UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended June 30, 2008
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from________ to _________
Commission
file number 1-44
ARCHER-DANIELS-MIDLAND
COMPANY
(Exact
name of registrant as specified in its charter)
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Delaware
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41-0129150
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(State
or other jurisdiction of
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(I.
R. S. Employer
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incorporation
or organization)
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Identification
No.)
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4666
Faries Parkway Box 1470 Decatur,
Illinois
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62525
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(Address
of principal executive offices)
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(Zip
Code)
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217-424-5200
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(Registrant's
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each exchange
on which registered
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Common
Stock, no par value
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New
York Stock Exchange
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Frankfurt
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer x Accelerated
Filer o
Non-accelerated
Filer o Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
Common
Stock, no par value--$29.2 billion
(Based on
the closing sale price of Common Stock as reported on the New York Stock
Exchange
as of
December 31, 2007)
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
Common
Stock, no par value—644,267,509 shares
(July 31,
2008)
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the proxy statement for the annual meeting of stockholders to be held
November 6, 2008, are incorporated by reference into Part III.
SAFE
HARBOR STATEMENT
This Form
10-K contains forward-looking information that is subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected, expressed, or implied by such forward-looking
information. In some cases, you can identify forward-looking
statements by our use of words such as “may, will, should, anticipates,
believes, expects, plans, future, intends, could, estimate, predict, potential
or contingent,” the negative of these terms or other similar
expressions. The Company’s actual results could differ materially
from those discussed or implied herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this Form 10-K for the fiscal year ended June 30, 2008. Among
these risks are legislative acts; changes in the prices of food, feed, and other
commodities, including gasoline; and macroeconomic conditions in various parts
of the world. To the extent permitted under applicable law, the
Company assumes no obligation to update any forward-looking statements as a
result of new information or future events.
Table of
Contents
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Item
No.
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Description
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Page
No.
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Part
I
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||
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1.
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Business
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4
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1A.
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Risk
Factors
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10
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1B.
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Unresolved
Staff Comments
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12
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2.
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Properties
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13
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3.
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Legal
Proceedings
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15
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4.
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Submission
of Matters to a Vote of Security Holders
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15
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Part
II
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5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters,
and
Issuer Purchases of Equity Securities
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16
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6.
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Selected
Financial Data
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19
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7.
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Management’s
Discussion and Analysis of Financial Condition and
Results
of Operations
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20
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7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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34
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8.
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Financial
Statements and Supplementary Data
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36
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9.
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Changes
in and Disagreements With Accountants on Accounting
and
Financial Disclosure
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75
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9A.
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Controls
and Procedures
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75
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9B.
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Other
Information
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75
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Part
III
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||
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10.
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Directors,
Executive Officers and Corporate Governance
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76
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11.
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Executive
Compensation
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78
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12.
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Security
Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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79
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
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79
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14.
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Principal
Accounting Fees and Services
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79
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Part
IV
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15.
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Exhibits
and Financial Statement Schedules
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79
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Signatures
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84
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PART
I
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Item
1.
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BUSINESS
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Company
Overview
Archer
Daniels Midland Company (the Company) was incorporated in Delaware in 1923,
successor to the Daniels Linseed Co. founded in 1902. The Company is
one of the world’s largest processors of oilseeds, corn, wheat, cocoa, and other
feedstuffs and is a leading manufacturer of soybean oil and protein meal, corn
sweeteners, flour, biodiesel, ethanol, and other value-added food and
feed ingredients. The Company also has an extensive grain elevator
and transportation network to procure, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, and barley.
During
the past five years, the Company has experienced significant growth, spending
approximately $5.3 billion for construction of new plants, maintenance and
expansions of existing plants, and the acquisitions of plants and transportation
equipment. The Company is constructing two dry corn milling plants
which will increase the Company’s annual ethanol production capacity by 550
million gallons to 1.7 billion gallons. In addition, the Company is
currently constructing a polyhydroxy alkanoate (PHA) natural plastics production
facility, a propylene/ethylene glycol production facility, two cocoa processing
facilities, and two coal cogeneration facilities. Construction of
these plants is expected to be completed during the next two fiscal
years. The Company expects to spend approximately $2.5 billion to
complete construction of these facilities and other approved capital projects
over the next five years. There have been no significant dispositions
during the last five years.
Segment
Descriptions
The
Company’s operations are classified into three reportable business segments:
Oilseeds Processing, Corn Processing, and Agricultural Services. Each
of these segments is organized based upon the nature of products and services
offered. The Company’s remaining operations are aggregated and
classified as Other. Financial information with respect to the
Company’s reportable business segments is set forth in “Note 14 of Notes to
Consolidated Financial Statements” included in Item 8 herein, “Financial
Statements and Supplementary Data.”
Oilseeds
Processing
The
Company is engaged in processing oilseeds such as soybeans, cottonseed,
sunflower seeds, canola, peanuts, and flaxseed into vegetable oils and protein
meals in North America, Europe, South America and Asia principally for the food
and feed industries. Crude vegetable oil is sold “as is” or is
further processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food
products. Partially refined oil is sold for use in chemicals, paints
and other industrial products. Refined oil can be further processed
for use in the production of biodiesel. Oilseed meals are primary
ingredients used in the manufacture of commercial livestock and poultry
feeds. Cottonseed flour is produced and sold primarily to the
pharmaceutical industry. Cotton cellulose pulp is manufactured and
sold to the chemical, paper, and filter markets. Lecithin, an
emulsifier produced in the vegetable oil refining process, is marketed as a food
and animal feed ingredient.
The
Company produces a wide range of edible soy protein products including soy
flour, soy grits, soy protein concentrates and soy isolates that are used in
processed meats, baked foods, nutritional products, snacks, and dairy and meat
analogs.
The
Company produces natural source vitamin E, tocopherol antioxidants and
phytosterols from co-products of oilseeds which are marketed to the dietary
supplement and food industry. The Company produces soy isoflavones, a
dietary supplement, from a co-product of edible soy processing.
In South
America, the Company is also a supplier of fertilizer products.
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Item
1.
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BUSINESS
(Continued)
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Golden
Peanut Company LLC, a joint venture between the Company and Alimenta (U.S.A.),
Inc., is a major supplier of peanuts to both the domestic and export
markets. The Company has a 50% ownership interest in this joint
venture.
The
Company has a 16.1% ownership interest in Wilmar International Limited, a
Singapore publicly-listed company. Wilmar International Limited is
the largest agricultural processing business in Asia and operates palm
plantations; soybean, rapeseed, cottonseed, sunflower seed, peanut, palm kernel,
and sesame seed crushing facilities and related vegetable oil refineries and
packaging facilities; an oleochemical plant that produces fatty acids, glycerin,
and soap noodles; a soy protein plant; wheat flour mills; rice mills; feed
mills; fertilizer operations; and related silos and storage
facilities.
Corn
Processing
The
Company is engaged in wet milling and dry milling corn operations primarily in
the United States. Products produced for use in the food and beverage
industry include syrup, starch, glucose, dextrose, and
sweeteners. Dextrose is also produced for use by the Company as a
feedstock for its bioproducts operations. Corn gluten feed and meal
as well as distillers grains are produced for use as animal feed
ingredients. Corn germ, a by-product of the wet milling process, is
further processed as an oilseed into vegetable oil and protein
meal.
By
fermentation of dextrose, the Company produces alcohol, amino acids, and other
specialty food and animal feed ingredients. Ethyl alcohol is produced
to beverage grade or for industrial use as ethanol. In gasoline,
ethanol increases octane and is used as an extender and
oxygenate. Amino acids, such as lysine and threonine, are vital
compounds used in swine feeds to produce leaner animals and in poultry feeds to
enhance the speed and efficiency of poultry production. The Company
also produces, by fermentation, astaxanthin, a product used in aquaculture to
enhance flesh coloration. The Company produces citric and lactic
acids, lactates, sorbitol and xanthan gum which are used in various food and
industrial products.
Almidones
Mexicanos S.A., in which the Company has a 50% interest, operates a wet corn
milling plant in Mexico.
Eaststarch
C.V. (Netherlands), in which the Company has a 50% interest, owns interests in
companies that operate wet corn milling plants in Bulgaria, Hungary, Romania,
Slovakia, and Turkey.
The
Company has a 50% interest in Telles, LLC (Telles), a joint venture formed
between the Company and Metabolix to market and sell PHA, which will be produced
in a facility being constructed by the Company which is expected to be completed
during fiscal 2009.
Red Star
Yeast Company, LLC produces and sells fresh and dry yeast in the United States
and Canada. The Company has a 40% ownership interest in this joint
venture.
Agricultural
Services
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network in the United States to buy, store, clean, and
transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats,
and barley, and resells these commodities primarily as animal feed ingredients
and as raw materials for the agricultural processing
industry. Agricultural Services’ grain sourcing and transportation
network provides reliable and efficient services to the Company’s agricultural
processing operations. Agricultural Services’ transportation network
capabilities include ground, river, rail, and ocean services which provide the
flexibility to transport agricultural commodities timely and efficiently to the
end consumer or the Company’s agricultural processing operations.
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Item
1.
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BUSINESS
(Continued)
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The
Company processes and distributes edible beans in the United States for use as a
food ingredient. The Company produces and distributes formula feeds
and animal health and nutrition products to the livestock, dairy, poultry, and
pet food industries.
A.C.
Toepfer International (Toepfer), in which the Company has an 80% interest, is a
global merchandiser of agricultural commodities and processed
products. Toepfer has 38 sales offices worldwide and operates export,
river, and country elevators in Argentina, Romania, Ukraine, and the United
States.
The
Company has a 45% interest in Kalama Export Company, a grain export elevator in
Washington.
Other
The
Company is engaged in milling wheat, corn, and milo into flour in the United
States, Canada, the Caribbean, and the United Kingdom. Wheat flour is
sold primarily to commercial bakeries, food companies, food service companies,
and retailers. Bulgur, a gelatinized wheat food, is sold to both the
export and the domestic food markets. Corn meal and flour is sold
primarily to the cereal, snack, and bakery mix markets. The Company
produces bakery products and mixes, wheat starch, and gluten which are sold to
the baking industry. The Company also mills milo to produce
industrial flour used in the manufacturing of wallboard for the building
industry.
