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 December 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 ¨.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or 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 – 641,889,521 shares
(January
31, 2009)
PART
I - FINANCIAL INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS
|
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
16,673 |
|
|
$ |
16,496 |
|
Cost
of products sold
|
|
|
15,461 |
|
|
|
15,548 |
|
Gross
Profit
|
|
|
1,212 |
|
|
|
948 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
337 |
|
|
|
338 |
|
Other
(income) expense – net
|
|
|
49 |
|
|
|
(75 |
) |
Earnings
Before Income Taxes
|
|
|
826 |
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
241 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
585 |
|
|
$ |
473 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
642 |
|
|
|
643 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
643 |
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.91 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
0.91 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
0.13 |
|
|
$ |
0.115 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
37,833 |
|
|
$ |
29,324 |
|
Cost
of products sold
|
|
|
34,754 |
|
|
|
27,446 |
|
Gross
Profit
|
|
|
3,079 |
|
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
746 |
|
|
|
693 |
|
Other
(income) expense – net
|
|
|
13 |
|
|
|
(146 |
) |
Earnings
Before Income Taxes
|
|
|
2,320 |
|
|
|
1,331 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
685 |
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
1,635 |
|
|
$ |
913 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
643 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
644 |
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
2.54 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
2.54 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
0.26 |
|
|
$ |
0.23 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Balance Sheets
|
|
(Unaudited)
|
|
|
|
|
December
31,
|
June
30,
|
|
|
|
2008
|
2008
|
|
|
|
(In
millions)
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,248 |
|
|
$ |
810 |
|
Short-term
marketable securities
|
|
|
1,104 |
|
|
|
455 |
|
Segregated
cash and investments
|
|
|
1,860 |
|
|
|
2,035 |
|
Receivables
|
|
|
8,673 |
|
|
|
11,483 |
|
Inventories
|
|
|
7,681 |
|
|
|
10,160 |
|
Other
assets
|
|
|
538 |
|
|
|
512 |
|
Total
Current Assets
|
|
|
22,104 |
|
|
|
25,455 |
|
|
|
|
|
|
|
|
|
|
Investments
and Other Assets
|
|
|
|
|
|
|
|
|
Investments
in and advances to affiliates
|
|
|
2,640 |
|
|
|
2,773 |
|
Long-term
marketable securities
|
|
|
633 |
|
|
|
590 |
|
Goodwill
|
|
|
501 |
|
|
|
506 |
|
Other
assets
|
|
|
611 |
|
|
|
607 |
|
Total
Investments and Other Assets
|
|
|
4,385 |
|
|
|
4,476 |
|
|
|
|
|
|
|
|
|
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
229 |
|
|
|
238 |
|
Buildings
|
|
|
3,085 |
|
|
|
3,207 |
|
Machinery
and equipment
|
|
|
12,371 |
|
|
|
12,410 |
|
Construction
in progress
|
|
|
2,175 |
|
|
|
1,924 |
|
|
|
|
17,860 |
|
|
|
17,779 |
|
Accumulated
depreciation
|
|
|
(10,448 |
) |
|
|
(10,654 |
) |
Total
Property, Plant, and Equipment
|
|
|
7,412 |
|
|
|
7,125 |
|
Total
Assets
|
|
$ |
33,901 |
|
|
$ |
37,056 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
568 |
|
|
$ |
3,123 |
|
Accounts
payable
|
|
|
6,762 |
|
|
|
6,544 |
|
Accrued
expenses
|
|
|
3,727 |
|
|
|
4,722 |
|
Current
maturities of long-term debt
|
|
|
44 |
|
|
|
232 |
|
Total
Current Liabilities
|
|
|
11,101 |
|
|
|
14,621 |
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
7,751 |
|
|
|
7,690 |
|
Deferred
income taxes
|
|
|
620 |
|
|
|
473 |
|
Other
|
|
|
735 |
|
|
|
782 |
|
Total
Long-Term Liabilities
|
|
|
9,106 |
|
|
|
8,945 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
4,999 |
|
|
|
5,039 |
|
Reinvested
earnings
|
|
|
8,947 |
|
|
|
7,494 |
|
Accumulated
other comprehensive (loss) income
|
|
|
(252 |
) |
|
|
957 |
|
Total
Shareholders’ Equity
|
|
|
13,694 |
|
|
|
13,490 |
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
33,901 |
|
|
$ |
37,056 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
1,635 |
|
|
$ |
913 |
|
Adjustments
to reconcile net earnings to net cash provided by
|
|
|
|
|
|
|
|
|
(used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
357 |
|
|
|
360 |
|
Asset
abandonments
|
|
|
9 |
|
|
|
21 |
|
Deferred
income taxes
|
|
|
167 |
|
|
|
93 |
|
Equity
in earnings of affiliates, net of dividends
|
|
|
(128 |
) |
|
|
(140 |
) |
Pension
and postretirement accruals (contributions), net
|
|
|
(101 |
) |
|
|
8 |
|
Other
– net
|
|
|
108 |
|
|
|
110 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Segregated
cash and investments
|
|
|
118 |
|
|
|
98 |
|
Receivables
|
|
|
(293 |
) |
|
|
(1,694 |
) |
Inventories
|
|
|
2,858 |
|
|
|
(3,984 |
) |
Other
assets
|
|
|
92 |
|
|
|
(107 |
) |
Accounts
payable and accrued expenses
|
|
|
1,043 |
|
|
|
1,396 |
|
Total
Operating Activities
|
|
|
5,865 |
|
|
|
(2,926 |
) |
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment
|
|
|
(1,069 |
) |
|
|
(896 |
) |
Net
assets of businesses acquired
|
|
|
(24 |
) |
|
|
(10 |
) |
Purchases
of marketable securities
|
|
|
(1,644 |
) |
|
|
(462 |
) |
Proceeds
from sales of marketable securities
|
|
|
907 |
|
|
|
418 |
|
Proceeds
from sales of business
|
|
|
237 |
|
|
|
8 |
|
Other
– net
|
|
|
36 |
|
|
|
(4 |
) |
Total
Investing Activities
|
|
|
(1,557 |
) |
|
|
(946 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Long-term
debt borrowings
|
|
|
102 |
|
|
|
515 |
|
Long-term
debt payments
|
|
|
(16 |
) |
|
|
(49 |
) |
Net
borrowings (payments) under line of credit agreements
|
|
|
(2,698 |
) |
|
|
4,042 |
|
Purchases
of treasury stock
|
|
|
(100 |
) |
|
|
(61 |
) |
Cash
dividends
|
|
|
(167 |
) |
|
|
(148 |
) |
Other
– net
|
|
|
9 |
|
|
|
15 |
|
Total
Financing Activities
|
|
|
(2,870 |
) |
|
|
4,314 |
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
|
|
1,438 |
|
|
|
442 |
|
Cash
and Cash Equivalents-Beginning of Period
|
|
|
810 |
|
|
|
663 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents-End of Period
|
|
$ |
2,248 |
|
|
$ |
1,105 |
|
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 six
months ended December 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending June 30,
2009. 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, 2008.
