adm10qfy08q3.htm
UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO
SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
transition period from __________ to __________
Commission
file number 1-44
ARCHER-DANIELS-MIDLAND
COMPANY
(Exact
name of registrant as specified in its charter)
Delaware
|
41-0129150
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.
R. S. Employer
Identification
No.)
|
|
|
4666
Faries Parkway Box 1470
Decatur,
Illinois
(Address
of principal executive offices)
|
62525
(Zip
Code)
|
|
|
(217)
424-5200
|
(Registrant's
telephone number, including area
code)
|
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 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.
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, no par value – 643,922,718
shares
PART
I - FINANCIAL INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS
|
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
18,708 |
|
|
$ |
11,381 |
|
Cost
of products sold
|
|
|
17,551 |
|
|
|
10,635 |
|
Gross
Profit
|
|
|
1,157 |
|
|
|
746 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
378 |
|
|
|
294 |
|
Other
(income) expense – net
|
|
|
24 |
|
|
|
(104 |
) |
Earnings
Before Income Taxes
|
|
|
755 |
|
|
|
556 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
238 |
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
517 |
|
|
$ |
363 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
644 |
|
|
|
649 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
647 |
|
|
|
653 |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per common share
|
|
$ |
.80 |
|
|
$ |
.56 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
.13 |
|
|
$ |
.115 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
48,032 |
|
|
$ |
31,804 |
|
Cost
of products sold
|
|
|
44,997 |
|
|
|
29,285 |
|
Gross
Profit
|
|
|
3,035 |
|
|
|
2,519 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,071 |
|
|
|
902 |
|
Other
(income) expense – net
|
|
|
(122 |
) |
|
|
(143 |
) |
Earnings
Before Income Taxes
|
|
|
2,086 |
|
|
|
1,760 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
656 |
|
|
|
553 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
1,430 |
|
|
$ |
1,207 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
644 |
|
|
|
654 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
646 |
|
|
|
658 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
2.22 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
2.21 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
.36 |
|
|
$ |
.315 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Balance Sheets
|
|
(Unaudited)
|
|
|
|
|
March
31,
|
June
30,
|
|
|
|
2008
|
2007
|
|
|
|
(In
millions)
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,206 |
|
|
$ |
663 |
|
Segregated
cash and investments
|
|
|
2,094 |
|
|
|
1,424 |
|
Short-term
marketable securities
|
|
|
526 |
|
|
|
212 |
|
Receivables
|
|
|
10,447 |
|
|
|
6,404 |
|
Inventories
|
|
|
10,569 |
|
|
|
6,060 |
|
Other
assets
|
|
|
387 |
|
|
|
359 |
|
Total Current Assets
|
|
|
25,229 |
|
|
|
15,122 |
|
|
|
|
|
|
|
|
|
|
Investments
and Other Assets
|
|
|
|
|
|
|
|
|
Investments
in and advances to affiliates
|
|
|
2,877 |
|
|
|
2,498 |
|
Long-term
marketable securities
|
|
|
653 |
|
|
|
657 |
|
Goodwill
|
|
|
329 |
|
|
|
317 |
|
Other
assets
|
|
|
565 |
|
|
|
514 |
|
Total Investments and Other Assets
|
|
|
4,424 |
|
|
|
3,986 |
|
|
|
|
|
|
|
|
|
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
232 |
|
|
|
227 |
|
Buildings
|
|
|
3,167 |
|
|
|
3,002 |
|
Machinery
and equipment
|
|
|
12,331 |
|
|
|
11,822 |
|
Construction
in progress
|
|
|
1,661 |
|
|
|
884 |
|
|
|
|
17,391 |
|
|
|
15,935 |
|
Accumulated
depreciation
|
|
|
(10,531 |
) |
|
|
(9,925 |
) |
Total Property, Plant, and Equipment
|
|
|
6,860 |
|
|
|
6,010 |
|
Total
Assets
|
|
$ |
36,513 |
|
|
$ |
25,118 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
4,916 |
|
|
$ |
468 |
|
Accounts
payable
|
|
|
6,936 |
|
|
|
4,919 |
|
Accrued
expenses
|
|
|
3,979 |
|
|
|
2,416 |
|
Current
maturities of long-term debt
|
|
|
54 |
|
|
|
65 |
|
Total Current Liabilities
|
|
|
15,885 |
|
|
|
7,868 |
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt |
|
|
6,026 |
|
|
|
4,752 |
|
Deferred
income taxes
|
|
|
597 |
|
|
|
532 |
|
Other
|
|
|
843 |
|
|
|
713 |
|
Total Long-Term Liabilities
|
|
|
7,466 |
|
|
|
5,997 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
5,121 |
|
|
|
5,090 |
|
Reinvested
earnings
|
|
|
7,206 |
|
|
|
5,982 |
|
Accumulated
other comprehensive income
|
|
|
835 |
|
|
|
181 |
|
Total Shareholders’ Equity
|
|
|
13,162 |
|
|
|
11,253 |
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
36,513 |
|
|
$ |
25,118 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
1,430 |
|
|
$ |
1,207 |
|
Adjustments
to reconcile net earnings to net cash provided by
|
|
|
|
|
|
|
|
|
(used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
540 |
|
|
|
520 |
|
Asset
abandonments
|
|
|
22 |
|
|
|
1 |
|
Deferred
income taxes
|
|
|
205 |
|
|
|
9 |
|
Equity
in earnings of affiliates, net of dividends
|
|
|
(211 |
) |
|
|
(137 |
) |
Other
– net
|
|
|
224 |
|
|
|
132 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Segregated
