feed. A decrease in demand for these products could adversely affect
the Company’s revenues and operating results.
The
Company is subject to numerous laws and regulations globally which could
adversely affect the Company’s operating results.
The
Company is required to comply with the numerous and broad reaching laws and
regulations administered by United States federal, state, local, and foreign
governmental agencies relating to, but not limited to, the sourcing,
transporting, storing, and processing of agricultural raw materials as well as
the transporting, storing and distributing of related agricultural products
including commercial activities conducted by Company employees and third parties
globally. Any failure to comply with applicable laws and regulations
could subject the Company to administrative penalties and injunctive relief,
civil remedies, including fines, injunctions, and recalls of its
products.
The
production of the Company’s products requires the use of materials which can
create emissions of certain regulated substances. Although the
Company has programs in place throughout the organization globally to guard
against non-compliance, failure to comply with these regulations can have
serious consequences, including civil and administrative penalties as well as a
negative impact on the Company’s reputation.
|
Item
1A.
|
RISK
FACTORS (Continued)
|
In
addition, changes to regulations may require the Company to modify existing
processing facilities and/or processes which could significantly increase
operating costs and negatively impact operating results.
The
Company is exposed to potential business disruption, including but not limited
to transportation services, and other serious adverse impacts resulting from
acts of terrorism or war, natural disasters and severe weather conditions, and
accidents which could adversely affect the Company’s operating
results.
The
assets and operations of the Company are subject to damage and disruption from
various events which include, but are not limited to, acts of terrorism or war,
natural disasters and severe weather conditions, accidents, explosions, and
fires.
The
potential effects of the conditions cited above include, but are not limited to,
extensive property damage, extended business interruption, personal injuries,
and damage to the environment. The Company’s operations also rely on
dependable and efficient transportation services. A disruption in
transportation services could result in supply problems at the Company’s
facilities and impair the Company’s ability to deliver products to its customers
in a timely manner.
The
Company’s business is capital intensive in nature and the Company relies on cash
generated from its operations and external financing to fund its growth and
ongoing capital needs. Limitations on access to external financing could
adversely affect the Company’s operating results.
The
Company requires significant capital to operate its current business and fund
its growth strategy. The Company’s working capital requirements are
directly affected by the price of agricultural commodities, which may fluctuate
significantly and change quickly. The Company also requires
substantial capital to maintain and upgrade its extensive network of storage
facilities, processing plants, refineries, mills, ports, transportation assets
and other facilities to keep pace with competitive developments, technological
advances, regulations and changing safety standards in the industry.
Moreover, the expansion of the Company’s business and pursuit of acquisitions or
other business opportunities may require significant amounts of
capital. If the Company is unable to generate sufficient cash flows
or raise adequate external financing, it may restrict the Company’s current
operations and its growth opportunities which could adversely affect the
Company’s operating results
The
Company’s risk management strategies may not be effective.
The
Company’s business is affected by fluctuations in agricultural commodity prices,
transportation costs, energy prices, interest rates, and foreign currency
exchange rates. We engage in hedging transactions to manage these
risks. However, our hedging strategies may not be successful in
mitigating our exposure to these fluctuations. See “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.”
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
The
Company has no unresolved staff comments.
|
Item
2.
|
PROPERTIES
|
|
The
Company owns or leases the following processing plants and procurement
facilities:
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
|
International
|
Total
|
United
|
International
|
Total
|
|||||||||||||||||||
|
States
|
States
|
|||||||||||||||||||||||
|
Owned
|
131 | 97 | 228 | 176 | 104 | 280 | ||||||||||||||||||
|
Leased
|
2 | 2 | 4 | 19 | 29 | 48 | ||||||||||||||||||
| 133 | 99 | 232 | 195 | 133 | 328 | |||||||||||||||||||
|
The
Company’s operations are such that most products are efficiently processed
near the source of raw materials. Consequently, the Company has
many plants strategically located in agricultural commodity producing
areas. The annual volume of commodities processed will vary
depending upon availability of raw materials and demand for finished
products.
To
enhance the efficiency of transporting large quantities of raw materials
and finished products between the Company’s procurement facilities and
processing plants and also the final delivery of products to our customers
around the world, the Company owns or leases over 2,200 barges, 23,700
rail cars, 800 trucks, and 2,100
trailers.
|
|
Oilseeds
Processing
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
53 | 56 | 109 | 15 | 80 | 95 | ||||||||||||||||||
|
Leased
|
– | – | – | – | 20 | 20 | ||||||||||||||||||
| 53 | 56 | 109 | 15 | 100 | 115 | |||||||||||||||||||
|
The
Company operates twenty-three domestic and eighteen international oilseed
crushing plants with a daily processing capacity of approximately 91,000
metric tons (3.4 million bushels). The domestic plants are
located in Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, Ohio, South Carolina, Tennessee, and
Texas. The international plants are located in Bolivia, Brazil,
Canada, England, Germany, India, Mexico, the Netherlands, Poland, and
Ukraine.
The
Company operates thirteen domestic oilseed refineries in Georgia,
Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and
Tennessee, as well as seventeen international refineries in Bolivia,
Brazil, Canada, England, Germany, India, the Netherlands, and
Poland. The Company packages oils at five domestic plants
located in California, Georgia, and Illinois, as well as at seven
international plants located in Bolivia, Brazil, England, Poland and
Germany. The Company operates one domestic and six
international biodiesel plants located in North Dakota, Brazil, Germany,
and India. In addition, the Company operates two fertilizer
blending plants in Brazil.
The
Oilseeds Processing segment operates fifteen domestic country grain
elevators as adjuncts to its processing plants. These
elevators, with an aggregate storage capacity of eight million bushels,
are located in Illinois, Missouri, North Carolina, and Ohio.
This
segment also operates one hundred international elevators, including port
facilities, in Bolivia, Brazil, Canada, Germany, the Netherlands,
Paraguay, and Poland as adjuncts to its processing
plants. These facilities have a storage capacity of 125 million
bushels.
|
The
Company operates two soy protein specialty plants in Illinois and one plant in
the Netherlands. Lecithin products are produced at six domestic and
four international plants in Illinois, Iowa, Nebraska, Canada, Germany, and
the Netherlands. The Company produces soy-based foods at a plant in
North Dakota and vitamin E, sterols, and isoflavones at plants in
Illinois. The Company also operates a specialty oils and
fats plant in France that produces various value-added products for the
pharmaceutical, cosmetic and food industries.
|
Item
2.
|
PROPERTIES
(Continued)
|
|
Corn
Processing
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
13 | – | 13 | 5 | – | 5 | ||||||||||||||||||
|
The
Company operates five wet corn milling plants and two dry corn milling
plants with a daily grind capacity of approximately 50,000 metric tons
(2.0 million bushels). The Company also operates corn germ extraction
plants, sweeteners and starches production facilities, and bioproducts
production facilities in Illinois, Iowa, Minnesota, Nebraska, North
Carolina, and North Dakota. The Corn Processing segment also
operates five domestic grain terminal elevators as adjuncts to its
processing plants. These elevators, with an aggregate storage
capacity of 13 million bushels, are located in Minnesota.
|
|
Agricultural
Services
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
29 | 6 | 35 | 156 | 18 | 174 | ||||||||||||||||||
|
Leased
|
2 | 1 | 3 | 19 | 7 | 26 | ||||||||||||||||||
| 31 | 7 | 38 | 175 | 25 | 200 | |||||||||||||||||||
|
The
Company operates one hundred fifty-two domestic terminal, sub-terminal,
country, and river elevators covering the major grain producing states,
including sixty-four country elevators, eighty sub-terminal, terminal and
river loading facilities, and eight grain export elevators in Florida,
Louisiana, Ohio, and Texas. Elevators are located in Arkansas,
Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri,
Montana, Nebraska, North Dakota, Ohio, Oklahoma, Tennessee, and
Texas. These elevators have an aggregate storage capacity of
approximately 356 million bushels. The Company has five grain
export elevators in Argentina, Mexico, and Ukraine that have an aggregate
storage capacity of approximately 29 million bushels. The
Company has thirteen country elevators located in the Dominican Republic,
Romania, and Ukraine. In addition, the Company has seven
river elevators located in Romania and Ukraine.
The
Company operates twenty-three domestic edible bean procurement facilities
with an aggregate storage capacity of approximately 11 million bushels,
located in Colorado, Idaho, Michigan, Minnesota, North Dakota, and
Wyoming.
The
Company operates a rice mill located in California, an animal feed
facility in Illinois, and an edible bean plant in North
Dakota. The Company also operates twenty-eight domestic and
seven international formula feed and animal health and nutrition
plants. The domestic plants are located in Georgia, Illinois,
Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska,
Ohio, Pennsylvania, Texas, Washington, and Wisconsin. The
foreign plants are located in Canada, China, Puerto Rico, and Trinidad
& Tobago.
|
|
Item
2.
|
PROPERTIES
(Continued)
|
Other
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
36
|
35
|
71
|
–
|
6
|
6
|
||||||||||||||||||
|
Leased
|
–
|
1
|
1
|
–
|
2
|
2
|
||||||||||||||||||
|
36
|
36
|
72
|
–
|
8
|
8
|
|||||||||||||||||||
The
Company operates twenty-three domestic wheat flour mills, a domestic bulgur
plant, two domestic corn flour mills, two domestic milo mills, and twenty
international flour mills with a total daily milling capacity of approximately
27,000 metric tons (1.0 million bushels). The Company also operates
six bakery mix plants. These plants and related properties are
located in California, Illinois, Indiana, Kansas, Minnesota, Missouri, Nebraska,
New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, Washington,
Barbados, Belize, Canada, England, Grenada, and Jamaica. The Company
operates two formula feed plants as adjuncts to the wheat flour mills in Belize
and Grenada, a rice milling plant in Jamaica, and a starch and gluten
plant in Iowa and one in Canada. The Company also operates a honey
drying operation in Wisconsin.
The
Company operates three domestic and nine international chocolate and cocoa bean
processing plants with a total daily grind capacity of approximately 2,200
metric tons. The domestic plants are located in Massachusetts, New
Jersey, and Wisconsin, and the international plants are located in Brazil,
Canada, England, Ivory Coast, the Netherlands, and Singapore. The
Company operates eight cocoa bean procurement and handling facilities/port sites
in Brazil, Indonesia, Ivory Coast, and Malaysia.
|
Item
3.
|
LEGAL
PROCEEDINGS
|
Environmental
Matters
The
United States Environmental Protection Agency and the Missouri Department of
Natural Resources have initiated a criminal investigation of the wastewater
discharge practices at one of the Company’s barge facilities in
Missouri. Since February 2008, several employees at the facility have
received grand jury subpoenas relating to wastewater discharges from the
facility. The Company has been cooperating with the
investigation. The Company has also undertaken an internal
investigation of those discharge practices and does not believe that the filing
of any criminal action would be appropriate. The Company does not yet have
enough information to reasonably estimate any penalty that may be imposed if any
enforcement action is brought.
The
Company is involved in approximately twenty administrative and judicial
proceedings in which it has been identified as a potentially responsible party
(PRP) under the federal Superfund law and its state analogs for the study and
cleanup of sites contaminated by material discharged into the
environment. In all of these matters there are numerous
PRPs. Due to various factors, such as the required level of
remediation and participation in the cleanup effort by others, the Company’s
future cleanup costs at these sites cannot be reasonably estimated.
In
management’s opinion, these proceedings will not, either individually or in the
aggregate, have a material adverse affect on the Company’s financial condition
or results of operations.
|
Item
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Common
Stock Market Prices and Dividends
The
Company’s common stock is listed and traded on the New York Stock Exchange and
the Frankfurt Stock Exchange. The following table sets forth, for the periods
indicated, the high and low market prices of the common stock as reported on the
New York Stock Exchange and common stock cash dividends declared per
share.
|
Cash
|
||||||||||||
|
Market
Price
|
Dividends
|
|||||||||||
|
High
|
Low
|
Per
Share
|
||||||||||
|
Fiscal
2008-Quarter Ended
|
||||||||||||
|
June
30
|
$ | 48.95 | $ | 31.65 | $ | 0.130 | ||||||
|
March
31
|
47.18 | 38.11 | 0.130 | |||||||||
|
December
31
|
47.33 | 32.43 | 0.115 | |||||||||
|
September
30
|
37.02 | 31.28 | 0.115 | |||||||||
|
Fiscal
2007-Quarter Ended
|
||||||||||||
|
June
30
|
$ | 39.65 | $ | 32.05 | $ | 0.115 | ||||||
|
March
31
|
37.84 | 30.20 | 0.115 | |||||||||
|
December
31
|
40.00 | 31.20 | 0.100 | |||||||||
|
September
30
|
45.05 | 36.44 | 0.100 | |||||||||
The
number of registered shareholders of the Company’s common stock at June 30,
2008, was 17,330. The Company expects to continue its policy of
paying regular cash dividends, although there is no assurance as to future
dividends because they are dependent on future earnings, capital requirements,
and financial condition.
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
(Continued)
|
Issuer
Purchases of Equity Securities
|
Total
Number of
|
Number
of Shares
|
|||||||||||||||
|
Total
Number
|
Average
|
Shares
Purchased as
|
Remaining
to be
|
|||||||||||||
|
of
Shares
|
Price
Paid
|
Part
of Publicly
|
Purchased
Under the
|
|||||||||||||
|
Period
|
Purchased
(1)
|
per
Share
|
Announced
Program (2)
|
Program (2)
|
||||||||||||
|
April
1, 2008 to
April
30, 2008
|
1,799 | $ | 47.13 | 307 | 75,630,561 | |||||||||||
|
May
1, 2008 to
May
31, 2008
|
9,061 | 43.99 | 154 | 75,630,407 | ||||||||||||
|
June
1, 2008 to
June
30, 2008
|
118 | 41.80 | 118 | 75,630,289 | ||||||||||||
|
Total
|
10,978 | $ | 44.48 | 579 | 75,630,289 | |||||||||||
|
(1) Total
shares purchased represents those shares purchased as part of the
Company’s publicly announced share repurchase program described below and
shares received as payment of the exercise price for stock option
exercises. During the three-month period ended June 30, 2008,
the Company received 10,399 shares as payment of the exercise price for
stock option exercises.
(2) On
November 4, 2004, the Company’s Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 100,000,000
shares of the Company’s common stock during the period commencing January
1, 2005 and ending December 31,
2009.
|
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
(Continued)
|
Performance
Graph
The graph
below compares five-year returns of the Company’s common stock with those of the
S&P 500 Index, the S&P Packaged Foods and Meats Index, and the S&P
Consumer Staples Index which the Company today considers a more relevant
line-of-business index. The graph assumes all dividends have been
reinvested and assumes an initial investment of $100 on June 30,
2003. Information in the graph is presented on a June 30 fiscal year
basis.
Graph
produced by Research Data Group, Inc.
|
Item
6.
|
SELECTED
FINANCIAL DATA
|
Selected
Financial Data
(In
millions, except ratio and per share data)
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Net
sales and other operating income
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | $ | 35,943 | $ | 36,151 | ||||||||||
|
Depreciation
|
721 | 701 | 657 | 665 | 686 | |||||||||||||||
|
Net
earnings
|
1,802 | 2,162 | 1,312 | 1,044 | 495 | |||||||||||||||
|
Basic
earnings per common share
|
2.80 | 3.32 | 2.01 | 1.60 | 0.76 | |||||||||||||||
|
Diluted
earnings per common share
|
2.79 | 3.30 | 2.00 | 1.59 | 0.76 | |||||||||||||||
|
Cash
dividends
|
316 | 281 | 242 | 209 | 174 | |||||||||||||||
|
Per
common share
|
0.49 | 0.43 | 0.37 | 0.32 | 0.27 | |||||||||||||||
|
Working
capital
|
$ | 10,834 | $ | 7,254 | $ | 5,661 | $ | 4,344 | $ | 3,589 | ||||||||||
|
Current
ratio
|
1.7 | 1.9 | 1.9 | 1.8 | 1.5 | |||||||||||||||
|
Inventories
|
10,160 | 6,060 | 4,677 | 3,907 | 4,592 | |||||||||||||||
|
Net
property, plant, and equipment
|
7,125 | 6,010 | 5,293 | 5,184 | 5,255 | |||||||||||||||
|
Gross
additions to property, plant, and
equipment
|
1,789 | 1,404 | 841 | 647 | 621 | |||||||||||||||
|
Total
assets
|
37,056 | 25,118 | 21,269 | 18,598 | 19,369 | |||||||||||||||
|
Long-term
debt
|
7,690 | 4,752 | 4,050 | 3,530 | 3,740 | |||||||||||||||
|
Shareholders’
equity
|
13,490 | 11,253 | 9,807 | 8,435 | 7,698 | |||||||||||||||
|
Per
common share
|
20.95 | 17.50 | 14.95 | 12.96 | 11.83 | |||||||||||||||
|
Weighted
average shares
outstanding-basic
|
644 | 651 | 654 | 654 | 648 | |||||||||||||||
|
Weighted
average shares
outstanding-diluted
|
646 | 656 | 656 | 656 | 650 | |||||||||||||||
Significant
items affecting the comparability of the financial data shown above are as
follows.
|
·
|
Net
earnings for 2007 include a gain of $440 million ($286 million after tax,
equal to $0.44 per share) related to the exchange of the Company’s
interests in certain Asian joint ventures for shares of Wilmar
International Limited, realized securities gains of $357 million ($225
million after tax, equal to $0.34 per share) related to the Company’s sale
of equity securities of Tyson Foods Inc. and Overseas Shipholding Group
Inc. and a $209 million gain ($132 million after tax, equal to $0.20 per
share) related to the sale of
businesses.
|
|
·
|
Net
earnings for 2005 include a gain of $159 million ($119 million after tax,
equal to $0.18 per share) related to the sale of the Company’s interest in
Tate & Lyle PLC.
|
|
·
|
Net
earnings for 2004 include a $400 million charge ($252 million after tax,
equal to $0.39 per share) related to the settlement of fructose
litigation.
|
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Company
Overview
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. Beginning in
fiscal 2008, the Company has reclassified
certain operations within its reportable segments
to reflect how the Company now manages its businesses following a realignment of
the organizational structure of the Company and to reflect the activities of the Company
as viewed by the Company’s chief operating decision maker. Prior period
segment information has been reclassified to conform to the new
presentation. 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’s remaining operations are aggregated and
classified as Other.
The
Oilseeds Processing segment includes activities related to the origination and
crushing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and protein meals principally for the
food and feed industries. In addition, oilseeds and oilseed products
may be processed internally or resold into the marketplace as raw materials for
other processing. Crude vegetable oil is sold "as is" or is further
processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food products. Partially
refined oil is sold for use in chemicals, paints, and other industrial
products. Refined oil can be further processed for use in the
production of biodiesel. Oilseed protein meals are primary
ingredients used in the manufacture of commercial livestock and poultry
feeds. Oilseeds Processing includes activities related to the
production of natural health and nutrition products and the production of other
specialty food and feed ingredients. This segment also includes
activities related to the Company’s interests in unconsolidated affiliates in
Asia, principally Wilmar International Limited.
The Corn
Processing segment includes activities related to the production of sweeteners,
starches, dextrose, and syrups primarily for the food and beverage industry as
well as activities related to the production, by fermentation, of bioproducts
such as ethanol, amino acids, and other food, feed and industrial
products.
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network to buy, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, barley, and edible
beans, and resells or processes these commodities primarily as food and feed
ingredients for the agricultural processing industry. Agricultural
Services’ grain sourcing and transportation network provides reliable and
efficient services to the Company’s agricultural processing operations. Also
included in Agricultural Services are the activities of A.C. Toepfer
International, a global merchant of agricultural commodities and processed
products.
Other
includes the Company’s remaining processing operations, consisting of activities
related to processing agricultural commodities into food ingredient products
such as wheat into wheat flour, cocoa into chocolate and cocoa products, and
barley into malt. Other also includes financial activities related to banking,
captive insurance, private equity fund investments, and futures commission
merchant activities.
Operating
Performance Indicators
The
Company’s Oilseeds Processing, Agricultural Services, and wheat processing
operations are principally agricultural commodity-based businesses where changes
in selling prices move in relationship to changes in prices of the
commodity-based agricultural raw materials. Therefore, changes in
agricultural commodity prices have relatively equal impacts on both net sales
and cost of products sold and minimal impact on the gross profit of underlying
transactions. As a result, changes in gross profit of these businesses
do not necessarily correspond to the changes in net sales amounts.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
The
Company’s Corn Processing operations and certain other food and animal feed
processing operations also utilize agricultural commodities (or products derived
from agricultural commodities) as raw materials. In these operations,
agricultural commodity market price changes can result in significant
fluctuations in cost of products sold, and such price changes cannot necessarily
be passed directly through to the selling price of the finished
products.
The
Company conducts its business in many countries. For the majority of
the Company’s subsidiaries located outside the United States, the local currency
is the functional currency. Revenues and expenses denominated in
foreign currencies are translated into U.S. dollars at the weighted average
exchange rates for the applicable periods. Fluctuations in the
exchange rates of foreign currencies, primarily the Euro, British pound, and
Canadian dollar, as compared to the U.S. dollar will result in corresponding
fluctuations in the U.S. dollar value of revenues and expenses reported by the
Company. The impact of these currency exchange rate changes, where
significant, is discussed below.
The
Company measures the performance of its business segments using key operating
statistics such as segment operating profit, return on fixed capital investment,
return on equity, return on net assets, and cost per metric ton
produced. The Company’s operating results can vary significantly due
to changes in unpredictable factors such as fluctuations in energy prices,
weather conditions, crop plantings, government programs and policies,
changes in global demand resulting from population growth and changes in
standards of living, and global production of similar and competitive
crops. Due to these unpredictable factors, the Company does not
provide forward-looking information in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
2008
Compared to 2007
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating
results. Strong demand for agricultural commodities and
processed products has challenged the global supply chain and provided
exceptional margin opportunities in 2008. Strong global demand for
protein meal and vegetable oil and strong fertilizer demand in South America
positively impacted Oilseeds Processing results. The market price of
corn rose due to increased demand, resulting in higher raw material costs for
Corn Processing which were only partially passed on in the form of increased
selling prices for sweeteners and starches. Average ethanol selling
prices decreased due to additional supply entering the market. Large
North American crops combined with global wheat shortages created favorable
conditions in agricultural merchandising and handling
operations. Increased commodity costs resulted in larger LIFO
inventory valuation reserves.