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
price 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
December 2007, the Financial Accounting Standards Board (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.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
2.
|
New
Accounting Standards (Continued)
|
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 of 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 this 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.
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
EITF 03-6-1). 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.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
2.
|
New
Accounting Standards (Continued)
|
During
December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets – an amendment of FASB Statement No.
132(R) (FAS 132(R)-1). FAS 132(R)-1 expands the disclosure
requirements of SFAS No. 132(R), Employers’ Disclosures about
Pensions and Other Postretirement Benefits (SFAS 132(R)). The
disclosure provisions of SFAS 132(R)-1 apply to entities that are subject to the
disclosure requirements of SFAS 132(R). SFAS 132(R)-1 requires
entities to disclose investment policies and strategies, major categories of
plan assets, fair value measurements for each major category of plan assets
segregated by fair value hierarchy level as defined in SFAS 157, Fair Value Measurements (SFAS
157), the effect of fair value measurements using Level 3 inputs on changes in
plan assets for the period, and significant concentrations of risk within plan
assets. The Company will be required to adopt SFAS 132(R)-1 on June
30, 2010. 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.
Note
3.
|
Fair
Value Measurements
|
Effective
July 1, 2008, the Company adopted SFAS 157, which establishes a framework for
measuring fair value and clarifies the definition of fair value within that
framework. SFAS 157 defines fair value as an exit price, which is the
price that would be received for an asset or paid to transfer a liability in the
Company’s principal or most advantageous market for the asset or liability, in
an orderly transaction between market participants on the measurement
date. The fair value hierarchy established in SFAS 157 generally
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. Observable inputs reflect the
assumptions market participants would use in pricing the asset or liability and
are developed based on market data obtained from sources independent of the
reporting entity. Unobservable inputs reflect the entity’s own
assumptions based on market data and the entity’s judgments about the
assumptions that market participants would use in pricing the asset or
liability, and are to be developed based on the best information available in
the circumstances. In October 2008, the FASB issued FSP FAS 157-3,
Determining the Fair Value of
a Financial Asset in a Market That Is Not Active, which clarifies that
when an active market does not exist it may be appropriate to use unobservable
inputs to determine fair value. The Company determines the fair
market value of certain of its inventories of agricultural commodities,
derivative contracts, and marketable securities based on the fair value
definition and hierarchy levels established in SFAS 157. SFAS 157
establishes three levels within its hierarchy that may be used to measure fair
value:
Level
1: Quoted prices (unadjusted) in active markets for identical assets
or liabilities. Level 1 assets and liabilities include
exchange-traded derivative contracts, U.S. treasury securities and certain
publicly traded equity securities.
Level
2: Observable inputs, including Level 1 prices that have been
adjusted; quoted prices for similar assets or liabilities; quoted prices in
markets that are less active than traded exchanges; and other inputs that are
observable or can be substantially corroborated by observable market
data.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
3.
|
Fair
Value Measurements (Continued)
|
Level
3: Unobservable inputs that are supported by little or no market
activity and that are a significant component of the fair value of the assets or
liabilities. In evaluating the significance of fair value inputs, the
Company generally classifies assets or liabilities as Level 3 when their fair
value is determined using unobservable inputs that individually, or when
aggregated with other unobservable inputs, represent more than 10% of the fair
value of the assets or liabilities. Judgment is required in
evaluating both quantitative and qualitative factors in the determination of
significance for purposes of fair value level classification. Level 3
amounts can include assets and liabilities whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as
well as assets and liabilities for which the determination of fair value
requires significant management judgment or estimation.
The
following table sets forth, by level, the Company’s assets and liabilities that
were accounted for at fair value on a recurring basis as of December 31,
2008. Pursuant to FSP FAS 157-2 Effective Date of FASB Statement No.
157, the Company will delay the adoption of SFAS 157 for its nonfinancial
assets and liabilities that are recognized on a nonrecurring basis, including
goodwill, other intangible assets, and asset retirement obligations to July 1,
2009. In many cases, a valuation technique used to measure fair value
includes inputs from multiple levels of the fair value hierarchy. The lowest
level of input that is a significant component of the fair value measurement
determines the placement of the entire fair value measurement in the
hierarchy. The Company’s assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect
the classification of fair value assets and liabilities within the fair value
hierarchy levels.
|
|
Fair
Value Measurements at December 31, 2008
|
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
carried at market
|
|
$ |
– |
|
|
$ |
3,321 |
|
|
$ |
321 |
|
|
$ |
3,642 |
|
Unrealized
gains on derivative
contracts
|
|
|
1,052 |
|
|
|
2,087 |
|
|
|
134 |
|
|
|
3,273 |
|
Available-for-sale
marketable
securities
|
|
|
1,171 |
|
|
|
740 |
|
|
|
12 |
|
|
|
1,923 |
|
Total
Assets
|
|
|
2,223 |
|
|
|
6,148 |
|
|
|
467 |
|
|
|
8,838 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on derivative
contracts
|
|
|
1,001 |
|
|
|
1,740 |
|
|
|
116 |
|
|
|
2,857 |
|
Inventory-related
liabilities
|
|
|
– |
|
|
|
579 |
|
|
|
7 |
|
|
|
586 |
|
Total
Liabilities
|
|
$ |
1,001 |
|
|
$ |
2,319 |
|
|
$ |
123 |
|
|
$ |
3,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
3.
|
Fair
Value Measurements (Continued)
|
The
Company uses the market approach valuation technique to measure the majority of
its assets and liabilities carried at fair value. Estimated fair
market values for inventories carried at market are based on exchange-quoted
prices, adjusted for differences in local markets, broker or dealer quotations,
or market transactions in either listed or OTC markets. In such
cases, the inventory is classified in Level 2. Certain inventories
may require management judgment or estimation for a significant component of the
fair value amount. In such cases, the inventory is classified as
Level 3. Changes in the fair market value of inventories are recognized in the
consolidated statements of earnings as a component of cost of products
sold.