cash and investments
|
|
|
(674 |
) |
|
|
(173 |
) |
Receivables
|
|
|
(2,231 |
) |
|
|
(544 |
) |
Inventories
|
|
|
(4,506 |
) |
|
|
(1,918 |
) |
Other
assets
|
|
|
(55 |
) |
|
|
(69 |
) |
Accounts
payable and accrued expenses
|
|
|
2,089 |
|
|
|
938 |
|
Total
Operating Activities
|
|
|
(3,167 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,312 |
) |
|
|
(844 |
) |
Net
assets of businesses acquired
|
|
|
(10 |
) |
|
|
(92 |
) |
Investments
in and advances to affiliates
|
|
|
(28 |
) |
|
|
(49 |
) |
Distributions
from affiliates, excluding dividends
|
|
|
15 |
|
|
|
85 |
|
Purchases
of marketable securities
|
|
|
(1,022 |
) |
|
|
(659 |
) |
Proceeds
from sales of marketable securities
|
|
|
710 |
|
|
|
576 |
|
Other
– net
|
|
|
19 |
|
|
|
33 |
|
Total
Investing Activities
|
|
|
(1,628 |
) |
|
|
(950 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Long-term
debt borrowings
|
|
|
1,308 |
|
|
|
1,166 |
|
Long-term
debt payments
|
|
|
(59 |
) |
|
|
(131 |
) |
Net
borrowings under line of credit agreements
|
|
|
4,362 |
|
|
|
570 |
|
Purchases
of treasury stock
|
|
|
(61 |
) |
|
|
(533 |
) |
Sale
of stock warrants
|
|
|
– |
|
|
|
170 |
|
Purchase
of call options
|
|
|
– |
|
|
|
(299 |
) |
Cash
dividends
|
|
|
(232 |
) |
|
|
(207 |
) |
Other
– net
|
|
|
20 |
|
|
|
32 |
|
Total
Financing Activities
|
|
|
5,338 |
|
|
|
768 |
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
|
|
543 |
|
|
|
(216 |
) |
Cash
and Cash Equivalents-Beginning of Period
|
|
|
663 |
|
|
|
1,113 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents-End of Period
|
|
$ |
1,206 |
|
|
$ |
897 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements
(Unaudited)
Note
1. Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and nine months ended March 31,
2008 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2008. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 2007.
Last-in,
First-out (LIFO) Inventories
Interim
period LIFO calculations are based on interim period costs and management’s
estimates of year-end inventory levels. Because the availability and
cost of agricultural commodity-based LIFO inventories are unpredictable due to
factors such as weather, government farm programs and policies, and changes in
global demand, quantities of LIFO-based inventories at interim periods may vary
significantly from management’s estimates of year-end inventory
levels.
Note
2. New Accounting Standards
During
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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. However, the definition of
fair value in SFAS 157 may affect assumptions used by companies in determining
fair value. The Company will be required to adopt SFAS 157 for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) on July 1, 2008. The Company has
not completed its evaluation of the impact of adopting SFAS 157 on the Company’s
financial statements, but currently believes the impact of the adoption of SFAS
157 will not require material modification of the Company’s fair value
measurements and will be substantially limited to expanded disclosures in the
notes to the Company’s consolidated financial statements.
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 be required to adopt SFAS 159 on July 1, 2008 and does not believe
such adoption will have a significant impact on the Company’s financial
statements.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
2. New Accounting Standards (Continued)
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 ARB 51’s consolidation procedures 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 July
1, 2009 and has not yet assessed the impact of the adoption of this standard on
the Company’s financial statements.
Note
3. Debt and Financing Arrangements
The
Company has outstanding $1.2 billion principal amount of convertible senior
notes (the Notes) due in 2014. As of March 31, 2008, none of the conditions
permitting conversion of the Notes had been satisfied. Therefore, no
share amounts related to the conversion of the Notes or exercise of the warrants
sold in connection with the issuance of the Notes were included in diluted
average shares outstanding. For further information on the Notes,
refer to Note 7 “Debt and Financing Arrangements” in the consolidated financial
statements and footnotes thereto included in the Company’s annual report on Form
10-K for the year ended June 30, 2007.
In
December 2007, the Company issued $500 million of debentures which are due in
2038 and bear interest at a rate of 6.45%. In March 2008, the Company
issued $700 million of notes which are due in 2018 and bear interest at a rate
of 5.45%.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
3. Debt and Financing Arrangements (Continued)
At March
31, 2008, the Company had lines of credit totaling $7.4 billion, of which $2.5
billion was unused. The weighted average interest rates on short-term
borrowings outstanding at March 31, 2008 and 2007 were 3.64% and 5.62%,
respectively. Of the Company’s total lines of credit, $5.3 billion
support a commercial paper borrowing facility, against which there were
borrowings of $4.1 billion at March 31, 2008.