Earnings
before income taxes decreased due principally to gains totaling $1.0 billion
before income tax on business disposals recorded in 2007 including $440 million
related to the exchange of the Company’s interest in certain Asian joint
ventures for shares of Wilmar International Limited (the Wilmar gain), a $357
million realized securities gain from sales of the Company’s equity securities
of Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a gain of $153
million from the sale of the Company’s interest in Agricore United, and a $53
million gain from the sale of the Company’s Arkady food ingredient
business.
Earnings
before income taxes for 2008 include a charge of $569 million from the effect of
changing commodity prices on LIFO inventory valuations, compared to a charge of
$207 million in 2007. Earnings before income taxes for 2008 also include a $32
million charge related to abandonment and write-down of long-lived assets, a $38
million gain on sales of securities, and a $21 million gain on the disposal of
long-lived assets. Earnings before income taxes for 2007 include
charges of $46 million related to the repurchase of $400 million of the
Company’s outstanding debentures and $21 million related to abandonment and
write-down of long-lived assets.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Analysis
of Statements of Earnings
Net sales
and other operating income increased 59% to $69.8
billion. Increased selling prices of agricultural commodities
and oilseed processing products and, to a lesser extent, corn processing
products and wheat flour accounted for 85% of the increase and higher sales
volumes, principally of agricultural commodities, ethanol, and biodiesel, also
contributed to the increase in net sales. In addition, net sales and
other operating income increased $1.83 billion, or 4%, due to currency rate
fluctuations.
Net sales
and other operating income by segment are as follows:
|
2008
|
2007
|
Change | ||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 14,477 | $ | 8,036 | $ | 6,441 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
8,588 | 5,758 | 2,830 | |||||||||
|
Asia
|
214 | 149 | 65 | |||||||||
|
Total
Oilseeds Processing
|
23,279 | 13,943 | 9,336 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
3,546 | 2,761 | 785 | |||||||||
|
Bioproducts
|
3,591 | 3,064 | 527 | |||||||||
|
Total
Corn Processing
|
7,137 | 5,825 | 1,312 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
33,749 | 20,222 | 13,527 | |||||||||
|
Transportation
|
219 | 197 | 22 | |||||||||
|
Total
Agricultural Services
|
33,968 | 20,419 | 13,549 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
5,335 | 3,738 | 1,597 | |||||||||
|
Financial
|
97 | 93 | 4 | |||||||||
|
Total
Other
|
5,432 | 3,831 | 1,601 | |||||||||
|
Total
|
$ | 69,816 | $ | 44,018 | $ | 25,798 | ||||||
Oilseeds
Processing sales increased 67% to $23.3 billion due principally to increased
average selling prices resulting primarily from increases in underlying
commodity costs and from continuing strong demand for vegetable oil, biodiesel
and protein meal. Sales volumes of vegetable oil, protein meal and
biodiesel also increased. Corn Processing sales increased 23% to $7.1
billion. Good demand for sweeteners and starches resulted in higher
average selling prices. Bioproducts sales increased primarily as a
result of increased ethanol sales volumes partially offset by lower average
ethanol selling prices. Increased ethanol sales volumes reflect
higher gasoline prices, improved gasoline blending economics and additional
demand, principally from newly-opened markets in the southeastern United
States. Agricultural Services sales increased 66% to $34.0 billion
primarily due to increased underlying commodity costs, and to a lesser extent,
increased sales volumes. Sales in the Other segment increased 42% to
$5.4 billion primarily due to higher average selling prices of wheat flour and,
to a lesser extent, higher sales volumes and higher average selling prices of
cocoa products.
Cost of
products sold increased 62% to $66.0 billion primarily due to higher
agricultural commodity costs, and, to a lesser extent, higher sales
volumes. Manufacturing expenses increased $549 million primarily due
to higher energy and transportation fuel costs, increased employee-related
costs, higher storage and handling costs, increased production capacity, and the
impact of foreign currency translation. In addition, cost of products
sold increased $1.75 billion, or 4%, due to currency rate
fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general and administrative expenses increased $224 million to $1.4 billion
primarily due to higher employee-related costs and higher outside service costs,
including $44 million related to an organizational realignment and
reorganization of the company’s European headquarters, and increased $37 million
due to the impact of currency rate fluctuations.
Other
income – net decreased $911 million primarily due to gains totaling $1.0 billion
on business disposals recorded in 2007 including $440 million related to the
Wilmar gain, $357 million realized securities gain from sales of the Company’s
equity securities of Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a
gain of $153 million from the sale of the Company’s interest in Agricore United,
and a $53 million gain from the sale of the Company’s Arkady food ingredient
business. Equity in earnings of unconsolidated affiliates increased
$121 million in 2008, primarily related to improved operating results of the
Company’s investments in U.S. grain export, Asian oilseeds and peanut processing
ventures. Other income - net also reflects $38 million in gains on
sales of securities in 2008, $21 million in gains on disposals of long-lived
assets in 2008, an increase from 2007 to 2008 of $11 million in charges related
to abandonment and write-down of long-lived assets, and a charge of $46 million
related to the repurchase of $400 million of the Company’s outstanding
debentures in 2007.
Operating
profit by segment is as follows:
|
2008
|
2007
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 727 | $ | 414 | $ | 313 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
181 | 202 | (21 | ) | ||||||||
|
Asia
|
132 | 523 | (391 | ) | ||||||||
|
Total
Oilseeds Processing
|
1,040 | 1,139 | (99 | ) | ||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
529 | 509 | 20 | |||||||||
|
Bioproducts
|
432 | 596 | (164 | ) | ||||||||
|
Total
Corn Processing
|
961 | 1,105 | (144 | ) | ||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
873 | 382 | 491 | |||||||||
|
Transportation
|
144 | 156 | (12 | ) | ||||||||
|
Total
Agricultural Services
|
1,017 | 538 | 479 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
217 | 209 | 8 | |||||||||
|
Financial
|
206 | 170 | 36 | |||||||||
|
Total
Other
|
423 | 379 | 44 | |||||||||
|
Total
Segment Operating Profit
|
3,441 | 3,161 | 280 | |||||||||
|
Corporate
|
(817 | ) | (7 | ) | (810 | ) | ||||||
|
Earnings
Before Income Taxes
|
$ | 2,624 | $ | 3,154 | $ | (530 | ) | |||||
Oilseeds
Processing operating profit decreased 9% to $1.0 billion. Excluding the $440
million Wilmar gain reflected in Asia results in 2007, Oilseeds Processing
operating profit increased 49%, primarily due to strong global demand for
protein meal, vegetable oil, and fertilizer. Crushing and Origination
operating profits increased 76% to $727 million due principally to improved
crushing margins in North and South America and improved fertilizer results
in South America. Refining, Packaging, Biodiesel and Other operating
profits decreased 10% to $181 million due principally to decreased biodiesel
margins in Europe and asset impairment charges of $28 million in 2008, partially
offset by improved global refining margins. 2007 operating profit for
Refining, Packaging, Biodiesel
and Other includes a $14 million gain on a business
disposal. Excluding the Wilmar gain, Asia operating profits increased
59% to $132 million, principally reflecting the Company’s share of improved
operating profits of Wilmar International Limited.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Corn
Processing operating profits decreased 13% to $961 million, primarily due to
higher net corn costs. Sweeteners and Starches operating profits of
$529 were relatively unchanged as higher average selling prices were offset by
higher net corn costs and increased manufacturing
costs. Manufacturing cost increases reflect higher energy costs,
higher repair and maintenance expenses, and higher costs for chemicals used in
the manufacturing process. Bioproducts operating profits
decreased 28% to $432 million primarily due to higher net corn costs, higher
manufacturing expenses, and decreased average ethanol selling prices, partially
offset by higher sales volumes for ethanol and, to a lesser extent, higher
average lysine selling prices and higher lysine sales volumes.
Agricultural
Services operating profits increased 89% to $1.0 billion. 2007 operating profits
in Merchandising and Handling include a $153 million gain on the sale of the
Company’s interest in Agricore United. Excluding this gain,
Merchandising and Handling operating profits increased 281% to $873
million. This increase was primarily due to enhanced merchandising
and handling margins caused by volatile global grain and freight markets,
favorable risk management results, and to a lesser extent, increased sales
volumes. Transportation operating profits decreased 8% to $144 million primarily
due to increased fuel costs.
Other
operating profits increased 12% to $423 million. Wheat, Cocoa and
Malt operating profits increased 4% to $217 million. 2007 operating profits for
Wheat included a gain of $39 million from the sale of the Company’s Arkady food
ingredient business. Excluding the Arkady gain, Wheat, Cocoa and Malt
operating profits improved 28%, primarily due to improved wheat and malt margins
reflecting increased demand, partially offset by decreased cocoa processing
margins reflecting higher raw material and operating costs and competitive
pressures experienced in the North American chocolate
market. Financial operating profits improved 21% to $206 million
primarily due to improvements in the Company’s futures commission merchant
business.
Corporate
expense increased $810 million to $817 million, primarily due to a $362 million
increase in the charge related to the effects of changing commodity
prices on LIFO inventory valuations, a $371 million decrease in realized
securities gains primarily reflecting the $357 million gain recorded in 2007
from sales of the Company’s equity securities of Tyson Foods, Inc. and Overseas
Shipholding Group, Inc., a $51 million increase in corporate expenses due
principally to reorganization and realignment costs, partially offset by a
charge of $46 million recorded in 2007 related to the repurchase of $400 million
of the Company’s outstanding debentures.
Income
taxes decreased primarily due to lower pretax earnings. The Company’s
effective tax rate during 2008 of 31.3% was comparable to the 2007 rate of
31.5%.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
2007
Compared to 2006
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating results. Strong
biodiesel demand in Europe continued to create increased vegetable oil demand
and positively impacted rapeseed crushing margins in Europe. Abundant
oilseed supplies, improved vegetable oil values, and strong protein meal demand
have positively impacted oilseed crushing margins in North
America. Increased ethanol contracted selling prices, continuing
strong ethanol demand, and solid demand for sweetener and starch products
improved corn processing results. These increases in corn processing
results were partially offset by higher net corn costs. Global grain
merchandising opportunities resulting from regional production imbalances also
improved operating results. North American river transportation
operations were favorably impacted by strong demand for river transportation
services which increased barge freight rates. Increasing commodity
price levels resulted in larger LIFO inventory valuation reserves.
Net
earnings increased due principally to improved operating results in all of the
Company’s operating segments. Earnings before income taxes for 2007
include a gain of $440 million related to the exchange of the Company’s
interests in certain Asian joint ventures for shares of Wilmar International
Limited (the Wilmar Gain), a $357 million realized securities gain from sales of
the Company’s equity securities of Tyson Foods, Inc. and Overseas Shipholding
Group, Inc., a gain of $153 million from the sale of the Company’s interest in
Agricore United and a $53 million gain from the sale of the Company’s Arkady
food ingredient business. Earnings before income taxes for 2007 also
include charges of $207 million from the effect of changing commodity prices on
LIFO inventory valuations, $46 million related to the repurchase of $400 million
of the Company’s outstanding debentures, and $21 million related to abandonment
and write-down of long-lived assets. Net earnings for 2006 include a
$36 million reduction in income tax expense related to the recognition of
federal and state income tax credits and adjustments resulting from the
reconciliation of filed tax returns to the previously estimated tax
provision. Earnings before income taxes for 2006 include charges of
$15 million resulting from the Company’s adoption of Financial Accounting
Standards Board Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN
47), $71 million related to abandonment and write-down of long-lived assets, $9
million representing the Company’s share of a charge for abandonment and
write-down of long-lived assets reported by an unconsolidated affiliate of the
Company, and $22 million associated with the closure of a citric acid plant and
exiting the European animal feed business. Earnings before income
taxes for 2006 also include credits of $12 million from the effect of changing
commodity prices on LIFO inventory valuations, $17 million from the sale of
long-lived assets, $46 million related to Brazilian transactional tax credits,
and $40 million related to realized securities gains.
Analysis
of Statements of Earnings
Net sales
and other operating income increased 20% to $44.0 billion due primarily to
increased selling prices of agricultural commodities, oilseed and corn
processing products and, to a lesser extent, increased sales volumes of
agricultural commodities and oilseed processing products. In
addition, net sales and other operating income increased $916 million, or 3%,
due to currency exchange rate fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Net sales
and other operating income by segment are as follows:
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 8,036 | $ | 7,048 | $ | 988 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
5,758 | 4,726 | 1,032 | |||||||||
|
Asia
|
149 | 119 | 30 | |||||||||
|
Total
Oilseeds Processing
|
13,943 | 11,893 | 2,050 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
2,761 | 2,529 | 232 | |||||||||
|
Bioproducts
|
3,064 | 2,727 | 337 | |||||||||
|
Total
Corn Processing
|
5,825 | 5,256 | 569 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
20,222 | 15,954 | 4,268 | |||||||||
|
Transportation
|
197 | 201 | (4 | ) | ||||||||
|
Total
Agricultural Services
|
20,419 | 16,155 | 4,264 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
3,738 | 3,217 | 521 | |||||||||
|
Financial
|
93 | 75 | 18 | |||||||||
|
Total
Other
|
3,831 | 3,292 | 539 | |||||||||
|
Total
|
$ | 44,018 | $ | 36,596 | $ | 7,422 | ||||||
Oilseeds
Processing sales increased 17% to $13.9 billion due principally to increased
average selling prices of vegetable oil and increased sales volumes of vegetable
oil and biodiesel. Vegetable oil selling prices and volumes improved
as the markets anticipated new demand from the developing United States
biodiesel industry. Biodiesel sales volumes increased due to
additional production capacity. Corn Processing sales increased 11%
to $5.8 billion due principally to increased sales of Bioproducts and, to a
lesser extent, increased sales of Sweeteners and
Starches. Bioproducts sales increased primarily due to higher average
selling prices of ethanol, partially offset by lower sales
volumes. Ethanol average selling prices increased primarily due to
higher gasoline prices. Ethanol sales volumes decreased as 2006 sales
volumes exceeded production due to the release of inventories built up in
anticipation of refiners replacing MTBE with ethanol. Sweeteners and
Starches sales increased primarily due to higher average selling prices
resulting from good demand for sweetener and starch
products. Agricultural Services sales increased 26% to $20.4 billion
due principally to increased agricultural commodity prices and increased sales
volumes. The increase in commodity prices was primarily due to higher
average market prices of corn in North America which had increased 60% from the
prior year. Increased sales volumes of global grain merchandising
activities also contributed to the increase in Agricultural Services
sales. Other sales increased 16% to $3.8 billion primarily due to
higher average selling prices of wheat flour products and, to a lesser extent,
increased sales volumes and higher average selling prices of cocoa
products.
Cost of
products sold increased 21% to $40.8 billion primarily due to higher average
costs of agricultural commodities and increased sales
volumes. Manufacturing costs for 2007 and 2006 include a $21 million
and $62 million charge, respectively, for abandonment and write-down of
long-lived assets. In addition, cost of products sold increased $874
million, or 3%, due to currency exchange rate fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general, and administrative expenses of $1.2 billion were comparable to 2006 and
included $25 million of currency exchange rate increases. Excluding
the impact of currency exchange rate increases, selling, general and
administrative expenses decreased $23 million due principally to 2006 selling,
general and administrative expenses including $20 million of severance costs
associated with the closure of a citric acid plant. During 2007 and
2006, the Company issued option grants and restricted stock awards to officers
and key employees pursuant to the Company’s Long-term Management Incentive
Program. Certain officers and key employees of the Company receiving
option grants and restricted stock awards were eligible for
retirement. Compensation expense related to option grants and
restricted stock awards issued to these retirement-eligible employees is
recognized in earnings on the date of grant. Selling, general, and
administrative expense for 2007 and 2006 includes compensation expense related
to option grants and restricted stock awards granted to retirement-eligible
employees of $30 million and $31 million, respectively.
Other
income - net increased $1.0 billion primarily due to the $440 million Wilmar
Gain, a $357 million gain on the sale of the Company’s equity securities of
Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a $153 million gain on
the sale of the Company’s interest in Agricore United, and a $53 million gain on
the sale of the Company’s Arkady food ingredient business. Other
income - net also includes a $46 million charge related to the repurchase of
$400 million of the Company’s outstanding debentures in
2007. Excluding these items, other income - net increased $73 million
primarily due to a $120 million increase in equity in earnings of unconsolidated
affiliates, and a $53 million increase in investment income, partially offset by
a $69 million increase in interest expense and a $27 million reduction in gains
on sales of long-lived assets. The increase in equity in earnings of
unconsolidated affiliates was primarily due to higher valuations of the
Company’s private equity fund investments and improved operating results of the
Company’s Asian oilseed ventures. Interest expense and investment
income increased primarily due to increased average borrowing and investment
levels.
Operating
profit by segment is as follows:
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 414 | $ | 376 | $ | 38 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
202 | 140 | 62 | |||||||||
|
Asia
|
523 | 53 | 470 | |||||||||
|
Total
Oilseeds Processing
|
1,139 | 569 | 570 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
509 | 458 | 51 | |||||||||
|
Bioproducts
|
596 | 443 | 153 | |||||||||
|
Total
Corn Processing
|
1,105 | 901 | 204 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
382 | 94 | 288 | |||||||||
|
Transportation
|
156 | 143 | 13 | |||||||||
|
Total
Agricultural Services
|
538 | 237 | 301 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
209 | 228 | (19 | ) | ||||||||
|
Financial
|
170 | 126 | 44 | |||||||||
|
Total
Other
|
379 | 354 | 25 | |||||||||
|
Total
Segment Operating Profit
|
3,161 | 2,061 | 1,100 | |||||||||
|
Corporate
|
(7 | ) | (206 | ) | 199 | |||||||
|
Earnings
Before Income Taxes
|
$ | 3,154 | $ | 1,855 | $ | 1,299 | ||||||
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profits increased $570 million to $1.1 billion due
principally to the $440 million Wilmar Gain and improved market conditions in
all geographic regions. North American processing results improved
due principally to abundant oilseed supplies in the United States and good
demand for vegetable oil and soybean meal. Vegetable oil values
improved as the markets anticipated new demand from the developing United States
biodiesel industry. North American processing results were also
favorably impacted by lower plant operating costs resulting from improved
capacity utilization. Asian joint venture results improved due to
improved palm processing operating results partially offset by decreased soy
crushing operating results. European processing results improved due
principally to abundant oilseed supplies in Europe and strong demand for
vegetable oil. The strong demand for vegetable oil is the result of
strong biodiesel demand. These increases were partially offset by
decreased biodiesel operating profits resulting from higher vegetable oil
prices, increased market production capacity, and lower diesel fuel
prices. South American processing results declined due principally to
the $27 million credit for Brazilian transactional taxes in
2006. Excluding the impact of the credit for Brazilian transactional
taxes, South American processing results improved due principally to increased
fertilizer margins. The improvement in fertilizer margins was
primarily due to higher average sales prices due to improved fertilizer demand
combined with stable raw material costs. Operating profits for 2007
include a $6 million charge for abandonment and write-down of long-lived
assets. Operating profits for 2006 include a $14 million charge for
abandonment and write-down of long-lived assets and a $6 million charge related
to the adoption of FIN 47.
Corn
Processing operating profits increased $204 million to $1.1 billion due
principally to higher average selling prices and lower energy costs, partially
offset by lower ethanol sales volumes and higher net corn costs. Net
corn costs increased approximately 60% during 2007 due to significant
anticipated demand increases for corn resulting primarily from increasing
corn-derived ethanol industry capacity. Agricultural commodity market
concerns regarding the expected decline in the ending 2006 corn crop
carryover also contributed to the increase in corn
costs. Sweeteners and Starches operating profits increased $51
million primarily due to higher average sales prices and lower energy
costs. Sales prices increased due principally to good demand for
sweetener and starch products. These increases were partially offset
by increased net corn costs. Sweeteners and Starches operating
profits for 2006 include a $5 million charge related to the adoption of FIN
47. Bioproducts operating profits increased $153 million primarily
due to higher ethanol average selling prices and lower energy costs, partially
offset by increased net corn costs and lower ethanol sales
volumes. Ethanol average sales prices increased due principally to
strong demand from gasoline refiners and higher gasoline
prices. Ethanol sales volumes decreased as 2006 sales volumes
exceeded production due to the release of inventories built up in anticipation
of refiners replacing MTBE with ethanol. Bioproducts operating
results for 2007 include a $1 million charge for abandonment and write-down of
long-lived assets. Bioproducts operating results for 2006 include a
$6 million charge for abandonment and write-down of long-lived assets, a $2
million charge related to the adoption of FIN 47, and $6 million of costs
related to the closure of a citric acid plant.
Agricultural
Services operating profits increased $301 million to $538 million due
principally to a $153 million gain from the sale of the Company’s interest in
Agricore United, a Canadian business which specialized in crop input, crop
protection services, and grain marketing and merchandising. Excluding
the Agricore United gain, Agricultural Services operating profits increased $148
million to $385 million due principally to improved global grain merchandising
operating results and, to a lesser extent, improved transportation and North
American origination operating results. Global grain merchandising
results improved as regional production imbalances allowed the Company to
capitalize on merchandising opportunities. North American river
transportation operating results increased primarily due to increased barge
freight rates created by strong demand for barge capacity. North
American origination operating results improved due to good export demand for
agricultural commodities and higher ocean freight rates. Agricultural
Services operating profits for 2007 include a $12 million trade disruption
insurance recovery related to Hurricane Katrina.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Other
operating profits increased $25 million to $379 million. Wheat,
Cocoa, and Malt operating profits decreased $19 million. Wheat
operating profits include a $39 million gain on the sale of the Company’s Arkady
food ingredient business in 2007 and a $17 million gain from the sale of
long-lived assets in 2006. Excluding the effect of these one-time
gains, Wheat, Cocoa, and Malt operating profits declined $41 million primarily
due to cocoa operating results declining from prior year levels and to a lesser
extent, weaker equity earnings from our investment in Gruma S.A. partially
offset by improved operating results of the Company’s wheat flour processing
operations. Cocoa processing operating results declined primarily due
to increased industry production capacity which caused downward pressure on
cocoa processing margins. Financial operating profits increased $44
million due principally to increased valuations of the Company’s private equity
fund investments and higher operating results of the Company’s futures
commission merchant business, partially offset by lower operating results of the
Company’s captive insurance operations. The results of the Company’s
captive insurance operations for 2007 include a $12 million charge related to a
Hurricane Katrina trade disruption insurance settlement.