Gruma
S.A. de C.V.(Gruma), in which the Company has a 23% interest, is the world’s
largest producer and marketer of corn flour and tortillas with operations in the
United States, Mexico, Central America, South America, and
Europe. Additionally, the Company has a 20% share, through a joint
venture with Gruma, in six U.S. corn flour mills. The Company
also has a 40% share, through a joint venture with Gruma, in nine Mexican-based
wheat flour mills.
The
Company processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa
powder, chocolate, and various compounds in North America, South America,
Europe, Asia, and Africa for the food processing industry.
The
Company sold its interest in International Malting Company (IMC), a wholly-owned
subsidiary of the Company, which operated malting barley plants in the United
States, Australia, New Zealand, and Canada on July 31, 2008.
Hickory
Point Bank and Trust Company, fsb, a wholly-owned subsidiary of the Company,
furnishes public banking and trust services, as well as cash management,
transfer agency, and securities safekeeping services, for the
Company.
ADM
Investor Services, Inc., a wholly-owned subsidiary of the Company, is a
registered futures commission merchant and a clearing member of all principal
commodities exchanges. ADM Investor Services International, Ltd.,
ADMIS Hong Kong Limited, and ADM Investor Services Taiwan are wholly-owned
subsidiaries of the Company offering broker services in Europe and
Asia. ADM Derivatives, Inc. offers foreign exchange services to
institutional and retail clients.
Agrinational
Insurance Company, a wholly-owned subsidiary of the Company, provides insurance
coverage for certain property, casualty, marine, and other miscellaneous risks
of the Company and participates in certain third-party reinsurance
arrangements.
The
Company is a limited partner in various private equity funds which invest
primarily in emerging markets.
|
Item
1.
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BUSINESS
(Continued)
|
Corporate
Compagnie
Industrielle et Financiere des produits Amylaces SA (Luxembourg) and affiliates,
of which the Company has a 41.5% interest, is a joint venture which targets
investments in food, feed ingredients and bioenergy businesses.
Methods
of Distribution
Since the
Company’s customers are principally other manufacturers and processors, the
Company’s products are distributed mainly in bulk from processing plants or
storage facilities directly to the customers’ facilities. The Company
has developed a comprehensive transportation system utilizing trucks, railcars,
river barges, and ocean-going vessels to efficiently move both commodities and
processed products virtually anywhere in the world. The Company owns
or leases large numbers of the trucks, trailers, railroad tank and hopper cars,
river barges, and towboats used in this transportation system.
Concentration
of Sales by Product
The
following products account for 10% or more of net sales and other operating
income for the last three fiscal years:
| % of Net Sales and Other Operating Income | ||||||||||||
|
2008
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2007
|
2006
|
||||||||||
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Soybeans
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16%
|
12%
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14%
|
|||||||||
|
Corn
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14%
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15%
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12%
|
|||||||||
|
Soybean
Meal
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11%
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12%
|
13%
|
|||||||||
|
Wheat
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10%
|
8%
|
8%
|
|||||||||
Status
of New Products
The
Company continues to expand its business through the development of new products
to meet the growing demands for food, animal feed, chemicals and
energy.
The
Company’s researchers continue to develop custom low-trans fats and oils for
bakery and quick-service restaurants that utilize the Company’s Novalipid
portfolio of low-trans fats and oils. These products have enabled
customers to comply with various municipal trans fat bans.
The
Company’s cooked, dried edible bean products are finding a number of new
applications due to the increased interest among our customers in improving
nutrition, especially in the area of foods designed for children.
The
Company’s alliance with Metabolix for production of PHA, a biodegradable
plastic, is proceeding. Semi-works production of PHA is being used
for market development by Telles, a joint-venture company between the Company
and Metabolix. The construction of the Company’s 50,000 metric ton per year
commercial manufacturing facility is scheduled for completion in fiscal
2009.
The
Company is proceeding with construction of a 100,000 metric ton per year
commercial propylene/ethylene glycol facility. These products are
principally used in industrial applications such as antifreeze and coolants, the
manufacture of certain plastics, and paints and coatings.
The
Company has entered into a joint development agreement with ConocoPhillips that
will develop renewable transportation fuels from agriculture, forestry, and
crops grown specifically for energy. This development effort is focused on the
production of bio-crude oil that can be used by conventional petroleum
refineries to produce transportation fuels.
|
Item
1.
|
BUSINESS
(Continued)
|
Source
and Availability of Raw Materials
Substantially
all of the Company’s raw materials are agricultural commodities. In
any single year, the availability and price of these commodities are subject to
unpredictable factors such as weather, plantings, government programs
and policies, changes in global demand created by population growth and changes
in standards of living, and global production of similar and competitive
crops. The Company’s raw materials are procured from thousands of
growers, grain elevators, and wholesale merchants, principally in North America,
South America, and Europe, pursuant to short-term agreements (less than one
year) or on a spot basis. The Company is not dependent upon any
particular grower, elevator, or merchant as a source for its raw
materials.
Patents,
Trademarks, and Licenses
The
Company owns several valuable patents, trademarks, and licenses but does not
consider any segment of its business dependent upon any single or group of
patents, trademarks or licenses.
Seasonality,
Working Capital Needs, and Significant Customers
Since the
Company is so widely diversified in global agribusiness markets, there are no
material seasonal fluctuations in the manufacture, sale, and distribution of its
products and services. There is a degree of seasonality in the
growing cycles, procurement, and transportation of the Company’s principal raw
materials: oilseeds, corn, wheat, cocoa beans, and other
grains. However, the physical movement of the millions of bushels of
these crops through the Company’s processing facilities is reasonably constant
throughout the year.
Price
variations and availability of raw agricultural commodities may cause
fluctuations in the Company’s working capital levels. No material
part of the Company’s business in any segment is dependent upon a single
customer or very few customers.
Competition
The
Company has significant competition in the markets in which it operates based
principally on price, quality, products and alternative products, some of which
are made from different raw materials than those utilized by the
Company. Given the commodity-based nature of many of its businesses,
the Company, on an ongoing basis, focuses on managing unit
costs and improving efficiency through technology improvements, productivity
enhancements, and regular evaluation of the Company’s asset
portfolio.
Research
and Development Expenditures
The
Company’s research and development expenditures are focused on developing food,
animal feed, chemical, and energy products from renewable agricultural
crops.
The
Company maintains a research laboratory in Decatur, Illinois, where product and
process development activities are conducted. Activities include the
development of new bioproducts and the improvement of existing bioproducts, by
utilizing new microbial strains that are developed using classical mutation and
genetic engineering. Protein and vegetable oil research is also
conducted in Decatur where bakery, meat and dairy pilot plants support food
ingredient research. Vegetable oil research is also conducted in
Hamburg, Germany; Erith, UK; and Arras, France. Research in Hamburg,
Germany was expanded this year to include capabilities for biodiesel and
oleochemicals. Research to support sales and development of flour and
bakery products is conducted at a newly-constructed laboratory in Overland Park,
Kansas. Sales and development support for cocoa and chocolate
products is performed in Milwaukee, Wisconsin, and the
Netherlands. Research and technical support for industrial and food
wheat starch applications is conducted in Montreal, Canada. The
Company has consolidated its research facilities by closing the Clinton, Iowa
and Decatur, Indiana research locations and relocating staff to the research
center in Decatur, Illinois.
|
Item
1.
|
BUSINESS
(Continued)
|
The
Company uses technical services representatives to interact with customers to
understand the customers’ product needs. These technical service
representatives then interact with researchers who are familiar with the
Company’s wide range of products as well as applications
technology. These individuals form quick-acting teams to develop
solutions to customer needs.
The
Company has entered into a new cooperative research and development agreement
with Pacific Northwest National Laboratory which is focused on hydrothermal
liquefaction of biomass to biocrude oils. This agreement is part of
the effort being undertaken to support a joint development project with
ConocoPhillips.
The
Company has begun research related to the recently awarded funding from the
Department of Energy to develop yeasts capable of fermenting 5-carbon sugars,
which is a key technology for producing ethanol from lignocellulosic
biomass. The Company is partnered with Purdue University on this
project.
The
amounts spent during the three years ended June 30, 2008, 2007 and 2006 for such
technical efforts were approximately $49 million, $45 million, and $45 million,
respectively.
Environmental
Compliance
During
the year ended June 30, 2008, $125 million was spent for equipment, facilities,
and programs for pollution control and compliance with the requirements of
various environmental agencies.
There
have been no material effects upon the earnings and competitive position of the
Company resulting from compliance with federal, state, and local laws or
regulations enacted or adopted relating to the protection of the
environment.
Number
of Employees
The
number of persons employed by the Company was approximately 27,600 at June 30,
2008.
Financial
Information About Foreign and Domestic Operations
Item 1A,
“Risk Factors,” and Item 2, “Properties,” includes information relating to the
Company’s foreign operations. Geographic financial information is set
forth in “Note 14 of Notes to Consolidated Financial Statements” included in
Item 8 herein, “Financial Statements and Supplementary Data”.
Available
Information
The
Company’s Internet address is http://www.admworld.com. The Company
makes available, free of charge, through its Internet site, the Company’s annual
reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form
8-K; Directors and Officers Forms 3, 4, and 5; and amendments to those reports,
as soon as reasonably practicable after electronically filing such materials
with, or furnishing them to, the Securities and Exchange Commission
(SEC).
In
addition, the Company makes available, through its Internet site, the Company’s
Business Code of Conduct and Ethics, Corporate Governance Guidelines, and the
written charters of the Audit, Compensation/Succession, Nominating/Corporate
Governance, and Executive Committees.
References
to our website addressed in this report are provided as a convenience and do not
constitute, or should not be viewed as, an incorporation by reference of the
information contained on, or available through, the
website. Therefore, such information should not be considered part of
this report.
|
Item
1.
|
BUSINESS
(Continued)
|
The
public may read and copy any materials filed by the Company with the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site which contains reports, proxy and information
statements, and other information regarding issuers that file information
electronically with the SEC. The SEC’s Internet address is
http://www.sec.gov.
|
Item
1A.
|
RISK
FACTORS
|
The
availability and price of the agricultural commodities and agricultural
commodity products the Company produces and merchandises can be affected by
weather, disease, government programs, competition, and various other factors
beyond the Company’s control and could adversely affect the Company’s operating
results.
