(April
30, 2009)
PART
I - FINANCIAL INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS
|
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
14,842 |
|
|
$ |
18,708 |
|
Cost
of products sold
|
|
|
14,193 |
|
|
|
17,551 |
|
Gross
Profit
|
|
|
649 |
|
|
|
1,157 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
346 |
|
|
|
378 |
|
Other
(income) expense – net
|
|
|
151 |
|
|
|
24 |
|
Earnings
Before Income Taxes
|
|
|
152 |
|
|
|
755 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
144 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
8 |
|
|
$ |
517 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
642 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
644 |
|
|
|
647 |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per common share
|
|
$ |
0.01 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
0.14 |
|
|
$ |
0.13 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions, except
|
|
|
|
per
share amounts)
|
|
|
|
|
|
|
|
|
Net
sales and other operating income
|
|
$ |
52,675 |
|
|
$ |
48,032 |
|
Cost
of products sold
|
|
|
48,947 |
|
|
|
44,997 |
|
Gross
Profit
|
|
|
3,728 |
|
|
|
3,035 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,092 |
|
|
|
1,071 |
|
Other
(income) expense – net
|
|
|
164 |
|
|
|
(122 |
) |
Earnings
Before Income Taxes
|
|
|
2,472 |
|
|
|
2,086 |
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
829 |
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
1,643 |
|
|
$ |
1,430 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – basic
|
|
|
643 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
Average
number of shares outstanding – diluted
|
|
|
644 |
|
|
|
646 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
2.56 |
|
|
$ |
2.22 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
2.55 |
|
|
$ |
2.21 |
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$ |
0.40 |
|
|
$ |
0.36 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Balance Sheets
|
|
(Unaudited)
|
|
|
|
|
March
31,
|
June
30,
|
|
|
|
2009
|
2008
|
|
|
|
(In
millions)
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,188 |
|
|
$ |
810 |
|
Short-term
marketable securities
|
|
|
419 |
|
|
|
455 |
|
Segregated
cash and investments
|
|
|
2,201 |
|
|
|
2,035 |
|
Receivables
|
|
|
7,236 |
|
|
|
11,483 |
|
Inventories
|
|
|
7,840 |
|
|
|
10,160 |
|
Other
assets
|
|
|
430 |
|
|
|
512 |
|
Total Current Assets
|
|
|
20,314 |
|
|
|
25,455 |
|
|
|
|
|
|
|
|
|
|
Investments
and Other Assets
|
|
|
|
|
|
|
|
|
Investments
in and advances to affiliates
|
|
|
2,369 |
|
|
|
2,773 |
|
Long-term
marketable securities
|
|
|
620 |
|
|
|
590 |
|
Goodwill
|
|
|
493 |
|
|
|
506 |
|
Other
assets
|
|
|
596 |
|
|
|
607 |
|
Total Investments and Other Assets
|
|
|
4,078 |
|
|
|
4,476 |
|
|
|
|
|
|
|
|
|
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
229 |
|
|
|
238 |
|
Buildings
|
|
|
3,104 |
|
|
|
3,207 |
|
Machinery
and equipment
|
|
|
12,575 |
|
|
|
12,410 |
|
Construction
in progress
|
|
|
2,184 |
|
|
|
1,924 |
|
|
|
|
18,092 |
|
|
|
17,779 |
|
Accumulated
depreciation
|
|
|
(10,509 |
) |
|
|
(10,654 |
) |
Total Property, Plant, and
Equipment
|
|
|
7,583 |
|
|
|
7,125 |
|
Total
Assets
|
|
$ |
31,975 |
|
|
$ |
37,056 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
255 |
|
|
$ |
3,123 |
|
Accounts
payable
|
|
|
6,450 |
|
|
|
6,544 |
|
Accrued
expenses
|
|
|
2,663 |
|
|
|
4,722 |
|
Current
maturities of long-term debt
|
|
|
43 |
|
|
|
232 |
|
Total
Current Liabilities
|
|
|
9,411 |
|
|
|
14,621 |
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt |
|
|
7,751 |
|
|
|
7,690 |
|
Deferred
income taxes
|
|
|
644 |
|
|
|
473 |
|
Other
|
|
|
742 |
|
|
|
782 |
|
Total Long-Term Liabilities
|
|
|
9,137 |
|
|
|
8,945 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
5,016 |
|
|
|
5,039 |
|
Reinvested
earnings
|
|
|
8,866 |
|
|
|
7,494 |
|
Accumulated
other comprehensive (loss) income
|
|
|
(455 |
) |
|
|
957 |
|
Total Shareholders’ Equity
|
|
|
13,427 |
|
|
|
13,490 |
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
31,975 |
|
|
$ |
37,056 |
|
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions)
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
1,643 |
|
|
$ |
1,430 |
|
Adjustments
to reconcile net earnings to net cash provided by
|
|
|
|
|
|
|
|
|
(used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
539 |
|
|
|
540 |
|
Asset
abandonments
|
|
|
9 |
|
|
|
22 |
|
Deferred
income taxes
|
|
|
167 |
|
|
|
205 |
|
Equity
in (earnings) losses of affiliates, net of dividends
|
|
|
74 |
|
|
|
(211 |
) |
Pension
and postretirement accruals (contributions), net
|
|
|
(96 |
) |
|
|
21 |
|
Other
– net
|
|
|
41 |
|
|
|
203 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Segregated
cash and investments
|
|
|
(224 |
) |
|
|
(674 |
) |
Receivables
|
|
|
445 |
|
|
|
(2,231 |
) |
Inventories
|
|
|
2,293 |
|
|
|
(4,506 |
) |
Other
assets
|
|
|
187 |
|
|
|
(55 |
) |
Accounts
payable and accrued expenses
|
|
|
773 |
|
|
|
2,089 |
|
Total
Operating Activities
|
|
|
5,851 |
|
|
|
(3,167 |
) |
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment
|
|
|
(1,462 |
) |
|
|
(1,312 |
) |
Net
assets of businesses acquired
|
|
|
(44 |
) |
|
|
(10 |
) |
Investments
in and advances to affiliates
|
|
|
(15 |
) |
|
|
(28 |
) |
Distributions
from affiliates, excluding dividends
|
|
|
10 |
|
|
|
15 |
|
Purchases
of marketable securities
|
|
|
(1,861 |
) |
|
|
(1,022 |
) |
Proceeds
from sales of marketable securities
|
|
|
1,840 |
|
|
|
710 |
|
Proceeds
from sales of business
|
|
|
258 |
|
|
|
10 |
|
Other
– net
|
|
|
52 |
|
|
|
9 |
|
Total
Investing Activities
|
|
|
(1,222 |
) |
|
|
(1,628 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Long-term
debt borrowings
|
|
|
102 |
|
|
|
1,308 |
|
Long-term
debt payments
|
|
|
(18 |
) |
|
|
(59 |
) |
Net
borrowings (payments) under line of credit agreements
|
|
|
(2,989 |
) |
|
|
4,362 |
|
Purchases
of treasury stock
|
|
|
(100 |
) |
|
|
(61 |
) |
Cash
dividends
|
|
|
(257 |
) |
|
|
(232 |
) |
Other
– net
|
|
|
11 |
|
|
|
20 |
|
Total
Financing Activities
|
|
|
(3,251 |
) |
|
|
5,338 |
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
|
|
1,378 |
|
|
|
543 |
|
Cash
and Cash Equivalents-Beginning of Period
|
|
|
810 |