Corporate
expense decreased $199 million to $7 million due principally to a $345 million
increase in realized securities gains principally resulting from sales of the
Company’s equity securities of Tyson Foods, Inc. and Overseas Shipholding Group,
Inc. and a $103 million reduction in unallocated interest expense due
principally to higher levels of invested funds and higher interest
rates. These decreases were partially offset by a $207 million
charge, compared to a $12 million credit in the prior year, related to the
effect of changing commodity prices on LIFO inventory valuations and a $46
million charge related to the repurchase of $400 million of the Company’s
outstanding debentures.
Income
taxes increased due principally to higher pretax earnings and the absence of a
$36 million income tax credit in 2006 related to the recognition of federal and
state income tax credits and adjustments resulting from the reconciliation of
filed tax returns to the previously estimated tax provision. The
Company’s effective tax rate during 2007 was 31.5% and, after excluding the
effect of the 2006 $36 million tax credit, was 31.2% for the prior
year. The increase in the Company’s effective tax rate was primarily
due to changes in the geographic mix of pretax earnings.
Liquidity
and Capital Resources
A Company
objective is to have sufficient liquidity, balance sheet strength, and financial
flexibility to fund the operating and capital requirements of a capital
intensive agricultural-based commodity business.
At June
30, 2008, the Company had $1.3 billion of cash, cash equivalents, and short-term
marketable securities and a current ratio, defined as current assets divided by
current liabilities, of 1.7 to 1. Included in working capital
is $7.8 billion of readily marketable commodity
inventories. Cash used in operating activities totaled $3.2 billion
for the year compared to $303 million cash generated from operations last
year. This change was primarily due to an increase in working capital
requirements principally related to increased market prices and, to a lesser
extent, increased quantities of agricultural commodity inventories, principally
readily marketable commodity inventories, and increased
receivables. Cash used in investing activities increased $1.5 billion
for the year to $1.9 billion primarily due to increased capital expenditures and
decreased proceeds from sales of businesses including the sale of the Company’s
equity interests in Tyson Foods, Inc., Overseas Shipholding Group, Inc. and
Agricore United in 2007. Cash generated by financing activities was
$5.2 billion compared to cash used in financing activities of $398 million last
year. Net long-term borrowings increased primarily as a result of the
issuance in 2008 of approximately $3.1 billion of additional long-term debt,
including $500 million of debentures issued in December 2007, $700 million of
notes issued in March 2008, and $1.75 billion of debentures in June 2008,
compared to $1.15 billion of convertible senior notes issued in February 2007,
partially offset by $480 million of reduced debt payments principally related to
the Company’s retirement of $400 million of debentures in 2007.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Capital
resources were strengthened in 2008 as shown by the increase in the Company’s
net worth from $11.3 billion to $13.5 billion. The Company’s ratio of
long-term debt to total capital (the sum of the Company’s long-term debt and
shareholders’ equity) was 36% at June 30, 2008, and 30% at June 30,
2007. This ratio is a measure of the Company’s long-term liquidity
and is an indicator of financial flexibility. The Company currently
has $7.4 billion of commercial paper and commercial bank lines available to meet
seasonal cash requirements of which $5.2 billion are committed and $2.2 billion
are uncommitted. At June 30, 2008, the Company had $3.1 billion of
short-term debt outstanding. Standard & Poor’s, Moody’s, and
Fitch rate the Company’s commercial paper as A-1, P-1, and F1, respectively, and
rate the Company’s long-term debt as A, A2, and A, respectively. In
addition to the cash flow generated from operations, the Company has access to
equity and debt capital through numerous alternatives from public and private
sources in domestic and international markets.
The
Company has outstanding $1.15 billion principal amount of convertible senior
notes. As of June 30, 2008, none of the conditions permitting
conversion of the notes had been satisfied. As of June 30, 2008, the
market price of the Company’s common stock was not greater than the exercise
price of the purchased call options or warrants related to the convertible
senior notes.
In June
2008, the Company issued $1.75 billion of debentures as a component of Equity
Units. The Equity Units are a combination of (a) debt and (b) forward
contracts for the holder to purchase the Company’s common stock. The
purchase contracts obligate the holder to purchase from the Company, no later
than June 1, 2011, for a price of $50 in cash, a certain number of shares,
ranging from 1.0453 shares to 1.2544 shares, of the Company’s common stock,
based on a formula established in the contract.
Contractual
Obligations and Off-Balance Sheet Arrangements
In the
normal course of business, the Company enters into contracts and commitments
which obligate the Company to make payments in the future. The
following table sets forth the Company’s significant future obligations by time
period. Purchases include commodity-based contracts entered into in
the normal course of business, which are further described in Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” energy-related
purchase contracts entered into in the normal course of business, and other
purchase obligations related to the Company’s normal business
activities. Where applicable, information included in the Company’s
consolidated financial statements and notes is cross-referenced in this
table.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
|
Payments
Due by Period
|
|||||||||||||||||||||
|
Contractual
|
Note
|
Less
than
|
1 - 3 | 3 – 5 |
More
than
|
||||||||||||||||
|
Obligations
|
Reference
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
|||||||||||||||
|
(In
millions)
|
|||||||||||||||||||||
|
Purchases
|
|||||||||||||||||||||
|
Inventories
|
$ | 24,230 | $ | 22,813 | $ | 1,200 | $ | 174 | $ | 43 | |||||||||||
|
Energy
|
952 | 502 | 302 | 80 | 68 | ||||||||||||||||
|
Other
|
148 | 58 | 60 | 18 | 12 | ||||||||||||||||
|
Total
purchases
|
25,330 | 23,373 | 1,562 | 272 | 123 | ||||||||||||||||
|
Short-term
debt
|
Note
7
|
3,123 | 3,123 | – | – | – | |||||||||||||||
|
Long-term
debt
|
Note
7
|
7,993 | 232 | 358 | 380 | 7,023 | |||||||||||||||
|
Estimated
interest payments
|
9,639 | 511 | 808 | 758 | 7,562 | ||||||||||||||||
|
Operating
leases
|
Note
12
|
1,364 | 403 | 402 | 239 | 320 | |||||||||||||||
|
Estimated
pension and other
postretirement
plan
contributions
|
Note
13
|
1,217 | 90 | 204 | 229 | 694 | |||||||||||||||
|
Total
|
$ | 48,666 | $ | 27,732 | $ | 3,334 | $ | 1,878 | $ | 15,722 | |||||||||||
At June
30, 2008, the Company estimates it will spend approximately $2.5 billion over
the next five years to complete currently approved capital projects and
acquisitions which is not included in the table above. The Company is
a limited partner in various private equity funds which invest primarily in
emerging markets. At June 30, 2008, the Company’s carrying value of
these limited partnership investments was $129 million. The Company
has future capital commitments related to these partnerships of $137 million and
expects the majority of these additional capital commitments, if called for, to
be funded by cash flows generated by the partnerships. The Company
also has outstanding letters of credit and surety bonds of $500 million at June
30, 2008.
In
addition, the Company has entered into agreements, primarily debt guarantee
agreements related to equity-method investees, which could obligate the Company
to make future payments. The Company’s liability under these
agreements arises only if the primary entity fails to perform its contractual
obligation. The Company has collateral for a portion of these
contingent obligations. At June 30, 2008, these contingent
obligations totaled approximately $135 million. Amounts outstanding
for the primary entity under these contingent obligations were $62 million at
June 30, 2008.
Critical
Accounting Policies
The
process of preparing financial statements requires management to make estimates
and judgments that affect the carrying values of the Company’s assets and
liabilities as well as the recognition of revenues and
expenses. These estimates and judgments are based on the Company’s
historical experience and management’s knowledge and understanding of current
facts and circumstances. Certain of the Company’s accounting policies
are considered critical, as these policies are important to the depiction of the
Company’s financial statements and require significant or complex judgment by
management. Management has discussed with the Company’s Audit
Committee the development, selection, disclosure, and application of these
critical accounting policies. Following are the accounting policies
management considers critical to the Company’s financial statements.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Inventories
and Derivatives
Certain
of the Company’s merchandisable agricultural commodity inventories, forward
fixed-price purchase and sale contracts, and exchange-traded futures and
exchange-traded and over-the-counter options contracts are valued at estimated
market values. These merchandisable agricultural commodities are
freely traded, have quoted market prices, and may be sold without significant
additional processing. Management estimates market value based on
exchange-quoted prices, adjusted for differences in local
markets. Changes in the market values of these inventories and
contracts are recognized in the statement of earnings as a component of cost of
products sold. If management used different methods or factors to
estimate market value, amounts reported as inventories and cost of products sold
could differ materially. Additionally, if market conditions change
subsequent to year-end, amounts reported in future periods as inventories and
cost of products sold could differ materially.
The
Company, from time to time, uses derivative contracts designated as cash flow
hedges to fix the purchase price of anticipated volumes of commodities to be
purchased and processed in a future month, to fix the purchase price of the
Company’s anticipated natural gas requirements for certain production
facilities, and to fix the sales price of anticipated volumes of
ethanol. The change in the market value of such derivative contracts
has historically been, and is expected to continue to be, highly effective at
offsetting changes in price movements of the hedged item. Gains and
losses arising from open and closed hedging transactions are deferred in other
comprehensive income, net of applicable income taxes, and recognized as a
component of cost of products sold in the statement of earnings when the hedged
item is recognized. If it is determined that the derivative
instruments used are no longer effective at offsetting changes in the price of
the hedged item, then the changes in the market value of these exchange-traded
futures and exchange-traded and over-the-counter option contracts would be
recorded in the statement of earnings as a component of cost of products
sold.
Employee
Benefit Plans
The
Company provides substantially all domestic employees and employees at certain
international subsidiaries with pension benefits. The Company also
provides substantially all domestic salaried employees with postretirement
health care and life insurance benefits. In order to measure the
expense and funded status of these employee benefit plans, management makes
several estimates and assumptions, including interest rates used to discount
certain liabilities, rates of return on assets set aside to fund these plans,
rates of compensation increases, employee turnover rates, anticipated mortality
rates, and anticipated future health care costs. These estimates and assumptions
are based on the Company’s historical experience combined with management’s
knowledge and understanding of current facts and
circumstances. Management also uses third-party actuaries to assist
in measuring the expense and funded status of these employee benefit
plans. If management used different estimates and assumptions
regarding these plans, the funded status of the plans could vary significantly,
and the Company could recognize different amounts of expense over future
periods.
Income
Taxes
The
Company frequently faces challenges from domestic and foreign tax authorities
regarding the amount of taxes due. These challenges include questions
regarding the timing and amount of deductions and the allocation of income among
various tax jurisdictions. In evaluating the exposure associated with
various tax filing positions, the Company records reserves for estimates of
potential additional tax owed by the Company. Deferred tax assets
represent items to be used as tax deductions or credits in future tax returns,
and the related tax benefit has already been recognized in the Company’s income
statement. Realization of certain deferred tax assets reflects the
Company’s tax planning strategies. Valuation allowances related to
these deferred tax assets have been established to the extent the realization of
the tax benefit is not probable. Based on management’s evaluation of
the Company’s tax position, it is believed the amounts related to these tax
exposures are appropriately accrued. To the extent the Company were
to favorably resolve matters for which accruals have been established or be
required to pay amounts in excess of the aforementioned reserves, the Company’s
effective tax rate in a given financial statement period may be
impacted.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Undistributed
earnings of the Company’s foreign subsidiaries and affiliated corporate joint
ventures accounted for on the equity method are considered to be permanently
reinvested, and accordingly, no provision for U.S. income taxes has been
provided thereon. If the Company were to receive distributions from
any of these foreign subsidiaries or affiliates or determine the undistributed
earnings of these foreign subsidiaries or affiliates to not be permanently
reinvested, the Company could be subject to U.S. tax liabilities which have not
been provided for in the consolidated financial statements.
Asset
Abandonments and Write-Downs
The
Company is principally engaged in the business of procuring, transporting,
storing, processing, and merchandising agricultural commodities and
products. This business is global in nature and is highly
capital-intensive. Both the availability of the Company’s raw
materials and the demand for the Company’s finished products are driven by
unpredictable factors such as weather, plantings, government programs and
policies, changes in global demand resulting from population growth and changes
in standards of living, and global production of similar and competitive
crops. These aforementioned unpredictable factors, therefore, may
cause a shift in the supply/demand dynamics for the Company’s raw materials and
finished products. Any such shift will cause management to evaluate
the efficiency and profitability of the Company’s asset base in terms of
geographic location, size, and age of its factories. The Company,
from time to time, will also invest in equipment, technology, and companies
related to new, value-added products produced from agricultural 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 exist. The Company evaluates goodwill and other intangible
assets with indefinite lives for impairment annually. Assets are
written down after consideration of the ability to utilize the assets for their
intended purpose or to employ the assets in alternative uses or sell the assets
to recover the carrying value. If management used different estimates
and assumptions in its evaluation of these assets, then the Company could
recognize different amounts of expense over future periods.
Valuation
of Marketable Securities and Investments in Affiliates
The
Company classifies the majority of its marketable securities as
available-for-sale and carries these securities at fair
value. Investments in affiliates are carried at cost plus equity in
undistributed earnings and are adjusted, where appropriate, for amortizable
basis differences between the investment balance and the underlying net assets
of the investee. For publicly traded securities, the fair value of
the Company’s investments is readily available based on quoted market
prices. For non-publicly traded securities, management’s assessment
of fair value is based on valuation methodologies including discounted cash
flows and estimates of sales proceeds. In the event of a decline in
fair value of an investment below carrying value, management may be required to
determine if the decline in fair value is other than temporary. In
evaluating the nature of a decline in the fair value of an investment,
management considers the market conditions, trends of earnings, discounted cash
flows, trading volumes, and other key measures of the investment as well as the
Company’s ability and intent to hold the investment. When such a
decline in value is deemed to be other than temporary, an impairment loss is
recognized in the current period operating results to the extent of the decline.
See Notes 3 and 5 to the Company’s consolidated financial statements for
information regarding the Company’s marketable securities and investments in
affiliates. If management used different estimates and assumptions in its
evaluation of these marketable securities, then the Company could recognize
different amounts of expense over future periods.
|
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
market risk inherent in the Company’s market risk sensitive instruments and
positions is the potential loss arising from adverse changes in: commodity
market prices as they relate to the Company’s net commodity position, foreign
currency exchange rates, and interest rates as described below.
Commodities
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, government
programs and policies, changes in global demand resulting from population growth
and changes in standards of living, and global production of similar and
competitive crops.
To reduce
price risk caused by market fluctuations, the Company generally follows a policy
of using exchange-traded futures and exchange-traded and over-the-counter
options contracts to minimize its net position of merchandisable agricultural
commodity inventories and forward cash purchase and sales
contracts. The Company will also use exchange-traded futures and
exchange-traded and over-the-counter options contracts as components of
merchandising strategies designed to enhance margins. The results of
these strategies can be significantly impacted by factors such as the volatility
of the relationship between the value of exchange-traded commodities futures
contracts and the cash prices of the underlying commodities, counterparty
contracts defaults, and volatility of freight markets. In addition, the Company
from time-to-time enters into derivative contracts which are designated as
hedges of specific volumes of commodities that will be purchased and processed,
or sold, in a future month. The changes in the market value of such futures
contracts have historically been, and are expected to continue to be, highly
effective at offsetting changes in price movements of the hedged item. Gains and
losses arising from open and closed hedging transactions are deferred in other
comprehensive income, net of applicable taxes, and recognized as a component of
cost of products sold in the statement of earnings when the hedged item is
recognized.
A
sensitivity 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 merchandisable agricultural commodity
inventories, related purchase and sale contracts, and exchange-traded futures
and exchange-traded and over-the-counter option contracts, including those
contracts used to hedge portions of production requirements. The fair value of
such daily net commodity position is a summation of the fair values calculated
for each commodity by valuing each net position at quoted futures prices. Market
risk is estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in such prices. Actual results may
differ.
|
2008
|
2007
|
|||||||||||||||
|
Long/(Short)
|
Fair
Value
|
Market
Risk
|
Fair
Value
|
Market
Risk
|
||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Highest
position
|
$ | 1,260 | $ | 126 | $ | 703 | $ | 70 | ||||||||
|
Lowest
position
|
(915 | ) | (92 | ) | (565 | ) | (57 | ) | ||||||||
|
Average
position
|
251 | 25 | 180 | 18 | ||||||||||||
The
change in fair value of the average position for 2008 compared to 2007 was
principally a result of increases in commodity prices and, to a lesser extent,
quantities underlying the daily net commodity position.
|
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
Currencies
In order
to reduce the risk of foreign currency exchange rate fluctuations, except for
amounts permanently invested as described below, the Company follows a policy of
entering into currency exchange forward contracts to mitigate its foreign
currency risk related to transactions denominated in a currency other than the
functional currencies applicable to each of its various entities. The
instruments used are forward contracts, swaps with banks, and exchange-traded
futures contracts. The changes in market value of such contracts have
a high correlation to the price changes in the currency of the related
transactions. The potential loss in fair value for such net currency position
resulting from a hypothetical 10% adverse change in foreign currency exchange
rates is not material.
The
amount the Company considers permanently invested in foreign subsidiaries and
affiliates and translated into dollars using the year-end exchange rates is $7.0
billion at June 30, 2008, and $5.4 billion at June 30, 2007. This
increase is due to an increase in retained earnings of the foreign subsidiaries
and affiliates and appreciation of foreign currencies versus the U.S.
dollar. The potential loss in fair value resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates is
$695 million and $543 million for 2008 and 2007, respectively. Actual
results may differ.
Interest
The fair
value of the Company’s long-term debt is estimated using quoted market prices,
where available, and discounted future cash flows based on the Company’s current
incremental borrowing rates for similar types of borrowing arrangements. Such
fair value exceeded the long-term debt carrying value. Market risk is estimated
as the potential increase in fair value resulting from a hypothetical .5%
decrease in interest rates. Actual results may differ.
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Fair
value of long-term debt
|
$ | 7,789 | $ | 4,862 | ||||
|
Excess
of fair value over carrying value
|
99 | 110 | ||||||
|
Market
risk
|
308 | 232 | ||||||
The
increase in fair value of long-term debt in 2008 resulted principally from the
Company’s issuance of approximately $3.1 billion in long-term debt in
2008.
|
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
Financial
Statements
|
Page
No.
|
|||
|
Consolidated
Statements of Earnings
|
37
|
|||
|
Consolidated
Balance Sheets
|
38 | |||
|
Consolidated
Statements of Cash Flows
|
39
|
|||
|
Consolidated
Statements of Shareholders’ Equity
|
40
|
|||
|
Notes
to Consolidated Financial Statements
|
41
|
|||
|
Reports
of Independent Registered Public Accounting Firm
|
73
|
|||
Archer
Daniels Midland Company
Consolidated
Statements of Earnings
|
Year
Ended June 30
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions, except per share amounts)
|
||||||||||||
|
Net
sales and other operating income
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | ||||||
|
Cost
of products sold
|
65,974 | 40,781 | 33,630 | |||||||||
|
Gross
Profit
|
3,842 | 3,237 | 2,966 | |||||||||
|
Selling,
general and administrative expenses
|
1,419 | 1,195 | 1,193 | |||||||||
|
Other
income - net
|
(201 | ) | (1,112 | ) | (82 | ) | ||||||
|
Earnings
Before Income Taxes
|
2,624 | 3,154 | 1,855 | |||||||||
|
Income
taxes
|
822 | 992 | 543 | |||||||||
|
Net
Earnings
|
$ | 1,802 | $ | 2,162 | $ | 1,312 | ||||||
|
Average
number of shares outstanding – basic
|
644 | 651 | 654 | |||||||||
|
Average
number of shares outstanding – diluted
|
646 | 656 | 656 | |||||||||
|
Basic
earnings per common share
|
$ | 2.80 | $ | 3.32 | $ | 2.01 | ||||||
|
Diluted
earnings per common share
|
$ | 2.79 | $ | 3.30 | $ | 2.00 | ||||||
See notes
to consolidated financial statements.
Archer
Daniels Midland Company
Consolidated
Balance Sheets
|
June
30
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 810 | $ | 663 | ||||
|
Short-term
marketable securities
|
455 | 212 | ||||||
|
Segregated
cash and investments
|
2,035 | 1,424 | ||||||
|
Receivables
|
11,483 | 6,404 | ||||||
|
Inventories
|
10,160 | 6,060 | ||||||
|
Other
assets
|
512 | 359 | ||||||
|
Total Current Assets
|
25,455 | 15,122 | ||||||
|
Investments
and Other Assets
|
||||||||
|
Investments
in and advances to affiliates
|
2,773 | 2,498 | ||||||
|
Long-term
marketable securities
|
590 | 657 | ||||||
|
Goodwill
|
506 | 317 | ||||||
|
Other
assets
|
607 | 514 | ||||||
|
Total Investments and Other Assets
|
4,476 | 3,986 | ||||||
|
Property,
Plant, and Equipment
|
||||||||
|
Land
|
238 | 227 | ||||||
|
Buildings
|
3,207 | 3,002 | ||||||
|
Machinery
and equipment
|
12,410 | 11,822 | ||||||
|
Construction
in progress
|
1,924 | 884 | ||||||
| 17,779 | 15,935 | |||||||
|
Accumulated
depreciation
|
(10,654 | ) | (9,925 | ) | ||||
|
Net Property, Plant, and Equipment
|
7,125 | 6,010 | ||||||
|
Total
Assets
|
$ | 37,056 | $ | 25,118 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Short-term
debt
|
$ | 3,123 | $ | 468 | ||||
|
Accounts
payable
|
6,544 | 4,919 | ||||||
|
Accrued
expenses
|
4,722 | 2,416 | ||||||
|
Current
maturities of long-term debt
|
232 | 65 | ||||||
|
Total Current Liabilities
|
14,621 | 7,868 | ||||||
|
Long-Term
Liabilities
|
||||||||
|
Long-term
debt
|
7,690 | 4,752 | ||||||
|
Deferred
income taxes
|
473 | 532 | ||||||
|
Other
|
782 | 713 | ||||||
|
Total Long-Term Liabilities
|
8,945 | 5,997 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Common
stock
|
5,039 | 5,090 | ||||||
|
Reinvested
earnings
|
7,494 | 5,982 | ||||||
|
Accumulated
other comprehensive income
|
957 | 181 | ||||||
|
Total Shareholders’ Equity
|
13,490 | 11,253 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 37,056 | $ | 25,118 | ||||
See notes
to consolidated financial statements.