The
Company’s derivative contracts that are measured at fair value include forward
commodity purchase and sale contracts, exchange-traded commodity futures and
option contracts, and OTC instruments related primarily to agricultural
commodities, energy, and foreign currencies. Exchange-traded futures
and options contracts are valued based on unadjusted quoted prices in active
markets and are classified in Level 1. The majority of the Company’s
exchange-traded futures and options contracts are cash settled on a daily basis
and, therefore, are not included in this table. Fair value for
forward commodity purchase and sale contracts is estimated based on
exchange-quoted prices adjusted for differences in local
markets. These differences are generally valued using inputs from
broker or dealer quotations or market transactions in either the listed or OTC
markets. When observable inputs are available for substantially the
full term of the asset or liability, the derivative contracts are classified in
Level 2. When unobservable inputs have a significant impact on the
measurement of fair value, the contract’s fair value is classified in Level 3.
Based on historical experience with the Company’s suppliers and customers, the
Company’s own credit risk, and the Company’s knowledge of current market
conditions, the Company does not view nonperformance risk to be a significant
input to fair value for the majority of its forward commodity purchase and sale
contracts. However, in situations when the Company believes the
nonperformance risk to be a significant input, the Company records estimated
fair value adjustments, and classifies the contracts in Level 3 in the fair
value hierarchy. Changes in the fair market value of commodity-related
derivatives are recognized in the consolidated statements of earnings as a
component of cost of products sold. Changes in the fair market value
of foreign currency-related derivatives are recognized in the consolidated
statements of earnings as a component of net sales and other operating income,
cost of products sold, and other (income)expense–net. The effective portions of
changes in the fair market value of derivatives designated as cash flow hedges
are recognized in the consolidated balance sheets as a component of accumulated
other comprehensive income.
The
Company’s available-for-sale securities are comprised of U.S. Treasury
securities, obligations of U.S. government agencies, corporate and municipal
debt securities, and equity investments. U.S. Treasury securities and
certain publicly traded equity investments are valued using quoted market prices
and are classified in Level 1. U.S. government agency obligations,
corporate and municipal debt securities and certain equity investments are
valued using third-party pricing services and substantially all are classified
as Level 2. Security values that are determined using pricing models
are classified in Level 3. Unrealized changes in the fair market
value of available-for-sale marketable securities are recognized in the
consolidated balance sheets as a component of accumulated other comprehensive
income.
The
Company’s assessment of the significance of a particular input to a fair value
measurement requires judgment and may affect the classification of assets and
liabilities within the fair value hierarchy.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
3.
|
Fair
Value Measurements (Continued)
|
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level
3) during the quarter ended December 31, 2008.
|
|
Level
3 Fair Value Measurements
|
|
|
|
Inventories
Carried
at
Market
|
|
|
Derivative
Contracts,
Net
|
|
|
Available-for-
Sale
Marketable
Securities
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 1, 2008
|
|
$ |
311 |
|
|
$ |
(22 |
) |
|
$ |
17 |
|
|
$ |
306 |
|
Total
gains (losses), realized or
unrealized,
included in earnings
before
income taxes*
|
|
|
(141 |
) |
|
|
16 |
|
|
|
– |
|
|
|
(125 |
) |
Purchases,
issuances and settlements
|
|
|
149 |
|
|
|
(1 |
) |
|
|
10 |
|
|
|
158 |
|
Transfers
in and/or out of Level 3
|
|
|
(5 |
) |
|
|
25 |
|
|
|
(15 |
) |
|
|
5 |
|
Ending
balance, December 31, 2008
|
|
$ |
314 |
|
|
$ |
18 |
|
|
$ |
12 |
|
|
$ |
344 |
|
*Includes
unrealized gains of $55 million attributable to the change in Level 3 derivative
assets still held at December 31, 2008 and unrealized losses of $20 million
attributable to the change in Level 3 inventories carried at market still held
at December 31, 2008.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level
3) during the six months ended December 31, 2008.
|
|
Level
3 Fair Value Measurements
|
|
|
|
Inventories
Carried
at
Market
|
|
|
Derivative
Contracts,
Net
|
|
|
Available-for-
Sale
Marketable
Securities
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 1, 2008
|
|
$ |
343 |
|
|
$ |
(6 |
) |
|
$ |
10 |
|
|
$ |
347 |
|
Total
gains (losses), realized or
unrealized,
included in earnings
before
income taxes*
|
|
|
(219 |
) |
|
|
11 |
|
|
|
(1 |
) |
|
|
(209 |
) |
Purchases,
issuances and settlements
|
|
|
121 |
|
|
|
(1 |
) |
|
|
18 |
|
|
|
138 |
|
Transfers
in and/or out of Level 3
|
|
|
69 |
|
|
|
14 |
|
|
|
(15 |
) |
|
|
68 |
|
Ending
balance, December 31, 2008
|
|
$ |
314 |
|
|
$ |
18 |
|
|
$ |
12 |
|
|
$ |
344 |
|
*Includes
unrealized gains of $33 million attributable to the change in Level 3 derivative
assets still held at December 31, 2008 and unrealized losses of $56 million
attributable to the change in Level 3 inventories carried at market still held
at December 31, 2008.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
4.
|
Debt
and Financing Arrangements
|
The
Company has outstanding $1.2 billion principal amount of convertible senior
notes (the Notes) due in 2014. As of December 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.
The
Company also has outstanding $1.75 billion principal amount of Equity Units (the
Units) due in 2011. The Units are a combination of (a) debt and (b)
forward purchase contracts for the holder to purchase the Company’s common
stock. The forward purchase contracts issued in connection with the
Units will be settled for the Company’s common stock on June 1,
2011. Until settlement of the forward purchase contracts, the shares
of stock underlying each forward purchase contact 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 December 31, 2008, the forward purchase contracts
were not considered dilutive and therefore were not included in the computation
of diluted earnings per share.
For
further information on the Notes and Units, 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,
2008.