|
|
|
663 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents-End of Period
|
|
$ |
2,188 |
|
|
$ |
1,206 |
|
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 unless otherwise noted)
considered necessary for a fair presentation have been included. Operating
results for the quarter and nine months ended March 31, 2009 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 Statement
of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations (SFAS
141(R)). SFAS 141(R) replaces SFAS 141, Business Combinations and
will change the financial accounting and reporting of business combination
transactions. 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. In April 2009,
the FASB issued FASB Staff Position (FSP) FAS 141(R)-1 which amends
SFAS 141(R) by establishing a model to account for certain pre-acquisition
contingencies. Under the FSP, an acquirer is required to recognize at fair value
an asset acquired or a liability assumed in a business combination that arises
from a contingency if the acquisition-date fair value of that asset or liability
can be determined during the measurement period. If the acquisition-date fair
value cannot be determined, then the acquirer should follow the recognition
criteria in SFAS No. 5, Accounting for
Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of
the Amount of a Loss – an interpretation of FASB Statement
No. 5. The Company will be required to adopt SFAS 141(R)
and FSP FAS 141(R)-1 on July 1, 2009, and will apply them prospectively to
business combinations completed on or after that date. The impact of the
adoption of SFAS 141(R) and FSP FAS 141(R)-1 will depend on the nature of
acquisitions completed after the date of adoption.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements
(Unaudited)
Note
2.
|
New
Accounting Standards (Continued)
|
During
December 2007, the FASB issued SFAS No. 160, Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (SFAS 160). 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 160 on July 1,
2009 and will apply it prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. The Company believes the
adoption of SFAS 160 will not have a material impact on its consolidated
financial statements.
During
May 2008, the FASB issued FSP Accounting Principles Board (APB) Opinion 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, been converted, or
otherwise been extinguished as of the FSP’s effective date. Upon
adoption of FSP APB 14-1, the Company will record a debt discount equivalent to
the fair value of the embedded equity conversion feature thereby reducing long
term debt and increasing shareholder’s equity. The debt discount will
be amortized over the seven year term of the convertible
debt. Interest expense for 2008 and 2007 will retrospectively be
increased by the non-cash debt discount amortization.
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 believes the adoption of FSP EITF 03-6-1 will not have
an impact on the Company’s consolidated financial
statements.
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) (FSP FAS 132(R)-1). FSP FAS 132(R)-1 expands the
disclosure requirements of SFAS No. 132(R), Employers’ Disclosures about
Pensions and Other Postretirement Benefits (SFAS 132(R)). FSP
FAS 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 No.
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 FSP FAS 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.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements
(Unaudited)
Note
2.
|
New
Accounting Standards (Continued)
|
During
April 2009, the FASB issued three FSPs that are intended to provide additional
application guidance and enhance disclosures about fair value measurements and
impairments of securities. FSP FAS 157-4, Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed (FSP FAS 157-4), clarifies the
objective and method of fair value measurement even when there has been a
significant decrease in market activity for the asset being measured. FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2),
establishes a new model for measuring other-than-temporary impairments for debt
securities, including establishing criteria for when to recognize a write-down
on debt securities through earnings versus other comprehensive income. FSP
FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments (FSP FAS 107-1 and APB 28-1), expands
the fair value disclosures required for all financial instruments within the
scope of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, to interim periods
in addition to annual periods. The proposal also amends APB Opinion No. 28,
Interim Financial
Reporting, to require those disclosures in all interim financial
statements. FSP FAS 107-1 and APB 28-1 requires the Company to expand
disclosure in the notes to the Company’s interim consolidated financial
statements but will not impact financial results. The Company will be required
to adopt these FSPs on July 1, 2009. The Company is assessing the potential
impact FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 may have on its
consolidated financial statements.
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 March 31,
2009. 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 March 31, 2009
|
|
|
|
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
|
|
$ |
– |
|
|
$ |
3,510 |
|
|
$ |
577 |
|
|
$ |
4,087 |
|
Unrealized
gains on derivative
contracts
|
|
|
770 |
|
|
|
1,292 |
|
|
|
169 |
|
|
|
2,231 |
|
Available-for-sale
marketable
securities
|
|
|
1,021 |
|
|
|
693 |
|
|
|
– |
|
|
|
1,714 |
|
Total
Assets
|
|
$ |
1,791 |
|
|
$ |
5,495 |
|
|
$ |
746 |
|
|
$ |
8,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on derivative
contracts
|
|
$ |
910 |
|
|
$ |
1,035 |
|
|
$ |
139 |
|
|
$ |
2,084 |
|
Inventory-related
liabilities
|
|
|
– |
|
|
|
451 |
|
|
|
95 |
|
|
|
546 |
|
Total
Liabilities
|
|
$ |
910 |
|
|
$ |
1,486 |
|
|
$ |
234 |
|
|
$ |
2,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 over-the-counter (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 tables present a reconciliation of all assets and liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level
3) during the quarter and nine months ended March 31, 2009.