Archer
Daniels Midland Company
Consolidated
Statements of Cash Flows
|
Year
Ended June 30
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Operating
Activities
|
||||||||||||
|
Net
earnings
|
$ | 1,802 | $ | 2,162 | $ | 1,312 | ||||||
|
Adjustments
to reconcile net earnings to net cash provided by
(used
in) operating activities
|
||||||||||||
|
Depreciation
|
721 | 701 | 657 | |||||||||
|
Asset
abandonments and impairments
|
32 | 21 | 71 | |||||||||
|
Deferred
income taxes
|
(128 | ) | 109 | (106 | ) | |||||||
|
Gain
on sales of marketable securities
|
(38 | ) | (393 | ) | (40 | ) | ||||||
|
Gain
on exchange of unconsolidated affiliates
|
(8 | ) | (440 | ) | – | |||||||
|
Gain
on sale of businesses
|
(8 | ) | (209 | ) | – | |||||||
|
Equity
in earnings of affiliates, net of dividends
|
(283 | ) | (193 | ) | (69 | ) | ||||||
|
Stock
contributed to employee benefit plans
|
29 | 27 | 25 | |||||||||
|
Pension
and postretirement accruals (contributions), net
|
36 | 61 | (164 | ) | ||||||||
|
Other
– net
|
249 | 99 | 91 | |||||||||
|
Changes
in operating assets and liabilities
|
||||||||||||
|
Segregated
cash and investments
|
(614 | ) | (191 | ) | (240 | ) | ||||||
|
Receivables
|
(1,975 | ) | (953 | ) | (177 | ) | ||||||
|
Inventories
|
(4,580 | ) | (1,215 | ) | (601 | ) | ||||||
|
Other
assets
|
(174 | ) | (66 | ) | (28 | ) | ||||||
|
Accounts
payable and accrued expenses
|
1,735 | 783 | 645 | |||||||||
|
Total
Operating Activities
|
(3,204 | ) | 303 | 1,376 | ||||||||
|
Investing
Activities
|
||||||||||||
|
Purchases
of property, plant, and equipment
|
(1,779 | ) | (1,198 | ) | (762 | ) | ||||||
|
Proceeds
from sales of property, plant, and equipment
|
52 | 45 | 54 | |||||||||
|
Proceeds
from sale of businesses
|
11 | 385 | – | |||||||||
|
Net
assets of businesses acquired
|
(13 | ) | (103 | ) | (182 | ) | ||||||
|
Investments
in and advances to affiliates
|
(32 | ) | (53 | ) | (126 | ) | ||||||
|
Distributions
from affiliates, excluding dividends
|
54 | 97 | 58 | |||||||||
|
Purchases
of marketable securities
|
(1,405 | ) | (892 | ) | (685 | ) | ||||||
|
Proceeds
from sales of marketable securities
|
1,222 | 1,367 | 581 | |||||||||
|
Other
– net
|
(5 | ) | (3 | ) | (7 | ) | ||||||
|
Total
Investing Activities
|
(1,895 | ) | (355 | ) | (1,069 | ) | ||||||
|
Financing
Activities
|
||||||||||||
|
Long-term
debt borrowings
|
3,095 | 1,166 | 644 | |||||||||
|
Long-term
debt payments
|
(69 | ) | (549 | ) | (266 | ) | ||||||
|
Net
borrowings (payments) under line of credit agreements
|
2,574 | (110 | ) | 105 | ||||||||
|
Purchases
of treasury stock
|
(61 | ) | (533 | ) | (2 | ) | ||||||
|
Sale
of stock warrants related to convertible note issuance
|
– | 170 | – | |||||||||
|
Purchase
of call options related to convertible note issuance
|
– | (299 | ) | – | ||||||||
|
Cash
dividends
|
(316 | ) | (281 | ) | (242 | ) | ||||||
|
Other
– net
|
23 | 38 | 45 | |||||||||
|
Total
Financing Activities
|
5,246 | (398 | ) | 284 | ||||||||
|
Increase
(decrease) in cash and cash equivalents
|
147 | (450 | ) | 591 | ||||||||
|
Cash
and cash equivalents – beginning of year
|
663 | 1,113 | 522 | |||||||||
|
Cash
and cash equivalents – end of
year
|
$ | 810 | $ | 663 | $ | 1,113 | ||||||
See notes
to consolidated financial statements.
Archer
Daniels Midland Company
Consolidated
Statements of Shareholders’ Equity
|
Accumulated
|
||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||
|
Common
Stock
|
Reinvested
|
Comprehensive
|
Shareholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Earnings
|
Income
|
Equity
|
||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Balance
June 30, 2005
|
651 | $ | 5,386 | $ | 3,012 | $ | 37 | $ | 8,435 | |||||||||||
|
Comprehensive
income
|
||||||||||||||||||||
|
Net
earnings
|
1,312 | |||||||||||||||||||
|
Other
comprehensive income
|
177 | |||||||||||||||||||
|
Total
comprehensive income
|
1,489 | |||||||||||||||||||
|
Cash
dividends paid-$.37 per share
|
(242 | ) | (242 | ) | ||||||||||||||||
|
Treasury
stock purchases
|
– | (2 | ) | (2 | ) | |||||||||||||||
|
Other
|
5 | 127 | 127 | |||||||||||||||||
|
Balance
June 30, 2006
|
656 | 5,511 | 4,082 | 214 | 9,807 | |||||||||||||||
|
Comprehensive
income
|
||||||||||||||||||||
|
Net
earnings
|
2,162 | |||||||||||||||||||
|
Other
comprehensive income
|
172 | |||||||||||||||||||
|
Total
comprehensive income
|
2,334 | |||||||||||||||||||
|
SFAS
No. 158 transition adjustment,
net
of tax
|
(205 | ) | (205 | ) | ||||||||||||||||
|
Cash
dividends paid-$.43 per share
|
(281 | ) | (281 | ) | ||||||||||||||||
|
Treasury
stock purchases
|
(15 | ) | (533 | ) | (533 | ) | ||||||||||||||
|
Purchase
of call options, net of tax
|
(186 | ) | (186 | ) | ||||||||||||||||
|
Sale
of stock warrants
|
170 | 170 | ||||||||||||||||||
|
Other
|
2 | 128 | 19 | 147 | ||||||||||||||||
|
Balance
June 30, 2007
|
643 | 5,090 | 5,982 | 181 | 11,253 | |||||||||||||||
|
Comprehensive
income
|
||||||||||||||||||||
|
Net
earnings
|
1,802 | |||||||||||||||||||
|
Other
comprehensive income
|
776 | |||||||||||||||||||
|
Total
comprehensive income
|
2,578 | |||||||||||||||||||
|
Cash
dividends paid-$.49 per share
|
(316 | ) | (316 | ) | ||||||||||||||||
|
Treasury
stock purchases
|
(2 | ) | (61 | ) | (61 | ) | ||||||||||||||
|
Forward
contract component of
Equity Units
|
(110 | ) | (110 | ) | ||||||||||||||||
|
Other
|
3 | 120 | 26 | 146 | ||||||||||||||||
|
Balance
June 30, 2008
|
644 | $ | 5,039 | $ | 7,494 | $ | 957 | $ | 13,490 | |||||||||||
|
See
notes to consolidated financial statements.
|
||||||||||||||||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements
|
Note
1.
|
Summary
of Significant Accounting Policies
|
Nature
of Business
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products.
Principles
of Consolidation
The
consolidated financial statements as of June 30, 2008, and for the three years
then ended include the accounts of the Company and its majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Investments in affiliates are carried at cost
plus equity in undistributed earnings since acquisition and are adjusted, where
appropriate, for amortizable basis differences between the investment balance
and the underlying net assets of the investee. Certain majority-owned
subsidiaries whose fiscal periods differ from the Company’s are consolidated
using the most recent available financial statements which in each case are
within 93 days of the Company’s year end and are consistent from period to
period
The
Company evaluates and consolidates where appropriate its less than
majority-owned investments pursuant to Financial Accounting Standards Board
(FASB) Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51 (FIN
46). A variable interest entity (VIE) is a corporation, partnership,
trust, or any other legal structure used for business purposes that does not
have equity investors with proportionate voting rights or has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a VIE to be consolidated by a company if
that company is the primary beneficiary of the VIE. The primary
beneficiary of a VIE is an entity that is subject to a majority of the risk of
loss from the VIE’s activities or entitled to receive a majority of the entity’s
residual returns, or both.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash
Equivalents
The
Company considers all non-segregated, highly-liquid investments with a maturity
of three months or less at the time of purchase to be cash
equivalents.
Segregated
Cash and Investments
The
Company segregates certain cash and investment balances in accordance with
certain regulatory requirements, commodity exchange requirements, and insurance
arrangements. These segregated balances represent deposits received
from customers trading in exchange-traded commodity instruments, securities
pledged to commodity exchange clearinghouses, and cash and securities pledged as
security under certain insurance arrangements. Segregated cash and
investments primarily consist of cash, United States government securities, and
money-market funds.
Receivables
The
Company records trade accounts receivable at net realizable
value. This value includes an appropriate allowance for estimated
uncollectible accounts, $89 million and $69 million at June 30, 2008 and 2007,
respectively, to reflect any loss anticipated on the trade accounts receivable
balances. The Company calculates this allowance based on its history
of write-offs, level of past-due accounts, and its relationships with, and the
economic status of, its customers.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
1.
|
Summary
of Significant Accounting Policies
(Continued)
|
Credit
risk on trade receivables is minimized as a result of the large and diversified
nature of the Company’s worldwide customer base. The Company controls
its exposure to credit risk through credit approvals, credit limits, and
monitoring procedures. Collateral is generally not required for the
Company’s trade receivables. Trade accounts receivable due from
unconsolidated affiliates as of June 30, 2008 and 2007 was $199 million and $260
million, respectively.
Inventories
Inventories
of certain merchandisable agricultural commodities, which include amounts
acquired under deferred pricing contracts, are stated at market
value. In addition, the Company values certain inventories using the
lower of cost, determined by either the first-in, first-out (FIFO) or last-in,
first-out (LIFO) methods, or market.
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. 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 reclassified
out of accumulated other comprehensive income into earnings. The
Company considers marketable securities maturing in less than one year as
short-term. All other marketable securities are classified as
long-term.
Property,
Plant, and Equipment
Property,
plant, and equipment is recorded at cost. Repair and maintenance
costs are expensed as incurred. The Company generally uses the straight-line
method in computing depreciation for financial reporting purposes and generally
uses accelerated methods for income tax purposes. The annual provisions for
depreciation have been computed principally in accordance with the following
ranges of asset lives: buildings - 10 to 40 years; machinery and equipment - 3
to 30 years.
Asset
Abandonments and Write-Downs
The
Company recorded a $32 million, a $21 million, and a $71 million charge in cost
of products sold during 2008, 2007, and 2006, respectively, principally related
to the abandonment and write-down of certain long-lived assets. The
majority of these assets were idle or related to underperforming product lines,
and the decision to abandon or write-down was finalized after consideration of
the ability to utilize the assets for their intended purpose, employ the assets
in alternative uses, or sell the assets to recover the carrying
value. After the write-downs, the carrying value of these assets is
immaterial.
Net
Sales
The
Company follows a policy of recognizing sales revenue at the time of delivery of
the product and when all of the following have occurred: a sales agreement is in
place, pricing is fixed or determinable, and collection is reasonably
assured. Freight costs and handling charges related to sales are
recorded as a component of cost of products sold. Net sales to
unconsolidated affiliates during 2008, 2007, and 2006 were $6.8 billion, $3.7
billion, and $3.1 billion, respectively.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
1.
|
Summary
of Significant Accounting Policies
(Continued)
|
Stock
Compensation
The
Company adopted the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS 123
(R)), using the modified prospective transition method. Under the
modified prospective transition method, compensation expense includes: (a)
compensation expense for all share-based payments granted prior to, but not yet
vested as of July 1, 2005, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123; and (b) compensation
expense for all share-based payments granted subsequent to July 1, 2005, based
on the grant date fair value estimated in accordance with the provisions of SFAS
No. 123(R). The Company recognizes expense for its share-based
compensation based on the fair value of the awards that are
granted. The fair value of stock options is estimated at the date of
grant using the Black-Scholes option valuation model which requires the input of
highly subjective assumptions. Measured compensation cost, net of
estimated forfeitures, is recognized ratably over the vesting period of the
related share-based compensation award.
Research
and Development
Costs
associated with research and development are expensed as
incurred. Such costs incurred were $49 million, $45 million, and $45
million for the years ended June 30, 2008, 2007, and 2006,
respectively.
Per
Share Data
Basic
earnings per common share are determined by dividing net earnings by the
weighted average number of common shares outstanding. In computing
diluted earnings per share, the weighted average number of common shares
outstanding is increased by common stock options outstanding with exercise
prices lower than the average market prices of common shares. During
2008, 2007, and 2006, diluted average shares outstanding included incremental
shares related to outstanding common stock options of 2 million, 5 million, and
2 million, respectively.
New
Accounting Standards
During
July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for income taxes by prescribing
the minimum requirements a tax position must meet before being recognized in the
financial statements. In addition, FIN 48 prohibits the use of SFAS
No. 5, Accounting for
Contingencies, in evaluating the recognition and measurement of uncertain
tax positions. The Company adopted FIN 48 on July 1, 2007, and the
adoption did not have a material effect on the Company’s financial
statements. See Note 11 for further information.
During
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 establishes a framework for measuring fair value
within generally accepted accounting principles, clarifies the definition of
fair value within that framework, and expands disclosures about the use of fair
value measurements. SFAS 157 does not require any new fair value measurements in
generally accepted accounting principles. The Company will adopt SFAS
157 for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) effective as of July 1,
2008. The Company has not completed its evaluation of the impact of
adopting SFAS 157 on the Company’s financial statements. The adoption
of SFAS 157 may require modification of the Company’s fair value measurements
and will require expanded disclosures in the notes to the Company’s consolidated
financial statements.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
1.
|
Summary
of Significant Accounting Policies
(Continued)
|
During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 allows entities to
voluntarily choose, at specified election dates, to measure many financial
assets and financial liabilities at fair value. The election is made on an
instrument-by-instrument basis and is irrevocable. If the fair value option is
elected for an instrument, SFAS 159 specifies that all subsequent changes in
fair value for that instrument shall be reported in earnings. The
Company will adopt SFAS 159 on July 1, 2008 and does not believe such adoption
will have a significant impact on the Company’s financial statements, because
the Company does not expect to make any additional fair value measurement
elections.
During
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)) and SFAS No. 160, Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (SFAS 160). SFAS 141(R) replaces SFAS 141, Business
Combinations. SFAS 141(R) and SFAS 160 will change the
financial accounting and reporting of business combination transactions and
noncontrolling (or minority) interests in consolidated financial
statements. SFAS 141(R) requires recognizing, with certain
exceptions, 100 percent of the fair values of assets acquired, liabilities
assumed, and noncontrolling interests in acquisitions of less than a 100 percent
controlling interest when the acquisition constitutes a change in control of the
acquired entity; measuring acquirer shares issued and contingent consideration
arrangements in connection with a business combination at fair value on the
acquisition date with subsequent changes in fair value reflected in earnings;
and expensing as incurred acquisition-related transaction costs. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also
amends the consolidation procedures of Accounting Research Bulletin No. 51,
Consolidated financial
Statements (ARB 51) for consistency with the requirements of SFAS
141(R). The Company will be required to adopt SFAS 141(R) for
business combination transactions for which the acquisition date is on or after
July 1, 2009. The Company will also be required to adopt SFAS 160 on July 1,
2009. The Company has not yet assessed the impact of the adoption of
these standards on its financial statements.
During
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 expands and disaggregates the disclosure
requirements in SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). The disclosure
provisions of SFAS 161 apply to all entities with derivative instruments subject
to SFAS 133 and also apply to related hedged items, bifurcated derivatives, and
nonderivative instruments that are designated and qualify as hedging
instruments. SFAS 161 requires an entity with derivatives to disclose how and
why it uses derivative instruments; how derivative instruments and related
hedged items are accounted for under SFAS 133; and how derivative instruments
and related hedged items affect the entity’s financial position, financial
performance, and cash flows. Entities must provide tabular disclosures of the
location, by line item, of amounts of gains and losses reported in the statement
of earnings. The Company will be required to adopt SFAS 161 on
January 1, 2009. The adoption of this standard will require expanded
disclosure in the notes to the Company’s consolidated financial statements but
will not impact financial results.
During
May, 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1). FSP APB 14-1 addresses the accounting for
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. Currently, most forms of convertible debt securities
are treated solely as debt. Under the FSP, issuers of convertible debt
securities within its scope must separate these securities into two accounting
components; a debt component, representing the issuer’s contractual obligation
to pay principal and interest; and an equity component, representing the
holder’s option to convert the debt security into equity of the issuer or, if
the issuer so elects, an equivalent amount of cash. The Company will be required
to adopt FSP APB 14-1 on July 1, 2009 in connection with its outstanding
convertible debt and must apply it retrospectively to all past periods
presented, even if the instrument has matured, converted, or otherwise been
extinguished as of the FSP’s effective date. The Company has not yet assessed
the impact of the adoption of this standard on its financial
statements.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
1.
|
Summary
of Significant Accounting Policies
(Continued)
|
During
June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP
EITF03-6-1). FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing Earnings per Share (EPS) under the two-class method. The FSP clarifies
that all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common
shareholders and are considered to be participating securities. As such, the
issuing entity is required to apply the two-class method of computing basic and
diluted EPS. The Company will be required to adopt FSP EITF 03-6-1 on July 1,
2009 and has not yet assessed the impact of the adoption of this standard on the
Company’s financial statements.
|
Note
2.
|
Acquisitions
|
The
Company’s 2008, 2007, and 2006 acquisitions were accounted for as purchases in
accordance with SFAS No. 141, Business
Combinations. Accordingly, the tangible assets and liabilities
have been adjusted to fair values with the remainder of the purchase price, if
any, recorded as goodwill. The identifiable intangible assets
acquired as part of these acquisitions are not material.
2008
Acquisitions
During
2008, the Company acquired six businesses for a total cost of $15 million,
satisfied by $2 million in Company stock and $13 million in cash, and recorded a
preliminary allocation to the purchase price related to these
acquisitions. The purchase price allocation resulted in no
goodwill. The purchase price of $15 million was allocated to current
assets, property, plant and equipment, and liabilities for $18 million, $10
million, and $13 million, respectively.
2007
Acquisitions
During
2007, the Company acquired seven businesses for a total cost of $103
million. One of the acquisitions resulted in obtaining the remaining
outstanding shares of an unconsolidated affiliate where the Company held a 50%
interest.
The
Company recorded goodwill of $5 million related to these
acquisitions. The cash purchase price of $103 million plus the $100
million carrying value of the previously unconsolidated affiliate was allocated
to current assets, property, plant, and equipment, current liabilities, and debt
for $82 million, $206 million, $33 million, and $52 million,
respectively.