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, government
programs and policies, changes in global demand resulting from population growth
and changes in standards of living, and global production of similar and
competitive crops. These factors have historically caused volatility
in the agricultural commodities industry and, consequently, in the Company’s
operating results. Reduced supply of agricultural commodities due to
weather-related factors or other reasons could adversely affect the Company’s
profitability by increasing the cost of raw materials used in the Company’s
agricultural processing operations. Reduced supplies of agricultural
commodities could also limit the Company’s ability to procure, transport, store,
process, and merchandise agricultural commodities in an efficient manner which
could adversely affect the Company’s profitability. In addition, the
availability and price of agricultural commodities can be affected by other
factors, such as plant disease, which can result in crop failures and reduced
harvests.
Also,
with respect to prices, to the extent production capacity is added within the
agricultural processing industry, the disruption to the balance of supply and
demand may result in increased raw material costs and/or downward pressure on
the relevant product selling prices, thereby adversely affecting revenues and
operating results.
Fluctuations
in energy prices could adversely affect the Company’s operating
results.
The
Company’s operating costs and the selling prices of certain finished products
are sensitive to changes in energy prices. The Company’s processing
plants are powered principally by electricity, natural gas, and
coal. The Company’s transportation operations are dependent upon
diesel fuel and other petroleum products. Significant increases in
the cost of these items could adversely affect the Company’s production costs
and operating results.
The
Company has certain finished products, such as ethanol and biodiesel, which are
closely related to, or may be substituted for, petroleum
products. Therefore, the selling prices of ethanol and biodiesel can
be impacted by the selling prices of gasoline and diesel fuel. A
significant decrease in the price of gasoline or diesel fuel could result in a
significant decrease in the selling price of the Company’s ethanol and biodiesel
and could adversely affect the Company’s revenues and operating
results.
The
Company is subject to economic downturns, political instability and other risks
of doing business globally which could adversely affect the Company’s operating
results.
The
Company conducts its business and has substantial assets located in many
countries and geographic areas. The Company’s operations are principally in the
United States and developed countries in Western Europe and South
America, but the Company also operates in, or plans to expand or develop its
business in, emerging market areas such as Asia, Eastern Europe, and Africa.
Both developed and emerging market areas are subject to economic downturns and
emerging market areas could be subject to more volatile economic, political and
market conditions. Such economic downturns and volatile conditions may have a
negative impact on the Company’s ability to execute its business strategies and
on its operating results.
|
Item
1A.
|
RISK
FACTORS (Continued)
|
The
Company’s operating results could be affected by changes in trade, monetary and
fiscal policies, laws and regulations, and other activities of governments,
agencies, and similar organizations. These conditions include but are
not limited to changes in a country’s or region’s economic or political
conditions, trade regulations affecting production, pricing and marketing of
products, local labor conditions and regulations, reduced protection of
intellectual property rights, changes in the regulatory or legal environment,
restrictions on currency exchange activities, currency exchange fluctuations,
burdensome taxes and tariffs, enforceability of legal agreements and judgments,
and other trade barriers. International risks and uncertainties,
including changing social and economic conditions as well as terrorism,
political hostilities, and war, could limit the Company’s ability to transact
business in these markets and could adversely affect the Company’s revenues and
operating results.
Government
policies and regulations, in general, and specifically affecting the
agricultural sector and related industries, could adversely affect the
Company’s operating results.
Agricultural
production and trade flows are subject to government policies and regulations.
Governmental policies affecting the agricultural industry, such as taxes,
tariffs, duties, subsidies, incentives, and import and export restrictions on
agricultural commodities and commodity products, can influence the planting of
certain crops, the location and size of crop production, whether unprocessed or
processed commodity products are traded, the volume and types of imports and
exports, the availability and competitiveness of feedstocks as raw materials,
and industry profitability. In addition, international trade disputes can
adversely affect agricultural commodity trade flows by limiting or disrupting
trade between countries or regions. Future government policies may adversely
affect the supply of, demand for, and prices of the Company’s products, restrict
the Company’s ability to do business in its existing and target markets, and
could negatively impact revenues and operating results.
The Company is subject to industry -
specific risks which could adversely affect the Company’s operating
results.
The
Company is subject to risks which include, but are not limited to, product
quality or contamination, shifting consumer preferences, federal, state, and
local food processing regulations, and customer product liability
claims. The liability which could result from these risks may not
always be covered by, or could exceed liability insurance related to product
liability and food safety matters maintained by the Company. The
occurrence of any of the matters described above could adversely affect the
Company’s revenues and operating results.
Certain
of the Company’s merchandised commodities and finished products are used as
ingredients in livestock and poultry feed. The Company is subject to
risks associated with the outbreak of disease in livestock and poultry,
including, but not limited to, mad-cow disease and avian
influenza. The outbreak of disease could adversely affect demand for
the Company’s products used as ingredients in livestock and poultry
feed. A decrease in demand for these products could adversely affect
the Company’s revenues and operating results.
The
Company is subject to numerous laws and regulations globally which could
adversely affect the Company’s operating results.
The
Company is required to comply with the numerous and broad reaching laws and
regulations administered by United States federal, state, local, and foreign
governmental agencies relating to, but not limited to, the sourcing,
transporting, storing, and processing of agricultural raw materials as well as
the transporting, storing and distributing of related agricultural products
including commercial activities conducted by Company employees and third parties
globally. Any failure to comply with applicable laws and regulations
could subject the Company to administrative penalties and injunctive relief,
civil remedies, including fines, injunctions, and recalls of its
products.
The
production of the Company’s products requires the use of materials which can
create emissions of certain regulated substances. Although the
Company has programs in place throughout the organization globally to guard
against non-compliance, failure to comply with these regulations can have
serious consequences, including civil and administrative penalties as well as a
negative impact on the Company’s reputation.
|
Item
1A.
|
RISK
FACTORS (Continued)
|
In
addition, changes to regulations may require the Company to modify existing
processing facilities and/or processes which could significantly increase
operating costs and negatively impact operating results.
The
Company is exposed to potential business disruption, including but not limited
to transportation services, and other serious adverse impacts resulting from
acts of terrorism or war, natural disasters and severe weather conditions, and
accidents which could adversely affect the Company’s operating
results.
The
assets and operations of the Company are subject to damage and disruption from
various events which include, but are not limited to, acts of terrorism or war,
natural disasters and severe weather conditions, accidents, explosions, and
fires.
The
potential effects of the conditions cited above include, but are not limited to,
extensive property damage, extended business interruption, personal injuries,
and damage to the environment. The Company’s operations also rely on
dependable and efficient transportation services. A disruption in
transportation services could result in supply problems at the Company’s
facilities and impair the Company’s ability to deliver products to its customers
in a timely manner.
The
Company’s business is capital intensive in nature and the Company relies on cash
generated from its operations and external financing to fund its growth and
ongoing capital needs. Limitations on access to external financing could
adversely affect the Company’s operating results.
The
Company requires significant capital to operate its current business and fund
its growth strategy. The Company’s working capital requirements are
directly affected by the price of agricultural commodities, which may fluctuate
significantly and change quickly. The Company also requires
substantial capital to maintain and upgrade its extensive network of storage
facilities, processing plants, refineries, mills, ports, transportation assets
and other facilities to keep pace with competitive developments, technological
advances, regulations and changing safety standards in the industry.
Moreover, the expansion of the Company’s business and pursuit of acquisitions or
other business opportunities may require significant amounts of
capital. If the Company is unable to generate sufficient cash flows
or raise adequate external financing, it may restrict the Company’s current
operations and its growth opportunities which could adversely affect the
Company’s operating results
The
Company’s risk management strategies may not be effective.
The
Company’s business is affected by fluctuations in agricultural commodity prices,
transportation costs, energy prices, interest rates, and foreign currency
exchange rates. We engage in hedging transactions to manage these
risks. However, our hedging strategies may not be successful in
mitigating our exposure to these fluctuations. See “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.”
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
The
Company has no unresolved staff comments.
|
Item
2.
|
PROPERTIES
|
|
The
Company owns or leases the following processing plants and procurement
facilities:
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
|
International
|
Total
|
United
|
International
|
Total
|
|||||||||||||||||||
|
States
|
States
|
|||||||||||||||||||||||
|
Owned
|
131 | 97 | 228 | 176 | 104 | 280 | ||||||||||||||||||
|
Leased
|
2 | 2 | 4 | 19 | 29 | 48 | ||||||||||||||||||
| 133 | 99 | 232 | 195 | 133 | 328 | |||||||||||||||||||
|
The
Company’s operations are such that most products are efficiently processed
near the source of raw materials. Consequently, the Company has
many plants strategically located in agricultural commodity producing
areas. The annual volume of commodities processed will vary
depending upon availability of raw materials and demand for finished
products.
To
enhance the efficiency of transporting large quantities of raw materials
and finished products between the Company’s procurement facilities and
processing plants and also the final delivery of products to our customers
around the world, the Company owns or leases over 2,200 barges, 23,700
rail cars, 800 trucks, and 2,100
trailers.
|
|
Oilseeds
Processing
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
53 | 56 | 109 | 15 | 80 | 95 | ||||||||||||||||||
|
Leased
|
– | – | – | – | 20 | 20 | ||||||||||||||||||
| 53 | 56 | 109 | 15 | 100 | 115 | |||||||||||||||||||
|
The
Company operates twenty-three domestic and eighteen international oilseed
crushing plants with a daily processing capacity of approximately 91,000
metric tons (3.4 million bushels). The domestic plants are
located in Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, Ohio, South Carolina, Tennessee, and
Texas. The international plants are located in Bolivia, Brazil,
Canada, England, Germany, India, Mexico, the Netherlands, Poland, and
Ukraine.
The
Company operates thirteen domestic oilseed refineries in Georgia,
Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and
Tennessee, as well as seventeen international refineries in Bolivia,
Brazil, Canada, England, Germany, India, the Netherlands, and
Poland. The Company packages oils at five domestic plants
located in California, Georgia, and Illinois, as well as at seven
international plants located in Bolivia, Brazil, England, Poland and
Germany. The Company operates one domestic and six
international biodiesel plants located in North Dakota, Brazil, Germany,
and India. In addition, the Company operates two fertilizer
blending plants in Brazil.
The
Oilseeds Processing segment operates fifteen domestic country grain
elevators as adjuncts to its processing plants. These
elevators, with an aggregate storage capacity of eight million bushels,
are located in Illinois, Missouri, North Carolina, and Ohio.