Note
4. Comprehensive Income
The
components of comprehensive income, net of related tax, are as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
517 |
|
|
$ |
363 |
|
|
$ |
1,430 |
|
|
$ |
1,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss)
on investments
|
|
|
(14 |
) |
|
|
46 |
|
|
|
(20 |
) |
|
|
61 |
|
Deferred
loss (gain) on hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
69 |
|
|
|
(77 |
) |
|
|
94 |
|
|
|
50 |
|
Pension
liability adjustment
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
(4 |
) |
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
316 |
|
|
|
37 |
|
|
|
590 |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
884 |
|
|
$ |
365 |
|
|
$ |
2,084 |
|
|
$ |
1,516 |
|
Note
5. Other (Income) Expense - Net
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
136 |
|
|
$ |
115 |
|
|
$ |
338 |
|
|
$ |
324 |
|
Investment
income
|
|
|
(70 |
) |
|
|
(66 |
) |
|
|
(202 |
) |
|
|
(192 |
) |
Net
gain on marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
transactions
|
|
|
(9 |
) |
|
|
(13 |
) |
|
|
(37 |
) |
|
|
(24 |
) |
Equity
in earnings of affiliates
|
|
|
(78 |
) |
|
|
(85 |
) |
|
|
(288 |
) |
|
|
(208 |
) |
Other
– net
|
|
|
45 |
|
|
|
(55 |
) |
|
|
67 |
|
|
|
(43 |
) |
|
|
$ |
24 |
|
|
$ |
(104 |
) |
|
$ |
(122 |
) |
|
$ |
(143 |
) |
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
6. Income Taxes
The
Company files income tax returns in multiple jurisdictions and is subject to
examination by taxing authorities throughout the world. In the U.S.,
the Company remains subject to Federal examination for tax years 2005 and
2007. The amount of unrecognized tax benefits at March 31, 2008 was
immaterial. There were no significant increases or decreases in
unrecognized tax benefits as a result of tax positions taken during a prior
period or taken during the current quarter and there were no material
settlements during the quarter ended March 31, 2008. The Company
classifies interest and penalties related to uncertain tax positions as interest
expense and penalty expense which are included in the accompanying consolidated
statements of earnings in other income–net and selling, general and
administrative expenses, respectively. The amount of interest expense
and penalty expense was immaterial for the quarter ended March 31,
2008.
Note
7. Segment 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. 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. Prior
period segment information has been reclassified to conform to the new
presentation.
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 meals principally for the food and
feed industries. In addition, oilseeds and oilseed products may
be used 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 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.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
7. Segment Information (Continued)
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 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 the related 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.
For
detailed information regarding the Company’s reportable segments, see Note 14 to
the consolidated financial statements included in the Company’s annual report on
Form 10-K for the year ended June 30, 2007.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
7. Segment Information (Continued)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
5,721 |
|
|
$ |
3,231 |
|
|
$ |
15,587 |
|
|
$ |
9,831 |
|
Corn
Processing
|
|
|
1,808 |
|
|
|
1,488 |
|
|
|
5,012 |
|
|
|
4,253 |
|
Agricultural
Services
|
|
|
9,777 |
|
|
|
5,694 |
|
|
|
23,551 |
|
|
|
14,874 |
|
Other
|
|
|
1,402 |
|
|
|
968 |
|
|
|
3,882 |
|
|
|
2,846 |
|
Total
|
|
$ |
18,708 |
|
|
$ |
11,381 |
|
|
$ |
48,032 |
|
|
$ |
31,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
62 |
|
|
$ |
77 |
|
|
$ |
336 |
|
|
$ |
256 |
|
Corn
Processing
|
|
|
29 |
|
|
|
14 |
|
|
|
68 |
|
|
|
36 |
|
Agricultural
Services
|
|
|
969 |
|
|
|
553 |
|
|
|
2,183 |
|
|
|
1,417 |
|
Other
|
|
|
37 |
|
|
|
32 |
|
|
|
103 |
|
|
|
93 |
|
Total
|
|
$ |
1,097 |
|
|
$ |
676 |
|
|
$ |
2,690 |
|
|
$ |
1,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
5,783 |
|
|
$ |
3,308 |
|
|
$ |
15,923 |
|
|
$ |
10,087 |
|
Corn
Processing
|
|
|
1,837 |
|
|
|
1,502 |
|
|
|
5,080 |
|
|
|
4,289 |
|
Agricultural
Services
|
|
|
10,746 |
|
|
|
6,247 |
|
|
|
25,734 |
|
|
|
16,291 |
|
Other
|
|
|
1,439 |
|
|
|
1,000 |
|
|
|
3,985 |
|
|
|
2,939 |
|
Intersegment
elimination
|
|
|
(1,097 |
) |
|
|
(676 |
) |
|
|
(2,690 |
) |
|
|
(1,802 |
) |
Total
|
|
$ |
18,708 |
|
|
$ |
11,381 |
|
|
$ |
48,032 |
|
|
$ |
31,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
237 |
|
|
$ |
185 |
|
|
$ |
666 |
|
|
$ |
547 |
|
Corn
Processing
|
|
|
172 |
|
|
|
251 |
|
|
|
699 |
|
|
|
876 |
|
Agricultural
Services
|
|
|
366 |
|
|
|
46 |
|
|
|
910 |
|
|
|
292 |
|
Other
|
|
|
138 |
|
|
|
111 |
|
|
|
390 |
|
|
|
293 |
|
Total
segment operating profit
|
|
|
913 |
|
|
|
593 |
|
|
|
2,665 |
|
|
|
2,008 |
|
Corporate
|
|
|
(158 |
) |
|
|
(37 |
) |
|
|
(579 |
) |
|
|
(248 |
) |
Earnings
before income taxes
|
|
$ |
755 |
|
|
$ |
556 |
|
|
$ |
2,086 |
|
|
$ |
1,760 |
|
ITEM
2.