2006
Acquisitions
During
2006, the Company acquired twelve businesses for a total cost of $182
million. The Company recorded no goodwill related to these
acquisitions.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
3.
|
Marketable
Securities and Cash Equivalents
|
|
Unrealized
|
Unrealized
|
Fair
|
|
|||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
2008
|
||||||||||||||||
|
United
States government obligations
|
||||||||||||||||
|
Maturity
less than 1 year
|
$ | 483 | $ | 1 | $ | (1 | ) | $ | 483 | |||||||
|
Maturity
1 to 5 years
|
33 | – | (1 | ) | 32 | |||||||||||
|
Government–sponsored
mortgage-backed securities
|
||||||||||||||||
|
Maturity
less than 1 year
|
77 | 2 | – | 79 | ||||||||||||
|
Maturity
1 to 5 years
|
69 | – | (1 | ) | 68 | |||||||||||
|
Maturity
greater than 10 years
|
198 | 1 | (3 | ) | 196 | |||||||||||
|
Corporate
debt securities
|
||||||||||||||||
|
Maturity
less than 1 year
|
6 | – | – | 6 | ||||||||||||
|
Maturity
1 to 5 years
|
49 | – | – | 49 | ||||||||||||
|
Maturity
greater than 10 years
|
13 | – | – | 13 | ||||||||||||
|
Other
debt securities
|
||||||||||||||||
|
Maturity
less than 1 year
|
355 | – | (1 | ) | 354 | |||||||||||
|
Maturity
5 to 10 years
|
7 | – | – | 7 | ||||||||||||
|
Maturity
greater than 10 years
|
1 | – | – | 1 | ||||||||||||
|
Equity
securities
|
||||||||||||||||
|
Available-for-sale
|
88 | 52 | (18 | ) | 122 | |||||||||||
|
Trading
|
23 | – | – | 23 | ||||||||||||
| $ | 1,402 | $ | 56 | $ | (25 | ) | $ | 1,433 | ||||||||
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
2007
|
||||||||||||||||
|
United
States government obligations
|
||||||||||||||||
|
Maturity
less than 1 year
|
$ | 243 | $ | 1 | $ | (1 | ) | $ | 243 | |||||||
|
Maturity
1 to 5 years
|
43 | – | (1 | ) | 42 | |||||||||||
|
Government–sponsored
mortgage-backed securities
|
||||||||||||||||
|
Maturity
less than 1 year
|
104 | – | – | 104 | ||||||||||||
|
Maturity
1 to 5 years
|
146 | – | (1 | ) | 145 | |||||||||||
|
Maturity
greater than 10 years
|
179 | – | (6 | ) | 173 | |||||||||||
|
Corporate
debt securities
|
||||||||||||||||
|
Maturity
1 to 5 years
|
49 | – | (1 | ) | 48 | |||||||||||
|
Maturity
greater than 10 years
|
14 | – | – | 14 | ||||||||||||
|
Other
debt securities
|
||||||||||||||||
|
Maturity
less than 1 year
|
358 | – | – | 358 | ||||||||||||
|
Maturity
5 to 10 years
|
6 | – | – | 6 | ||||||||||||
|
Maturity
greater than 10 years
|
1 | – | – | 1 | ||||||||||||
|
Equity
securities
|
||||||||||||||||
|
Available-for-sale
|
120 | 99 | (17 | ) | 202 | |||||||||||
|
Trading
|
25 | – | – | 25 | ||||||||||||
| $ | 1,288 | $ | 100 | $ | (27 | ) | $ | 1,361 | ||||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
3.
|
Marketable
Securities and Cash Equivalents
(Continued)
|
Of the
$25 million in unrealized losses at June 30, 2008, $5 million arose within the
last 12 months. The market value of the investments that have been in
an unrealized loss position for less than 12 months and for 12 months and longer
is $292 million and $148 million, respectively. The market value of
United States government obligations, government-sponsored mortgage-backed
securities, and other debt securities with unrealized losses as of June 30,
2008, is $383 million. The $7 million of unrealized losses associated
with United States government obligations, government-sponsored mortgage-backed
securities, and other debt securities are not considered to be
other-than-temporary because their unrealized losses are related to changes in
interest rates and do not affect the expected cash flows to be received upon
maturity of these investments or the credit quality of the
issuer. The market value of available-for-sale equity securities with
unrealized losses as of June 30, 2008, is $57 million. The $18
million of unrealized losses associated with these available-for-sale equity
securities are principally related to long-term strategic
investments. The Company has the intent and ability to hold its debt
and equity securities for a period of time sufficient to recover all unrealized
losses. The Company has not recognized any other-than-temporary
impairments for its debt and equity securities.
|
Note
4.
|
Inventories
and Derivatives
|
To reduce
price risk caused by market fluctuations, the Company generally follows a policy
of using exchange-traded futures and exchange-traded and over-the-counter
options contracts to minimize its net position of merchandisable agricultural
commodity inventories and forward cash purchase and sales
contracts. The Company will also use exchange-traded futures and
exchange-traded and over-the-counter options contracts as components of
merchandising strategies designed to enhance margins. The results of
these strategies can be significantly impacted by factors such as the volatility
of the relationship between the value of exchange-traded commodities futures
contracts and the cash prices of the underlying commodities, counterparty
contracts defaults, and volatility of freight markets. Inventories of
certain merchandisable agricultural commodities, which include amounts acquired
under deferred pricing contracts, are stated at market
value. Exchange-traded futures and exchange-traded and
over-the-counter options contracts, and forward cash purchase and sales
contracts of certain merchandisable agricultural commodities, none of which are
designated as fair value hedges, are valued at market price. Changes
in the market value of inventories of merchandisable agricultural commodities,
forward cash purchase and sales contracts, and exchange-traded futures and
exchange-traded and over-the-counter options contracts are recognized in
earnings immediately, resulting in cost of goods sold approximating first-in,
first-out (FIFO) cost. Unrealized gains on forward cash purchase
contracts, forward cash sales contracts, and exchange-traded futures and
exchange-traded and over-the-counter options contracts represent the fair value
of such instruments and are classified on the Company’s balance sheet as
receivables. Unrealized losses on forward cash purchase contracts,
forward cash sales contracts, and exchange-traded futures and exchange-traded
and over-the-counter options contracts represent the fair value of such
instruments and are classified on the Company’s balance sheet as accounts
payable.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
4.
|
Inventories
and Derivatives (Continued)
|
The
Company also values certain inventories using the lower of cost, determined by
either the LIFO or FIFO method, or market. During 2008, reductions in
certain LIFO inventory quantities resulted in liquidations of a previously
established LIFO cost layer, thereby decreasing the impact of the LIFO valuation
reserve adjustment on earnings by $112 million after income tax.
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
LIFO
inventories
|
||||||||
|
FIFO
value
|
$ | 1,215 | $ | 786 | ||||
|
LIFO
valuation reserve
|
(784 | ) | (215 | ) | ||||
|
LIFO
inventories carrying value
|
431 | 571 | ||||||
|
FIFO
inventories
|
2,343 | 1,688 | ||||||
|
Market
inventories
|
7,386 | 3,801 | ||||||
| $ | 10,160 | $ | 6,060 | |||||
The
Company, from time to time, uses futures or options contracts to fix the
purchase price of anticipated volumes of commodities to be purchased and
processed in a future month. The Company also uses futures, options,
and swaps to fix the purchase price of the Company’s anticipated natural gas
requirements for certain production facilities. In addition, certain
of the Company’s ethanol sales contracts are indexed to gasoline
prices. The Company uses futures and options to fix the sales price
of anticipated volumes of these ethanol sales in future months. These
derivatives are designated as cash flow hedges. The changes in the
market value of such derivative contracts have historically been, and are
expected to continue to be, highly effective at offsetting changes in price
movements of the hedged item. The amounts representing the
ineffectiveness of these cash flow hedges are immaterial. Gains and
losses arising from open and closed hedging transactions are deferred in other
comprehensive income, net of applicable income taxes, and recognized as a
component of cost of products sold in the statement of earnings when the hedged
item is recognized. As of June 30, 2008, the Company has recorded $81
million of after-tax gains in accumulated other comprehensive income related to
gains and losses from cash flow hedge transactions. The Company
expects to recognize these after-tax gains in the statement of earnings
principally during fiscal year 2009.
At June
30, 2008, accumulated other comprehensive income included $5 million of
after-tax gains related to treasury-lock agreements. These
treasury-lock agreements were designated as cash flow hedges of anticipated
proceeds from the Company’s issuance of debentures in 2005 and
2008. The Company will recognize the $5 million of after-tax gain in
the statement of earnings over the terms of the debentures. At June
30, 2008, accumulated other comprehensive income also included $4 million of
after-tax gains representing the Company’s share of derivative gains reported by
unconsolidated affiliates of the Company.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
5.
|
Investments
in and Advances to Affiliates
|
The
Company has ownership interests in non-majority-owned affiliates accounted for
under the equity method. The Company had 80 and 79 unconsolidated
affiliates as of June 30, 2008 and 2007, respectively, located in North and
South America, Africa, Europe, and Asia. The following table
summarizes the combined balance sheets and the combined statements of earnings
of the Company’s unconsolidated affiliates as of and for each of the three years
ended June 30, 2008, 2007, and 2006.
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Current
assets
|
$ | 15,111 | $ | 7,683 | ||||||||
|
Non-current
assets
|
17,201 | 11,156 | ||||||||||
|
Current
liabilities
|
(11,069 | ) | (5,758 | ) | ||||||||
|
Non-current
liabilities
|
(2,799 | ) | (1,975 | ) | ||||||||
|
Minority
interests
|
(720 | ) | (915 | ) | ||||||||
|
Net
assets
|
$ | 17,724 | $ | 10,191 | ||||||||
|
Net
sales
|
$ | 37,542 | $ | 25,127 | $ | 20,304 | ||||||
|
Gross
profit
|
4,575 | 3,123 | 2,328 | |||||||||
|
Net
income
|
2,503 | 1,684 | 793 | |||||||||
Undistributed
earnings of the Company’s unconsolidated affiliates as of June 30, 2008, are
$1.0 billion. The company is a limited partner in various private
equity funds which have a carrying value at June 30, 2008 of $129
million. The Company has future capital commitments related to these
partnerships of $137 million as of June 30, 2008. Two foreign
affiliates for which the Company has a carrying value of $1.2 billion have a
market value of $1.9 billion based on quoted market prices and exchange rates at
June 30, 2008.
The
Company provides credit facilities totaling $240 million to two unconsolidated
affiliates. One facility is due on demand and bears interest equal to
the monthly average commercial paper rate applicable to the Company’s commercial
paper borrowing facility. The second facility has a 90 day term and
bears interest at LIBOR plus one. Outstanding advances under these
credit facilities are $195 million as of June 30, 2008, and are included in
receivables in the accompanying consolidated balance sheet.
During
2007, the Company sold its 28% ownership interest in Agricore United for cash of
$321 million and recognized a gain of $153 million.
During
June 2007, the Company exchanged its ownership interests in eleven Asian joint
venture companies for shares of Wilmar International Limited (WIL), a Singapore
publicly listed company. In exchange for its ownership interests in
the joint ventures, the Company received 366 million WIL shares with a fair
value of $756 million. Immediately prior to the exchange, the
carrying value of the Company’s interests in the joint ventures exchanged for
WIL shares was $231 million. The Company recognized a $286 million
after-tax gain in 2007 related to the exchange transaction. The gain
represents the difference between the fair value of the WIL shares received and
the carrying value of the Company’s interests in the joint ventures exchanged
for WIL shares, less the elimination of the portion of the gain representing the
Company’s retained direct and indirect ownership interests in
WIL. During 2008, the Company finalized its accounting for this
exchange using the purchase method of accounting. As a result, the
Company reduced its investment in WIL and recorded goodwill of $176
million. The Company accounts for its direct and indirect interests
in WIL using the equity method of accounting as the Company believes it has the
ability to exercise significant influence over the operating and financial
policies of WIL.
As of
June 30, 2008, there is one joint venture company subject to the WIL exchange
transaction for which regulatory approval is pending. The Company has
not recognized any gain related to the exchange of this joint venture with WIL
as of June 30, 2008. The exchange transaction and the related gain
for this joint venture will be recognized when, and if, final regulatory
approval is obtained.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
6.
|
Goodwill
|
The
Company accounts for its goodwill and other intangible assets in accordance with
SFAS No. 142, Goodwill and
Other Intangible Assets. Under this standard, goodwill and
intangible assets deemed to have indefinite lives are not amortized but are
subject to annual impairment tests. The Company did not record
goodwill impairment charges during 2008 and 2007. The carrying value
of the Company’s other intangible assets is not material.
Goodwill
balances attributable to consolidated businesses and investments in affiliates,
by segment, are set forth in the following table.
|
2008
|
2007
|
|||||||||||||||||||||||
|
Consolidated
|
Investments
|
Consolidated
|
Investments
|
|||||||||||||||||||||
|
Businesses
|
in
Affiliates
|
Total
|
Businesses
|
In
Affiliates
|
Total
|
|||||||||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
|
Oilseeds
Processing
|
$ | 15 | $ | 185 | $ | 200 | $ | 15 | $ | 9 | $ | 24 | ||||||||||||
|
Corn
Processing
|
77 | 7 | 84 | 77 | 7 | 84 | ||||||||||||||||||
|
Agricultural
Services
|
51 | 1 | 52 | 38 | 1 | 39 | ||||||||||||||||||
|
Other
|
103 | 67 | 170 | 104 | 66 | 170 | ||||||||||||||||||
|
Total
|
$ | 246 | $ | 260 | $ | 506 | $ | 234 | $ | 83 | $ | 317 | ||||||||||||
During
2008, the Company finalized its accounting for the exchange of the Company’s
interests in certain Asian joint ventures for shares in Wilmar International,
Ltd. using the purchase method of accounting. As a result, the
Company recorded $176 million of goodwill and reduced investments and advances
to affiliates on the Company’s balance sheet. The $176 million
increase in goodwill represents the difference between the pre-adjustment
carrying value of the Company’s investment and the Company’s interest in the
estimated fair value of WIL’s net assets at the acquisition
date. The other changes in goodwill during 2008 are related to
foreign currency translation adjustments.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
7.
|
Debt
and Financing Arrangements
|
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
4.70%
Debentures $1,750 million face amount, due in 2041
|
$ | 1,750 | $ | – | ||||
|
0.875%
Convertible Senior Notes $1,150 million face amount, due in
2014
|
1,150 | 1,150 | ||||||
|
5.45%
Notes $700 million face amount, due in 2018
|
700 | – | ||||||
|
5.375%
Debentures $600 million face amount, due in 2035
|
586 | 585 | ||||||
|
6.45%
Debentures $500 million face amount, due in 2038
|
498 | – | ||||||
|
5.935%
Debentures $500 million face amount, due in 2032
|
494 | 494 | ||||||
|
7.0%
Debentures $400 million face amount, due in 2031
|
398 | 398 | ||||||
|
7.5%
Debentures $343 million face amount, due in 2027
|
341 | 341 | ||||||
|
6.625%
Debentures $298 million face amount, due in 2029
|
296 | 296 | ||||||
|
8.375%
Debentures $295 million face amount, due in 2017
|
292 | 291 | ||||||
|
6.95%
Debentures $250 million face amount, due in 2097
|
246 | 246 | ||||||
|
7.125%
Debentures $243 million face amount, due in 2013
|
243 | 243 | ||||||
|
6.75%
Debentures $200 million face amount, due in 2027
|
197 | 196 | ||||||
|
5.87%
Debentures $196 million face amount, due in 2010
|
164 | 154 | ||||||
|
8.125%
Debentures $103 million face amount, due in 2012
|
103 | 103 | ||||||
|
8.875%
Debentures $102 million face amount, due in 2011
|
102 | 101 | ||||||
|
Other
|
362 | 219 | ||||||
|
Total
long-term debt including current maturities
|
7,922 | 4,817 | ||||||
|
Current
maturities
|
(232 | ) | (65 | ) | ||||
|
Total
long-term debt
|
$ | 7,690 | $ | 4,752 | ||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
7.
|
Debt
and Financing Arrangements
(Continued)
|
In fiscal
year 2008, the Company issued $3.10 billion of additional long-term debt,
including $500 million of debentures issued in December 2007, $700 million of
notes issued in March 2008, and $1.75 billion of debentures issued in June 2008
(the Debentures).
In
connection with the issuance of the debentures in June 2008, the Company issued
$1.75 billion of Equity Units. Equity Units are a combination of (a)
debt and (b) forward purchase contract for the holder to purchase the Company’s
common stock. The debt and equity instruments are deemed to be
separate instruments as the investor may transfer or settle the equity
instrument separately from the debt instrument.
The
forward purchase contract will obligate the buyer to purchase from the Company,
no later than June 1, 2011, for a price of $50 in cash, the following number of
shares of the Company’s common stock, subject to anti-dilution
adjustments:
if the
“Applicable Market Value” (AMV) of the Company’s common stock, which is the
average closing price of the Company’s common stock over the 20-trading day
period ending on the third trading day prior to June 1, 2011, equals or exceeds
$47.83, 1.0453 shares of the Company’s common stock;
if the
AMV is less than $47.83, but greater than $39.86, a number of shares of the
Company’s common stock having a value, based on the AMV, equal to $50;
and
if the
AMV is less than or equal $39.86, 1.2544 shares of the Company’s common
stock.
The
Debentures bear interest at a rate of 4.70% per year, payable
quarterly and are due June 1, 2041. The Debentures will be remarketed in three
years. If this remarketing is successful, the interest rate on the
Debentures will be reset, and thereafter interest will be payable semi-annually
at the reset rate. In addition, following a successful
remarketing, the Company may modify certain terms of the Debentures
including adjusting the frequency of interest payments, adjusting the ranking of
the Debentures or changing the stated maturity. If there has been no
successful remarketing, the interest rate on the Debentures will not be reset,
and the holder of each Equity Unit will have the right to put its interest in
the Debentures to the Company on June 1, 2011 at a put price equal to 100% of
its principal amount plus accrued and unpaid interest. The proceeds of the put
right will be deemed to have been applied against the holder’s obligations under
the forward purchase contracts.
The
Company will also pay the Equity Unit holder quarterly contract adjustment
payments at a rate of 1.55% per year of the stated amount of $50 per Equity
Unit, or $0.775 per year. The present value of the future contract
adjustment payments of $75 million, which will be paid over the next three
years, is recorded as a reduction to shareholders’ equity. The
Company also recorded a $35 million decrease in shareholders’ equity for
issuance costs related to the equity portion of the Equity Units. The
remaining issuance costs have been allocated to the debt and will be recognized
in earnings over the life of the debt.
The
forward purchase contracts issued in connection with the issuance of the
debentures in June 2008, will be settled for the company’s common stock on June
1, 2011. Until settlement of the forward purchase contract, the
shares of stock underlying each forward purchase contract are not
outstanding. The forward purchase contracts will only be included in
the computation of diluted earnings per share to the extent they are
dilutive. As of June 30, 2008, the forward purchase contracts were
not considered dilutive and therefore not included in the computation of diluted
earnings per share. Basic earnings per share will not be affected
until the forward purchase contracts are settled and the holders thereof become
stockholders.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
7.
|
Debt
and Financing Arrangements
(Continued)
|
In
February 2007, the Company issued $1.15 billion principal amount of convertible
senior notes due in 2014 (the Notes) in a private placement. The
Notes were issued at par and bear interest at a rate of 0.875% per year, payable
semiannually. The Notes are convertible based on a conversion rate of
22.8423 shares per $1,000 principal amount of Notes (which is equal to a
conversion price of approximately $43.78 per share). The Notes may be
converted, subject to adjustment, only under the following circumstances: 1)
during any calendar quarter beginning after March 31, 2007, if the closing price
of the Company’s common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the immediately preceding quarter
is more than 140% of the applicable conversion price per share, which is $1,000
divided by the then applicable conversion rate, 2) during the five consecutive
business day period immediately after any five consecutive trading day period
(the note measurement period) in which the average of the trading price per
$1,000 principal amount of Notes was equal to or less than 98% of the average of
the product of the closing price of the Company’s common stock and the
conversion rate at each date during the note measurement period, 3) if the
Company makes specified distributions to its common stockholders or specified
corporate transactions occur, or 4) at any time on or after January 15, 2014,
through the business day preceding the maturity date. Upon
conversion, a holder would receive an amount in cash equal to the lesser of 1)
$1,000 and 2) the conversion value, as defined. If the conversion
value exceeds $1,000, the Company will deliver, at the Company’s election, cash
or common stock or a combination of cash and common stock for the conversion
value in excess of $1,000. If the Notes are converted in connection
with a change in control, as defined, the Company may be required to provide a
make-whole premium in the form of an increase in the conversion rate, subject to
a stated maximum amount. In addition, in the event of a change in
control, the holders may require the Company to purchase all or a portion of
their Notes at a purchase price equal to 100% of the principal amount of the
Notes, plus accrued and unpaid interest, if any.
Concurrent
with the issuance of the Notes, the Company purchased call options in private
transactions at a cost of $299 million. The purchased call options
allow the Company to receive shares of its common stock and/or cash from the
counterparties equal to the amounts of common stock and/or cash related to the
excess of the current market price of the Company’s common stock over the
exercise price of the purchased call options. In addition, the
Company sold warrants in private transactions to acquire, subject to customary
anti-dilution adjustments, 26.3 million shares of its common stock at an
exercise price of $62.56 per share and received proceeds of $170
million. If the average price of the Company’s common stock during a
defined period ending on or about the respective settlement dates exceeds the
exercise price of the warrants, the warrants will be settled, at the Company’s
option, in cash or shares of common stock. The purchased call options
and warrants are intended to reduce the potential dilution upon future
conversions of the Notes by effectively increasing the initial conversion price
to $62.56 per share. The net cost of the purchased call options and
warrant transactions of $130 million was recorded as a reduction of
shareholders’ equity. The Company also recorded a $114 million
increase in shareholders’ equity for the deferred tax assets recognized related
to the purchased call options.
Upon closing of the sale of the Notes, $370 million of the net proceeds from the Note issuance and the proceeds from the warrant transactions were used to repurchase 10.3 million shares of the Company’s common stock under the Company’s stock repurchase program.
As of
June 30, 2008, none of the conditions permitting conversion of the Notes had
been satisfied. In addition, as of June 30, 2008, the market price of
the Company’s common stock was not greater than the exercise price of the
purchased call options or warrants. As of June 30, 2008, no share
amounts related to the conversion of the Notes or exercise of the warrants are
included in diluted average shares outstanding.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
7.
|
Debt
and Financing Arrangements
(Continued)
|
At June
30, 2008, the fair value of the Company’s long-term debt exceeded the carrying
value by $99 million, as estimated by using quoted market prices or discounted
future cash flows based on the Company’s current incremental borrowing rates for
similar types of borrowing arrangements.
The
aggregate maturities of long-term debt for the five years after June 30, 2008,
are $232 million, $43 million, $283 million, $118 million, and $261 million,
respectively.
At June
30, 2008, the Company had pledged certain property, plant, and equipment with a
carrying value of $359 million as security for certain long-term debt
obligations.
At June
30, 2008, the Company had lines of credit totaling $7.4 billion, of which $4.3
billion was unused. The weighted average interest rates on short-term
borrowings outstanding at June 30, 2008 and 2007, were 2.83% and 6.18%,
respectively. Of the Company’s total lines of credit, $5.1 billion
support a commercial paper borrowing facility, against which there was $2.2
billion borrowed at June 30, 2008.
The
Company has outstanding standby letters of credit and surety bonds at June 30,
2008 and 2007, totaling $500 million and $339 million,
respectively.
|
Note
8.
|
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, 2008 and 2007, the Company had approximately 27.8
million and 28.6 million shares, respectively, in treasury. Treasury
stock of $719 million at June 30, 2008, and $723 million at June 30, 2007, is
recorded at cost as a reduction of common stock.
The
Company’s employee stock compensation plans provide for the granting of options
to employees to purchase common stock of the Company pursuant to the Company’s
1999 Incentive Compensation Plan and 2002 Incentive Compensation
Plan. These options are issued at market value on the date of grant,
vest over three to nine years, and expire five to ten years after the date of
grant.
The
Company’s 1999 and 2002 Incentive Compensation Plans provide for the granting of
restricted stock and restricted stock units (Restricted Stock Awards) at no cost
to certain officers and key employees. The awards are made in common
stock or stock units with equivalent rights and vest at the end of a three-year
restriction period. During 2008, 2007, and 2006, 1.3 million, 1.1
million, and 2.4 million common shares or units, respectively, were granted as
Restricted Stock Awards. At June 30, 2008, there were 1.5 million and
7.9 million shares available for future grants pursuant to the 1999 and 2002
plans, respectively.