Note
5.
|
Comprehensive
Income
|
The
components of comprehensive income, net of related tax, are as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
585 |
|
|
$ |
473 |
|
|
$ |
1,635 |
|
|
$ |
913 |
|
Unrealized
gain (loss) on investments
|
|
|
(8 |
) |
|
|
(4 |
) |
|
|
(27 |
) |
|
|
(6 |
) |
Deferred gain
(loss) on hedging activities
|
|
|
(22 |
) |
|
|
19 |
|
|
|
(254 |
) |
|
|
25 |
|
Pension
liability adjustment
|
|
|
9 |
|
|
|
(1 |
) |
|
|
14 |
|
|
|
(6 |
) |
Foreign
currency translation adjustment
|
|
|
(317 |
) |
|
|
64 |
|
|
|
(942 |
) |
|
|
274 |
|
Comprehensive
income
|
|
$ |
247 |
|
|
$ |
551 |
|
|
$ |
426 |
|
|
$ |
1,200 |
|
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
6.
|
Other
(Income) Expense - Net
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
120 |
|
|
$ |
113 |
|
|
$ |
249 |
|
|
$ |
201 |
|
Investment
income
|
|
|
(48 |
) |
|
|
(69 |
) |
|
|
(102 |
) |
|
|
(132 |
) |
Net
(gain) loss on marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
transactions
|
|
|
– |
|
|
|
(13 |
) |
|
|
(9 |
) |
|
|
(27 |
) |
Equity
in earnings of affiliates
|
|
|
(93 |
) |
|
|
(124 |
) |
|
|
(216 |
) |
|
|
(210 |
) |
Other
– net
|
|
|
70 |
|
|
|
18 |
|
|
|
91 |
|
|
|
22 |
|
|
|
$ |
49 |
|
|
$ |
(75 |
) |
|
$ |
13 |
|
|
$ |
(146 |
) |
Note
7.
|
Postretirement
Plans
|
SFAS No.
158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans (SFAS 158),
requires companies to measure plan assets and benefit obligations 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 adopted the measurement provisions of SFAS
158 as of July 1, 2008. The Company previously measured plan assets
and pension and other postretirement benefit obligations at March 31 of each
year. As a result of adopting the measurement date provisions of SFAS
158, the Company recorded an additional three months of pension and other
postretirement benefit obligations as of July 1, 2008, which resulted in a $13
million decrease in retained earnings, a $1 million increase in accumulated
other comprehensive income, and a $19 million increase in pension and
postretirement benefit obligations.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
8.
|
Segment
Information
|
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 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 products such as wheat into
wheat flour, cocoa into chocolate and cocoa products, barley into malt and
sugarcane into sugar and ethanol. The Company sold its malt
operations on July 31, 2008. 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.
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, 2008.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
8.
|
Segment
Information (Continued)
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
5,296 |
|
|
$ |
5,255 |
|
|
$ |
13,068 |
|
|
$ |
9,865 |
|
Corn
Processing
|
|
|
1,853 |
|
|
|
1,683 |
|
|
|
4,094 |
|
|
|
3,204 |
|
Agricultural
Services
|
|
|
8,141 |
|
|
|
8,233 |
|
|
|
17,710 |
|
|
|
13,773 |
|
Other
|
|
|
1,383 |
|
|
|
1,325 |
|
|
|
2,961 |
|
|
|
2,482 |
|
Total
|
|
$ |
16,673 |
|
|
$ |
16,496 |
|
|
$ |
37,833 |
|
|
$ |
29,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
16 |
|
|
$ |
127 |
|
|
$ |
68 |
|
|
$ |
274 |
|
Corn
Processing
|
|
|
19 |
|
|
|
20 |
|
|
|
59 |
|
|
|
39 |
|
Agricultural
Services
|
|
|
800 |
|
|
|
794 |
|
|
|
1,612 |
|
|
|
1,215 |
|
Other
|
|
|
39 |
|
|
|
35 |
|
|
|
78 |
|
|
|
66 |
|
Total
|
|
$ |
874 |
|
|
$ |
976 |
|
|
$ |
1,817 |
|
|
$ |
1,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
5,312 |
|
|
$ |
5,382 |
|
|
$ |
13,136 |
|
|
$ |
10,139 |
|
Corn
Processing
|
|
|
1,872 |
|
|
|
1,703 |
|
|
|
4,153 |
|
|
|
3,243 |
|
Agricultural
Services
|
|
|
8,941 |
|
|
|
9,027 |
|
|
|
19,322 |
|
|
|
14,988 |
|
Other
|
|
|
1,422 |
|
|
|
1,360 |
|
|
|
3,039 |
|
|
|
2,548 |
|
Intersegment
elimination
|
|
|
(874 |
) |
|
|
(976 |
) |
|
|
(1,817 |
) |
|
|
(1,594 |
) |
Total
|
|
$ |
16,673 |
|
|
$ |
16,496 |
|
|
$ |
37,833 |
|
|
$ |
29,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
319 |
|
|
$ |
219 |
|
|
$ |
829 |
|
|
$ |
428 |
|
Corn
Processing
|
|
|
29 |
|
|
|
275 |
|
|
|
147 |
|
|
|
528 |
|
Agricultural
Services
|
|
|
462 |
|
|
|
315 |
|
|
|
890 |
|
|
|
544 |
|
Other
|
|
|
5 |
|
|
|
146 |
|
|
|
125 |
|
|
|
252 |
|
Total
segment operating profit
|
|
|
815 |
|
|
|
955 |
|
|
|
1,991 |
|
|
|
1,752 |
|
Corporate
|
|
|
11 |
|
|
|
(270 |
) |
|
|
329 |
|
|
|
(421 |
) |
Earnings
before income taxes
|
|
$ |
826 |
|
|
$ |
685 |
|
|
$ |
2,320 |
|
|
$ |
1,331 |
|
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
9.
|
Investment
in Affiliate
|
The
Company has a 23% ownership interest in Gruma S.A.B. de C.V. (Gruma), one of the
world’s leading producers and marketers of corn flour and tortillas. The
carrying value of the Company’s investment in Gruma is $254 million as of
December 31, 2008.
On
October 28, 2008, Gruma publicly announced that it had $788 million of
unrealized mark-to-market losses on currency derivative instruments which mature
between 2008 and 2011. Gruma stated it is not subject to margin calls on these
instruments. Additionally, Gruma disclosed that it also had $276 million of
derivative losses on instruments which were subject to margin calls with
another of the various counterparties with whom Gruma contracted such
instruments (the “Counterparty”). Gruma’s announcement states that it has
entered into a release with the Counterparty in settlement of amounts due under
these derivative instruments.
On
November 13, 2008, Gruma announced it had obtained a credit line that allows it
to satisfy its payment obligations related to its currency derivative
instruments maturing in 2008. Gruma stated it will use part of this credit line
to satisfy its commitments arising from the currency derivative instruments that
had margin calls, which Gruma had agreed to pay by November 25, 2008. Gruma
stated it is still working to meet, to the satisfaction of all parties, its
obligations under the derivative instruments maturing in 2009, 2010, and 2011,
which instruments are not subject to margin calls. Gruma stated on October 28,
2008 that its results have been affected by the non-cash charges resulting from
the mark-to-market changes in the value of its currency derivative instruments
and it expects that such fluctuations in value may continue.