|
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. 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 crushing and
origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and meals principally for the food and
feed industries. In addition, oilseeds and oilseed products may be
used 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 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 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 is exposed to certain risks inherent to an agricultural-based commodity
business. These risks are further described in Item 1A, “Risk
Factors” included in the Company’s annual report on Form 10-K for the year ended
June 30, 2007.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
The
Company’s Oilseeds Processing and Agricultural Services segments, and certain
other food processing operations are principally agricultural commodity-based
businesses where changes in selling prices move in relationship to changes in
costs of the commodity-based agricultural raw materials. Therefore,
changes in agricultural commodity market 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 net sales amounts of these
business segments do not necessarily correspond to the changes in gross profit
realized by these businesses.
The
Company’s Corn Processing segment and certain other food 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 cost 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 and British pound, as compared to the
U.S. dollar will result in corresponding fluctuations in the relative U.S.
dollar value of the Company’s revenues and expenses. 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 and return on fixed capital
investment and net assets. The Company’s operating results can vary
significantly due to changes in unpredictable factors such as fluctuations in
energy costs, weather conditions, plantings, global government farm 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.” Additionally, the Company’s
operating results for the current quarter are not necessarily indicative of the
results that may be expected for the year ending June 30, 2008.
Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007
Net
earnings for the quarter increased principally due to increased segment
operating profits. This increase was partially offset by increased
corporate expenses principally related to LIFO inventory valuation charges
resulting from increased commodity costs and by increased minority interest
eliminations.
As an
agricultural-based business, the Company is subject to a variety of market
factors which affect the Company’s operating results. Weather
conditions, increasing demand and other factors contributed to significantly
higher agricultural commodity costs. Commodity and freight markets
experienced increased volatility which created exceptional profit opportunities
for the Company’s merchandising and handling operations. Demand for
protein meal and vegetable oil increased globally. Biodiesel markets
continue to develop and contribute to the increased demand for refined and crude
vegetable oils. Ethanol demand increased reflecting higher gasoline
prices, improved gasoline blending economics and demand from newly-opened
markets in the southeastern United States. Manufacturing expenses
increased due principally to higher energy and fuel costs. Other
operating results for the three months ended March 31, 2007 include a gain of
$53 million from sales of Company businesses.
ITEM
2.
|
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 64% to $18.7
billion. Approximately 87% of the increase is due principally to
increased costs of underlying agricultural commodities while higher sales
volumes, principally of vegetable oil and meal, feed grains and wheat, accounted
for the remainder.
Net sales
and other operating income by segment for the quarter are as
follows:
|
|
Three
Months Ended
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In
millions)
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
3,385 |
|
|
$ |
1,760 |
|
|
$ |
1,625 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
2,270 |
|
|
|
1,429 |
|
|
|
841 |
|
Asia
|
|
|
66 |
|
|
|
42 |
|
|
|
24 |
|
Total
Oilseeds Processing
|
|
|
5,721 |
|
|
|
3,231 |
|
|
|
2,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
& Starches
|
|
|
912 |
|
|
|
716 |
|
|
|
196 |
|
Bioproducts
|
|
|
896 |
|
|
|
772 |
|
|
|
124 |
|
Total
Corn Processing
|
|
|
1,808 |
|
|
|
1,488 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
9,731 |
|
|
|
5,658 |
|
|
|
4,073 |
|
Transportation
|
|
|
46 |
|
|
|
36 |
|
|
|
10 |
|
Total
Agricultural Services
|
|
|
9,777 |
|
|
|
5,694 |
|
|
|
4,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, & Malt
|
|
|
1,375 |
|
|
|
943 |
|
|
|
432 |
|
Financial
|
|
|
27 |
|
|
|
25 |
|
|
|
2 |
|
Total
Other
|
|
|
1,402 |
|
|
|
968 |
|
|
|
434 |
|
Total
|
|
$ |
18,708 |
|
|
$ |
11,381 |
|
|
$ |
7,327 |
|
Oilseeds
Processing sales increased 77% to $5.7 billion principally due to higher average
selling prices resulting primarily from increases in underlying commodity costs
and continuing strong demand. Corn Processing sales increased 22% to
$1.8 billion. Good demand for sweeteners and starches drove higher average
selling prices, partially offset by lower sales volumes. Bioproducts
sales increased primarily as a result of increased ethanol sales volumes and, to
a lesser extent, higher average selling prices. Higher average
ethanol selling prices and 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 72% to $9.8 billion primarily due to increased underlying
commodity costs and, to a lesser extent, increased sales
volumes. Other sales increased 45% to $1.4 billion primarily due to
higher average selling prices of wheat flour and higher average selling prices
and volumes of cocoa products.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Cost of
products sold increased 65% to $17.6 billion primarily due to higher
agricultural commodity costs and, to a lesser extent, increased sales
volumes. Manufacturing expenses increased $177 million primarily due
to increased energy and fuel costs, increased storage and handling costs and the
impact of foreign currency translation.