This
segment also operates one hundred international elevators, including port
facilities, in Bolivia, Brazil, Canada, Germany, the Netherlands,
Paraguay, and Poland as adjuncts to its processing
plants. These facilities have a storage capacity of 125 million
bushels.
|
The
Company operates two soy protein specialty plants in Illinois and one plant in
the Netherlands. Lecithin products are produced at six domestic and
four international plants in Illinois, Iowa, Nebraska, Canada, Germany, and
the Netherlands. The Company produces soy-based foods at a plant in
North Dakota and vitamin E, sterols, and isoflavones at plants in
Illinois. The Company also operates a specialty oils and
fats plant in France that produces various value-added products for the
pharmaceutical, cosmetic and food industries.
|
Item
2.
|
PROPERTIES
(Continued)
|
|
Corn
Processing
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
13 | – | 13 | 5 | – | 5 | ||||||||||||||||||
|
The
Company operates five wet corn milling plants and two dry corn milling
plants with a daily grind capacity of approximately 50,000 metric tons
(2.0 million bushels). The Company also operates corn germ extraction
plants, sweeteners and starches production facilities, and bioproducts
production facilities in Illinois, Iowa, Minnesota, Nebraska, North
Carolina, and North Dakota. The Corn Processing segment also
operates five domestic grain terminal elevators as adjuncts to its
processing plants. These elevators, with an aggregate storage
capacity of 13 million bushels, are located in Minnesota.
|
|
Agricultural
Services
|
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
29 | 6 | 35 | 156 | 18 | 174 | ||||||||||||||||||
|
Leased
|
2 | 1 | 3 | 19 | 7 | 26 | ||||||||||||||||||
| 31 | 7 | 38 | 175 | 25 | 200 | |||||||||||||||||||
|
The
Company operates one hundred fifty-two domestic terminal, sub-terminal,
country, and river elevators covering the major grain producing states,
including sixty-four country elevators, eighty sub-terminal, terminal and
river loading facilities, and eight grain export elevators in Florida,
Louisiana, Ohio, and Texas. Elevators are located in Arkansas,
Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri,
Montana, Nebraska, North Dakota, Ohio, Oklahoma, Tennessee, and
Texas. These elevators have an aggregate storage capacity of
approximately 356 million bushels. The Company has five grain
export elevators in Argentina, Mexico, and Ukraine that have an aggregate
storage capacity of approximately 29 million bushels. The
Company has thirteen country elevators located in the Dominican Republic,
Romania, and Ukraine. In addition, the Company has seven
river elevators located in Romania and Ukraine.
The
Company operates twenty-three domestic edible bean procurement facilities
with an aggregate storage capacity of approximately 11 million bushels,
located in Colorado, Idaho, Michigan, Minnesota, North Dakota, and
Wyoming.
The
Company operates a rice mill located in California, an animal feed
facility in Illinois, and an edible bean plant in North
Dakota. The Company also operates twenty-eight domestic and
seven international formula feed and animal health and nutrition
plants. The domestic plants are located in Georgia, Illinois,
Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska,
Ohio, Pennsylvania, Texas, Washington, and Wisconsin. The
foreign plants are located in Canada, China, Puerto Rico, and Trinidad
& Tobago.
|
|
Item
2.
|
PROPERTIES
(Continued)
|
Other
|
Processing
Plants
|
Procurement
Facilities
|
|||||||||||||||||||||||
|
United
States
|
International
|
Total
|
United
States
|
International
|
Total
|
|||||||||||||||||||
|
Owned
|
36
|
35
|
71
|
–
|
6
|
6
|
||||||||||||||||||
|
Leased
|
–
|
1
|
1
|
–
|
2
|
2
|
||||||||||||||||||
|
36
|
36
|
72
|
–
|
8
|
8
|
|||||||||||||||||||
The
Company operates twenty-three domestic wheat flour mills, a domestic bulgur
plant, two domestic corn flour mills, two domestic milo mills, and twenty
international flour mills with a total daily milling capacity of approximately
27,000 metric tons (1.0 million bushels). The Company also operates
six bakery mix plants. These plants and related properties are
located in California, Illinois, Indiana, Kansas, Minnesota, Missouri, Nebraska,
New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, Washington,
Barbados, Belize, Canada, England, Grenada, and Jamaica. The Company
operates two formula feed plants as adjuncts to the wheat flour mills in Belize
and Grenada, a rice milling plant in Jamaica, and a starch and gluten
plant in Iowa and one in Canada. The Company also operates a honey
drying operation in Wisconsin.
The
Company operates three domestic and nine international chocolate and cocoa bean
processing plants with a total daily grind capacity of approximately 2,200
metric tons. The domestic plants are located in Massachusetts, New
Jersey, and Wisconsin, and the international plants are located in Brazil,
Canada, England, Ivory Coast, the Netherlands, and Singapore. The
Company operates eight cocoa bean procurement and handling facilities/port sites
in Brazil, Indonesia, Ivory Coast, and Malaysia.
|
Item
3.
|
LEGAL
PROCEEDINGS
|
Environmental
Matters
The
United States Environmental Protection Agency and the Missouri Department of
Natural Resources have initiated a criminal investigation of the wastewater
discharge practices at one of the Company’s barge facilities in
Missouri. Since February 2008, several employees at the facility have
received grand jury subpoenas relating to wastewater discharges from the
facility. The Company has been cooperating with the
investigation. The Company has also undertaken an internal
investigation of those discharge practices and does not believe that the filing
of any criminal action would be appropriate. The Company does not yet have
enough information to reasonably estimate any penalty that may be imposed if any
enforcement action is brought.
The
Company is involved in approximately twenty administrative and judicial
proceedings in which it has been identified as a potentially responsible party
(PRP) under the federal Superfund law and its state analogs for the study and
cleanup of sites contaminated by material discharged into the
environment. In all of these matters there are numerous
PRPs. Due to various factors, such as the required level of
remediation and participation in the cleanup effort by others, the Company’s
future cleanup costs at these sites cannot be reasonably estimated.
In
management’s opinion, these proceedings will not, either individually or in the
aggregate, have a material adverse affect on the Company’s financial condition
or results of operations.
|
Item
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Common
Stock Market Prices and Dividends
The
Company’s common stock is listed and traded on the New York Stock Exchange and
the Frankfurt Stock Exchange. The following table sets forth, for the periods
indicated, the high and low market prices of the common stock as reported on the
New York Stock Exchange and common stock cash dividends declared per
share.
|
Cash
|
||||||||||||
|
Market
Price
|
Dividends
|
|||||||||||
|
High
|
Low
|
Per
Share
|
||||||||||
|
Fiscal
2008-Quarter Ended
|
||||||||||||
|
June
30
|
$ | 48.95 | $ | 31.65 | $ | 0.130 | ||||||
|
March
31
|
47.18 | 38.11 | 0.130 | |||||||||
|
December
31
|
47.33 | 32.43 | 0.115 | |||||||||
|
September
30
|
37.02 | 31.28 | 0.115 | |||||||||
|
Fiscal
2007-Quarter Ended
|
||||||||||||
|
June
30
|
$ | 39.65 | $ | 32.05 | $ | 0.115 | ||||||
|
March
31
|
37.84 | 30.20 | 0.115 | |||||||||
|
December
31
|
40.00 | 31.20 | 0.100 | |||||||||
|
September
30
|
45.05 | 36.44 | 0.100 | |||||||||
The
number of registered shareholders of the Company’s common stock at June 30,
2008, was 17,330. The Company expects to continue its policy of
paying regular cash dividends, although there is no assurance as to future
dividends because they are dependent on future earnings, capital requirements,
and financial condition.
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
(Continued)
|
Issuer
Purchases of Equity Securities
|
Total
Number of
|
Number
of Shares
|
|||||||||||||||
|
Total
Number
|
Average
|
Shares
Purchased as
|
Remaining
to be
|
|||||||||||||
|
of
Shares
|
Price
Paid
|
Part
of Publicly
|
Purchased
Under the
|
|||||||||||||
|
Period
|
Purchased
(1)
|
per
Share
|
Announced
Program (2)
|
Program (2)
|
||||||||||||
|
April
1, 2008 to
April
30, 2008
|
1,799 | $ | 47.13 | 307 | 75,630,561 | |||||||||||
|
May
1, 2008 to
May
31, 2008
|
9,061 | 43.99 | 154 | 75,630,407 | ||||||||||||
|
June
1, 2008 to
June
30, 2008
|
118 | 41.80 | 118 | 75,630,289 | ||||||||||||
|
Total
|
10,978 | $ | 44.48 | 579 | 75,630,289 | |||||||||||
|
(1) Total
shares purchased represents those shares purchased as part of the
Company’s publicly announced share repurchase program described below and
shares received as payment of the exercise price for stock option
exercises. During the three-month period ended June 30, 2008,
the Company received 10,399 shares as payment of the exercise price for
stock option exercises.
(2) On
November 4, 2004, the Company’s Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 100,000,000
shares of the Company’s common stock during the period commencing January
1, 2005 and ending December 31,
2009.
|
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
(Continued)
|
Performance
Graph
The graph
below compares five-year returns of the Company’s common stock with those of the
S&P 500 Index, the S&P Packaged Foods and Meats Index, and the S&P
Consumer Staples Index which the Company today considers a more relevant
line-of-business index. The graph assumes all dividends have been
reinvested and assumes an initial investment of $100 on June 30,
2003. Information in the graph is presented on a June 30 fiscal year
basis.