On
December 16, 2008, Gruma filed a Form 6-K with the United States Securities and
Exchange Commission which contained details regarding its foreign currency
derivative instruments, including notional amounts, losses as of September 30,
2008, and a sensitivity analysis which specified additional potential losses
assuming a hypothetical 10% depreciation in the value of the underlying
assets.
The
Company employs the equity method of accounting for its investment in Gruma, and
records its share of Gruma’s reported financial results on a one-quarter lag
basis. $291 million of Gruma’s derivative loss existed as of September 30, 2008,
and is reflected in Gruma’s reported net loss of Ps. 1.7 billion (US $165
million) for the quarter ended September 30, 2008 and the Company recorded its
share of this loss in its results for the quarter ended December 31, 2008. Based
on Gruma’s disclosures and filings dated October 13, 2008, October 28, 2008 and
December 16, 2008; fluctuations in foreign currency exchange rates between
September 30, 2008 and December 31, 2008; and the Company’s assumptions
regarding Mexican income tax impacts, the Company expects Gruma to record
additional losses in its quarter-ended December 31, 2008 financial results. The
Company estimates its share of Gruma’s derivative losses for the quarter-ended
December 31, 2008 to result in a non-cash charge of between $80 million and $110
million, after income tax, in the Company’s third quarter. In
addition, based on Gruma’s public disclosures and the sensitivity analysis
contained in Gruma’s Form 6-K filed December 16, 2008, the Company may
report additional losses in future reporting periods.
The
Company has evaluated the carrying value of its investment in Gruma as of
December 31, 2008 in light of Gruma’s announcements, and does not consider its
investment in Gruma to be other-than-temporarily impaired. The Company based its
evaluation on Gruma’s public disclosures about its currency derivative losses
and its expected future cash flows, and the Company’s knowledge of Gruma’s
business. The Company’s evaluation required the use of assumptions and
management judgment, including forecasts of Gruma’s future operating results and
impacts resulting from its derivative positions. If different assumptions and
judgment had been applied, the conclusion could have differed.
The
Company has no present obligation to provide funding to Gruma.
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 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 products such as wheat into
wheat flour, cocoa into chocolate and cocoa products, barley into malt, and
sugarcane into sugar and ethanol. The Company sold its malt
operations on July 31, 2008. 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, 2008.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
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. As a result, changes in gross profit of
these businesses do not necessarily correspond to the changes in net sales
amounts.
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 and return on net assets. 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.”
Three
Months Ended December 31, 2008 Compared to Three Months Ended December 31,
2007
Net
earnings for the quarter increased due principally to decreased LIFO inventory
valuation reserves resulting from a decline in commodity costs during the
current quarter, partially offset by decreased segment operating
profits.
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating results. This
quarter, the Company experienced impacts resulting from the later than normal
U.S. harvest, decreased exports of U.S. agricultural products, declining market
prices for many agricultural commodities, and generally weaker global economic
conditions. An increase in global production of agricultural products
and the anticipation of weakening future demand contributed to the decline in
agricultural commodity market prices this quarter. Volatility in the
commodity and freight markets remained relatively high, and continued to create
enhanced profit opportunities for the Company. Net corn costs
increased, due principally to lower by-product credits and the impact from the
Company’s corn hedging activity. Additionally, ethanol margins
decreased sharply as lower demand for gasoline, decreased gasoline prices, and
excess ethanol industry capacity negatively impacted ethanol selling
prices.
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 1% to $16.7 billion for the quarter,
reflecting increased average selling prices, decreased sales volumes and foreign
currency translation impacts. A $2.3 billion increase due to higher
average selling prices was offset by a $1.7 billion decrease due to lower sales
volumes and a $0.5 billion decrease due to foreign exchange
translation.
Net sales
and other operating income by segment for the quarter are as
follows:
|
|
Three
Months Ended |
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In
millions)
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
2,982 |
|
|
$ |
3,280 |
|
|
$ |
(298 |
) |
Refining,
Packaging, Biodiesel & Other
|
|
|
2,264 |
|
|
|
1,919 |
|
|
|
345 |
|
Asia
|
|
|
50 |
|
|
|
56 |
|
|
|
(6 |
) |
Total
Oilseeds Processing
|
|
|
5,296 |
|
|
|
5,255 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
944 |
|
|
|
791 |
|
|
|
153 |
|
Bioproducts
|
|
|
909 |
|
|
|
892 |
|
|
|
17 |
|
Total
Corn Processing
|
|
|
1,853 |
|
|
|
1,683 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
8,062 |
|
|
|
8,179 |
|
|
|
(117 |
) |
Transportation
|
|
|
79 |
|
|
|
54 |
|
|
|
25 |
|
Total
Agricultural Services
|
|
|
8,141 |
|
|
|
8,233 |
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
1,353 |
|
|
|
1,303 |
|
|
|
50 |
|
Financial
|
|
|
30 |
|
|
|
22 |
|
|
|
8 |
|
Total
Other
|
|
|
1,383 |
|
|
|
1,325 |
|
|
|
58 |
|
Total
|
|
$ |
16,673 |
|
|
$ |
16,496 |
|
|
$ |
177 |
|
Oilseeds
Processing sales were relatively unchanged at $5.3 billion. Higher
average selling prices of vegetable oils and biodiesel were offset by lower
sales volumes of protein meal and merchandised oilseeds. Corn
Processing sales increased 10% to $1.9 billion due to higher average selling
prices of sweeteners and starches and higher sales volumes of bioproducts
partially offset by lower sales volumes of sweeteners and starches and lower
average selling prices of bioproducts. Agricultural Services sales
decreased 1% to $8.1 billion, due principally to lower sales volumes of grain
partially offset by higher average selling prices. Other sales
increased 4% to $1.4 billion primarily due to higher average selling prices of
wheat flour and cocoa products.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Cost of
products sold was unchanged at $15.5 billion reflecting decreased sales volumes,
a $0.5 billion impact from foreign currency translation and decreased LIFO
inventory reserves partially offset by increased agricultural commodity
costs. Manufacturing expenses increased $43 million primarily due to
higher chemical, energy and fuel costs.
Selling,
general and administrative expenses were relatively unchanged at $337 million
due principally to increased provisions for doubtful accounts offset by lower
employee-related costs and the impact of foreign currency
translation.
Other
(income) expense-net decreased $124 million due principally to decreased equity
in earnings of affiliates, decreased gains on sales of assets and marketable
securities, increased net interest expense and increased minority interest
eliminations.