|
|
Level
3 Fair Value Measurements
|
|
|
|
Inventories
Carried
at
Market
|
|
|
Derivative
Contracts,
Net
|
|
|
Available-for-
Sale
Marketable
Securities
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
$ |
314 |
|
|
$ |
18 |
|
|
$ |
12 |
|
|
$ |
344 |
|
Total
gains (losses), realized or
unrealized,
included in earnings
before
income taxes*
|
|
|
12 |
|
|
|
(61 |
) |
|
|
– |
|
|
|
(49 |
) |
Purchases,
issuances and settlements
|
|
|
48 |
|
|
|
(72 |
) |
|
|
(1 |
) |
|
|
(25 |
) |
Transfers
in and/or out of Level 3
|
|
|
108 |
|
|
|
145 |
|
|
|
(11 |
) |
|
|
242 |
|
Ending
balance, March 31, 2009
|
|
$ |
482 |
|
|
$ |
30 |
|
|
$ |
– |
|
|
$ |
512 |
|
|
|
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*
|
|
|
(207 |
) |
|
|
(50 |
) |
|
|
(1 |
) |
|
|
(258 |
) |
Purchases,
issuances and settlements
|
|
|
169 |
|
|
|
(73 |
) |
|
|
17 |
|
|
|
113 |
|
Transfers
in and/or out of Level 3
|
|
|
177 |
|
|
|
159 |
|
|
|
(26 |
) |
|
|
310 |
|
Ending
balance, March 31, 2009
|
|
$ |
482 |
|
|
$ |
30 |
|
|
$ |
– |
|
|
$ |
512 |
|
*Includes
unrealized losses of $57 million attributable to the change in Level 3
derivative assets still held at March 31, 2009 and unrealized losses of $9
million attributable to the change in Level 3 inventories carried at market
still held at March 31, 2009.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
4.
|
Derivative
Instruments and Hedging Activities
|
The
Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133
(SFAS 161) on January 1, 2009.
SFAS No.
133, Accounting for
Derivatives and Hedging Activities (SFAS 133) requires the Company to
recognize all of its derivative instruments as either assets or liabilities in
its consolidated balance sheet at fair value. The accounting for
changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For
those derivative instruments that are designated and qualify as hedging
instruments, a company must designate the hedging instrument, based upon the
exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a
net investment in a foreign operation. The Company does not currently
have any derivatives designated as fair value hedges or derivatives designated
as hedges of net investment in foreign operations. The Company has
certain derivatives designated as cash flow hedges; however, the majority of the
Company’s derivatives are not part of a designated hedging
relationship.
Derivatives
Not Designated as Hedging Instruments under SFAS 133
To reduce
price risk caused by market fluctuations in agricultural commodities and
currencies, the Company generally follows a policy of using exchange-traded
futures and exchange-traded and OTC options contracts to minimize its net
position of merchandisable agricultural commodity inventories and forward cash
purchase and sales contracts. The Company will also use
exchange-traded futures and exchange-traded and OTC options contracts as
components of merchandising strategies designed to enhance
margins. The results of these strategies can be significantly
impacted by factors such as the volatility of the relationship between the value
of exchange-traded commodities futures contracts and the cash prices of the
underlying commodities, counterparty contract defaults, and volatility of
freight markets. Exchange-traded futures and exchange-traded and OTC
options contracts, and forward cash purchase and sales contracts of certain
merchandisable agricultural commodities are valued at fair
value. Inventories of certain merchandisable agricultural commodities
which include amounts acquired under deferred pricing contracts are stated at
market value. Inventory is not a derivative and therefore is not
included in the tables below. Changes in the market value of
inventories of merchandisable agricultural commodities, forward cash purchase
and sales contracts, and exchange-traded futures and exchange-traded and OTC
options contracts are recognized in earnings immediately, resulting in cost of
products sold approximating first-in, first-out (FIFO)
cost. Unrealized gains and unrealized losses on forward cash purchase
contracts, forward foreign currency exchange (FX) contracts, forward
cash sales contracts, and exchange-traded and OTC options contracts represent
the fair value of such instruments and are classified on the Company’s
consolidated balance sheet as receivables and accrued expenses,
respectively.
The
following table sets forth the fair value of derivatives not designated as
hedging instruments under SFAS 133 as of March 31, 2009.
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
FX
Contracts
|
|
$ |
45 |
|
|
$ |
65 |
|
Commodity
Contracts
|
|
|
1,610 |
|
|
|
1,271 |
|
Total
|
|
$ |
1,655 |
|
|
$ |
1,336 |
|
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
4.
|
Derivative
Instruments and Hedging Activities
(Continued)
|
The
following table sets forth the pre-tax gains (losses) on derivatives not
designated as hedging instruments under SFAS 133 that have been included in the
consolidated statement of earnings for the three months ended March 31,
2009.
|
|
(in
millions)
|
|
|
|
|
|
FX
Contracts
|
|
|
|
Net
sales and other operating income
|
|
$ |
(7 |
) |
Cost
of products sold
|
|
|
(22 |
) |
Other
(income) expense - net
|
|
|
2 |
|
|
|
$ |
(27 |
) |
Commodity
Contracts
|
|
|
|
|
Cost
of products sold
|
|
$ |
(297 |
) |
|
|
|
|
|
Derivatives
Designated as Cash Flow Hedging Strategies
For
derivative instruments that are designated and qualify as cash flow hedges
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income (OCI) and reclassified into earnings in the same line item affected by
the hedged transaction and in the same period or periods during which the hedged
transaction affects earnings. The remaining gain or loss on the
derivative instrument that is in excess of the cumulative change in the cash
flows of the hedged item, if any (i.e., the ineffective portion), hedge
components excluded from the assessment of effectiveness, and gains and losses
related to discontinued hedges are recognized in the consolidated statement of
earnings during the current period.
For each
of the commodity hedge programs described below, the derivatives are designated
as cash flow hedges. The changes in the market value of such
derivative contracts have historically been, and are expected to continue to be,
highly effective at offsetting changes in price movements of the hedged
item. Once the hedged item is recognized in earnings, the
gains/losses arising from the hedge will be reclassified from accumulated other
comprehensive income (AOCI) to either sales or cost of products
sold. As of March 31, 2009, the Company has $97 million of after-tax
losses in AOCI related to gains and losses from commodity cash flow hedge
transactions. The Company expects to recognize all of these after-tax
losses in the statement of earnings during the next 12 months. During
the current period the Company had no amounts recognized in earnings from cash
flow hedges that were discontinued.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
4.
|
Derivative
Instruments and Hedging Activities
(Continued)
|
The
Company, from time to time, uses futures or options contracts to fix the
purchase price of anticipated volumes of corn to be purchased and processed in a
future month. The objective of this hedging program is to reduce the
variability of cash flows associated with the Company’s forecasted purchases of
corn. The Company’s corn processing plants grind approximately 60
million bushels of corn per month. Most of the finished goods
produced from this corn grind are sold at fixed prices and many of these
finished goods are unable to be hedged. The Company will fix the
purchase price of the corn that will be used, thereby economically protecting
the margin on these finished goods sales. During the past 12 months,
the Company hedged between 25% and 95% of its monthly anticipated
grind. At March 31, 2009, the Company has hedged portions of its
anticipated monthly purchases of corn over the next nine months, ranging from
17% to 90% of its anticipated monthly grind.