Graph
produced by Research Data Group, Inc.
|
Item
6.
|
SELECTED
FINANCIAL DATA
|
Selected
Financial Data
(In
millions, except ratio and per share data)
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Net
sales and other operating income
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | $ | 35,943 | $ | 36,151 | ||||||||||
|
Depreciation
|
721 | 701 | 657 | 665 | 686 | |||||||||||||||
|
Net
earnings
|
1,802 | 2,162 | 1,312 | 1,044 | 495 | |||||||||||||||
|
Basic
earnings per common share
|
2.80 | 3.32 | 2.01 | 1.60 | 0.76 | |||||||||||||||
|
Diluted
earnings per common share
|
2.79 | 3.30 | 2.00 | 1.59 | 0.76 | |||||||||||||||
|
Cash
dividends
|
316 | 281 | 242 | 209 | 174 | |||||||||||||||
|
Per
common share
|
0.49 | 0.43 | 0.37 | 0.32 | 0.27 | |||||||||||||||
|
Working
capital
|
$ | 10,834 | $ | 7,254 | $ | 5,661 | $ | 4,344 | $ | 3,589 | ||||||||||
|
Current
ratio
|
1.7 | 1.9 | 1.9 | 1.8 | 1.5 | |||||||||||||||
|
Inventories
|
10,160 | 6,060 | 4,677 | 3,907 | 4,592 | |||||||||||||||
|
Net
property, plant, and equipment
|
7,125 | 6,010 | 5,293 | 5,184 | 5,255 | |||||||||||||||
|
Gross
additions to property, plant, and
equipment
|
1,789 | 1,404 | 841 | 647 | 621 | |||||||||||||||
|
Total
assets
|
37,056 | 25,118 | 21,269 | 18,598 | 19,369 | |||||||||||||||
|
Long-term
debt
|
7,690 | 4,752 | 4,050 | 3,530 | 3,740 | |||||||||||||||
|
Shareholders’
equity
|
13,490 | 11,253 | 9,807 | 8,435 | 7,698 | |||||||||||||||
|
Per
common share
|
20.95 | 17.50 | 14.95 | 12.96 | 11.83 | |||||||||||||||
|
Weighted
average shares
outstanding-basic
|
644 | 651 | 654 | 654 | 648 | |||||||||||||||
|
Weighted
average shares
outstanding-diluted
|
646 | 656 | 656 | 656 | 650 | |||||||||||||||
Significant
items affecting the comparability of the financial data shown above are as
follows.
|
·
|
Net
earnings for 2007 include a gain of $440 million ($286 million after tax,
equal to $0.44 per share) related to the exchange of the Company’s
interests in certain Asian joint ventures for shares of Wilmar
International Limited, realized securities gains of $357 million ($225
million after tax, equal to $0.34 per share) related to the Company’s sale
of equity securities of Tyson Foods Inc. and Overseas Shipholding Group
Inc. and a $209 million gain ($132 million after tax, equal to $0.20 per
share) related to the sale of
businesses.
|
|
·
|
Net
earnings for 2005 include a gain of $159 million ($119 million after tax,
equal to $0.18 per share) related to the sale of the Company’s interest in
Tate & Lyle PLC.
|
|
·
|
Net
earnings for 2004 include a $400 million charge ($252 million after tax,
equal to $0.39 per share) related to the settlement of fructose
litigation.
|
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Company
Overview
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. Beginning in
fiscal 2008, the Company has reclassified
certain operations within its reportable segments
to reflect how the Company now manages its businesses following a realignment of
the organizational structure of the Company and to reflect the activities of the Company
as viewed by the Company’s chief operating decision maker. Prior period
segment information has been reclassified to conform to the new
presentation. The
Company’s operations are classified into three reportable business segments:
Oilseeds Processing, Corn Processing and Agricultural Services. Each
of these segments is organized based upon the nature of products and services
offered. The Company’s remaining operations are aggregated and
classified as Other.
The
Oilseeds Processing segment includes activities related to the origination and
crushing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and protein meals principally for the
food and feed industries. In addition, oilseeds and oilseed products
may be processed internally or resold into the marketplace as raw materials for
other processing. Crude vegetable oil is sold "as is" or is further
processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food products. Partially
refined oil is sold for use in chemicals, paints, and other industrial
products. Refined oil can be further processed for use in the
production of biodiesel. Oilseed protein meals are primary
ingredients used in the manufacture of commercial livestock and poultry
feeds. Oilseeds Processing includes activities related to the
production of natural health and nutrition products and the production of other
specialty food and feed ingredients. This segment also includes
activities related to the Company’s interests in unconsolidated affiliates in
Asia, principally Wilmar International Limited.
The Corn
Processing segment includes activities related to the production of sweeteners,
starches, dextrose, and syrups primarily for the food and beverage industry as
well as activities related to the production, by fermentation, of bioproducts
such as ethanol, amino acids, and other food, feed and industrial
products.
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network to buy, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, barley, and edible
beans, and resells or processes these commodities primarily as food and feed
ingredients for the agricultural processing industry. Agricultural
Services’ grain sourcing and transportation network provides reliable and
efficient services to the Company’s agricultural processing operations. Also
included in Agricultural Services are the activities of A.C. Toepfer
International, a global merchant of agricultural commodities and processed
products.
Other
includes the Company’s remaining processing operations, consisting of activities
related to processing agricultural commodities into food ingredient products
such as wheat into wheat flour, cocoa into chocolate and cocoa products, and
barley into malt. Other also includes financial activities related to banking,
captive insurance, private equity fund investments, and futures commission
merchant activities.
Operating
Performance Indicators
The
Company’s Oilseeds Processing, Agricultural Services, and wheat processing
operations are principally agricultural commodity-based businesses where changes
in selling prices move in relationship to changes in prices of the
commodity-based agricultural raw materials. Therefore, changes in
agricultural commodity prices have relatively equal impacts on both net sales
and cost of products sold and minimal impact on the gross profit of underlying
transactions. As a result, changes in gross profit of these businesses
do not necessarily correspond to the changes in net sales amounts.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
The
Company’s Corn Processing operations and certain other food and animal feed
processing operations also utilize agricultural commodities (or products derived
from agricultural commodities) as raw materials. In these operations,
agricultural commodity market price changes can result in significant
fluctuations in cost of products sold, and such price changes cannot necessarily
be passed directly through to the selling price of the finished
products.
The
Company conducts its business in many countries. For the majority of
the Company’s subsidiaries located outside the United States, the local currency
is the functional currency. Revenues and expenses denominated in
foreign currencies are translated into U.S. dollars at the weighted average
exchange rates for the applicable periods. Fluctuations in the
exchange rates of foreign currencies, primarily the Euro, British pound, and
Canadian dollar, as compared to the U.S. dollar will result in corresponding
fluctuations in the U.S. dollar value of revenues and expenses reported by the
Company. The impact of these currency exchange rate changes, where
significant, is discussed below.
The
Company measures the performance of its business segments using key operating
statistics such as segment operating profit, return on fixed capital investment,
return on equity, return on net assets, and cost per metric ton
produced. The Company’s operating results can vary significantly due
to changes in unpredictable factors such as fluctuations in energy prices,
weather conditions, crop plantings, government programs and policies,
changes in global demand resulting from population growth and changes in
standards of living, and global production of similar and competitive
crops. Due to these unpredictable factors, the Company does not
provide forward-looking information in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
2008
Compared to 2007
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating
results. Strong demand for agricultural commodities and
processed products has challenged the global supply chain and provided
exceptional margin opportunities in 2008. Strong global demand for
protein meal and vegetable oil and strong fertilizer demand in South America
positively impacted Oilseeds Processing results. The market price of
corn rose due to increased demand, resulting in higher raw material costs for
Corn Processing which were only partially passed on in the form of increased
selling prices for sweeteners and starches. Average ethanol selling
prices decreased due to additional supply entering the market. Large
North American crops combined with global wheat shortages created favorable
conditions in agricultural merchandising and handling
operations. Increased commodity costs resulted in larger LIFO
inventory valuation reserves.
Earnings
before income taxes decreased due principally to gains totaling $1.0 billion
before income tax on business disposals recorded in 2007 including $440 million
related to the exchange of the Company’s interest in certain Asian joint
ventures for shares of Wilmar International Limited (the Wilmar gain), a $357
million realized securities gain from sales of the Company’s equity securities
of Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a gain of $153
million from the sale of the Company’s interest in Agricore United, and a $53
million gain from the sale of the Company’s Arkady food ingredient
business.
Earnings
before income taxes for 2008 include a charge of $569 million from the effect of
changing commodity prices on LIFO inventory valuations, compared to a charge of
$207 million in 2007. Earnings before income taxes for 2008 also include a $32
million charge related to abandonment and write-down of long-lived assets, a $38
million gain on sales of securities, and a $21 million gain on the disposal of
long-lived assets. Earnings before income taxes for 2007 include
charges of $46 million related to the repurchase of $400 million of the
Company’s outstanding debentures and $21 million related to abandonment and
write-down of long-lived assets.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Analysis
of Statements of Earnings
Net sales
and other operating income increased 59% to $69.8
billion. Increased selling prices of agricultural commodities
and oilseed processing products and, to a lesser extent, corn processing
products and wheat flour accounted for 85% of the increase and higher sales
volumes, principally of agricultural commodities, ethanol, and biodiesel, also
contributed to the increase in net sales. In addition, net sales and
other operating income increased $1.83 billion, or 4%, due to currency rate
fluctuations.
Net sales
and other operating income by segment are as follows:
|
2008
|
2007
|
Change | ||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 14,477 | $ | 8,036 | $ | 6,441 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
8,588 | 5,758 | 2,830 | |||||||||
|
Asia
|
214 | 149 | 65 | |||||||||
|
Total
Oilseeds Processing
|
23,279 | 13,943 | 9,336 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
3,546 | 2,761 | 785 | |||||||||
|
Bioproducts
|
3,591 | 3,064 | 527 | |||||||||
|
Total
Corn Processing
|
7,137 | 5,825 | 1,312 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
33,749 | 20,222 | 13,527 | |||||||||
|
Transportation
|
219 | 197 | 22 | |||||||||
|
Total
Agricultural Services
|
33,968 | 20,419 | 13,549 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
5,335 | 3,738 | 1,597 | |||||||||
|
Financial
|
97 | 93 | 4 | |||||||||
|
Total
Other
|
5,432 | 3,831 | 1,601 | |||||||||
|
Total
|
$ | 69,816 | $ | 44,018 | $ | 25,798 | ||||||
Oilseeds
Processing sales increased 67% to $23.3 billion due principally to increased
average selling prices resulting primarily from increases in underlying
commodity costs and from continuing strong demand for vegetable oil, biodiesel
and protein meal. Sales volumes of vegetable oil, protein meal and
biodiesel also increased. Corn Processing sales increased 23% to $7.1
billion. Good demand for sweeteners and starches resulted in higher
average selling prices. Bioproducts sales increased primarily as a
result of increased ethanol sales volumes partially offset by lower average
ethanol selling prices. Increased ethanol sales volumes reflect
higher gasoline prices, improved gasoline blending economics and additional
demand, principally from newly-opened markets in the southeastern United
States. Agricultural Services sales increased 66% to $34.0 billion
primarily due to increased underlying commodity costs, and to a lesser extent,
increased sales volumes. Sales in the Other segment increased 42% to
$5.4 billion primarily due to higher average selling prices of wheat flour and,
to a lesser extent, higher sales volumes and higher average selling prices of
cocoa products.