Selling,
general and administrative expenses increased $84 million to $378 million
principally reflecting higher employee-related costs and the impact of foreign
currency translation.
Other
(income) expense - net decreased $128 million due principally to last year’s $53
million gain from the sale of Company businesses, increased minority interest
eliminations and increased interest expense.
Operating
profit by segment for the quarter is as follows:
|
|
Three
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In
Millions)
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
179 |
|
|
$ |
101 |
|
|
$ |
78 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
39 |
|
|
|
55 |
|
|
|
(16 |
) |
Asia
|
|
|
19 |
|
|
|
29 |
|
|
|
(10 |
) |
Total
Oilseeds Processing
|
|
|
237 |
|
|
|
185 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
& Starches
|
|
|
98 |
|
|
|
132 |
|
|
|
(34 |
) |
Bioproducts
|
|
|
74 |
|
|
|
119 |
|
|
|
(45 |
) |
Total
Corn Processing
|
|
|
172 |
|
|
|
251 |
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
341 |
|
|
|
21 |
|
|
|
320 |
|
Transportation
|
|
|
25 |
|
|
|
25 |
|
|
|
– |
|
Total
Agricultural Services
|
|
|
366 |
|
|
|
46 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, & Malt
|
|
|
90 |
|
|
|
82 |
|
|
|
8 |
|
Financial
|
|
|
48 |
|
|
|
29 |
|
|
|
19 |
|
Total
Other
|
|
|
138 |
|
|
|
111 |
|
|
|
27 |
|
Total
Segment Operating Profit
|
|
|
913 |
|
|
|
593 |
|
|
|
320 |
|
Corporate
|
|
|
(158 |
) |
|
|
(37 |
) |
|
|
(121 |
) |
Earnings
Before Income Taxes
|
|
$ |
755 |
|
|
$ |
556 |
|
|
$ |
199 |
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profits increased 28% to $237 million due principally to
continuing strong demand for protein meal and vegetable oil in most global
markets. Crushing and Origination operating profits increased 77% to
$179 million due to improved processing margins in North and South America, and
a 10% increase in worldwide crush volumes. The prior year quarter
results for Refining, Packaging, Biodiesel and Other include a $14 million gain
on a business disposal. Excluding the prior year gain, Refining, Packaging,
Biodiesel and Other operating profit decreased $2 million principally due to
weaker biodiesel margins in Europe.
Corn
Processing operating profits decreased 31% to $172 million due principally to
higher net corn costs and increased manufacturing
expenses. Manufacturing expenses increased principally due to higher
energy costs. Sweeteners and Starches operating profit decreased 26%
to $98 million reflecting higher net corn costs and increased manufacturing
expenses, partially offset by higher average sales
prices. Bioproducts operating profit decreased 38% to $74
million principally due to higher net corn costs and increased manufacturing
expenses, partially offset by increased ethanol and lysine sales volumes and, to
a lesser extent, higher average lysine selling prices.
Agricultural
Services operating profit increased 696% to $366 million. Merchandising and
Handling operating profit increased $320 million to $341 million due principally
to enhanced merchandising and handling margins caused by volatile global grain
and freight markets, and favorable risk management
results. Transportation operating profits were similar to last year’s
quarter.
Other
operating profits increased 24% to $138 million. Wheat, Cocoa and
Malt operating profit increased 10% to $90 million due principally to favorable
risk management results in wheat and malt, partially offset by decreased cocoa
processing margins primarily reflecting the competitive pressures experienced in
the North American chocolate market. Last year’s Wheat, Cocoa and
Malt results included a $39 million gain on a business
disposal. Financial operating profits increased due principally to
higher brokerage services income, decreased insurance loss provisions,
marketable securities gains, and improved earnings from private equity fund
investments.
Corporate
expense increased $121 million to $158 million principally due to a $64 million
charge, compared to a $23 million charge in the prior year quarter, related to
the effect of increased commodity costs on LIFO inventory valuations, decreased
investment income and increased minority interest eliminations.