The
Company, from time to time, also uses futures, options, and swaps to fix the
purchase price of the Company’s anticipated natural gas requirements for certain
production facilities. The objective of this hedging program is to
reduce the variability of cash flows associated with the Company’s forecasted
purchases of natural gas. These production facilities use
approximately 4.25 million MMbtus of natural gas per month. During
the past 12 months, the Company hedged between 12% and 65% of the quantity of
its anticipated monthly natural gas purchases. At March 31, 2009, the
Company has hedged portions of its anticipated monthly purchases of natural gas
over the next nine months, ranging from 12% to 31% of its anticipated monthly
natural gas purchases.
To
protect against fluctuations in cash flows due to foreign currency exchange
rates, the Company from time to time will use forward FX contracts with major
banks as foreign currency cash flow hedge programs. Certain
production facilities have manufacturing expenses and some sales contracts
denominated in non-functional currency. To reduce the risk of
fluctuations in cash flows due to changes in the exchange rate between
functional versus non-functional currency, the Company will hedge some portion
of the forecasted foreign currency expenditures and/or receipts. The
fair value of FX contracts designated as cash flow hedging instruments as of
March 31, 2009 was immaterial.
At March
31, 2009, AOCI included $5 million of after-tax gains related to treasury-lock
agreements. These treasury-lock agreements were executed in order to
lock in the Company’s interest rate prior to the issuance of debentures in 2005
and 2008 and were designated as cash flow hedges of the risk of changes in the
future interest payments attributable to changes in the benchmark interest
rate. The objective of the hedges was to protect the Company from
changes in the benchmark U.S. Treasury rate from the date the Company decided to
issue the debt to the date when the debt was actually issued. The
Company will recognize the $5 million of gains in its consolidated statement of
earnings over the terms of the debentures.
The fair
values of commodity derivatives designated as hedging instruments under SFAS 133
as of March 31, 2009 were assets of $10 million and liabilities of $2
million.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
4.
|
Derivative
Instruments and Hedging Activities
(Continued)
|
The
following table sets forth the pre-tax gains (losses) on derivatives designated
as hedging instruments under SFAS 133 that have been included in the
consolidated statement of earnings for the three months ended March 31,
2009:
|
Consolidated
Statement of Earnings Location
|
|
Amount
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
Effective
amount recognized in earnings
|
Cost
of products sold
|
|
$ |
(136 |
) |
|
Net
sales and other operating income
|
|
|
10 |
|
|
|
|
|
|
|
Ineffective
amount recognized in earnings
|
Cost
of products sold
|
|
|
4 |
|
Total amount recognized in earnings
|
|
|
$ |
(122 |
) |
The
following table sets forth the changes in accumulated other comprehensive income
related to derivatives gains (losses) for the period and year-to-date ended
March 31, 2009.
|
|
Three
months ended
March
31, 2009
|
|
|
Nine
months ended
March
31, 2009
|
|
|
|
(in
millions)
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(163 |
) |
|
$ |
90 |
|
Unrealized
gains (losses)
|
|
|
(9 |
) |
|
|
(455 |
) |
(Gains)
losses reclassified to earnings
|
|
|
122 |
|
|
|
178 |
|
Tax
effect
|
|
|
(42 |
) |
|
|
95 |
|
Balance
at March 31, 2009
|
|
$ |
(92 |
) |
|
$ |
(92 |
) |
Note
5.
|
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, 2009, 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 no later than 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 March 31, 2009, the forward purchase contracts were
not considered dilutive and therefore were not included in the computation of
diluted earnings per share.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
5.
|
Debt
and Financing Arrangements
(Continued)
|
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.
The
Company’s effective tax rate for the quarter and nine months ended March 31,
2009, was 94.4% and 33.5%, respectively, compared to 31.5% and 31.4% for the
quarter and nine months ended March 31, 2008.
Income
tax expense for the quarter and nine months ended March 31, 2009 includes
approximately $8 million related to amended prior year tax returns the Company
intends to file in certain foreign jurisdictions and approximately $97 million
related to the Company’s investment in Wilmar International Holdings, Limited
(WIHL), a subsidiary of ADM Asia Pacific, Limited (ADMAP), a wholly-owned
subsidiary of the Company. Through WIHL, ADMAP holds an indirect
ownership interest in Wilmar International Ltd. (WIL).
Historically,
the Company considered the retained earnings of its investment in ADMAP to be
permanently reinvested outside the U.S. Therefore, the Company
provided no deferred tax liability associated with this investment prior to the
current quarter. On February 3, 2009, the shareholders of WIHL
approved a plan of voluntary liquidation which was followed by a partial
liquidating distribution on April 1, 2009. Pursuant to this distribution, ADMAP
received publicly traded shares of WIL that represented approximately 40% of the
WIL shares indirectly held by WIHL. The liquidation caused the
difference between the market value of the WIL shares received and
the tax basis of ADMAP’s investment in WIHL to be subject to U.S. income tax as
a deemed distribution from ADMAP to the Company. Consequently, as of
March 31, 2009, the Company concluded that a portion of its investment in ADMAP
related to its investment in WIHL was not permanently
reinvested. Accordingly, the Company recorded approximately $97
million of income tax expense and deferred income tax liability in the current
quarter to reflect the book-tax basis difference of its investment in WIHL as of
March 31, 2009.
On April
1, 2009, the income tax gain generated by the partial liquidating distribution
of WIHL triggered additional U.S. income tax expense of approximately $61
million which will be recorded in the Company’s fourth quarter and will
establish a new tax basis in the U.S. for the Company’s WIHL
investment.