Compensation
expense for option grants and Restricted Stock Awards granted to employees is
generally recognized on a straight-line basis during the service period of the
respective grant. Certain of the Company’s option grants and
Restricted Stock Awards continue to vest upon the recipient’s retirement from
the Company and compensation expense related to option grants and Restricted
Stock Awards granted to retirement eligible employees is recognized in earnings
on the date of grant. Total compensation expense for option grants
and Restricted Stock Awards recognized during 2008, 2007, and 2006 was $70
million, $70 million, and $67 million, respectively.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
8.
|
Shareholders'
Equity (Continued)
|
The fair
value of each option grant is estimated as of the date of grant using the
Black-Scholes single option pricing model. The volatility assumption
used in the Black-Scholes single option pricing model is based on the historical
volatility of the Company’s stock. The volatility of the Company’s
stock was calculated based upon the monthly closing price of the Company’s stock
for the eight year period immediately prior to the date of grant. The
average expected life represents the period of time that option grants are
expected to be outstanding. The risk-free rate is based on the rate
of U.S. Treasury zero-coupon issues with a remaining term equal to the expected
life of option grants. The assumptions used in the Black-Scholes
single option pricing model are as follows.
|
2008
|
2007
|
2006
|
||||||||||
|
Dividend
yield
|
1%
|
1%
|
2%
|
|||||||||
|
Risk-free
interest rate
|
5%
|
5%
|
4%
|
|||||||||
|
Stock
volatility
|
30%
|
30%
|
31%
|
|||||||||
|
Average
expected life (years)
|
8
|
8
|
8
|
|||||||||
A summary
of option activity during 2008 is presented below:
|
Shares
|
Weighted-Average
Exercise
Price
|
|||||||
|
(In
thousands, except per share amounts)
|
||||||||
|
Shares
under option at June 30, 2007
|
9,382 | $ | 19.80 | |||||
|
Granted
|
1,958 | 34.37 | ||||||
|
Exercised
|
(1,614 | ) | 15.79 | |||||
|
Forfeited
or expired
|
(777 | ) | 18.86 | |||||
|
Shares
under option at June 30, 2008
|
8,949 | $ | 23.79 | |||||
|
Exercisable
at June 30, 2008
|
2,768 | $ | 17.34 | |||||
The
weighted-average remaining contractual term of options outstanding and
exercisable at June 30, 2008, is 7 years and 5 years,
respectively. The aggregate intrinsic value of options outstanding
and exercisable at June 30, 2008, is $89 million and $45 million,
respectively. The weighted-average grant-date fair values of options
granted during 2008, 2007, and 2006, were $12.60, $16.42, and $7.52
respectively. The total intrinsic values of options exercised during
2008, 2007, and 2006, were $34 million, $41 million, and $60 million,
respectively. Cash proceeds received from options exercised during
2008, 2007, and 2006, were $20 million, $20 million, and $30 million,
respectively.
At June
30, 2008, there was $35 million of total unrecognized compensation expense
related to option grants. Amounts to be recognized as compensation
expense during the next five fiscal years are $13 million, $10 million, $7
million, $4 million, and $1 million, respectively.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
8.
|
Shareholders'
Equity (Continued)
|
The fair
value of Restricted Stock Awards is determined based on the market value of the
Company’s shares on the grant date. The weighted-average grant-date
fair values of awards granted during 2008 and 2007, were $34.45 and $41.75,
respectively.
A summary
of Restricted Stock Awards activity during 2008 is presented below:
|
Restricted
|
Weighted
Average
|
|||||||
|
Stock
Awards
|
Grant-Date
Fair Value
|
|||||||
|
(In
thousands, except per share amounts)
|
||||||||
|
Non-vested
at June 30, 2007
|
5,787 | $ | 23.19 | |||||
|
Granted
|
1,338 | 34.45 | ||||||
|
Vested
|
(2,399 | ) | 15.74 | |||||
|
Forfeited
|
(190 | ) | 27.94 | |||||
|
Non-vested at
June 30, 2008
|
4,536 | $ | 30.00 | |||||
At June
30, 2008 there was $22 million of total unrecognized compensation expense
related to Restricted Stock Awards. Amounts to be recognized as
compensation expense during the next three fiscal years are $14 million, $7
million, and $1 million, respectively. The total fair value of
Restricted Stock Awards vested during 2008 was $38
million.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
9.
|
Accumulated
Other Comprehensive Income
|
The
following table sets forth information with respect to accumulated other
comprehensive income:
|
Foreign
|
Deferred
|
Unrealized
|
Accumulated
|
|||||||||||||||||
|
Currency
|
Gain
(Loss)
|
Pension
|
Gain
(Loss)
|
Other
|
||||||||||||||||
|
Translation
|
on
Hedging
|
Liability
|
On
|
Comprehensive
|
||||||||||||||||
|
Adjustment
|
Activities
|
Adjustment
|
Investments
|
Income
(Loss)
|
||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||
|
Balance
at June 30, 2005
|
$ | (17 | ) | $ | 6 | $ | (165 | ) | $ | 213 | $ | 37 | ||||||||
|
Unrealized
gains (losses)
|
107 | (42 | ) | 212 | (24 | ) | 253 | |||||||||||||
|
(Gains)
losses reclassified
to
earnings
|
– | (10 | ) | – | (40 | ) | (50 | ) | ||||||||||||
|
Tax
effect
|
– | 22 | (78 | ) | 30 | (26 | ) | |||||||||||||
|
Net
of tax amount
|
107 | (30 | ) | 134 | (34 | ) | 177 | |||||||||||||
|
Balance
at June 30, 2006
|
90 | (24 | ) | (31 | ) | 179 | 214 | |||||||||||||
|
Unrealized
gains (losses)
|
312 | (13 | ) | (40 | ) | 180 | 439 | |||||||||||||
|
(Gains)
losses reclassified
to
earnings
|
– | 42 | – | (393 | ) | (351 | ) | |||||||||||||
|
Tax
effect
|
– | (11 | ) | 15 | 80 | 84 | ||||||||||||||
|
Net
of tax amount
|
312 | 18 | (25 | ) | (133 | ) | 172 | |||||||||||||
|
SFAS
No. 158 transition adjustment
|
– | – | (330 | ) | – | (330 | ) | |||||||||||||
|
Tax
effect
|
– | – | 125 | – | 125 | |||||||||||||||
|
Net
of tax amount
|
– | – | (205 | ) | – | (205 | ) | |||||||||||||
|
Balance
at June 30, 2007
|
402 | (6 | ) | (261 | ) | 46 | 181 | |||||||||||||
|
Unrealized
gains (losses)
|
624 | 126 | 144 | (4 | ) | 890 | ||||||||||||||
|
(Gains)
losses
reclassified to
earnings
|
– | 13 | – | (38 | ) | (25 | ) | |||||||||||||
|
Tax
effect
|
– | (43 | ) | (62 | ) | 16 | (89 | ) | ||||||||||||
|
Net
of tax amount
|
624 | 96 | 82 | (26 | ) | 776 | ||||||||||||||
|
Balance
at June 30, 2008
|
$ | 1,026 | $ | 90 | $ | (179 | ) | $ | 20 | $ | 957 | |||||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
10.
|
Other
Income – Net
|
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Interest
expense
|
$ | 477 | $ | 434 | $ | 365 | ||||||
|
Investment
income
|
(269 | ) | (257 | ) | (204 | ) | ||||||
|
Loss
on extinguishment of debt
|
– | 46 | 4 | |||||||||
|
Net
gain on marketable
|
||||||||||||
|
securities
transactions
|
(38 | ) | (393 | ) | (40 | ) | ||||||
|
Gain
on exchange of
|
||||||||||||
|
unconsolidated
affiliates
|
(9 | ) | (440 | ) | – | |||||||
|
Net
(gain) loss on sales of businesses
|
(8 | ) | (209 | ) | 12 | |||||||
|
Equity
in earnings of
|
||||||||||||
|
unconsolidated
affiliates
|
(415 | ) | (294 | ) | (174 | ) | ||||||
|
Other
– net
|
61 | 1 | (45 | ) | ||||||||
| $ | (201 | ) | $ | (1,112 | ) | $ | (82 | ) | ||||
Interest
expense is net of interest capitalized of $52 million, $24 million, and $11
million in 2008, 2007, and 2006, respectively. The Company made
interest payments of $485 million, $425 million, and $365 million in 2008, 2007,
and 2006, respectively. Realized gains on sales of available-for-sale
marketable securities totaled $39 million, $394 million, and $41 million in
2008, 2007, and 2006, respectively. Annual realized losses were $1
million in 2008, 2007, and 2006.
|
Note
11.
|
Income
Taxes
|
For
financial reporting purposes, earnings before income taxes include the following
components.
|
2008
|
2007
|
2006
|
||||||||||
| (In millions) | ||||||||||||
|
United
States
|
$ | 1,445 | $ | 1,902 | $ | 1,321 | ||||||
|
Foreign
|
1,179 | 1,252 | 534 | |||||||||
| $ | 2,624 | $ | 3,154 | $ | 1,855 | |||||||
|
Significant
components of income taxes are as follows:
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
| (In millions) | ||||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | 540 | $ | 691 | $ | 490 | ||||||
|
State
|
46 | 68 | 33 | |||||||||
|
Foreign
|
364 | 124 | 121 | |||||||||
|
Deferred
|
||||||||||||
|
Federal
|
(51 | ) | (24 | ) | (105 | ) | ||||||
|
State
|
12 | (16 | ) | 1 | ||||||||
|
Foreign
|
(89 | ) | 149 | 3 | ||||||||
| $ | 822 | $ | 992 | $ | 543 | |||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
11.
|
Income
Taxes (Continued)
|
|
Significant
components of the Company’s deferred tax liabilities and assets are as
follows:
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Deferred
tax liabilities
|
||||||||
|
Depreciation
|
$ | 549 | $ | 595 | ||||
|
Bond
discount amortization
|
13 | 16 | ||||||
|
Unrealized
gain on marketable securities
|
11 | 26 | ||||||
|
Equity
in earnings of affiliates
|
272 | 246 | ||||||
|
Other
|
2 | 54 | ||||||
| 847 | 937 | |||||||
|
Deferred
tax assets
|
||||||||
|
Pension
and postretirement benefits
|
133 | 140 | ||||||
|
Reserves
and other accruals
|
20 | 23 | ||||||
|
Purchased
call options
|
98 | 109 | ||||||
|
Tax
credit carryforwards, net
|
41 | 49 | ||||||
|
Other
|
82 | 118 | ||||||
| 374 | 439 | |||||||
|
Net
deferred tax liabilities
|
473 | 498 | ||||||
|
Current
net deferred tax assets included
|
||||||||
|
in
other assets
|
– | 34 | ||||||
|
Non-current
net deferred tax liabilities
|
$ | 473 | $ | 532 | ||||
Reconciliation
of the statutory federal income tax rate to the Company’s effective tax rate on
earnings is as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Statutory
rate
|
35.0%
|
35.0%
|
35.0%
|
|||||||||
|
Export
tax incentives
|
–
|
(0.5)
|
(1.8)
|
|||||||||
|
State
income taxes, net of
|
||||||||||||
|
federal
tax benefit
|
1.3
|
1.4
|
1.9
|
|||||||||
|
Foreign
earnings taxed at rates
|
||||||||||||
|
other
than the U.S. statutory rate
|
(4.6)
|
(2.9)
|
(4.7)
|
|||||||||
|
Adjustment
of income taxes to
|
||||||||||||
|
filed
tax returns
|
0.2
|
(0.4)
|
(2.2)
|
|||||||||
|
Other
|
(0.6)
|
(1.1)
|
1.1
|
|||||||||
|
Effective
rate
|
31.3%
|
31.5%
|
29.3%
|
|||||||||
The
Company made income tax payments of $859 million, $794 million, and $508 million
in 2008, 2007, and 2006, respectively.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
11.
|
Income
Taxes (Continued)
|
The
Company has $69 million and $82 million of tax assets for net operating loss
carry-forwards related to certain international subsidiaries at June 30, 2008
and 2007, respectively. As of June 30, 2008, approximately $54
million of these assets have no expiration date, and the remaining $15 million
expire at various times through fiscal 2017. The annual usage of
certain of these assets is limited to a percentage of taxable income of the
respective international subsidiary for the year. The Company has recorded a
valuation allowance of $60 million and $52 million against these tax assets at
June 30, 2008 and 2007, respectively, due to the uncertainty of their
realization.
The
Company also has $41 million of tax assets related to excess foreign tax credits
which begin to expire in fiscal 2013 and $25 million of tax assets related to
state income tax attributes (incentive credits and net operating loss
carryforwards) net of federal benefit which will expire at various times through
fiscal 2012. The Company has recorded a valuation allowance of $24 million
against the excess foreign tax credits at June 30, 2008, due to the uncertainty
of realization. The Company has also recorded a valuation allowance
against the state income tax attributes of $1 million as of June 30,
2008. As of June 30, 2007, the Company had a $15 million valuation
allowance recorded related to the excess foreign tax credits and a $1 million
valuation allowance related to state income tax incentive credits, due to the
uncertainty of realization.
The
Company remains subject to examination in the U.S. for the calendar tax years
2007 and 2008.
Undistributed
earnings of the Company’s foreign subsidiaries and affiliated corporate joint
venture companies accounted for on the equity method of approximately $4.9
billion at June 30, 2008, are considered to be permanently reinvested, and
accordingly, no provision for U.S. income taxes has been provided
thereon. It is not practicable to determine the deferred tax
liability for temporary differences related to these undistributed
earnings.
The
Company adopted the provisions of FIN 48 effective July 1, 2007. FIN
48 clarifies the accounting for income tax positions by prescribing a minimum
threshold a tax position is required to meet before being recognized in the
consolidated financial statements. This interpretation requires
the Company to recognize in the consolidated financial statements tax positions
determined more likely than not to be sustained upon examination, based on the
technical merits of the position. Upon adoption of FIN 48, no
material changes were required to be taken into account in the income statement
or balance sheet of the Company. Additionally, the 2008 changes in
unrecognized tax benefits did not have a material effect on the Company’s net
income or cash flow. The total amounts of unrecognized tax benefits
at July 1, 2007, and June 30, 2008, are as follows:
|
Unrecognized
Tax
Benefits
|
||||
|
(In
millions)
|
||||
|
July
1, 2007 balance
|
$ | 21 | ||
|
Additions
related to current year tax positions
|
29 | |||
|
Additions
related to prior years’ tax position
|
7 | |||
|
Reduction
related to prior years’ tax positions
|
– | |||
|
Reductions
due to a lapse of the statue of limitations
|
– | |||
|
Settlements
with tax authorities
|
(2 | ) | ||
|
June
30, 2008 balance
|
$ | 55 | ||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
11.
|
Income
Taxes (Continued)
|
The
Company is subject to income taxation in many jurisdictions around the
world. Resolution of the related tax positions through negotiations
with relevant tax authorities or through litigation may take years to
complete. Therefore, it is difficult to predict the timing for
resolution for tax positions. However, the Company does not
anticipate that the total amount of unrecognized tax benefits will increase or
decrease significantly in the next twelve months. Given the long
periods of time involved in resolving tax positions, the Company does not expect
that the recognition of unrecognized tax benefits will have a material impact on
the Company’s effective income tax rate in any given period. If
the total amount of unrecognized tax benefits were required to be
recognized by the Company at one time, there would be a positive impact of $26
million on the tax expense for that period.
The
Company classifies interest on income tax-related balances as interest expense
or interest income and classifies tax-related penalties as operating
expense. At July 1, 2007, and June 30, 2008, respectively, the
Company had accrued $14.4 million and $17.5 million of liabilities for interest
and penalties on unrecognized tax benefits.
|
Note
12.
|
Leases
|
The
Company leases manufacturing and warehouse facilities, real estate,
transportation assets, and other equipment under non-cancelable operating leases
which expire at various dates through the year 2076. Rent expense for 2008,
2007, and 2006 was $201 million, $166 million, and $129 million, respectively.
Future minimum rental payments for non-cancelable operating leases with initial
or remaining terms in excess of one year are as follows:
|
Minimum
Rental
Payments
|
||||
|
Fiscal
years
|
(In
millions)
|
|||
|
2009
|
$ | 403 | ||
|
2010
|
217 | |||
|
2011
|
185 | |||
|
2012
|
129 | |||
|
2013
|
110 | |||
|
Thereafter
|
320 | |||
|
Total
minimum lease payments
|
$ | 1,364 | ||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans
|
The
Company provides substantially all domestic employees and employees at certain
international subsidiaries with pension benefits. The Company also
provides substantially all domestic salaried employees with postretirement
health care and life insurance benefits.
The
Company has savings and investment plans available to employees. The
Company also maintains stock ownership plans for qualifying
employees. The Company contributes shares of its stock to the plans
to match qualifying employee contributions. Employees have the choice
of retaining Company stock in their accounts or diversifying the shares into
other investment options. Expense is measured and recorded based upon
the fair market value of the stock contributed to the plans each
month. The number of shares designated for use in the plans is not
significant compared to the shares outstanding for the periods
presented. Assets of the Company’s defined contribution savings plans
consist primarily of listed common stocks and pooled funds. The
Company’s defined contribution savings plans held 16.4 million shares of Company
common stock at June 30, 2008, with a market value of $555
million. Cash dividends received on shares of Company common stock
held by these plans during the year ended June 30, 2008 were $9
million.
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
|
Retirement
plan expense
|
||||||||||||||||||||||||
|
Defined
benefit plans:
|
||||||||||||||||||||||||
|
Service
cost (benefits earned during the period)
|
$ | 68 | $ | 62 | $ | 59 | $ | 9 | $ | 7 | $ | 6 | ||||||||||||
|
Interest
cost
|
109 | 94 | 87 | 12 | 10 | 9 | ||||||||||||||||||
|
Expected
return on plan assets
|
(121 | ) | (102 | ) | (81 | ) | – | – | – | |||||||||||||||
|
Curtailment
|
– | – | 10 | – | – | – | ||||||||||||||||||
|
Amortization
of actuarial loss
|
17 | 19 | 35 | 2 | 1 | – | ||||||||||||||||||
|
Other
amortization
|
5 | 6 | 4 | (1 | ) | (1 | ) | – | ||||||||||||||||
|
Net
periodic defined benefit plan expense
|
78 | 79 | 114 | 22 | 17 | 15 | ||||||||||||||||||
|
Defined
contribution plans
|
31 | 29 | 27 | – | – | – | ||||||||||||||||||
|
Total
retirement plan expense
|
$ | 109 | $ | 108 | $ | 141 | $ | 22 | $ | 17 | $ | 15 | ||||||||||||
On June
30, 2007, the Company adopted the recognition and disclosure provisions of SFAS
No. 158. SFAS No. 158 required the Company to recognize the funded
status of its pension plans in the June 30, 2007, consolidated balance sheet,
with a corresponding adjustment to accumulated other comprehensive
income. The adjustment to accumulated other comprehensive income at
adoption represented the net unrecognized actuarial losses, unrecognized prior
service costs, and unrecognized transition obligation remaining from the initial
adoption of SFAS No. 87, Employers’ Accounting for
Pensions, all of which were previously netted against the plans’ funded
status in the Company’s consolidated balance sheet pursuant to the provisions of
SFAS No. 87. These amounts are subsequently recognized as net
periodic pension cost pursuant to the Company’s historical accounting policy for
amortizing such amounts. Further, actuarial gains and losses that
arise in subsequent periods and are not recognized as net periodic pension cost
in the same periods are recognized as a component of other comprehensive
income. Those amounts are subsequently recognized as a component of
net periodic pension cost on the same basis as the amounts recognized in
accumulated other comprehensive income pursuant to the provisions of SFAS No.
158.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans (Continued)
|
The
incremental effects of adopting the provisions of SFAS No. 158 on the Company’s
consolidated balance sheet at June 30, 2007 are presented in the following
table. The adoption of SFAS No. 158 had no effect on the Company’s
consolidated statement of earnings for the year ended June 30, 2007, or for any
prior period presented, and it is not expected to have a material effect on the
Company’s operating results in future periods. Had the Company not
been required to adopt SFAS No. 158 at June 30, 2007, it would have recognized
an additional minimum liability pursuant to the provisions of SFAS No.
87. The effects of recognizing the additional minimum liability is
included in the table below in the column labeled “Prior to Adopting SFAS No.
158.”
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||||||||||
|
At
June 30, 2007
|
At
June 30, 2007
|
|||||||||||||||||||||||
|
Prior
to
|
Effect
of
|
As
|
Prior
to
|
Effect
of
|
As
|
|||||||||||||||||||
|
Adopting
|
Adopting
|
Reported
|
Adopting
|
Adopting
|
Reported
|
|||||||||||||||||||
|
SFAS
No.
|
SFAS
No.
|
at
June
|
SFAS
No.
|
SFAS
No.
|
at
June
|
|||||||||||||||||||
| 158 | 158 | 30, 2007 | 158 | 158 | 30, 2007 | |||||||||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
|
Prepaid
benefit cost
|
$ | 178 | $ | (156 | ) | $ | 22 | $ | – | $ | – | $ | – | |||||||||||
|
Accrued
benefit liability
|
(204 | ) | (118 | ) | (322 | ) | (170 | ) | (38 | ) | (208 | ) | ||||||||||||
|
Intangible
asset
|
21 | (21 | ) | – | – | – | – | |||||||||||||||||
|
Accumulated
other
comprehensive income
|
85 | 295 | 380 | – | 38 | 38 | ||||||||||||||||||
SFAS No.