Income
taxes increased due principally to higher pretax earnings. The
Company’s effective tax rate for the quarter is 31.5% this year and 34.8% in the
prior year quarter. The decrease in the Company’s effective tax rate
is primarily due to changes in the geographic mix of pretax
earnings.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Nine
Months Ended March 31, 2008 Compared to Nine Months Ended March 31,
2007
Net
earnings for the nine months increased principally due to increased segment
operating profits. This increase was partially offset by increased
corporate expenses principally related to LIFO inventory valuation charges
resulting from increased commodity costs and by increased minority interest
eliminations.
As an
agricultural-based business, the Company is subject to a variety of market
factors which affect the Company’s operating results. Weather
conditions, increasing demand and other factors contributed to significantly
higher agricultural commodity costs. Commodity and freight markets
experienced increased volatility which created exceptional profit opportunities
for the Company’s merchandising and handling operations. Demand for
protein meal and vegetable oil increased globally. Biodiesel markets
continue to develop and contribute to the increased demand for refined and crude
vegetable oils. Ethanol demand increased reflecting higher gasoline
prices, improved gasoline blending economics and demand from newly-opened
markets in the southeastern United States. Manufacturing expenses
increased due principally to higher energy and fuel costs. Other
operating results for the nine months ended March 31, 2007 include a gain of $53
million from sales of Company businesses.
Analysis
of Statements of Earnings
Net sales
and other operating income increased 51% to $48 billion for the nine
months. Approximately 82% of the increase is due principally to
increased costs of underlying agricultural commodities and the remainder is due
to increased sales volumes.
Net sales
and other operating income by segment for the nine months are as
follows:
|
|
Nine
Months Ended
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
9,474 |
|
|
$ |
5,576 |
|
|
$ |
3,898 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
5,956 |
|
|
|
4,148 |
|
|
|
1,808 |
|
Asia
|
|
|
157 |
|
|
|
107 |
|
|
|
50 |
|
Total
Oilseeds Processing
|
|
|
15,587 |
|
|
|
9,831 |
|
|
|
5,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
& Starches
|
|
|
2,537 |
|
|
|
1,966 |
|
|
|
571 |
|
Bioproducts
|
|
|
2,475 |
|
|
|
2,287 |
|
|
|
188 |
|
Total
Corn Processing
|
|
|
5,012 |
|
|
|
4,253 |
|
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
23,391 |
|
|
|
14,724 |
|
|
|
8,667 |
|
Transportation
|
|
|
160 |
|
|
|
150 |
|
|
|
10 |
|
Total
Agricultural Services
|
|
|
23,551 |
|
|
|
14,874 |
|
|
|
8,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, & Malt
|
|
|
3,810 |
|
|
|
2,772 |
|
|
|
1,038 |
|
Financial
|
|
|
72 |
|
|
|
74 |
|
|
|
(2 |
) |
Total
Other
|
|
|
3,882 |
|
|
|
2,846 |
|
|
|
1,036 |
|
Total
|
|
$ |
48,032 |
|
|
$ |
31,804 |
|
|
$ |
16,228 |
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing sales increased 59% to $15.6 billion principally due to increased
average selling prices resulting primarily from increases in underlying
commodity costs and from continuing strong demand for protein meal and vegetable
oil. Sales quantities of vegetable oil, biodiesel and merchandised
grains also increased. Corn Processing sales increased 18% to $5
billion. Good demand for sweeteners and starches drove higher average selling
prices. Bioproducts sales increased primarily as a result of
increased ethanol sales volumes partially offset by decreased average ethanol
selling prices. Higher 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 58% to $23.6 billion primarily due to increased underlying
commodity costs and, to a lesser extent, increased sales
volumes. Other sales increased 36% to $3.9 billion primarily due to
higher average selling prices and volumes of wheat flour and, to a lesser
extent, higher average selling prices and volumes of cocoa
products.
Cost of
products sold increased 54% to $45 billion primarily due to higher agricultural
commodity costs and, to a lesser extent, increased sales
volumes. Manufacturing expenses increased $334 million primarily due
to increased energy and fuel costs, increased employee-related costs, higher
storage and handling costs and the impact of foreign currency
translation.
Selling,
general and administrative expenses increased $169 million to $1.1 billion
primarily due to higher employee-related and outside service costs including $41
million related to an organizational realignment and a reorganization of the
Company’s European headquarters. Selling, general and administrative
expenses also increased due to the impact of foreign currency
translation.