Operating
profit by segment for the quarter is as follows:
|
|
Three
Months Ended |
|
|
|
|
|
|
December
31, |
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
187 |
|
|
$ |
141 |
|
|
$ |
46 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
86 |
|
|
|
46 |
|
|
|
40 |
|
Asia
|
|
|
46 |
|
|
|
32 |
|
|
|
14 |
|
Total
Oilseeds Processing
|
|
|
319 |
|
|
|
219 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
140 |
|
|
|
150 |
|
|
|
(10 |
) |
Bioproducts
|
|
|
(111 |
) |
|
|
125 |
|
|
|
(236 |
) |
Total
Corn Processing
|
|
|
29 |
|
|
|
275 |
|
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
385 |
|
|
|
258 |
|
|
|
127 |
|
Transportation
|
|
|
77 |
|
|
|
57 |
|
|
|
20 |
|
Total
Agricultural Services
|
|
|
462 |
|
|
|
315 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
51 |
|
|
|
78 |
|
|
|
(27 |
) |
Financial
|
|
|
(46 |
) |
|
|
68 |
|
|
|
(114 |
) |
Total
Other
|
|
|
5 |
|
|
|
146 |
|
|
|
(141 |
) |
Total
Segment Operating Profit
|
|
|
815 |
|
|
|
955 |
|
|
|
(140 |
) |
Corporate
|
|
|
11 |
|
|
|
(270 |
) |
|
|
281 |
|
Earnings
Before Income Taxes
|
|
$ |
826 |
|
|
$ |
685 |
|
|
$ |
141 |
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profit increased $100 million for the
quarter. Crushing and origination results increased $46 million for
the quarter due principally to improved crushing margins, including favorable
risk management results, and higher origination margins,
partially offset by lower fertilizer sales volumes and
margins. Refining, packaging, biodiesel and other results increased
$40 million for the quarter. Biodiesel results increased for the
quarter primarily related to the start up of a new facility in Brazil and
favorable impacts from derivatives used to economically hedge future sales
commitments in Europe. Refining, packaging, biodiesel and other
results also improved due to recent increases in selling prices for many key
products and the absence of asset abandonment charges of $15 million included in
the quarter ended December 31, 2007. Asia results increased $14
million for the quarter due to increased earnings related to equity investments,
principally Wilmar International Limited.
Corn
Processing operating profit decreased $246 million for the quarter. Sweetener
and starches operating profit decreased $10 million for the quarter due
principally to higher net corn costs and increased manufacturing costs,
partially offset by higher average selling prices. Bioproducts
operating profit decreased $236 million for the quarter due principally to a
significant decline in ethanol margins resulting from higher net corn
costs and increased manufacturing costs, lower average selling prices, and
the write-down of ethanol inventory to market. Net corn
costs increased, due principally to lower by-product credits and the impact from
the Company’s corn hedging activity.
Agricultural
Services operating profit increased $147 million for the quarter due principally
to improved global merchandising and handling margins resulting from
opportunities created by volatile commodity and freight market
conditions. In addition, income from storage and drying increased for
the quarter. Transportation results increased for the quarter due
principally to higher barge freight rates.
Other
operating profit decreased $141 million for the quarter. Wheat,
cocoa, malt and sugar operating profits decreased $27 million for the quarter
due principally to lower equity earnings from the Company’s investment in Gruma
S.A.B. de C.V. related primarily to foreign currency derivative losses (see Note
9 to Consolidated Financial Statements), partially offset by improved wheat and
cocoa processing margins. Financial operating profits decreased $114
million for the quarter primarily due to increased captive insurance loss
provisions, decreased interest income of the Company’s futures commission
merchant operations and decreased gains from sales of marketable
securities.
Corporate
results increased $281 million for the quarter due principally to a reduction in
LIFO inventory reserves of $123 million for the quarter ended December 31, 2008
compared to increased LIFO inventory reserves of $225 million for the quarter
ended December 31, 2007. Corporate unallocated interest was a net
expense of $32 million for the quarter compared to net income of $38 million in
the prior year. Corporate interest expense increased due principally
to additional long-term debt borrowings and decreased interest income, partially
offset by increased capitalized interest on capital projects.
Income
taxes increased due principally to higher pretax earnings. The
Company’s effective tax rate for the quarter is 29.2% as compared to 30.9% in
the prior year’s 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)
|
Six
Months Ended December 31, 2008 Compared to Six Months Ended December 31.
2007
Net
earnings for the six months increased due principally to decreased LIFO
inventory valuation reserves resulting from a decline in commodity costs during
the current six month period, and increased segment operating
profits.
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating results. Shifting
global sources of grain supplies, continuing commodity and freight market
volatility, decreased exports of U.S. agricultural products and the delayed U.S.
harvest created enhanced profit opportunities for the Company. An
increase in global production of agricultural products and the anticipation of
weakening future demand contributed to the decline in agricultural commodity
market prices. Biodiesel markets continue to develop, particularly in
South America, and contributed to an increase in demand for refined and crude
vegetable oils. Compared to last year, market prices for corn
increased sharply resulting in higher raw material costs which negatively
impacted ethanol margins and were only partially passed on in
the form of increased selling prices for sweeteners and
starches. Additionally, ethanol margins decreased as lower demand for
gasoline, decreased gasoline prices, and excess ethanol industry capacity
limited the Company’s ability to increase ethanol selling
prices. Higher chemical, energy and fuel costs negatively impacted
the Company’s manufacturing costs.