158 also requires companies to measure the funded status of defined benefit
postretirement plans as of the end of the fiscal year instead of a date up to
three months prior to the end of the fiscal year. The Company is
required to adopt the measurement date provisions of SFAS No. 158 in 2009 and
will record the impact of the measurement date change, which is not expected to
be significant, as an adjustment to opening retained earnings.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans (Continued)
|
The
Company uses a March 31 measurement date for substantially all defined benefit
plans. The following tables set forth changes in the defined benefit
obligation and the fair value of defined benefit plan assets:
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||
|
Benefit
obligation, beginning
|
$ | 1,916 | $ | 1,707 | $ | 208 | $ | 165 | ||||||||
|
Service
cost
|
68 | 62 | 9 | 7 | ||||||||||||
|
Interest
cost
|
109 | 94 | 12 | 10 | ||||||||||||
|
Actuarial
loss (gain)
|
(242 | ) | 65 | (15 | ) | 24 | ||||||||||
|
Curtailment
|
– | (1 | ) | – | – | |||||||||||
|
Employee
contributions
|
3 | 4 | – | 2 | ||||||||||||
|
Benefits
paid
|
(78 | ) | (77 | ) | (8 | ) | (7 | ) | ||||||||
|
Plan
amendments
|
6 | 3 | – | – | ||||||||||||
|
Acquisitions
and divestitures
|
– | 15 | – | 7 | ||||||||||||
|
Foreign
currency effects
|
69 | 44 | – | – | ||||||||||||
|
Benefit
obligation, ending
|
$ | 1,851 | $ | 1,916 | $ | 206 | $ | 208 | ||||||||
|
Fair
value of plan assets, beginning
|
$ | 1,611 | $ | 1,468 | $ | – | $ | – | ||||||||
|
Actual
return on plan assets
|
5 | 118 | – | – | ||||||||||||
|
Employer
contributions
|
69 | 50 | 8 | 5 | ||||||||||||
|
Employee
contributions
|
3 | 4 | – | 2 | ||||||||||||
|
Benefits
paid
|
(78 | ) | (77 | ) | (8 | ) | (7 | ) | ||||||||
|
Acquisitions
and divestitures
|
– | 14 | – | – | ||||||||||||
|
Foreign
currency effects
|
52 | 34 | – | – | ||||||||||||
|
Fair
value of plan assets, ending
|
$ | 1,662 | $ | 1,611 | $ | – | $ | – | ||||||||
|
Funded
status
|
$ | (189 | ) | $ | (305 | ) | $ | (206 | ) | $ | (208 | ) | ||||
|
Adjustment
for fourth quarter contributions
|
7 | 5 | – | – | ||||||||||||
|
Pension
liability recognized in the balance sheet
|
$ | (182 | ) | $ | (300 | ) | $ | (206 | ) | $ | (208 | ) | ||||
|
Prepaid
benefit cost
|
$ | 68 | $ | 22 | $ | – | $ | – | ||||||||
|
Accrued
benefit liability – current
|
(11 | ) | (9 | ) | (8 | ) | (7 | ) | ||||||||
|
Accrued
benefit liability – long-term
|
(239 | ) | (313 | ) | (198 | ) | (201 | ) | ||||||||
|
Net
amount recognized in the balance sheet
|
$ | (182 | ) | $ | (300 | ) | $ | (206 | ) | $ | (208 | ) | ||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans (Continued)
|
Included
in accumulated other comprehensive income for pension benefits at June 30, 2008,
are the following amounts that have not yet been recognized in net periodic
pension cost: unrecognized transition obligation of $4 million, unrecognized
prior service costs of $43 million and unrecognized actuarial losses of $204
million. The prior service cost and actuarial loss included in
accumulated other comprehensive income and expected to be recognized in net
periodic pension cost during the fiscal year ended June 30, 2009, is $6 million
and $2 million, respectively.
Included
in accumulated other comprehensive income for postretirement benefits at June
30, 2008, are the following amounts that have not yet been recognized in net
periodic benefit costs: unrecognized prior service credit of $8 million and
unrecognized actuarial losses of $30 million. The prior service
credit and actuarial loss included in accumulated other comprehensive income and
expected to be recognized in net periodic benefit costs during the fiscal year
ended June 30, 2009, is $(1) million, and $1 million, respectively.
The
following table sets forth the principal assumptions used in developing net
periodic expense:
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Discount
rate
|
5.6%
|
5.5%
|
6.0%
|
6.0%
|
||||||||||||
|
Expected
return on plan assets
|
7.6%
|
7.2%
|
N/A
|
N/A
|
||||||||||||
|
Rate
of compensation increase
|
4.1%
|
3.7%
|
N/A
|
N/A
|
||||||||||||
The
following table sets forth the principal assumptions used in developing the
year-end actuarial present value of the projected benefit
obligations:
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Discount
rate
|
6.5%
|
5.6%
|
6.8%
|
6.0%
|
||||||||||||
|
Rate
of compensation increase
|
3.9%
|
4.1%
|
N/A
|
N/A
|
||||||||||||
The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the pension plans with projected benefit obligations in excess
of plan assets were $1.2 billion, $1.2 billion, and $1.0 billion, respectively,
as of June 30, 2008, and $1.7 billion, $1.5 billion, and $1.4 billion,
respectively, as of une 30, 2007. The projected benefit
obligation, accumulated benefit obligation, and fair value of plan assets for
the pension plans with accumulated benefit obligations in excess of plan assets
were $484 million, $474 million, and $282 million, respectively, as
of June 30, 2008, and $491 million, $481 million, and $284 million,
respectively, as of June 30, 2007. The accumulated benefit obligation
for all pension plans as of June 30, 2008 and 2007, was $1.7
billion.
For
postretirement benefit measurement purposes, a 9.0% annual rate of increase in
the per capita cost of covered health care benefits was assumed for
2008. The rate was assumed to decrease gradually to 5.0% for 2012 and
remain at that level thereafter.
Assumed
health care cost trend rates have a significant impact on the amounts reported
for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effect:
|
1% Increase
|
1% Decrease
|
|||||||
|
(In
millions)
|
||||||||
|
Effect
on combined service and interest cost components
|
$ | 2 | $ | (2 | ) | |||
|
Effect
on accumulated postretirement benefit obligations
|
$ | 17 | $ | (18 | ) | |||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans (Continued)
|
Plan
Assets
The
following table sets forth the actual asset allocation for the Company’s global
pension plan assets as of the measurement date:
|
20081, 2
|
2007
|
|||||||
|
Equity
securities
|
51%
|
54%
|
||||||
|
Debt
securities
|
41%
|
40%
|
||||||
|
Other
|
8%
|
6%
|
||||||
|
Total
|
100%
|
|
100%
|
|||||
|
|
1
|
The
Company’s U.S. pension plans contain approximately 60% of the Company’s
global pension plan assets. The target asset allocation for the
Company’s U.S. pension plans consists of 60% equity securities, 30% debt
securities, and 10% real estate. The actual asset allocation
for the U.S. pension plans as of the measurement date consists of 61%
equity securities, 28% debt securities, and 11% in real
estate. The actual asset allocation for the Company’s foreign
pension plans as of the measurement date consists of 37% equity
securities, 61% debt securities, and 2% in other
investments. The target asset allocation for the Company’s
foreign pension plans is approximately the same as the actual asset
allocation.
|
|
|
2
|
The
Company’s pension plans held 3.1 million shares of Company common stock as
of the measurement date, March 31, 2008, with a market value of $129
million. Cash dividends received on shares of Company common
stock by these plans during the twelve-month period ended March 31, 2008,
were $2 million.
|
Investment
objectives for the Company’s plan assets are to:
|
·
|
Optimize
the long-term return on plan assets at an acceptable level of
risk.
|
|
·
|
Maintain
a broad diversification across asset classes and among investment
managers.
|
|
·
|
Maintain
careful control of the risk level within each asset
class.
|
Asset
allocation targets promote optimal expected return and volatility
characteristics given the long-term time horizon for fulfilling the obligations
of the pension plans. Selection of the targeted asset allocation for
plan assets was based upon a review of the expected return and risk
characteristics of each asset class, as well as the correlation of returns among
asset classes. The U.S. pension plans target asset allocation was
also based on an asset and liability study concluded in January
2005.
Investment
guidelines are established with each investment manager. These
guidelines provide the parameters within which the investment managers agree to
operate, including criteria that determine eligible and ineligible securities,
diversification requirements, and credit quality standards, where
applicable. In some countries, derivatives may be used to gain market
exposure in an efficient and timely manner; however, derivatives may not be used
to leverage the portfolio beyond the market value of underlying
investments.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
13.
|
Employee
Benefit Plans (Continued)
|
External
consultants monitor the investment strategy and asset mix for the Company’s plan
assets. To develop the Company’s expected long-term rate of return
assumption on plan assets, the Company generally uses long-term historical
return information for the targeted asset mix identified in asset and liability
studies. Adjustments are made to the expected long-term rate of
return assumption when deemed necessary based upon revised expectations of
future investment performance of the overall investment markets. The
expected long-term rate of return assumption used in computing 2008 net periodic
pension cost for the pension plans was 7.6%.
Contributions
and Expected Future Benefit Payments
The
Company expects to contribute $36 million to the pension plans and $8 million to
the postretirement benefit plan during 2009.
The
following benefit payments, which reflect expected future service, are expected
to be paid:
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||
|
(In
millions)
|
||||||||
|
2009
|
$ | 82 | $ | 8 | ||||
|
2010
|
90 | 9 | ||||||
|
2011
|
95 | 10 | ||||||
|
2012
|
100 | 11 | ||||||
|
2013
|
106 | 12 | ||||||
|
2014
– 2018
|
621 | 73 | ||||||
|
Note
14.
|
Segment
and Geographic Information
|
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. Beginning
July 1, 2007, the Company has reclassified certain operations within its
reportable segments to reflect how the Company now manages its businesses
following a realignment of the organizational structure of the Company and to
reflect the activities of the Company as viewed by the Company’s chief operating
decision maker. Prior period segment information has been
reclassified to conform to the new presentation. 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’s remaining operations
are aggregated and classified as Other. The reclassification of certain
operations in the Company’s reportable segments principally resulted in the
movement of certain food, feed, and industrial operations previously classified
in Other to the respective segment which produces the raw material feedstock
used in those operations. The Oilseeds Processing segment now
includes the Company’s natural health and nutrition and protein specialties
operations, the Corn Processing segment now includes the Company’s industrial
bioproducts operations, and the Agricultural Services segment now includes the
Company’s formula feed processing and edible bean origination
operations.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
14.
|
Segment
and Geographic Information
(Continued)
|
The
Oilseeds Processing segment includes activities related to the crushing and
origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and protein meals principally for the
food and feed industries. In addition, oilseeds and oilseed products
may be processed internally or resold into the marketplace as raw materials for
other processing. Crude vegetable oil is sold "as is" or is further
processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food products. Partially
refined oil is sold for use in chemicals, paints, and other industrial
products. Refined oil can be further processed for use in the
production of biodiesel. Oilseed meals are primary ingredients used
in the manufacture of commercial livestock and poultry
feeds. Oilseeds Processing includes activities related to the
production of natural health and nutrition products and the production of other
specialty food and feed ingredients. This segment also includes
activities related to the Company’s interests in unconsolidated affiliates in
Asia, principally Wilmar International Limited.
The Corn
Processing segment includes activities related to the production of sweeteners,
starches, dextrose, and syrups primarily for the food and beverage industry as
well as activities related to the production, by fermentation, of bioproducts
such as ethanol, amino acids, and other food, feed and industrial
products.
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network to buy, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, barley, and edible
beans, and resells or processes these commodities primarily as food and feed
ingredients for the agricultural processing industry. Agricultural
Services’ grain sourcing and transportation network provides reliable and
efficient services to the Company’s agricultural processing operations. Also
included in Agricultural Services are the activities of A.C. Toepfer
International, a global merchandiser of agricultural commodities and processed
products.
Other
includes the Company’s remaining processing operations, consisting of activities
related to processing agricultural commodities into food ingredient products
such as wheat into wheat flour, cocoa into chocolate and cocoa products, and
barley into malt. Other also includes financial activities related to banking,
captive insurance, private equity fund investments, and futures commission
merchant activities.
Intersegment
sales have been recorded at amounts approximating market. Operating
profit for each segment is based on net sales less identifiable operating
expenses, including an interest charge related to working capital
usage. Also included in segment operating profit are equity in
earnings of affiliates based on the equity method of
accounting. General corporate expenses, investment income,
unallocated interest expense, marketable securities transactions, FIFO to LIFO
inventory adjustments and minority interest eliminations have been excluded from
segment operations and classified as Corporate.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
14.
|
Segment
and Geographic Information
(Continued)
|
Segment
Information
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Sales
to external customers
|
||||||||||||
|
Oilseeds
Processing
|
$ | 23,279 | $ | 13,943 | $ | 11,893 | ||||||
|
Corn
Processing
|
7,137 | 5,825 | 5,256 | |||||||||
|
Agricultural
Services
|
33,968 | 20,419 | 16,155 | |||||||||
|
Other
|
5,432 | 3,831 | 3,292 | |||||||||
|
Total
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | ||||||
|
Intersegment
sales
|
||||||||||||
|
Oilseeds
Processing
|
$ | 535 | $ | 328 | $ | 58 | ||||||
|
Corn
Processing
|
99 | 50 | 49 | |||||||||
|
Agricultural
Services
|
2,965 | 1,833 | 1,202 | |||||||||
|
Other
|
140 | 125 | 115 | |||||||||
|
Total
|
$ | 3,739 | $ | 2,336 | $ | 1,424 | ||||||
|
Net
sales
|
||||||||||||
|
Oilseeds
Processing
|
$ | 23,814 | $ | 14,271 | $ | 11,951 | ||||||
|
Corn
Processing
|
7,236 | 5,875 | 5,305 | |||||||||
|
Agricultural
Services
|
36,933 | 22,252 | 17,357 | |||||||||
|
Other
|
5,572 | 3,956 | 3,407 | |||||||||
|
Intersegment
elimination
|
(3,739 | ) | (2,336 | ) | (1,424 | ) | ||||||
|
Total
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | ||||||
|
Depreciation
|
||||||||||||
|
Oilseeds
Processing
|
$ | 202 | $ | 190 | $ | 189 | ||||||
|
Corn
Processing
|
293 | 285 | 266 | |||||||||
|
Agricultural
Services
|
92 | 91 | 91 | |||||||||
|
Other
|
114 | 112 | 87 | |||||||||
|
Corporate
|
20 | 23 | 24 | |||||||||
|
Total
|
$ | 721 | $ | 701 | $ | 657 | ||||||
|
Asset
abandonments and write-downs
|
||||||||||||
|
Oilseeds
Processing
|
$ | 28 | $ | 6 | $ | 31 | ||||||
|
Corn
Processing
|
2 | 15 | 6 | |||||||||
|
Agricultural
Services
|
– | – | 31 | |||||||||
|
Other
|
2 | – | 3 | |||||||||
|
Total
|
$ | 32 | $ | 21 | $ | 71 | ||||||
|
Interest
expense
|
||||||||||||
|
Oilseeds
Processing
|
$ | 186 | $ | 136 | $ | 91 | ||||||
|
Corn
Processing
|
49 | 46 | 33 | |||||||||
|
Agricultural
Services
|
170 | 133 | 74 | |||||||||
|
Other
|
119 | 134 | 99 | |||||||||
|
Corporate
|
(47 | ) | (15 | ) | 68 | |||||||
|
Total
|
$ | 477 | $ | 434 | $ | 365 | ||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
14.
|
Segment
and Geographic Information
(Continued)
|
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Investment
income
|
||||||||||||
|
Oilseeds
Processing
|
$ | 24 | $ | 17 | $ | 25 | ||||||
|
Agricultural
Services
|
48 | 29 | 16 | |||||||||
|
Other
|
136 | 137 | 103 | |||||||||
|
Corporate
|
61 | 74 | 60 | |||||||||
|
Total
|
$ | 269 | $ | 257 | $ | 204 | ||||||
|
Equity
in earnings of affiliates
|
||||||||||||
|
Oilseeds
Processing
|
$ | 156 | $ | 88 | $ | 53 | ||||||
|
Corn
Processing
|
53 | 54 | 44 | |||||||||
|
Agricultural
Services
|
105 | 29 | 23 | |||||||||
|
Other
|
113 | 105 | 42 | |||||||||
|
Corporate
|
(12 | ) | 18 | 12 | ||||||||
|
Total
|
$ | 415 | $ | 294 | $ | 174 | ||||||
|
Operating
profit
|
||||||||||||
|
Oilseeds
Processing
|
$ | 1,040 | $ | 1,139 | $ | 569 | ||||||
|
Corn
Processing
|
961 | 1,105 | 901 | |||||||||
|
Agricultural
Services
|
1,017 | 538 | 237 | |||||||||
|
Other
|
423 | 379 | 354 | |||||||||
|
Total
operating profit
|
3,441 | 3,161 | 2,061 | |||||||||
|
Corporate
|
(817 | ) | (7 | ) | (206 | ) | ||||||
|
Earnings
before income taxes
|
$ | 2,624 | $ | 3,154 | $ | 1,855 | ||||||
|
Investments
in and advances to affiliates
|
||||||||||||
|
Oilseeds
Processing
|
$ | 1,059 | $ | 1,041 | ||||||||
|
Corn
Processing
|
431 | 351 | ||||||||||
|
Agricultural
Services
|
242 | 134 | ||||||||||
|
Other
|
593 | 569 | ||||||||||
|
Corporate
|
448 | 403 | ||||||||||
|
Total
|
$ | 2,773 | $ | 2,498 | ||||||||
|
Identifiable
assets
|
||||||||||||
|
Oilseeds
Processing
|
$ | 12,906 | $ | 7,994 | ||||||||
|
Corn
Processing
|
5,779 | 4,234 | ||||||||||
|
Agricultural
Services
|
9,876 | 4,446 | ||||||||||
|
Other
|
7,922 | 6,673 | ||||||||||
|
Corporate
|
573 | 1,771 | ||||||||||
|
Total
|
$ | 37,056 | $ | 25,118 | ||||||||
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
14.
|
Segment
and Geographic Information
(Continued)
|
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Gross
additions to property, plant, and equipment
|
||||||||
|
Oilseeds
Processing
|
$ | 190 | $ | 281 | ||||
|
Corn
Processing
|
979 | 666 | ||||||
|
Agricultural
Services
|
166 | 123 | ||||||
|
Other
|
405 | 299 | ||||||
|
Corporate
|
49 | 35 | ||||||
|
Total
|
$ | 1,789 | $ | 1,404 | ||||
Geographic
information: The following geographic area data include net sales and
other operating income attributed to the countries based on the location of the
subsidiary making the sale and long-lived assets based on physical
location. Long-lived assets represent the sum of the net book value
of property, plant, and equipment plus goodwill related to consolidated
businesses.
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Net
sales and other operating income
|
||||||||||||
|
United
States
|
$ | 37,466 | $ | 24,244 | $ | 20,358 | ||||||
|
Germany
|
8,335 | 6,569 | 5,396 | |||||||||
|
Other
foreign
|
24,015 | 13,205 | 10,842 | |||||||||
| $ | 69,816 | $ | 44,018 | $ | 36,596 | |||||||
|
Long-lived
assets
|
||||||||||||
|
United
States
|
$ | 5,554 | $ | 4,515 | ||||||||
|
Foreign
|
1,817 | 1,729 | ||||||||||
| $ | 7,371 | $ | 6,244 | |||||||||
|
Note
15.
|
Guarantees
and Commitments
|
The
Company has entered into agreements, primarily debt guarantee agreements related
to equity-method investees, which could obligate the Company to make future
payments if the primary entity fails to perform its contractual
obligations. The Company has not recorded a liability for payment of
these contingent obligations, as the Company believes the fair value of these
contingent obligations is immaterial. The Company has collateral for
a portion of these contingent obligations. These contingent
obligations totaled $135 million at June 30, 2008. Amounts
outstanding for the primary entity under these contingent obligations were $62
million at June 30, 2008.
As of
June 30, 2008, the Company has under construction new ethanol,
propylene/ethylene glycol, PHA, cocoa production facilities, and two
cogeneration facilities. As of that date, the Company has entered
into purchase commitments totaling $557 million with third parties related to
construction of those facilities.
Archer
Daniels Midland Company
Notes
to Consolidated Financial Statements (Continued)
|
Note
16.
|
Quarterly
Financial Data (Unaudited)
|
|
Quarter
|
||||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
Year
|
||||||||||||||||
|
(In
millions, except per share amounts)
|
||||||||||||||||||||
|
Fiscal
2008
|
||||||||||||||||||||
|
Net
Sales
|
$ | 12,828 | $ | 16,496 | $ | 18,708 | $ | 21,784 | $ | 69,816 | ||||||||||
|
Gross
Profit
|
930 | 948 | 1,157 | 807 | 3,842 | |||||||||||||||
|
Net
Earnings
|
441 | 473 | 517 | 372 | 1,802 | |||||||||||||||
|
Basic
Earnings Per
Common
Share
|
0.68 | 0.74 | 0.80 | 0.58 | 2.80 | |||||||||||||||
|
Diluted
Earnings Per
Common
Share
|
0.68 | 0.73 | 0.80 | 0.58 | 2.79 | |||||||||||||||
|
Fiscal
2007
|
||||||||||||||||||||
|
Net
Sales
|
$ | 9,447 | $ | 10,976 | $ | 11,381 | $ | 12,214 | $ | 44,018 | ||||||||||
|
Gross
Profit
|
865 | 908 | 746 | 718 | 3,237 | |||||||||||||||
|
Net
Earnings
|
403 | 441 | 363 | 955 | 2,162 | |||||||||||||||
|
Basic
Earnings Per
Common
Share
|
0.61 | 0.67 | 0.56 | 1.48 | 3.32 | |||||||||||||||
|
Diluted
Earnings Per
Common
Share
|
0.61 | 0.67 | 0.56 | 1.47 | 3.30 | |||||||||||||||
Net
earnings for the three months and year ended June 30, 2007, include credits to
other income for gains of $440 million ($286 million after tax, equal to $0.44
per share) related to exchanging shares of certain unconsolidated affiliates for
shares in WIL, $357 million ($225 million after tax, equal to $0.34 per share)
related to the Company’s sale of equity securities of Tyson Foods Inc. and
Overseas Shipholding Group, Inc., and $157 million ($99 million after tax, equal
to $0.15 per share) related to the sale of businesses. Net earnings
for the three months and year ended June 30, 2007, also includes a charge to
other income of $46 million ($29 million after tax, equal to $0.04 per share)
related to the repurchase of $400 million of the Company’s outstanding
debentures and a charge to cost of products sold of $19 million ($12 million
after tax, equal to $0.02 per share) related to abandonment and write-down of
long-lived assets. For the year ended June 30, 2007, net earnings
include a credit to other income of $209 million ($132 million after tax, equal
to $0.20 per share) related to the sale of businesses.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Archer
Daniels Midland Company
Decatur,
Illinois
We have
audited the accompanying consolidated balance sheets of Archer Daniels Midland
Company (the Company) as of June 30, 2008 and 2007, and the related consolidated
statements of earnings, shareholders’ equity, and cash flows for each of the
three years in the period ended June 30, 2008. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Archer Daniels Midland
Company at June 30, 2008 and 2007, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2008, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As
discussed in Note 13 to the consolidated financial statements, in 2007 Archer
Daniels Midland Company adopted Statement of Financial Accounting Standards No.
158 related to defined benefit pension and other postretirement
plans.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Archer Daniels Midland Company’s internal
control over financial reporting as of June 30, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated August
22, 2008, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St.