Other
(income) expense - net decreased $21 million due primarily to last year’s $53
million gain from the sale of Company businesses and increased minority interest
eliminations. These decreases were partially offset by increased
equity in earnings of affiliates resulting primarily from increased valuations
of the Company’s private equity fund investments.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Operating
profit by segment for the nine months is as follows:
|
|
Nine
Months Ended
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In
millions)
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
451 |
|
|
$ |
334 |
|
|
$ |
117 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
148 |
|
|
|
157 |
|
|
|
(9 |
) |
Asia
|
|
|
67 |
|
|
|
56 |
|
|
|
11 |
|
Total
Oilseeds Processing
|
|
|
666 |
|
|
|
547 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
& Starches
|
|
|
409 |
|
|
|
403 |
|
|
|
6 |
|
Bioproducts
|
|
|
290 |
|
|
|
473 |
|
|
|
(183 |
) |
Total
Corn Processing
|
|
|
699 |
|
|
|
876 |
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
784 |
|
|
|
150 |
|
|
|
634 |
|
Transportation
|
|
|
126 |
|
|
|
142 |
|
|
|
(16 |
) |
Total
Agricultural Services
|
|
|
910 |
|
|
|
292 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, & Malt
|
|
|
205 |
|
|
|
175 |
|
|
|
30 |
|
Financial
|
|
|
185 |
|
|
|
118 |
|
|
|
67 |
|
Total
Other
|
|
|
390 |
|
|
|
293 |
|
|
|
97 |
|
Total
Segment Operating Profit
|
|
|
2,665 |
|
|
|
2,008 |
|
|
|
657 |
|
Corporate
|
|
|
(579 |
) |
|
|
(248 |
) |
|
|
(331 |
) |
Earnings
Before Income Taxes
|
|
$ |
2,086 |
|
|
$ |
1,760 |
|
|
$ |
326 |
|
Oilseeds
Processing operating profits increased 22% to $666 million due principally to
continuing strong demand for protein meal and vegetable oil in most global
markets. Crushing and Origination operating profits increased 35% to
$451 million due principally to improved crushing margins in North and South
America and improved origination and fertilizer results in South America,
partially offset by lower margins in Europe. Refining, Packaging,
Biodiesel, and Other operating profits decreased 6% to $148
million. Last year’s results for Refining, Packaging, Biodiesel, and
Other include a $14 million gain on a business disposal. Asia results
increased $11 million principally reflecting the Company’s share of improved
operating earnings of Wilmar International Limited.
Corn
Processing operating profits decreased 20% to $699 million, due principally to
higher net corn costs. Sweeteners and Starches operating profits of
$409 million were relatively unchanged as higher average selling prices were
offset by higher net corn costs and increased manufacturing, principally
energy-related, expenses. Bioproducts operating profit decreased 39%
to $290 million, principally due to higher net corn and manufacturing costs and
lower average ethanol selling prices, partially offset by higher ethanol and
lysine sales volumes and, to a lesser extent, higher average lysine selling
prices.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Agricultural
Services operating profit increased 212% to $910 million. Merchandising and
Handling operating profit increased 423% to $784 million. This increase was due
principally to enhanced merchandising and handling margins caused by volatile
global grain and freight markets and favorable risk management
results. Transportation operating profits decreased $16 million to
$126 million principally due to increased fuel costs.
Other
operating profits increased 33% to $390 million. Wheat, Cocoa and
Malt operating profit increased 17% to $205 million due principally to favorable
risk management results in wheat and malt partially offset by decreased cocoa
processing margins primarily reflecting competitive pressures experienced in the
North American chocolate market. Last year’s results included a $39
million gain on a business disposal. Financial operating profits
increased $67 million to $185 million principally due to improved earnings and
marketable securities gains of the Company’s futures commission merchant
business and to increased valuations of the Company’s private equity fund
investments.
Corporate
expense increased $331 million to $579 million principally due to a $371 million
charge, compared to a $146 million charge in the prior year, related to the
effect of increasing commodity costs on LIFO inventory
valuations. The increase in Corporate expense also reflects increased
minority interest eliminations and higher unallocated corporate expenses,
partially offset by higher unallocated net interest income.
Income
taxes increased principally due to higher pretax earnings. The
Company’s effective tax rate for the nine months is 31.4%, unchanged from the
nine months ended March 31, 2007.
Liquidity
and Capital Resources
The
Company’s 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 March
31, 2008, the Company continued to show substantial liquidity with working
capital of $9.3 billion and a current ratio, defined as current assets divided
by current liabilities, of 1.6 to 1. Included in working capital is
$1.7 billion of cash, cash equivalents, and short-term marketable securities as
well as $7.8 billion of readily marketable commodity inventories. The
increase in inventories during the nine months ended March 31, 2008 resulted
principally from significant increases in commodity costs and, to a lesser
extent, to increases in inventory ownership levels. These working
capital increases were financed by $5.6 billion of additional long and short
term borrowings as the Company had adequate access to debt capital through
numerous alternatives to meet these expanding working capital
needs. At March 31, 2008 the Company had lines of credit totaling
$7.4 billion, of which $2.5 billion was unused. Capital resources
remained strong as reflected by the increase in the Company’s net worth from
$11.3 billion to $13.2 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 31% at March 31, 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.
Contractual
Obligations and Commercial Commitments
During
the nine months ended March 31, 2008, the Company’s purchase obligations
increased $8 billion to $19.8 billion. This increase was principally
due to increased commodity costs and, to a lesser extent, increased obligations
to purchase agricultural commodities. As of March 31, 2008, the
Company expects to make payments related to inventory purchase obligations of
$18 billion within the next twelve months.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
In
December 2007, the Company issued $500 million of debentures which are due in
2038 and bear interest at a rate of 6.45%. In March 2008, the Company
issued $700 million of notes which are due in 2018 and bear interest at a rate
of 5.45%.
The
Company expects no material change in the current year’s rate of capital
expenditures. There were no other material changes in the Company’s
contractual obligations and off balance sheet arrangements during the nine
months ended March 31, 2008.