The
finalization of the liquidation process is expected to take up to 18 months and
is contingent on certain regulatory approvals. While the ultimate
impact of the transaction is uncertain, based on the May 11, 2009 market value
of WIL shares and certain other assumptions, including the applicable foreign
currency exchange rate and the U.S. income tax rate, the finalization of the
liquidation could result in additional income tax expense for the Company of
approximately $340 million in the period(s) that it occurs.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
7.
|
Comprehensive
Income
|
The
components of comprehensive income, net of related tax, are as
follows:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
8 |
|
|
$ |
517 |
|
|
$ |
1,643 |
|
|
$ |
1,430 |
|
Unrealized
loss on investments
|
|
|
(7 |
) |
|
|
(14 |
) |
|
|
(34 |
) |
|
|
(20 |
) |
Deferred gain
(loss) on hedging activities
|
|
|
71 |
|
|
|
69 |
|
|
|
(183 |
) |
|
|
94 |
|
Pension
liability adjustment
|
|
|
2 |
|
|
|
(4 |
) |
|
|
16 |
|
|
|
(10 |
) |
Foreign
currency translation adjustment
|
|
|
(269 |
) |
|
|
316 |
|
|
|
(1,211 |
) |
|
|
590 |
|
Comprehensive
income (loss)
|
|
$ |
(195 |
) |
|
$ |
884 |
|
|
$ |
231 |
|
|
$ |
2,084 |
|
Note
8.
|
Other
(Income) Expense - Net
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
93 |
|
|
$ |
136 |
|
|
$ |
342 |
|
|
$ |
338 |
|
Investment
income
|
|
|
(43 |
) |
|
|
(70 |
) |
|
|
(145 |
) |
|
|
(202 |
) |
Net
(gain) loss on marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
transactions
|
|
|
– |
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(37 |
) |
Equity
in (earnings) losses of affiliates
|
|
|
136 |
|
|
|
(78 |
) |
|
|
(80 |
) |
|
|
(288 |
) |
Other
– net
|
|
|
(35 |
) |
|
|
45 |
|
|
|
56 |
|
|
|
67 |
|
|
|
$ |
151 |
|
|
$ |
24 |
|
|
$ |
164 |
|
|
$ |
(122 |
) |
Note
9.
|
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
10.
|
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
10.
|
Segment
Information (Continued)
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
4,689 |
|
|
$ |
5,721 |
|
|
$ |
17,757 |
|
|
$ |
15,587 |
|
Corn
Processing
|
|
|
1,725 |
|
|
|
1,808 |
|
|
|
5,819 |
|
|
|
5,012 |
|
Agricultural
Services
|
|
|
7,302 |
|
|
|
9,777 |
|
|
|
25,012 |
|
|
|
23,551 |
|
Other
|
|
|
1,126 |
|
|
|
1,402 |
|
|
|
4,087 |
|
|
|
3,882 |
|
Total
|
|
$ |
14,842 |
|
|
$ |
18,708 |
|
|
$ |
52,675 |
|
|
$ |
48,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
23 |
|
|
$ |
62 |
|
|
$ |
91 |
|
|
$ |
336 |
|
Corn
Processing
|
|
|
13 |
|
|
|
29 |
|
|
|
72 |
|
|
|
68 |
|
Agricultural
Services
|
|
|
702 |
|
|
|
969 |
|
|
|
2,314 |
|
|
|
2,183 |
|
Other
|
|
|
38 |
|
|
|
37 |
|
|
|
116 |
|
|
|
103 |
|
Total
|
|
$ |
776 |
|
|
$ |
1,097 |
|
|
$ |
2,593 |
|
|
$ |
2,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
4,712 |
|
|
$ |
5,783 |
|
|
$ |
17,848 |
|
|
$ |
15,923 |
|
Corn
Processing
|
|
|
1,738 |
|
|
|
1,837 |
|
|
|
5,891 |
|
|
|
5,080 |
|
Agricultural
Services
|
|
|
8,004 |
|
|
|
10,746 |
|
|
|
27,326 |
|
|
|
25,734 |
|
Other
|
|
|
1,164 |
|
|
|
1,439 |
|
|
|
4,203 |
|
|
|
3,985 |
|
Intersegment
elimination
|
|
|
(776 |
) |
|
|
(1,097 |
) |
|
|
(2,593 |
) |
|
|
(2,690 |
) |
Total
|
|
$ |
14,842 |
|
|
$ |
18,708 |
|
|
$ |
52,675 |
|
|
$ |
48,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds
Processing
|
|
$ |
224 |
|
|
$ |
237 |
|
|
$ |
1,053 |
|
|
$ |
666 |
|
Corn
Processing
|
|
|
49 |
|
|
|
172 |
|
|
|
196 |
|
|
|
699 |
|
Agricultural
Services
|
|
|
121 |
|
|
|
366 |
|
|
|
1,011 |
|
|
|
910 |
|
Other
|
|
|
(140 |
) |
|
|
138 |
|
|
|
(15 |
) |
|
|
390 |
|
Total
segment operating profit
|
|
|
254 |
|
|
|
913 |
|
|
|
2,245 |
|
|
|
2,665 |
|
Corporate
|
|
|
(102 |
) |
|
|
(158 |
) |
|
|
227 |
|
|
|
(579 |
) |
Earnings
before income taxes
|
|
$ |
152 |
|
|
$ |
755 |
|
|
$ |
2,472 |
|
|
$ |
2,086 |
|
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
Note
11.
|
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 $86 million as of March
31, 2009.
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 stated 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 allowed 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 was still working to meet, to the satisfaction of all parties, its
obligations under the derivative instruments maturing in 2009, 2010, and 2011,
which instruments were not subject to margin calls. Gruma stated on October 28,
2008 that its results had been affected by the non-cash charges resulting from
the mark-to-market changes in the value of its currency derivative instruments
and it expected that such fluctuations in value may continue.
On
February 18, 2009, Gruma announced its fourth quarter financial results,
including losses of $883 million relating to currency derivative
instruments. Gruma disclosed that as of December 31, 2008, of
the $883 million non-cash currency derivative losses, $860 million related to
positions that were still open and mature in 2009, 2010, and 2011.
On March
23, 2009, Gruma announced that it had reached agreement with several
counterparties to terminate and enter into financing negotiations on
approximately 87% of its foreign exchange derivative instruments considering
their mark-to-market value as of that date. Gruma announced that it intended to
enter into similar arrangements with its remaining counterparties on this type
of instrument.
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. Gruma reported a net loss of $852 million for the quarter ended December
31, 2008, and the Company recorded its share of this loss, approximately $125
million after income tax, (on a U.S. GAAP basis) in its results for the quarter
ended March 31, 2009.
On April
28, 2009 Gruma announced a net loss of $34 million for the quarter ended March
31, 2009. The Company will record its share of this loss in its
fourth quarter of 2009.
The
Company has evaluated the carrying value of its investment in Gruma as of March
31, 2009 in light of Gruma’s announcements, and does not consider its remaining
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 and current business conditions. 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 March 31, 2009 Compared to Three Months Ended March 31,
2008
Net
earnings decreased $509 million for the quarter. Segment operating
profit decreased $659 million while corporate results increased $56 million due
principally to lower charges related to LIFO inventory valuations and reduced
minority interest eliminations. Income taxes decreased $94 million
for the quarter due to lower pretax earnings, partially offset by a $97 million
deferred income tax expense related to the reorganization of the holding company
structure related to the Company’s equity investment in Wilmar International
Limited.