Louis, Missouri
August
22, 2008
Report of
Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Archer
Daniels Midland Company
Decatur,
Illinois
We have
audited Archer Daniels Midland Company’s internal control over financial
reporting as of June 30, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Archer Daniels Midland Company’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Archer Daniels Midland Company maintained, in all material respects,
effective internal control over financial reporting as of June 30, 2008, based
on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Archer
Daniels Midland Company as of June 30, 2008 and 2007, and the related
consolidated statements of earnings, shareholders’ equity, and cash flows for
each of the three years in the period ended June 30, 2008, of Archer Daniels
Midland Company and our report dated August 22, 2008, expressed an unqualified
opinion thereon.
/s/ Ernst
& Young LLP
St.
Louis, Missouri
August
22, 2008
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
Item
9A.
|
CONTROLS
AND PROCEDURES
|
As of
June 30, 2008, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company’s “disclosure controls and procedures” (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange
Act)). Based on that evaluation, the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, concluded the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms and (ii) accumulated and communicated to the CEO and CFO to allow
timely decisions regarding required disclosure. There was no change
in the Company’s internal controls over financial reporting during the Company’s
most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal controls over
financial reporting.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Archer
Daniels Midland Company’s (“ADM’s”) management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). ADM’s internal control
system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with generally accepted accounting principles.
Under the
supervision and with the participation of management, including its principal
executive officer and principal financial officer, ADM’s management assessed the
design and operating effectiveness of internal control over financial reporting
as of June 30, 2008 based on the framework set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on
this assessment, management concluded that ADM’s internal control over financial
reporting was effective as of June 30, 2008. Ernst & Young LLP,
an independent registered public accounting firm, has issued an attestation
report on the Company’s internal control over financial reporting as of June 30,
2008. That report is included herein.
| /s/ Patricia A. Woertz | /s/ Steven R. Mills |
| Patricia A. Woertz | Steven R. Mills |
| Chairman, Chief Executive Officer | Executive Vice President & |
| and President | Chief Financial Officer |
|
Item
9B.
|
OTHER
INFORMATION
|
None.
PART
III
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Information
with respect to directors, executive officers, code of conduct, audit committee
and audit committee financial experts of the Company, and Section 16(a)
beneficial ownership reporting compliance is set forth in “Proposal No. 1 -
Election of Directors for a One-Year Term,” “Code of Conduct,” “Information
Concerning Committees and Meetings – Audit Committee,” “Report of the Audit
Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” of
the definitive proxy statement for the Company’s annual meeting of stockholders
to be held on November 6, 2008 and is incorporated herein by
reference.
Information
with respect to executive officers and certain significant employees of the
Company is set forth below. Except as otherwise indicated, all
positions are with the Company.
|
Name
|
Title
|
Age
|
|||
|
Ronald
S. Bandler
|
Assistant
Treasurer from January 1998. Manager of Treasury Operations
from 1989 to January 1998.
|
47
|
|||
|
Lewis
W. Batchelder
|
Senior
Vice President from December 2001. Group Vice President from
July 1997 to December 2001. President of Grain Operations from
March 2001 to August 2006.
|
63
|
|||
|
Mark
A. Bemis
|
Vice
President from February 2005. President of ADM Cocoa from
September 2001. Vice President and General Manager, North
American Division-ADM Cocoa from March 1999 to September
2001. Various merchandising and management positions from 1983
to March 1999.
|
47
|
|||
|
Mark
J. Cheviron
|
Vice
President from July 1997. Vice President of Corporate Security
and Administrative Services since May 1997. Director of
Security since 1980.
|
59
|
|||
|
Michael
D’Ambrose
|
Senior
Vice President from October 2006. Independent Consultant from
2005 to October 2006. Executive Vice President, Human Resources
at First Data from 2003 to 2005. Executive Vice President,
Human Resources for Toys R Us from 2001 to 2003.
|
51
|
|||
|
Edward
A. Harjehausen
|
Senior
Vice President from February 2005. Group Vice President from
March 2002 to February 2005. President of ADM Bioproducts and
Feed Division from March 2002 to June 2005. President of ADM
Corn Processing Division from July 2000 to June 2005. Vice
President from October 1992 to March 2002. President of ADM
Bioproducts and Food Additives from October 1999 to July
2000.
|
58
|
|||
|
Shannon
Herzfeld
|
Vice
President from February 2005. Senior Vice
President-International Affairs with Pharmaceutical Research and
Manufacturers of America (PhRMA) trade association from January 1998 to
December 2004. Director-International Trade Services with Akin,
Gump, Strauss, Hauer & Feld, L.L.P from 1985 to 1997.
|
56
|
|||
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (Continued)
|
||||
|
Craig
E. Huss
|
Vice
President from January 2001. President of ADM Transportation
from 1999. Various grain elevator and merchandising management
positions from 1976 to 1999.
|
56
|
|||
|
Matthew
J. Jansen
|
Vice
President from January 2003. President-Grain Operations from
August 2006. President, South American Oilseed Processing
Division from April 2000 to August 2006. Vice President, South
American Oilseed Processing Division from August 1999 to April
2000. Various merchandising management positions from 1989 to
1999.
|
|
42
|
||
|
Michael
Lusk
|
Vice
President from November 1999. Senior Vice President with AON/
International Risk Management Company, Inc. from 1989 to November
1999.
|
59
|
|||
|
Vikram
Luthar
|
Vice
President and Treasurer from November 2004. Various treasury
positions with General Motors Corporation from 1993 to
2004.
|
41
|
|||
|
Steven
R. Mills
|
Executive
Vice President and Chief Financial Officer from March 2008. Senior Vice
President from December 2006 to February 2008. Group Vice
President and Controller from January 2002 to December
2006. Vice President from February 2000 to January
2002. Controller from October 1994 to December
2006.
|
53
|
|||
|
Victoria
Podesta
|
Vice
President from May 2007. Corporate communications consultant
for various global companies from 1989 to May 2007.
|
52
|
|||
|
John
D. Rice
|
Executive
Vice President from February 2005. Senior Vice President from
February 2000 to February 2005. Group Vice President and
President, North American Oilseed Processing Division from February 1999
to February 2000. Vice President from 1993 to February
1999. President of ADM Food Oils Division from December 1996 to
February 2000.
|
54
|
|||
|
Dennis
C. Riddle
|
Vice
President from May 2006. President ADM Corn Processing Division
from June 2005. Senior Vice President – Sweeteners &
Starches from May 2004 to June 2005. Vice President, Sales
& Marketing for ADM Corn Processing Division from April 1999 to May
2004.
|
61
|
|||
|
Scott
A. Roberts
|
Assistant
Secretary and Assistant General Counsel from July 1997. Member
of the Law Department since 1985.
|
48
|
|||
|
Ismael
Roig
|
Vice
President from December 2004. Various finance and control
positions with General Motors Corporation from 1993 to
2004.
|
41
|
|||
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(Continued)
|
|
Scott
A. Roney
|
Vice
President from April 2001. Member of the Law Department from
1991 to April 2001.
|
44
|
|||
|
David
J. Smith
|
Executive
Vice President, Secretary and General Counsel from January
2003. Senior Vice President, Secretary and General Counsel from
January 2002 to January 2003. Vice President, Secretary and
General Counsel from July 1997 to January 2002. Assistant
General Counsel from 1995 to July 1997. Assistant Secretary
from 1988 to July 1997.
|
53
|
|||
|
John
P. Stott
|
Vice
President and Controller from December 2006. Operations
Controller from July 2005 to December 2006. Finance
Director-Europe from January 2001 to July 2005. Various
financial and treasury positions from 1992 to 2001.
|
41
|
|||
|
Patricia
A. Woertz
|
Chairman
of the Board of Directors from February 2007. Chief Executive Officer
& President from May 2006. Executive Vice President Downstream at
Chevron Corporation from October 2001 to March 2006. Vice President at
Chevron Corporation from 1998 to 2001. President of Chevron
Products Company from 1998 to 2001.
|
55
|
|||
|
Mark
N. Zenuk
|
Vice
President from August 2005. Managing Director-ADM
International, Ltd. from June 2005 to September 2007. Various
merchandising management positions from 2000 to 2005.
|
41
|
|||
|
Officers
of the Company are elected by the Board of Directors for terms of one year
and until their successors are duly elected and qualified.
|
|||||
|
Item
11.
|
EXECUTIVE
COMPENSATION
|
Information
responsive to this Item is set forth in “Compensation Discussion and Analysis,”
“Compensation/Succession Committee Report,” “Compensation/Succession Committee
Interlocks and Insider Participation,” “Summary Compensation Table,” “Grants of
Plan-Based Awards During Fiscal 2008,” “Outstanding Equity Awards at Fiscal 2008
Year-End,” “Option Exercises and Stock Vested During Fiscal 2008,” “Pension
Benefits,” “Nonqualified Deferred Compensation,” “Termination of Employment and
Change-in-Control Arrangements” and “Director Compensation for Fiscal 2008” of
the definitive proxy statement for the Company’s annual meeting of stockholders
to be held on November 6, 2008, and is incorporated herein by
reference.
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Information
responsive to this Item is set forth in “Principal Holders of Voting
Securities,” “Proposal No. 1 - Election of Directors for a One-year Term,”
“Executive Officer Stock Ownership,” and “Equity Compensation Plan Information”
of the definitive proxy statement for the Company’s annual meeting of
stockholders to be held on November 6, 2008, and is incorporated herein by
reference.
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information
responsive to this Item is set forth in “Certain Relationships and Related
Transactions,” “Review and Approval of Certain Relationships and Related
Transactions,” and “Independence of Directors” of the definitive proxy statement
for the Company’s annual meeting of stockholders to be held on November 6, 2008,
and is incorporated herein by reference.
|
Item
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information
responsive to this Item is set forth in “Fees Paid to Independent Auditors” and
“Audit Committee Pre-Approval Policies” of the definitive proxy statement for
the Company’s annual meeting of stockholders to be held on November 6, 2008, and
is incorporated herein by reference.
PART
IV
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
|
(a)(1)
|
See
Item 8, “Financial Statements and Supplementary Data,” for a list of
financial statements.
|
|
(a)(2)
|
Financial
statement schedules
|
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
||||||||||||||||||||
|
Balance
at
|
Balance
at
|
|||||||||||||||||||
|
Beginning
|
End
|
|||||||||||||||||||
|
of
Year
|
Additions
|
Deductions
(1)
|
Other
(2)
|
of
Year
|
||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
||||||||||||||||||||
|
2006
|
$ | 44 | 14 | (7 | ) | 3 | $ | 54 | ||||||||||||
|
2007
|
$ | 54 | 2 | (3 | ) | 16 | $ | 69 | ||||||||||||
|
2008
|
$ | 69 | 7 | (6 | ) | 19 | $ | 89 | ||||||||||||
|
(1)
Uncollectible accounts written off, net of recoveries
|
||||||||||||||||||||
|
(2)
Impact of reclassifications, business combinations, and foreign currency
exchange adjustments
|
||||||||||||||||||||
|
All
other schedules are either not required, not applicable, or the
information is otherwise included.
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(Continued)
|
|
(a)(3)
|
LIST
OF EXHIBITS
|
|
(3)
|
(i)
|
Composite
Certificate of Incorporation, as amended, filed on November 13, 2001, as
Exhibit (3)(i) to Form 10-Q for the quarter ended September 30, 2001 (File
No. 1-44), is incorporated herein by
reference.
|
|
(ii)
|
Bylaws,
as amended, filed on February 6, 2007, as Exhibit 3(ii) to Form 8-K (File
No. 1-44), are incorporated herein by
reference.
|
|
(4)
|
Instruments
defining the rights of security holders,
including:
|
|
(i)
|
Indenture
dated June 1, 1986, between the registrant and JPMorgan Chase (formerly
known as, or successor to, The Chase Manhattan Bank, Chemical
Bank, and Manufacturers Hanover Trust Company), as Trustee (incorporated
by reference to Exhibit 4(a) to Registration Statement No. 33-6721), and
Supplemental Indenture dated as of August 1, 1989 between the registrant
and JPMorgan Chase (formerly known as, or successor to, The Chase
Manhattan Bank, Chemical Bank and Manufacturers Hanover Trust Company), as
Trustee (incorporated by reference to Exhibit 4(c) to Post-Effective
Amendment No. 3 to Registration Statement No. 33-6721), relating
to:
the
$300,000,000 – 8 7/8% Debentures due April 15, 2011,
the
$300,000,000 – 8 3/8% Debentures due April 15, 2017,
the
$300,000,000 – 8 1/8% Debentures due June 1, 2012,
the
$250,000,000 – 7 1/8% Debentures due March 1, 2013,
the
$350,000,000 – 7 1/2% Debentures due March 15, 2027,
the
$200,000,000 – 6 3/4% Debentures due December 15, 2027,
the
$250,000,000 – 6 7/8% Debentures due December 15, 2097,
the
$196,210,000 – 5 7/8% Debentures due November 15, 2010,
the
$300,000,000 – 6 5/8% Debentures due May 1, 2029,
the
$400,000,000 – 7% Debentures due February 1, 2031,
the
$500,000,000 – 5.935% Debentures due October 1, 2032, and
the
$600,000,000 – 5.375% Debentures due September 15,
2035.
|
|
|
(ii)
|
Indenture
dated September 20, 2006, between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4 to Registration Statement
on Form S-3, Registration No. 333-137541), relating to:
the
$500,000,000 – 6.45% Debentures due January 15, 2038,
the
$700,000,000 – 5.45% Notes due March 15, 2015, and
the
$1,750,000,000 – 4.70% Debentures due June 1, 2041.
|
|
|
(iii)
|
Indenture
dated February 22, 2007, between the Company and The Bank of New York, as
Trustee, including form of 0.875% Convertible Senior Notes due 2014
(incorporated by reference to Exhibit 4.1 to Form 8-K (File No. 1-44)
filed on February 22, 2007).
|
|
|
(iv)
|
Registration
Rights Agreement, dated February 22, 2007, among the Company, Citigroup
Global Markets Inc., J.P. Morgan Securities Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America
Securities LLC, Barclays Capital Inc., BNP Paribas Securities Corp.,
Deutsche Bank Securities Inc., Goldman, Sachs & Co. and HSBC
Securities (USA) Inc. (incorporated by reference to Exhibit 4.2 to Form
8-K (File No. 1-44) filed on February 22,
2007).
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(Continued)
|
|
Copies
of constituent instruments defining rights of holders of long-term debt of
the Company and Subsidiaries, other than the Indentures specified herein,
are not filed herewith, pursuant to Instruction (b)(4)(iii)(A) to Item 601
of Regulation S-K, because the total amount of securities authorized under
any such instrument does not exceed 10% of the total assets of the Company
and Subsidiaries on a consolidated basis. The registrant hereby
agrees that it will, upon request by the SEC, furnish to the SEC a copy of
each such instrument.
|
|
(v)
|
Purchase
Contract and Pledge Agreement, dated as of June 3, 2008, among ADM, The
Bank of New York as Purchase Contract Agent, and the Bank of New York as
Collateral Agent, Custodial Agent, and Securities Intermediary, including
form of Corporate Units, form of Treasury Units and form of Remarketing
Agreement (incorporated by reference to Exhibit 4.1 to Form 8-K (File No.
1-44) filed on June 3, 2008.
|
|
(10)
|
Material
Contracts - Copies of the Company’s stock option and stock unit plans,
deferred compensation plan, and savings and investment plans, pursuant to
Instruction (b)(10)(iii)(A) to Item 601 of Regulation S-K, each of which
is a management contract or compensation plan or arrangement required to
be filed as an exhibit pursuant to Item 15(b) of Form 10-K, are
incorporated herein by reference as
follows:
|
|
(i)
|
Exhibits
4(c) and 4(d) to Registration Statement No. 33-49409 on Form S-8 dated
March 15, 1993, relating to the Archer Daniels Midland 1991 Incentive
Stock Option Plan and Archer Daniels Midland Company Savings and
Investment Plan.
|
|
(ii)
|
Exhibits
4(c) and 4(d) to Registration Statement No. 333-39605 on Form S-8 dated
November 5, 1997, relating to the ADM Savings and Investment Plan for
Salaried Employees and the ADM Savings and Investment Plan for Hourly
Employees.
|
|
(iii)
|
The
Archer-Daniels-Midland 1996 Stock Option Plan (incorporated by reference
to Exhibit A to the Company’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on September 25, 1996 (File No.
1-44)).
|
|
(iv)
|
The
Archer-Daniels-Midland Company Amended and Restated Stock Unit Plan for
Nonemployee Directors (incorporated by reference to Exhibit 99.3 to the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 23, 2004 (File No.
1-44)).
|
|
(v)
|
Exhibits
4(c) and 4(d) to Registration Statement No. 333-75073 on Form S-8 dated
March 26, 1999, relating to the ADM Employee Stock Ownership Plan for
Salaried Employees and the ADM Employee Stock Ownership Plan for Hourly
Employees.
|
|
(vi)
|
The
Archer-Daniels-Midland Company Incentive Compensation Plan (incorporated
by reference to Exhibit A to the Company’s Definitive Proxy Statement
filed with the Securities and Exchange Commission on September 15, 1999,
(File No. 1-44)).
|
|
(vii)
|
Exhibits
4.3 and 4.4 to Registration Statement No. 333-42612 on Form S-8 dated July
31, 2000, relating to the ADM 401(k) Plan for Salaried Employees and the
ADM 401(k) Plan for Hourly Employees, as amended by Post-Effective
Amendment No. 1 to Registration Statement No. 333-42612 on Form S-8 dated
August 8, 2000.
|
|
(viii)
|
ADM
Deferred Compensation Plan for Selected Management Employees II (as
adopted as of December 1, 2004) (incorporated by reference to Exhibit 99.1
to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 23, 2004 (File No.
1-44)).
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(Continued)
|
|
(ix)
|
ADM
Supplemental Retirement Plan II (as adopted as of December 1, 2004)
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on December
23, 2004 (File No. 1-44)).
|
|
(x)
|
The
Archer-Daniels-Midland 2002 Incentive Compensation Plan (incorporated by
reference to Exhibit A to the Company’s Definitive Proxy Statement filed
with the Securities and Exchange Commission on September 25, 2002 (File
No. 1-44)).
|
|
(xi)
|
Management
Compensation Arrangements (incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2005 (File No. 1-44)).
|
|
(xii)
|
Form
of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2005 (File No. 1-44)).
|
|
(xiii)
|
Form
of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3
to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2005 (File No. 1-44)).
|
|
(xiv)
|
Separation
Agreement between Archer-Daniels-Midland Company and Paul B. Mulhollem
dated September 29, 2005, filed on September 30, 2005, as Exhibit 10 to
the Company’s Current Report on Form 8-K (File No.
1-44)
|
|
(xv)
|
Agreement
Regarding Terms of Employment dated April 27, 2006 with Patricia A.
Woertz, filed on May 1, 2006, as Exhibit 10.1 to the Company’s Current
Report on Form 8-K (File No. 1-44).
|
|
(xvi)
|
Transition
Agreement between Archer-Daniels-Midland Company and G. Allen Andreas
dated May 5, 2006 filed on May 8, 2006, as Exhibit 10.1 to the Company’s
Current Report on Form 8-K (File No. 1-44).
|
|
(xvii)
|
Annual
Cash Incentive Program (incorporated by reference to description thereof
included in Item 5.02 of the Company’s Current Report on Form 8-K (File
No. 1-44) filed on July 3, 2007).
|
|
(xviii)
|
Separation
Agreement dated as of November 26, 2007, between Archer-Daniels-Midland
Company and William H. Camp, filed on November 30, 2007, as Exhibit 10.1
to the Company’s Current Report on Form 8-K (File No.
1-44).
|
|
(xix)
|
Separation
Agreement dated as of February 6, 2008, between Archer-Daniels-Midland
Company and Douglas J. Schmalz, filed on February 7, 2008, as Exhibit 10.1
to the Company’s Current Report on Form 8-K (File No.
1-44).
|
|
(21)
|
Subsidiaries
of the registrant.
|
|
(23)
|
Consent
of independent registered public accounting
firm.
|
|
(24)
|
Powers
of attorney.
|
|
(31.1)
|
Certification
of Chief Executive Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a)
of the Securities Exchange Act, as
amended.
|
|
(31.2)
|
Certification
of Chief Financial Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a)
of the Securities Exchange Act, as
amended.
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(Continued)
|
|
(32.1)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
(32.2)
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date:
August 28, 2008
ARCHER-DANIELS-MIDLAND
COMPANY
By: /s/
D. J. Smith
D. J.
Smith
Executive
Vice President, Secretary
and
General Counsel
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on ugust 28, 2008, by the following persons on behalf of the
Registrant and in the capacities indicated.
|
/s/
P. A. Woertz
|
/s/
V. F. Haynes
|
|
P.
A. Woertz,
|
V.
F. Haynes *,
|
|
Chairman,
Chief Executive Officer, President
and
Director
|
Director
|
|
(Principal
Executive Officer)
|
|
|
/s/
A. Maciel
|
|
|
/s/
S. R. Mills
|
A.
Maciel*,
|
|
S.
R. Mills
|
Director
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
/s/
P. J. Moore
|
|
(Principal
Financial Officer)
|
P.
J. Moore*,
|
|
Director
|
|
|
/s/
J. P. Stott
|
|
|
J.
P. Stott
|
/s/
M. B. Mulroney
|
|
Vice
President and Controller
|
M.
B. Mulroney*,
|
|
(Controller)
|
Director
|
|
/s/
A. L. Boeckmann
|
/s/
T. F. O’Neill
|
|
A.
L. Boeckmann*,
|
T.
F. O’Neill*,
|
|
Director
|
Director
|
|
/s/
G. W. Buckley
|
/s/
K. R. Westbrook
|
|
G.
W. Buckley*,
|
K.
R. Westbrook*,
|
|
Director
|
Director
|
|
/s/
M. H. Carter
|
/s/
D. J. Smith
|
|
M.
H. Carter*,
|
Attorney-in-Fact
|
|
Director
|
|
*Powers
of Attorney authorizing S. R. Mills, J. P. Stott, and D. J. Smith, and each of
them, to sign the Form 10-K on behalf of the above-named officers and directors
of the Company, copies of which are being filed with the Securities and Exchange
Commission.