Cost of
products sold increased 62% to $66.0 billion primarily due to higher
agricultural commodity costs, and, to a lesser extent, higher sales
volumes. Manufacturing expenses increased $549 million primarily due
to higher energy and transportation fuel costs, increased employee-related
costs, higher storage and handling costs, increased production capacity, and the
impact of foreign currency translation. In addition, cost of products
sold increased $1.75 billion, or 4%, due to currency rate
fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general and administrative expenses increased $224 million to $1.4 billion
primarily due to higher employee-related costs and higher outside service costs,
including $44 million related to an organizational realignment and
reorganization of the company’s European headquarters, and increased $37 million
due to the impact of currency rate fluctuations.
Other
income – net decreased $911 million primarily due to gains totaling $1.0 billion
on business disposals recorded in 2007 including $440 million related to the
Wilmar gain, $357 million realized securities gain from sales of the Company’s
equity securities of Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a
gain of $153 million from the sale of the Company’s interest in Agricore United,
and a $53 million gain from the sale of the Company’s Arkady food ingredient
business. Equity in earnings of unconsolidated affiliates increased
$121 million in 2008, primarily related to improved operating results of the
Company’s investments in U.S. grain export, Asian oilseeds and peanut processing
ventures. Other income - net also reflects $38 million in gains on
sales of securities in 2008, $21 million in gains on disposals of long-lived
assets in 2008, an increase from 2007 to 2008 of $11 million in charges related
to abandonment and write-down of long-lived assets, and a charge of $46 million
related to the repurchase of $400 million of the Company’s outstanding
debentures in 2007.
Operating
profit by segment is as follows:
|
2008
|
2007
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 727 | $ | 414 | $ | 313 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
181 | 202 | (21 | ) | ||||||||
|
Asia
|
132 | 523 | (391 | ) | ||||||||
|
Total
Oilseeds Processing
|
1,040 | 1,139 | (99 | ) | ||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
529 | 509 | 20 | |||||||||
|
Bioproducts
|
432 | 596 | (164 | ) | ||||||||
|
Total
Corn Processing
|
961 | 1,105 | (144 | ) | ||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
873 | 382 | 491 | |||||||||
|
Transportation
|
144 | 156 | (12 | ) | ||||||||
|
Total
Agricultural Services
|
1,017 | 538 | 479 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
217 | 209 | 8 | |||||||||
|
Financial
|
206 | 170 | 36 | |||||||||
|
Total
Other
|
423 | 379 | 44 | |||||||||
|
Total
Segment Operating Profit
|
3,441 | 3,161 | 280 | |||||||||
|
Corporate
|
(817 | ) | (7 | ) | (810 | ) | ||||||
|
Earnings
Before Income Taxes
|
$ | 2,624 | $ | 3,154 | $ | (530 | ) | |||||
Oilseeds
Processing operating profit decreased 9% to $1.0 billion. Excluding the $440
million Wilmar gain reflected in Asia results in 2007, Oilseeds Processing
operating profit increased 49%, primarily due to strong global demand for
protein meal, vegetable oil, and fertilizer. Crushing and Origination
operating profits increased 76% to $727 million due principally to improved
crushing margins in North and South America and improved fertilizer results
in South America. Refining, Packaging, Biodiesel and Other operating
profits decreased 10% to $181 million due principally to decreased biodiesel
margins in Europe and asset impairment charges of $28 million in 2008, partially
offset by improved global refining margins. 2007 operating profit for
Refining, Packaging, Biodiesel
and Other includes a $14 million gain on a business
disposal. Excluding the Wilmar gain, Asia operating profits increased
59% to $132 million, principally reflecting the Company’s share of improved
operating profits of Wilmar International Limited.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Corn
Processing operating profits decreased 13% to $961 million, primarily due to
higher net corn costs. Sweeteners and Starches operating profits of
$529 were relatively unchanged as higher average selling prices were offset by
higher net corn costs and increased manufacturing
costs. Manufacturing cost increases reflect higher energy costs,
higher repair and maintenance expenses, and higher costs for chemicals used in
the manufacturing process. Bioproducts operating profits
decreased 28% to $432 million primarily due to higher net corn costs, higher
manufacturing expenses, and decreased average ethanol selling prices, partially
offset by higher sales volumes for ethanol and, to a lesser extent, higher
average lysine selling prices and higher lysine sales volumes.
Agricultural
Services operating profits increased 89% to $1.0 billion. 2007 operating profits
in Merchandising and Handling include a $153 million gain on the sale of the
Company’s interest in Agricore United. Excluding this gain,
Merchandising and Handling operating profits increased 281% to $873
million. This increase was primarily due to enhanced merchandising
and handling margins caused by volatile global grain and freight markets,
favorable risk management results, and to a lesser extent, increased sales
volumes. Transportation operating profits decreased 8% to $144 million primarily
due to increased fuel costs.
Other
operating profits increased 12% to $423 million. Wheat, Cocoa and
Malt operating profits increased 4% to $217 million. 2007 operating profits for
Wheat included a gain of $39 million from the sale of the Company’s Arkady food
ingredient business. Excluding the Arkady gain, Wheat, Cocoa and Malt
operating profits improved 28%, primarily due to improved wheat and malt margins
reflecting increased demand, partially offset by decreased cocoa processing
margins reflecting higher raw material and operating costs and competitive
pressures experienced in the North American chocolate
market. Financial operating profits improved 21% to $206 million
primarily due to improvements in the Company’s futures commission merchant
business.
Corporate
expense increased $810 million to $817 million, primarily due to a $362 million
increase in the charge related to the effects of changing commodity
prices on LIFO inventory valuations, a $371 million decrease in realized
securities gains primarily reflecting the $357 million gain recorded in 2007
from sales of the Company’s equity securities of Tyson Foods, Inc. and Overseas
Shipholding Group, Inc., a $51 million increase in corporate expenses due
principally to reorganization and realignment costs, partially offset by a
charge of $46 million recorded in 2007 related to the repurchase of $400 million
of the Company’s outstanding debentures.
Income
taxes decreased primarily due to lower pretax earnings. The Company’s
effective tax rate during 2008 of 31.3% was comparable to the 2007 rate of
31.5%.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
2007
Compared to 2006
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating results. Strong
biodiesel demand in Europe continued to create increased vegetable oil demand
and positively impacted rapeseed crushing margins in Europe. Abundant
oilseed supplies, improved vegetable oil values, and strong protein meal demand
have positively impacted oilseed crushing margins in North
America. Increased ethanol contracted selling prices, continuing
strong ethanol demand, and solid demand for sweetener and starch products
improved corn processing results. These increases in corn processing
results were partially offset by higher net corn costs. Global grain
merchandising opportunities resulting from regional production imbalances also
improved operating results. North American river transportation
operations were favorably impacted by strong demand for river transportation
services which increased barge freight rates. Increasing commodity
price levels resulted in larger LIFO inventory valuation reserves.
Net
earnings increased due principally to improved operating results in all of the
Company’s operating segments. Earnings before income taxes for 2007
include a gain of $440 million related to the exchange of the Company’s
interests in certain Asian joint ventures for shares of Wilmar International
Limited (the Wilmar Gain), a $357 million realized securities gain from sales of
the Company’s equity securities of Tyson Foods, Inc. and Overseas Shipholding
Group, Inc., a gain of $153 million from the sale of the Company’s interest in
Agricore United and a $53 million gain from the sale of the Company’s Arkady
food ingredient business. Earnings before income taxes for 2007 also
include charges of $207 million from the effect of changing commodity prices on
LIFO inventory valuations, $46 million related to the repurchase of $400 million
of the Company’s outstanding debentures, and $21 million related to abandonment
and write-down of long-lived assets. Net earnings for 2006 include a
$36 million reduction in income tax expense related to the recognition of
federal and state income tax credits and adjustments resulting from the
reconciliation of filed tax returns to the previously estimated tax
provision. Earnings before income taxes for 2006 include charges of
$15 million resulting from the Company’s adoption of Financial Accounting
Standards Board Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN
47), $71 million related to abandonment and write-down of long-lived assets, $9
million representing the Company’s share of a charge for abandonment and
write-down of long-lived assets reported by an unconsolidated affiliate of the
Company, and $22 million associated with the closure of a citric acid plant and
exiting the European animal feed business. Earnings before income
taxes for 2006 also include credits of $12 million from the effect of changing
commodity prices on LIFO inventory valuations, $17 million from the sale of
long-lived assets, $46 million related to Brazilian transactional tax credits,
and $40 million related to realized securities gains.
Analysis
of Statements of Earnings
Net sales
and other operating income increased 20% to $44.0 billion due primarily to
increased selling prices of agricultural commodities, oilseed and corn
processing products and, to a lesser extent, increased sales volumes of
agricultural commodities and oilseed processing products. In
addition, net sales and other operating income increased $916 million, or 3%,
due to currency exchange rate fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Net sales
and other operating income by segment are as follows:
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 8,036 | $ | 7,048 | $ | 988 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
5,758 | 4,726 | 1,032 | |||||||||
|
Asia
|
149 | 119 | 30 | |||||||||
|
Total
Oilseeds Processing
|
13,943 | 11,893 | 2,050 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
2,761 | 2,529 | 232 | |||||||||
|
Bioproducts
|
3,064 | 2,727 | 337 | |||||||||
|
Total
Corn Processing
|
5,825 | 5,256 | 569 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
20,222 | 15,954 | 4,268 | |||||||||
|
Transportation
|
197 | 201 | (4 | ) | ||||||||
|
Total
Agricultural Services
|
20,419 | 16,155 | 4,264 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
3,738 | 3,217 | 521 | |||||||||
|
Financial
|
93 | 75 | 18 | |||||||||
|
Total
Other
|
3,831 | 3,292 | 539 | |||||||||
|
Total
|
$ | 44,018 | $ | 36,596 | $ | 7,422 | ||||||
Oilseeds
Processing sales increased 17% to $13.9 billion due principally to increased
average selling prices of vegetable oil and increased sales volumes of vegetable
oil and biodiesel. Vegetable oil selling prices and volumes improved
as the markets anticipated new demand from the developing United States
biodiesel industry. Biodiesel sales volumes increased due to
additional production capacity. Corn Processing sales increased 11%
to $5.8 billion due principally to increased sales of Bioproducts and, to a
lesser extent, increased sales of Sweeteners and
Starches. Bioproducts sales increased primarily due to higher average
selling prices of ethanol, partially offset by lower sales
volumes. Ethanol average selling prices increased primarily due to
higher gasoline prices. Ethanol sales volumes decreased as 2006 sales
volumes exceeded production due to the release of inventories built up in
anticipation of refiners replacing MTBE with ethanol. Sweeteners and
Starches sales increased primarily due to higher average selling prices
resulting from good demand for sweetener and starch
products. Agricultural Services sales increased 26% to $20.4 billion
due principally to increased agricultural commodity prices and increased sales
volumes. The increase in commodity prices was primarily due to higher
average market prices of corn in North America which had increased 60% from the
prior year. Increased sales volumes of global grain merchandising
activities also contributed to the increase in Agricultural Services
sales. Other sales increased 16% to $3.8 billion primarily due to
higher average selling prices of wheat flour products and, to a lesser extent,
increased sales volumes and higher average selling prices of cocoa
products.