Analysis
of Statements of Earnings
Net sales
and other operating income increased 29% to $ 37.8 billion for the six months,
reflecting increased average selling prices and decreased sales
volumes. A $10 billion increase due to higher average selling prices
was partially offset by a $1.6 billion decrease due to lower sales
volumes.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Net sales
and other operating income by segment for the six months are as
follows:
|
|
Six
Months Ended |
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change |
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
7,865 |
|
|
$ |
6,088 |
|
|
$ |
1,777 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
5,108 |
|
|
|
3,686 |
|
|
|
1,422 |
|
Asia
|
|
|
95 |
|
|
|
91 |
|
|
|
4 |
|
Total
Oilseeds Processing
|
|
|
13,068 |
|
|
|
9,865 |
|
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
1,983 |
|
|
|
1,625 |
|
|
|
358 |
|
Bioproducts
|
|
|
2,111 |
|
|
|
1,579 |
|
|
|
532 |
|
Total
Corn Processing
|
|
|
4,094 |
|
|
|
3,204 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
17,558 |
|
|
|
13,659 |
|
|
|
3,899 |
|
Transportation
|
|
|
152 |
|
|
|
114 |
|
|
|
38 |
|
Total
Agricultural Services
|
|
|
17,710 |
|
|
|
13,773 |
|
|
|
3,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
2,903 |
|
|
|
2,436 |
|
|
|
467 |
|
Financial
|
|
|
58 |
|
|
|
46 |
|
|
|
12 |
|
Total
Other
|
|
|
2,961 |
|
|
|
2,482 |
|
|
|
479 |
|
Total
|
|
$ |
37,833 |
|
|
$ |
29,324 |
|
|
$ |
8,509 |
|
Oilseeds
Processing sales increased 32% to $13.1 billion due principally to higher
average selling prices resulting primarily from increases in underlying
commodity costs. Sales quantities of biodiesel also increased due
principally to the start up of a new facility in Brazil. Corn
Processing sales increased 28% to $4.1 billion. Sweeteners and
starches sales increased due principally to higher average selling
prices. Bioproducts sales increased primarily as a result of
increased sales volumes and higher average selling prices of ethanol and
lysine. Agricultural Services sales increased 29% to $17.7 billion
due primarily to increased underlying commodity costs, partially offset by
decreased sales volumes. Other sales increased 19% to $3.0 billion
primarily due to higher average selling prices of wheat flour and cocoa
products, partially offset by decreased sales
volumes.
Cost of
products sold increased 27% to $34.8 billion due principally to increased
agricultural commodity costs, partially offset by decreased sales volumes and
decreased LIFO inventory reserves. Manufacturing expenses increased
$235 million primarily due to increased chemical, energy and fuel
costs.
Selling,
general and administrative expenses increased 8% to $746 million due principally
to increased provisions for doubtful accounts offset by lower employee-related
costs, and to a lesser extent, the impact of foreign currency
translation.
Other
(income) expense-net decreased $159 million due principally to decreased gains
on sales of assets and marketable securities, increased interest expense,
decreased investment income and increased minority interest
eliminations.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Operating
profit by segment for the six months is as follows:
|
|
Six Months Ended |
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change |
|
|
|
(In millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
526 |
|
|
$ |
272 |
|
|
$ |
254 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
192 |
|
|
|
108 |
|
|
|
84 |
|
Asia
|
|
|
111 |
|
|
|
48 |
|
|
|
63 |
|
Total
Oilseeds Processing
|
|
|
829 |
|
|
|
428 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
205 |
|
|
|
317 |
|
|
|
(112 |
) |
Bioproducts
|
|
|
(58 |
) |
|
|
211 |
|
|
|
(269 |
) |
Total
Corn Processing
|
|
|
147 |
|
|
|
528 |
|
|
|
(381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
770 |
|
|
|
443 |
|
|
|
327 |
|
Transportation
|
|
|
120 |
|
|
|
101 |
|
|
|
19 |
|
Total
Agricultural Services
|
|
|
890 |
|
|
|
544 |
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
154 |
|
|
|
116 |
|
|
|
38 |
|
Financial
|
|
|
(29 |
) |
|
|
136 |
|
|
|
(165 |
) |
Total
Other
|
|
|
125 |
|
|
|
252 |
|
|
|
(127 |
) |
Total
Segment Operating Profit
|
|
|
1,991 |
|
|
|
1,752 |
|
|
|
239 |
|
Corporate
|
|
|
329 |
|
|
|
(421 |
) |
|
|
750 |
|
Earnings
Before Income Taxes
|
|
$ |
2,320 |
|
|
$ |
1,331 |
|
|
$ |
989 |
|
Oilseeds
Processing operating profit increased $401 million to $829
million. Crushing and origination results increased $254 million to
$526 million due principally to improved crushing margins, including favorable
impacts from raw material positioning and risk management
results. In addition, higher origination margins were
partially offset by lower fertilizer sales volumes and margins. Refining,
packaging, biodiesel and other results increased $84 million to $192
million. Biodiesel results increased primarily due to the start up of
a new facility in Brazil and favorable impacts from derivatives used to hedge
future sales commitments in Europe. Refining, packaging, biodiesel
and other results also improved due to increased selling prices and the absence
of asset abandonment charges of $18 million included in the six months ended
December 31, 2007. Asia results increased $63 million to $111 million
due to increased earnings related to equity investments, principally Wilmar
International Limited.
Corn
Processing operating profit decreased $381 million to $147 million. Sweetener
and starches operating profit decreased $112 million due principally to sharply
higher net corn costs and increased manufacturing costs, partially offset by
higher average selling prices. Bioproducts operating profit decreased $269
million due principally to a significant decline in ethanol margins resulting
from sharply higher net corn costs, increased manufacturing costs, lower average
selling prices and the write-down of ethanol inventory to
market.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Agricultural
Services operating profit increased $346 million to $890 million due principally
to improved global merchandising and handling margins resulting from
opportunities created by volatile commodity and freight market conditions,
global shifts in the sources of grain supplies and the delayed U.S.
harvest. Transportation results increased due principally to higher
barge freight rates.
Other
operating profit decreased $127 million to $125 million. Wheat,
cocoa, malt and sugar operating profit increased $38 million to $154 million due
principally to improved wheat and cocoa processing margins partially offset by
lower equity earnings from the Company’s investment in Gruma S.A.B. de C.V.
related primarily to foreign currency derivative losses (See Note 9 to
Consolidated Financial Statements). Financial operating profit
decreased $165 million primarily due to increased captive insurance loss
provisions, decreased interest income of the Company’s futures commission
merchant operations and decreased gains from sales of marketable
securities.
Corporate
results increased $750 million to $329 million due principally to LIFO credits
of $576 million compared to LIFO charges of $307 million in the prior
year. Corporate unallocated interest decreased $132 million primarily
related to increased interest expense and decreased interest income, partially
offset by increased capitalized interest on construction
projects.
Income
taxes increased due principally to higher pretax earnings. The
Company’s effective tax rate for the six months is 29.5% as compared to 31.4% in
the prior year’s six months. The decrease in the Company’s effective
tax rate is 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
December 31, 2008, the Company had $3.4 billion of cash, cash equivalents, and
short-term marketable securities and a current ratio, defined as current assets
divided by current liabilities, of 2.0 to 1. Included in working
capital is $5.3 billion of readily marketable commodity
inventories. Cash provided by operating activities totaled
$5.9 billion for the quarter compared to $2.9 billion of cash
used in operations the same quarter last year. This change was
primarily due to a decrease in working capital requirements principally related
to decreased market prices and, to a lesser extent, decreased quantities of
agricultural commodity inventories, and decreased receivables. Cash
used in financing activities was $2.9 billion compared to cash generated by
financing activities of $4.3 billion the same quarter last year due
principally to changes in short-term borrowing requirements. Net
short-term borrowings decreased primarily as a result of decreased working
capital requirements.