As an
agricultural commodity-based business, the Company is subject to a wide variety
of market factors which affect the Company’s operating results. This
quarter, the Company experienced impacts resulting from the global economic
slowdown, less volatile market prices for many agricultural commodities,
continuing excess ethanol industry capacity, and a significant non-cash,
after-tax charge related to currency derivative losses of its equity investee,
Gruma S.A.B. de C.V.
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 decreased 21% to $14.8 billion for the
quarter. Decreased average selling prices resulting principally from
price moderation of underlying commodity costs and foreign exchange translation
impacts of approximately $1.0 billion accounted for approximately 85% of the
decline, and the remainder was attributable to decreased sales
volumes.
Net sales
and other operating income by segment for the quarter are as
follows:
|
|
Three
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
2,786 |
|
|
$ |
3,385 |
|
|
$ |
(599 |
) |
Refining,
Packaging, Biodiesel & Other
|
|
|
1,858 |
|
|
|
2,270 |
|
|
|
(412 |
) |
Asia
|
|
|
45 |
|
|
|
66 |
|
|
|
(21 |
) |
Total
Oilseeds Processing
|
|
|
4,689 |
|
|
|
5,721 |
|
|
|
(1,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
852 |
|
|
|
912 |
|
|
|
(60 |
) |
Bioproducts
|
|
|
873 |
|
|
|
896 |
|
|
|
(23 |
) |
Total
Corn Processing
|
|
|
1,725 |
|
|
|
1,808 |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
7,253 |
|
|
|
9,731 |
|
|
|
(2,478 |
) |
Transportation
|
|
|
49 |
|
|
|
46 |
|
|
|
3 |
|
Total
Agricultural Services
|
|
|
7,302 |
|
|
|
9,777 |
|
|
|
(2,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
1,100 |
|
|
|
1,375 |
|
|
|
(275 |
) |
Financial
|
|
|
26 |
|
|
|
27 |
|
|
|
(1 |
) |
Total
Other
|
|
|
1,126 |
|
|
|
1,402 |
|
|
|
(276 |
) |
Total
|
|
$ |
14,842 |
|
|
$ |
18,708 |
|
|
$ |
(3,866 |
) |
Oilseeds
Processing sales decreased 18% to $4.7 billion due principally to lower average
selling prices of vegetable oils, protein meal and biodiesel, and lower sales
volumes of protein meal, partially offset by increased sales volumes of
vegetable oils, merchandised oilseeds and biodiesel. Corn Processing
sales decreased 5% to $1.7 billion due to lower average selling prices for
ethanol and lower sales volumes of sweeteners and starches, partially offset by
higher sales volumes of ethanol and higher selling prices for sweeteners and
starches. Agricultural Services sales decreased 25% to $7.3 billion,
due to lower average selling prices resulting primarily from price moderation in
underlying commodity prices and lower sales volumes of grain. Other
sales decreased 20% to $1.1 billion due principally to lower average selling
prices of wheat flour and lower sales volumes of cocoa products.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Cost of
products sold decreased 19% to $14.2 billion primarily due to decreased
agricultural commodity costs resulting primarily from price moderation in
underlying commodity prices and foreign currency translation impacts of
approximately $0.9 billion. Manufacturing expenses decreased $90
million primarily due to lower energy, fuel and employee-related costs, the
impact of foreign currency translation, and the transfer of certain of the
Company’s packaged oil activities to a newly formed joint venture.
Selling,
general and administrative expenses decreased 8% to $346 million due principally
to reduced employee-related costs and the impact of foreign currency
translation, partially offset by increased provisions for doubtful
accounts.
Other
(income) expense-net decreased $127 million due principally to decreased
earnings of affiliates partially offset by decreased minority interest
eliminations.
Operating
profit by segment for the quarter is as follows:
|
|
Three
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
100 |
|
|
$ |
179 |
|
|
$ |
(79 |
) |
Refining,
Packaging, Biodiesel & Other
|
|
|
52 |
|
|
|
39 |
|
|
|
13 |
|
Asia
|
|
|
72 |
|
|
|
19 |
|
|
|
53 |
|
Total
Oilseeds Processing
|
|
|
224 |
|
|
|
237 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
146 |
|
|
|
102 |
|
|
|
44 |
|
Bioproducts
|
|
|
(97 |
) |
|
|
70 |
|
|
|
(167 |
) |
Total
Corn Processing
|
|
|
49 |
|
|
|
172 |
|
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
91 |
|
|
|
341 |
|
|
|
(250 |
) |
Transportation
|
|
|
30 |
|
|
|
25 |
|
|
|
5 |
|
Total
Agricultural Services
|
|
|
121 |
|
|
|
366 |
|
|
|
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
(123 |
) |
|
|
90 |
|
|
|
(213 |
) |
Financial
|
|
|
(17 |
) |
|
|
48 |
|
|
|
(65 |
) |
Total
Other
|
|
|
(140 |
) |
|
|
138 |
|
|
|
(278 |
) |
Total
Segment Operating Profit
|
|
|
254 |
|
|
|
913 |
|
|
|
(659 |
) |
Corporate
|
|
|
(102 |
) |
|
|
(158 |
) |
|
|
56 |
|
Earnings
Before Income Taxes
|
|
$ |
152 |
|
|
$ |
755 |
|
|
$ |
(603 |
) |
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profit decreased $13 million for the
quarter. Crushing and origination results decreased $79 million for
the quarter due principally to weaker North American crushing margins and weaker
fertilizer margins in South America, as the economic slowdown reduced product
demand. Refining, packaging, biodiesel and other results increased
$13 million for the quarter primarily due to improved margins for edible soy
proteins. Asia results increased $53 million for the quarter due
principally to improved earnings related to equity investments, principally
Wilmar International Limited; and a gain of $18 million from the disposal of an
equity investment.
Corn
Processing operating profit decreased $123 million for the
quarter. Sweeteners and starches operating profit increased $44
million for the quarter primarily due to higher average selling prices partially
offset by higher net corn costs and lower sales volumes. Bioproducts
operating profit decreased $167 million for the quarter due principally to a
significant decline in ethanol margins resulting from higher net corn costs,
lower average selling prices and inventory writedowns.
Agricultural
Services operating profit decreased $245 million for the quarter as global
supplies of agricultural commodities increased while demand slowed, resulting in
a significant contraction in merchandising and handling market
opportunities. Transportation results increased for the quarter
due principally to reduced operating costs partially offset by lower barge
freight rates.