Cost of
products sold increased 21% to $40.8 billion primarily due to higher average
costs of agricultural commodities and increased sales
volumes. Manufacturing costs for 2007 and 2006 include a $21 million
and $62 million charge, respectively, for abandonment and write-down of
long-lived assets. In addition, cost of products sold increased $874
million, or 3%, due to currency exchange rate fluctuations.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general, and administrative expenses of $1.2 billion were comparable to 2006 and
included $25 million of currency exchange rate increases. Excluding
the impact of currency exchange rate increases, selling, general and
administrative expenses decreased $23 million due principally to 2006 selling,
general and administrative expenses including $20 million of severance costs
associated with the closure of a citric acid plant. During 2007 and
2006, the Company issued option grants and restricted stock awards to officers
and key employees pursuant to the Company’s Long-term Management Incentive
Program. Certain officers and key employees of the Company receiving
option grants and restricted stock awards were eligible for
retirement. Compensation expense related to option grants and
restricted stock awards issued to these retirement-eligible employees is
recognized in earnings on the date of grant. Selling, general, and
administrative expense for 2007 and 2006 includes compensation expense related
to option grants and restricted stock awards granted to retirement-eligible
employees of $30 million and $31 million, respectively.
Other
income - net increased $1.0 billion primarily due to the $440 million Wilmar
Gain, a $357 million gain on the sale of the Company’s equity securities of
Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a $153 million gain on
the sale of the Company’s interest in Agricore United, and a $53 million gain on
the sale of the Company’s Arkady food ingredient business. Other
income - net also includes a $46 million charge related to the repurchase of
$400 million of the Company’s outstanding debentures in
2007. Excluding these items, other income - net increased $73 million
primarily due to a $120 million increase in equity in earnings of unconsolidated
affiliates, and a $53 million increase in investment income, partially offset by
a $69 million increase in interest expense and a $27 million reduction in gains
on sales of long-lived assets. The increase in equity in earnings of
unconsolidated affiliates was primarily due to higher valuations of the
Company’s private equity fund investments and improved operating results of the
Company’s Asian oilseed ventures. Interest expense and investment
income increased primarily due to increased average borrowing and investment
levels.
Operating
profit by segment is as follows:
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 414 | $ | 376 | $ | 38 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
202 | 140 | 62 | |||||||||
|
Asia
|
523 | 53 | 470 | |||||||||
|
Total
Oilseeds Processing
|
1,139 | 569 | 570 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
& Starches
|
509 | 458 | 51 | |||||||||
|
Bioproducts
|
596 | 443 | 153 | |||||||||
|
Total
Corn Processing
|
1,105 | 901 | 204 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
382 | 94 | 288 | |||||||||
|
Transportation
|
156 | 143 | 13 | |||||||||
|
Total
Agricultural Services
|
538 | 237 | 301 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, & Malt
|
209 | 228 | (19 | ) | ||||||||
|
Financial
|
170 | 126 | 44 | |||||||||
|
Total
Other
|
379 | 354 | 25 | |||||||||
|
Total
Segment Operating Profit
|
3,161 | 2,061 | 1,100 | |||||||||
|
Corporate
|
(7 | ) | (206 | ) | 199 | |||||||
|
Earnings
Before Income Taxes
|
$ | 3,154 | $ | 1,855 | $ | 1,299 | ||||||
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profits increased $570 million to $1.1 billion due
principally to the $440 million Wilmar Gain and improved market conditions in
all geographic regions. North American processing results improved
due principally to abundant oilseed supplies in the United States and good
demand for vegetable oil and soybean meal. Vegetable oil values
improved as the markets anticipated new demand from the developing United States
biodiesel industry. North American processing results were also
favorably impacted by lower plant operating costs resulting from improved
capacity utilization. Asian joint venture results improved due to
improved palm processing operating results partially offset by decreased soy
crushing operating results. European processing results improved due
principally to abundant oilseed supplies in Europe and strong demand for
vegetable oil. The strong demand for vegetable oil is the result of
strong biodiesel demand. These increases were partially offset by
decreased biodiesel operating profits resulting from higher vegetable oil
prices, increased market production capacity, and lower diesel fuel
prices. South American processing results declined due principally to
the $27 million credit for Brazilian transactional taxes in
2006. Excluding the impact of the credit for Brazilian transactional
taxes, South American processing results improved due principally to increased
fertilizer margins. The improvement in fertilizer margins was
primarily due to higher average sales prices due to improved fertilizer demand
combined with stable raw material costs. Operating profits for 2007
include a $6 million charge for abandonment and write-down of long-lived
assets. Operating profits for 2006 include a $14 million charge for
abandonment and write-down of long-lived assets and a $6 million charge related
to the adoption of FIN 47.
Corn
Processing operating profits increased $204 million to $1.1 billion due
principally to higher average selling prices and lower energy costs, partially
offset by lower ethanol sales volumes and higher net corn costs. Net
corn costs increased approximately 60% during 2007 due to significant
anticipated demand increases for corn resulting primarily from increasing
corn-derived ethanol industry capacity. Agricultural commodity market
concerns regarding the expected decline in the ending 2006 corn crop
carryover also contributed to the increase in corn
costs. Sweeteners and Starches operating profits increased $51
million primarily due to higher average sales prices and lower energy
costs. Sales prices increased due principally to good demand for
sweetener and starch products. These increases were partially offset
by increased net corn costs. Sweeteners and Starches operating
profits for 2006 include a $5 million charge related to the adoption of FIN
47. Bioproducts operating profits increased $153 million primarily
due to higher ethanol average selling prices and lower energy costs, partially
offset by increased net corn costs and lower ethanol sales
volumes. Ethanol average sales prices increased due principally to
strong demand from gasoline refiners and higher gasoline
prices. Ethanol sales volumes decreased as 2006 sales volumes
exceeded production due to the release of inventories built up in anticipation
of refiners replacing MTBE with ethanol. Bioproducts operating
results for 2007 include a $1 million charge for abandonment and write-down of
long-lived assets. Bioproducts operating results for 2006 include a
$6 million charge for abandonment and write-down of long-lived assets, a $2
million charge related to the adoption of FIN 47, and $6 million of costs
related to the closure of a citric acid plant.
Agricultural
Services operating profits increased $301 million to $538 million due
principally to a $153 million gain from the sale of the Company’s interest in
Agricore United, a Canadian business which specialized in crop input, crop
protection services, and grain marketing and merchandising. Excluding
the Agricore United gain, Agricultural Services operating profits increased $148
million to $385 million due principally to improved global grain merchandising
operating results and, to a lesser extent, improved transportation and North
American origination operating results. Global grain merchandising
results improved as regional production imbalances allowed the Company to
capitalize on merchandising opportunities. North American river
transportation operating results increased primarily due to increased barge
freight rates created by strong demand for barge capacity. North
American origination operating results improved due to good export demand for
agricultural commodities and higher ocean freight rates. Agricultural
Services operating profits for 2007 include a $12 million trade disruption
insurance recovery related to Hurricane Katrina.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Other
operating profits increased $25 million to $379 million. Wheat,
Cocoa, and Malt operating profits decreased $19 million. Wheat
operating profits include a $39 million gain on the sale of the Company’s Arkady
food ingredient business in 2007 and a $17 million gain from the sale of
long-lived assets in 2006. Excluding the effect of these one-time
gains, Wheat, Cocoa, and Malt operating profits declined $41 million primarily
due to cocoa operating results declining from prior year levels and to a lesser
extent, weaker equity earnings from our investment in Gruma S.A. partially
offset by improved operating results of the Company’s wheat flour processing
operations. Cocoa processing operating results declined primarily due
to increased industry production capacity which caused downward pressure on
cocoa processing margins. Financial operating profits increased $44
million due principally to increased valuations of the Company’s private equity
fund investments and higher operating results of the Company’s futures
commission merchant business, partially offset by lower operating results of the
Company’s captive insurance operations. The results of the Company’s
captive insurance operations for 2007 include a $12 million charge related to a
Hurricane Katrina trade disruption insurance settlement.
Corporate
expense decreased $199 million to $7 million due principally to a $345 million
increase in realized securities gains principally resulting from sales of the
Company’s equity securities of Tyson Foods, Inc. and Overseas Shipholding Group,
Inc. and a $103 million reduction in unallocated interest expense due
principally to higher levels of invested funds and higher interest
rates. These decreases were partially offset by a $207 million
charge, compared to a $12 million credit in the prior year, related to the
effect of changing commodity prices on LIFO inventory valuations and a $46
million charge related to the repurchase of $400 million of the Company’s
outstanding debentures.
Income
taxes increased due principally to higher pretax earnings and the absence of a
$36 million income tax credit in 2006 related to the recognition of federal and
state income tax credits and adjustments resulting from the reconciliation of
filed tax returns to the previously estimated tax provision. The
Company’s effective tax rate during 2007 was 31.5% and, after excluding the
effect of the 2006 $36 million tax credit, was 31.2% for the prior
year. The increase in the Company’s effective tax rate was primarily
due to changes in the geographic mix of pretax earnings.
Liquidity
and Capital Resources
A Company
objective is to have sufficient liquidity, balance sheet strength, and financial
flexibility to fund the operating and capital requirements of a capital
intensive agricultural-based commodity business.