Critical
Accounting Policies
There
were no material changes in the Company’s critical accounting policies during
the nine months ended March 31, 2008.
ITEM
3.
|
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; marketable
equity security prices; market prices of limited partnerships’ investments;
foreign currency exchange rates; and interest rates. There were no
material changes during the quarter in the Company’s potential loss arising from
changes in market prices of limited partnerships’ investments and marketable
equity securities. Significant changes in market risk sensitive
instruments and positions for the quarter ended March 31, 2008 are described
below.
For
detailed information regarding the Company’s market risk sensitive instruments
and positions, see Item 7A, “Quantitative and Qualitative Disclosures About
Market Risk” included in the Company’s annual report on Form 10-K for the year
ended June 30, 2007.
Commodities
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, global
government farm 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. A sensitivity analysis has been
prepared to estimate the Company’s exposure to market risk of its commodity
position. The Company’s daily net commodity position consists of inventories,
related purchase and sale contracts, and exchange-traded futures contracts,
including those to hedge portions of production requirements. The fair value of
such 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 ten percent
adverse change in such prices. Actual results may
differ.
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
|
|
March
31, 2008
|
|
|
June
30, 2007
|
|
|
Long/(Short)
|
|
Fair
Value
|
|
|
Market
Risk
|
|
|
Fair
Value
|
|
|
Market
Risk
|
|
|
|
|
(in
millions)
|
|
|
Highest
position
|
|
$ |
1,260
|
|
|
$ |
126
|
|
|
$ |
703
|
|
|
$ |
70
|
|
|
Lowest
position
|
|
|
(419)
|
|
|
|
(42)
|
|
|
|
(565)
|
|
|
|
(57)
|
|
|
Average
position
|
|
|
404
|
|
|
|
40
|
|
|
|
180
|
|
|
|
18
|
|
The
increase in fair value of the average position was principally the result of an
increase in commodity prices, and, to a lesser extent, quantities underlying the
daily net commodity position.
ITEM
3.
|
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 readily marketable exchange-traded futures contracts and
forward contracts with banks. 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 $6.8
billion at March 31, 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 currency exchange rates 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
$683 million and $543 million for March 31, 2008 and June 30, 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.
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
|
|
March
31, 2008
|
|
|
June
30, 2007
|
|
|
|
|
(In
millions)
|
|
|
Fair
value of long-term debt
|
|
$ |
6,543
|
|
|
$ |
4,927
|
|
|
Excess
of fair value over carrying value
|
|
|
516
|
|
|
|
110
|
|
|
Market
risk
|
|
|
292
|
|
|
|
204
|
|
The
increase in fair value of long-term debt resulted principally from the Company’s
issuance of approximately $700 million of notes and $500 million of debentures,
and, to a lesser extent, a decrease in quoted interest rates.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
As of
March 31, 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 (a) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms and (b) accumulated and communicated to the Company’s management,
including the Chief Executive Officer and the Chief Financial Officer, 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.
PART
II – OTHER INFORMATION
ITEM
1.
|
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. In
February 2008 an employee at the facility received a Grand Jury Subpoena
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. However, in any case, the penalty would
not have a material adverse affect on the Company’s financial condition or
results of operations.
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.
There
were no significant changes in the Company’s risk factors during the three
months ended March 31, 2008.
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
Number
of Shares
|
|
|
|
Total
Number
|
|
|
Average
|
|
|
Shares
Purchased as
|
|
|
Remaining
that May be
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Part
of Publicly
|
|
|
Purchased
Under the
|
|
Period
|
|
Purchased
(1)
|
|
|
per
Share
|
|
|
Announced
Program (2)
|
|
|
Program
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2008
|
|
|
6,112 |
|
|
$ |
44.15 |
|
|
|
516 |
|
|
|
75,631,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
29, 2008
|
|
|
23,126 |
|
|
|
44.00 |
|
|
|
208 |
|
|
|
75,631,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
|
2,468 |
|
|
|
44.02 |
|
|
|
255 |
|
|
|
75,630,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,706 |
|
|
$ |
44.03 |
|
|
|
979 |
|
|
|
75,630,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Total
shares purchased represents those shares purchased as part of the
Company’s publicly announced share repurchase program described below,
shares received as payment of the exercise price for stock option
exercises, and shares received as payment of the withholding taxes on
vested restricted stock grants.
|
|
|
(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.
|
(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)
|
|
Form
of 5.45% Note due 2018, filed on March 5, 2008 as Exhibit 4 to Form 8-K
(File No. 1-44), is incorporated herein by reference.
|
|
|
|
(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.
|
|
|
|
(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 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.
|
|
ARCHER-DANIELS-MIDLAND
COMPANY
|
|
|
|
|
|
/s/
S. R. Mills
|
|
|
S.
R. Mills
|
|
|
Executive
Vice President
|
|
|
and
Chief Financial Officer
|
|
|
|
|
|
/s/
D. J. Smith
|
|
|
D.
J. Smith
|
|
|
Executive
Vice President, Secretary and
|
|
|
General
Counsel
|
Dated:
May 9, 2008