Other
operating profit decreased $278 million for the quarter. Wheat,
cocoa, malt and sugar operating profit decreased $213 million for the quarter
due principally to lower equity earnings from the Company’s investment in Gruma
S.A.B. de C.V. related to foreign currency derivative losses (see note
11). Financial operating profit decreased $65 million for the quarter
due principally to losses on managed fund investments, increased captive
insurance loss provisions and decreased interest income of the Company’s
brokerage services business.
Corporate
results increased $56 million for the quarter due principally to LIFO charges of
$5 million for the quarter compared to LIFO charges of $64 million for the
quarter ended March 31, 2008. Investment (expense) income decreased
$56 million for the quarter primarily related to increased interest expense and
decreased interest income.
Income
taxes decreased due principally to lower pretax earnings partially offset by a
$97 million deferred income tax charge related to the
restructuring of the holding company structure through which the
Company holds a portion of its equity investment in Wilmar International Limited
(see note 6). Excluding the $97 million deferred income tax expense,
the Company’s effective tax rate for the quarter is 30.9% as compared to 31.5%
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)
|
Nine
Months Ended March 31, 2009 Compared to Nine Months Ended March 31.
2008
Net
earnings increased $213 million for the nine months. Segment
operating profit decreased $420 million while corporate results increased $806
million due principally to lower charges related to LIFO inventory
valuations. Income taxes increased $173 million due principally to
increased pretax earnings and to the $97 million deferred income tax charge
related to the restructuring of the holding company structure through which the
Company holds a portion of its equity investment in Wilmar International
Limited.
As an
agricultural commodity-based business, the Company is subject to a variety of
market factors which affect the Company’s operating results. Demand
for vegetable oil, protein meal and biodiesel increased
globally. Compared to last year, market prices for corn increased,
negatively impacting ethanol margins and were only partially passed on in the
form of increased selling prices for sweeteners and
starches. Additionally, lower demand for gasoline, decreased gasoline
prices and excess ethanol industry capacity negatively impacted ethanol
margins. Commodity and freight markets continued to experience
increased volatility which created enhanced profit opportunities for the
Company’s merchandising and handling operations. Results were
negatively impacted by significant non-cash, after-tax charges related to
currency derivative losses from the Company’s equity investee, Gruma S.A.B. de
C.V.
Analysis
of Statements of Earnings
Net sales
and other operating income increased 10% to $52.7 billion for the nine months,
due principally to increased average selling prices resulting primarily from
higher underlying commodity costs partially offset by decreased sales
volumes. Net sales and other operating income increased $7.1 billion
due to higher average selling prices and decreased $1.7 billion due to lower
sales volumes and decreased $0.8 billion due to foreign exchange translation
impacts.
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 nine months are as
follows:
|
|
Nine
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change |
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
10,651 |
|
|
$ |
9,474 |
|
|
$ |
1,177 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
6,966 |
|
|
|
5,956 |
|
|
|
1,010 |
|
Asia
|
|
|
140 |
|
|
|
157 |
|
|
|
(17 |
) |
Total
Oilseeds Processing
|
|
|
17,757 |
|
|
|
15,587 |
|
|
|
2,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
2,835 |
|
|
|
2,537 |
|
|
|
298 |
|
Bioproducts
|
|
|
2,984 |
|
|
|
2,475 |
|
|
|
509 |
|
Total
Corn Processing
|
|
|
5,819 |
|
|
|
5,012 |
|
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
24,811 |
|
|
|
23,391 |
|
|
|
1,420 |
|
Transportation
|
|
|
201 |
|
|
|
160 |
|
|
|
41 |
|
Total
Agricultural Services
|
|
|
25,012 |
|
|
|
23,551 |
|
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
4,003 |
|
|
|
3,810 |
|
|
|
193 |
|
Financial
|
|
|
84 |
|
|
|
72 |
|
|
|
12 |
|
Total
Other
|
|
|
4,087 |
|
|
|
3,882 |
|
|
|
205 |
|
Total
|
|
$ |
52,675 |
|
|
$ |
48,032 |
|
|
$ |
4,643 |
|
Oilseeds
Processing sales increased 14% to $17.8 billion, due principally to higher
average selling prices of vegetable oils, protein meal, biodiesel and
merchandised oilseeds; and higher sales volumes of biodiesel and merchandised
oilseeds, partially offset by lower sales volumes of vegetable oil and protein
meal. Corn Processing sales increased 16% to $5.8 billion due
principally to higher sales volumes of ethanol, higher average selling prices of
sweeteners and starches, and higher average selling prices of
bioproducts. Agricultural Services sales increased 6% to $25.0
billion due to higher average selling prices of grain, partially offset by lower
sales volumes. Other sales increased 5% to $4.1 billion due to higher
average selling prices for cocoa products and wheat flour, partially offset by
lower sales volumes.
Cost of
products sold increased 9% to $49 billion principally due to increased
agricultural commodity costs partially offset by decreased sales volumes,
decreased LIFO inventory valuations and approximately $0.8 billion due to
the impact of foreign currency translation. Manufacturing expenses
increased $145 million primarily due to increased chemical, energy and fuel
costs.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general, and administrative expenses was unchanged at $1.1 billion as decreases
in employee-related costs were offset by increases in provisions for doubtful
accounts, and to a lesser extent, the impact of foreign currency
translation.
Other
(income) expense-net decreased $286 million due principally to decreased
earnings of affiliates and reduced investment income.
Operating
profit by segment for the nine months is as follows:
|
|
Nine
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change |
|
|
|
(In
millions)
|
|
Oilseeds
Processing
|
|
|
|
|
|
|
|
|
|
Crushing
& Origination
|
|
$ |
626 |
|
|
$ |
451 |
|
|
$ |
175 |
|
Refining,
Packaging, Biodiesel & Other
|
|
|
244 |
|
|
|
148 |
|
|
|
96 |
|
Asia
|
|
|
183 |
|
|
|
67 |
|
|
|
116 |
|
Total
Oilseeds Processing
|
|
|
1,053 |
|
|
|
666 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners
and Starches
|
|
|
351 |
|
|
|
418 |
|
|
|
(67 |
) |
Bioproducts
|
|
|
(155 |
) |
|
|
281 |
|
|
|
(436 |
) |
Total
Corn Processing
|
|
|
196 |
|
|
|
699 |
|
|
|
(503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising
& Handling
|
|
|
861 |
|
|
|
784 |
|
|
|
77 |
|
Transportation
|
|
|
150 |
|
|
|
126 |
|
|
|
24 |
|
Total
Agricultural Services
|
|
|
1,011 |
|
|
|
910 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat,
Cocoa, Malt, and Sugar
|
|
|
31 |
|
|
|
205 |
|
|
|
(174 |
) |
Financial
|
|
|
(46 |
) |
|
|
185 |
|
|
|
(231 |
) |
Total
Other
|
|
|
(15 |
) |
|
|
390 |
|
|
|
(405 |
) |
Total
Segment Operating Profit
|
|
|
2,245 |
|
|
|
2,665 |
|
|
|
(420 |
) |
Corporate
|
|
|
227 |
|
|
|
(579 |
) |
|
|
806 |
|
Earnings
Before Income Taxes
|
|
$ |
2,472 |
|
|
$ |
2,086 |
|
|
$ |
386 |
|
Oilseeds
Processing operating profit increased $387 million for the nine
months. Crushing and origination results increased $175 million for
the nine months due principally to improved global crushing and origination
margins partially offset by lower fertilizer sales volumes and
margins. Refining, packaging, biodiesel and other results for the
nine months improved due to increased biodiesel earnings in South America and
the absence of asset abandonment charges of $18 million included in the nine
months ended March 31, 2008. Asia results increased $116 million for
the nine months due principally to improved earnings related to equity
investments, principally Wilmar International Limited, and a gain of $18 million
from the disposal of an equity investment.