At
December 31, 2008, the Company had lines of credit totaling $6.3 billion, of
which $5.7 billion was unused. Of the Company’s total lines of credit, $4.2
billion support a commercial paper borrowing facility, against which there were
no borrowings at December 31, 2008.
Capital
resources remained strong as reflected by the increase in the Company’s net
worth from $13.5 billion to $13.7 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 December 31, 2008 and at June 30,
2008. This ratio is a measure of the Company’s long-term liquidity
and is an indicator of financial flexibility.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Contractual
Obligations and Commercial Commitments
The
Company’s purchase obligations as of December 31, 2008 were $13.0 billion. As of
December 31, 2008, the Company expects to make payments related to purchase
obligations of $11.7 billion within the next twelve months, principally related
to obligations to purchase agricultural commodity inventories. There
were no other material changes in the Company’s contractual obligations and off
balance sheet arrangements during the six months ended December 31,
2008.
Critical
Accounting Policies
There
were no material changes in the Company’s critical accounting policies during
the six months ended December 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
prices as they relate to the Company’s net commodity position; marketable equity
security prices; foreign currency exchange rates; and interest
rates. Significant changes in market risk sensitive instruments and
positions for the quarter ended December 31, 2008 are described
below. There were no material changes during the quarter in the
Company’s potential loss arising from changes in marketable equity securities,
foreign currency exchange rates, and interest rates.
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, 2008.
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 and
exchange-traded and over-the-counter option contracts, including those used 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.
|
|
Six
Months Ended
|
|
|
Year
Ended
|
|
|
|
December
31, 2008
|
|
|
June
30, 2008
|
|
Long/(Short)
|
|
Fair
Value
|
|
|
Market
Risk
|
|
|
Fair
Value
|
|
|
Market
Risk
|
|
|
|
(in
millions)
|
|
Highest
position
|
|
$ |
300 |
|
|
$ |
30 |
|
|
$ |
1,260 |
|
|
$ |
126 |
|
Lowest
position
|
|
|
(1,457 |
) |
|
|
(146 |
) |
|
|
(915 |
) |
|
|
(92 |
) |
Average
position
|
|
|
(564 |
) |
|
|
(56 |
) |
|
|
251 |
|
|
|
25 |
|
The
decrease in fair value of the average position was principally the result of a
decrease in quantities underlying the daily net commodity position.
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
As of
December 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 (USEPA) 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. On
January 14, 2009, USEPA advised the Company that it intends to seek an
indictment. 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 effect on the Company’s financial condition
or results of operations.
There
were no material changes in the Company’s risk factors during the three months
ended December 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31, 2008
|
|
|
99 |
|
|
$ |
22.11 |
|
|
|
99 |
|
|
|
71,346,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
30, 2008
|
|
|
3,443 |
|
|
|
25.70 |
|
|
|
7 |
|
|
|
71,346,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1, 2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
2,424 |
|
|
|
27.97 |
|
|
|
133 |
|
|
|
71,346,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,966 |
|
|
$ |
26.56 |
|
|
|
239 |
|
|
|
71,346,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
The
Annual Meeting of Stockholders was held on November 6, 2008. Proxies
for the Annual Meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended. There was no
solicitation in opposition to the Board of Director nominees as listed in the
proxy statement and all nominees were elected as follows:
|
Nominee
|
Shares Cast For
|
Shares Withheld
|
|
|
|
|
|
G.
W. Buckley
|
515,829,297
|
13,352,798
|
|
M.
H. Carter
|
498,209,657
|
30,972,438
|
|
V.
F. Haynes
|
445,888,045
|
83,294,050
|
|
A.
Maciel
|
445,671,372
|
83,510,723
|
|
P.
J. Moore
|
495,597,875
|
33,584,220
|
|
M.
B. Mulroney
|
479,532,079
|
49,650,016
|
|
T.
F. O’Neill
|
445,823,050
|
83,359,045
|
|
K.
R. Westbrook
|
441,607,808
|
87,574,287
|
|
P.
A. Woertz
|
499,412,236
|
29,769,859
|
The
Stockholder’s Proposal No. 1 (Code of Conduct Regarding Global Human Rights
Standards) was defeated as follows:
For
|
Against
|
Abstain
|
|
|
|
93,496,621
|
313,997,695
|
45,949,002
|
The
appointment of Ernst & Young LLP as independent accountants was ratified at
the meeting by the following votes:
For
|
Against
|
Abstain
|
|
|
|
519,885,318
|
8,098,016
|
1,198,761
|
ITEM
5.
|
OTHER
INFORMATION
|
Effective
on February 5, 2009, the Company’s Board of Directors approved the following
amendments to the Company’s Bylaws: (i) an amendment to Section 1.4(c) to
require that proponents of stockholder proposals disclose to the Company their
derivative and other interests in the Company’s equity securities; (ii)
amendments to Section 2.8 to (a) clarify the Governance Committee’s role in
determining the materiality of a director’s potential conflict of interest and
(b) recognize the independence requirements of the New York Stock Exchange; and
(iii) an amendment to Section 6.7 to clarify that the indemnification and other
rights set forth in Article VI vest as of the commencement of
service.
The full
text of the Company’s Bylaws, as amended, is included as Exhibit 3(ii) to this
quarterly report on Form 10-Q and is incorporated into this Item 5 by
reference.
(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.
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10(i)
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The
Archer-Daniels-Midland Company Amended and Restated Stock Unit Plan for
Nonemployee Directors.
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(ii)
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ADM
Deferred Compensation Plan for Selected Management Employees I (As amended
through January 1, 2009).
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(iii)
|
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ADM
Deferred Compensation Plan for Selected Management Employees II (As
Amended and Restated Effective January 1,
2009).
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(iv)
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ADM
Supplemental Retirement Plan (As Amended and Restated Effective January 1,
2009).
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(v)
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Archer-Daniels
Midland Company Amended and Restated 2002 Incentive Compensation
Plan.
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(31.1)
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Certification
of Chief Executive Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a)
of the Securities Exchange Act, as
amended.
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(31.2)
|
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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.
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(32.2)
|
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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.
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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.
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ARCHER-DANIELS-MIDLAND
COMPANY
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/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
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Dated:
February 9, 2009