Corn
Processing operating profit decreased $503 million for the nine
months. Sweeteners and starches operating profit decreased $67
million for the nine months due principally to higher net corn costs partially
offset by higher average selling prices. Bioproducts operating profit
decreased $436 million for the nine months due principally to a significant
decline in ethanol margins resulting from higher net corn costs, lower average
selling prices and inventory writedowns.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Agricultural
Services operating profit increased $101 million for the nine
months. Merchandising and handling operating profit increased $77
million due principally to improved margins resulting from opportunities created
by volatile commodity and freight market conditions. Transportation
results for the nine months increased primarily due to higher barge freight
rates.
Other
operating profit decreased $405 million for the nine months. Wheat,
cocoa, malt and sugar operating profit decreased $174 million for the nine
months due principally to lower equity earnings from the Company’s investment in
Gruma S.A.B. de C.V. related to foreign currency derivative losses (see note
11). Financial operating profit decreased $231 million for the nine
months due principally to losses from managed fund investments, increased
captive insurance loss provisions and decreased interest income of the Company’s
brokerage services business.
Corporate
results increased $806 million for the nine months due principally to LIFO
credits of $571 million for the nine months compared to LIFO charges of $371
million for the nine months ended March 31, 2008. Investment
(expense) income decreased $188 million for the nine months primarily related to
increased interest expense and decreased interest income.
Income
taxes increased due principally to higher pretax earnings and to the $97 million
deferred income tax charge related to the restructuring of the holding company
structure through which the Company holds a portion of its equity investment in
Wilmar International Limited (see note 6). Excluding the $97 million
deferred income tax expense, the Company’s effective tax rate for the nine
months is 29.6% compared to 31.4% in the prior year’s nine
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 March
31, 2009, the Company had $2.6 billion of cash, cash equivalents, and short-term
marketable securities and a current ratio, defined as current assets divided by
current liabilities, of 2.2 to 1. Included in working capital is $5.4
billion of readily marketable commodity inventories. Cash provided by
operating activities totaled $5.9 billion for the nine months compared to $3.2
billion of cash used in operations during the same nine months last
year. This change was primarily due to a decrease in working capital
requirements principally related to decreased commodity prices and, to a lesser
extent, decreased quantities of agricultural commodity inventories, and
decreased receivables. Cash used in financing activities was $3.3
billion for the nine months this year compared to cash generated by financing
activities of $5.3 billion during the same nine months 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 March
31, 2009, the Company had lines of credit totaling $6.4 billion, of which $6.1
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 March 31, 2009.
Capital
resources remained strong as reflected in the Company’s net worth of $13.4
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 37% at March
31, 2009 and 36% 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 March 31, 2009 were $10.4 billion. As of
March 31, 2009, the Company expects to make payments related to purchase
obligations of $9.1 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 nine months ended March 31,
2009.
Critical
Accounting Policies
There
were no material changes in the Company’s critical accounting policies during
the nine months ended March 31, 2009.
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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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 March 31, 2009 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 based on 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.
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Nine
Months Ended
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|
|
Year
Ended
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|
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March
31, 2009
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June
30, 2008
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Long/(Short)
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Fair
Value
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|
|
Market
Risk
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|
|
Fair
Value
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|
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Market
Risk
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|
|
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(in
millions)
|
|
|
Highest
position
|
|
$ |
845 |
|
|
$ |
84 |
|
|
$ |
1,260 |
|
|
$ |
126 |
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|
Lowest
position
|
|
|
(1,342 |
) |
|
|
(134 |
) |
|
|
(915 |
) |
|
|
(92 |
) |
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Average
position
|
|
|
(326 |
) |
|
|
(33 |
) |
|
|
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.
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CONTROLS
AND PROCEDURES
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As of
March 31, 2009, 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.
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LEGAL
PROCEEDINGS
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Environmental
Matters
On April
3, 2009, one of the Company’s subsidiaries, the American River Transportation
Company (ARTCO), pleaded guilty to violating the Clean Water Act as a result of
a discharge of oil in June 2007 from its barge facility in St. Louis, Missouri.
ARTCO paid a penalty of $3 million, which was accrued in the Company’s financial
statements this quarter.
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 March 31, 2009.
ITEM
2.
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
Number
of Shares
|
|
|
|
Total
Number
|
|
|
Average
|
|
|
Shares
Purchased as
|
|
|
Remaining
that Maybe
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Part
of Publicly
|
|
|
Purchased
Under the
|
|
Period
|
|
Purchased
(1)
|
|
|
per
Share
|
|
|
Announced
Program (2)
|
|
|
Program
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2009 to
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2009
|
|
|
3,020 |
|
|
$ |
28.867 |
|
|
|
64 |
|
|
|
71,346,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2009 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
28, 2009
|
|
|
14,255 |
|
|
|
28.644 |
|
|
|
52 |
|
|
|
71,346,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2009 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
1,643 |
|
|
|
26.448 |
|
|
|
13 |
|
|
|
71,346,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,918 |
|
|
$ |
28.489 |
|
|
|
129 |
|
|
|
71,346,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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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)
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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.
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(3)(i)
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|
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)
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|
Bylaws,
as amended, filed on February 9, 2009, as Exhibit 3(ii) to Form 10-Q for
the quarter ended December 31, 2008 (File No. 1-44), is incorporated
herein by reference.
|
(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.
|
(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.
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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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|
|
|
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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
|
Dated:
May 11, 2009