At June
30, 2008, the Company had $1.3 billion of cash, cash equivalents, and short-term
marketable securities and a current ratio, defined as current assets divided by
current liabilities, of 1.7 to 1. Included in working capital
is $7.8 billion of readily marketable commodity
inventories. Cash used in operating activities totaled $3.2 billion
for the year compared to $303 million cash generated from operations last
year. This change was primarily due to an increase in working capital
requirements principally related to increased market prices and, to a lesser
extent, increased quantities of agricultural commodity inventories, principally
readily marketable commodity inventories, and increased
receivables. Cash used in investing activities increased $1.5 billion
for the year to $1.9 billion primarily due to increased capital expenditures and
decreased proceeds from sales of businesses including the sale of the Company’s
equity interests in Tyson Foods, Inc., Overseas Shipholding Group, Inc. and
Agricore United in 2007. Cash generated by financing activities was
$5.2 billion compared to cash used in financing activities of $398 million last
year. Net long-term borrowings increased primarily as a result of the
issuance in 2008 of approximately $3.1 billion of additional long-term debt,
including $500 million of debentures issued in December 2007, $700 million of
notes issued in March 2008, and $1.75 billion of debentures in June 2008,
compared to $1.15 billion of convertible senior notes issued in February 2007,
partially offset by $480 million of reduced debt payments principally related to
the Company’s retirement of $400 million of debentures in 2007.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Capital
resources were strengthened in 2008 as shown by the increase in the Company’s
net worth from $11.3 billion to $13.5 billion. The Company’s ratio of
long-term debt to total capital (the sum of the Company’s long-term debt and
shareholders’ equity) was 36% at June 30, 2008, and 30% at June 30,
2007. This ratio is a measure of the Company’s long-term liquidity
and is an indicator of financial flexibility. The Company currently
has $7.4 billion of commercial paper and commercial bank lines available to meet
seasonal cash requirements of which $5.2 billion are committed and $2.2 billion
are uncommitted. At June 30, 2008, the Company had $3.1 billion of
short-term debt outstanding. Standard & Poor’s, Moody’s, and
Fitch rate the Company’s commercial paper as A-1, P-1, and F1, respectively, and
rate the Company’s long-term debt as A, A2, and A, respectively. In
addition to the cash flow generated from operations, the Company has access to
equity and debt capital through numerous alternatives from public and private
sources in domestic and international markets.
The
Company has outstanding $1.15 billion principal amount of convertible senior
notes. As of June 30, 2008, none of the conditions permitting
conversion of the notes had been satisfied. As of June 30, 2008, the
market price of the Company’s common stock was not greater than the exercise
price of the purchased call options or warrants related to the convertible
senior notes.
In June
2008, the Company issued $1.75 billion of debentures as a component of Equity
Units. The Equity Units are a combination of (a) debt and (b) forward
contracts for the holder to purchase the Company’s common stock. The
purchase contracts obligate the holder to purchase from the Company, no later
than June 1, 2011, for a price of $50 in cash, a certain number of shares,
ranging from 1.0453 shares to 1.2544 shares, of the Company’s common stock,
based on a formula established in the contract.
Contractual
Obligations and Off-Balance Sheet Arrangements
In the
normal course of business, the Company enters into contracts and commitments
which obligate the Company to make payments in the future. The
following table sets forth the Company’s significant future obligations by time
period. Purchases include commodity-based contracts entered into in
the normal course of business, which are further described in Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” energy-related
purchase contracts entered into in the normal course of business, and other
purchase obligations related to the Company’s normal business
activities. Where applicable, information included in the Company’s
consolidated financial statements and notes is cross-referenced in this
table.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
|
Payments
Due by Period
|
|||||||||||||||||||||
|
Contractual
|
Note
|
Less
than
|
1 - 3 | 3 – 5 |
More
than
|
||||||||||||||||
|
Obligations
|
Reference
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
|||||||||||||||
|
(In
millions)
|
|||||||||||||||||||||
|
Purchases
|
|||||||||||||||||||||
|
Inventories
|
$ | 24,230 | $ | 22,813 | $ | 1,200 | $ | 174 | $ | 43 | |||||||||||
|
Energy
|
952 | 502 | 302 | 80 | 68 | ||||||||||||||||
|
Other
|
148 | 58 | 60 | 18 | 12 | ||||||||||||||||
|
Total
purchases
|
25,330 | 23,373 | 1,562 | 272 | 123 | ||||||||||||||||
|
Short-term
debt
|
Note
7
|
3,123 | 3,123 | – | – | – | |||||||||||||||
|
Long-term
debt
|
Note
7
|
7,993 | 232 | 358 | 380 | 7,023 | |||||||||||||||
|
Estimated
interest payments
|
9,639 | 511 | 808 | 758 | 7,562 | ||||||||||||||||
|
Operating
leases
|
Note
12
|
1,364 | 403 | 402 | 239 | 320 | |||||||||||||||
|
Estimated
pension and other
postretirement
plan
contributions
|
Note
13
|
1,217 | 90 | 204 | 229 | 694 | |||||||||||||||
|
Total
|
$ | 48,666 | $ | 27,732 | $ | 3,334 | $ | 1,878 | $ | 15,722 | |||||||||||
At June
30, 2008, the Company estimates it will spend approximately $2.5 billion over
the next five years to complete currently approved capital projects and
acquisitions which is not included in the table above. The Company is
a limited partner in various private equity funds which invest primarily in
emerging markets. At June 30, 2008, the Company’s carrying value of
these limited partnership investments was $129 million. The Company
has future capital commitments related to these partnerships of $137 million and
expects the majority of these additional capital commitments, if called for, to
be funded by cash flows generated by the partnerships. The Company
also has outstanding letters of credit and surety bonds of $500 million at June
30, 2008.
In
addition, the Company has entered into agreements, primarily debt guarantee
agreements related to equity-method investees, which could obligate the Company
to make future payments. The Company’s liability under these
agreements arises only if the primary entity fails to perform its contractual
obligation. The Company has collateral for a portion of these
contingent obligations. At June 30, 2008, these contingent
obligations totaled approximately $135 million. Amounts outstanding
for the primary entity under these contingent obligations were $62 million at
June 30, 2008.
Critical
Accounting Policies
The
process of preparing financial statements requires management to make estimates
and judgments that affect the carrying values of the Company’s assets and
liabilities as well as the recognition of revenues and
expenses. These estimates and judgments are based on the Company’s
historical experience and management’s knowledge and understanding of current
facts and circumstances. Certain of the Company’s accounting policies
are considered critical, as these policies are important to the depiction of the
Company’s financial statements and require significant or complex judgment by
management. Management has discussed with the Company’s Audit
Committee the development, selection, disclosure, and application of these
critical accounting policies. Following are the accounting policies
management considers critical to the Company’s financial statements.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Inventories
and Derivatives
Certain
of the Company’s merchandisable agricultural commodity inventories, forward
fixed-price purchase and sale contracts, and exchange-traded futures and
exchange-traded and over-the-counter options contracts are valued at estimated
market values. These merchandisable agricultural commodities are
freely traded, have quoted market prices, and may be sold without significant
additional processing. Management estimates market value based on
exchange-quoted prices, adjusted for differences in local
markets. Changes in the market values of these inventories and
contracts are recognized in the statement of earnings as a component of cost of
products sold. If management used different methods or factors to
estimate market value, amounts reported as inventories and cost of products sold
could differ materially. Additionally, if market conditions change
subsequent to year-end, amounts reported in future periods as inventories and
cost of products sold could differ materially.
The
Company, from time to time, uses derivative contracts designated as cash flow
hedges to fix the purchase price of anticipated volumes of commodities to be
purchased and processed in a future month, to fix the purchase price of the
Company’s anticipated natural gas requirements for certain production
facilities, and to fix the sales price of anticipated volumes of
ethanol. The change in the market value of such derivative contracts
has historically been, and is expected to continue to be, highly effective at
offsetting changes in price movements of the hedged item. Gains and
losses arising from open and closed hedging transactions are deferred in other
comprehensive income, net of applicable income taxes, and recognized as a
component of cost of products sold in the statement of earnings when the hedged
item is recognized. If it is determined that the derivative
instruments used are no longer effective at offsetting changes in the price of
the hedged item, then the changes in the market value of these exchange-traded
futures and exchange-traded and over-the-counter option contracts would be
recorded in the statement of earnings as a component of cost of products
sold.
Employee
Benefit Plans
The
Company provides substantially all domestic employees and employees at certain
international subsidiaries with pension benefits. The Company also
provides substantially all domestic salaried employees with postretirement
health care and life insurance benefits. In order to measure the
expense and funded status of these employee benefit plans, management makes
several estimates and assumptions, including interest rates used to discount
certain liabilities, rates of return on assets set aside to fund these plans,
rates of compensation increases, employee turnover rates, anticipated mortality
rates, and anticipated future health care costs. These estimates and assumptions
are based on the Company’s historical experience combined with management’s
knowledge and understanding of current facts and
circumstances. Management also uses third-party actuaries to assist
in measuring the expense and funded status of these employee benefit
plans. If management used different estimates and assumptions
regarding these plans, the funded status of the plans could vary significantly,
and the Company could recognize different amounts of expense over future
periods.
Income
Taxes
The
Company frequently faces challenges from domestic and foreign tax authorities
regarding the amount of taxes due. These challenges include questions
regarding the timing and amount of deductions and the allocation of income among
various tax jurisdictions. In evaluating the exposure associated with
various tax filing positions, the Company records reserves for estimates of
potential additional tax owed by the Company. Deferred tax assets
represent items to be used as tax deductions or credits in future tax returns,
and the related tax benefit has already been recognized in the Company’s income
statement. Realization of certain deferred tax assets reflects the
Company’s tax planning strategies. Valuation allowances related to
these deferred tax assets have been established to the extent the realization of
the tax benefit is not probable. Based on management’s evaluation of
the Company’s tax position, it is believed the amounts related to these tax
exposures are appropriately accrued. To the extent the Company were
to favorably resolve matters for which accruals have been established or be
required to pay amounts in excess of the aforementioned reserves, the Company’s
effective tax rate in a given financial statement period may be
impacted.
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Undistributed
earnings of the Company’s foreign subsidiaries and affiliated corporate joint
ventures accounted for on the equity method are considered to be permanently
reinvested, and accordingly, no provision for U.S. income taxes has been
provided thereon. If the Company were to receive distributions from
any of these foreign subsidiaries or affiliates or determine the undistributed
earnings of these foreign subsidiaries or affiliates to not be permanently
reinvested, the Company could be subject to U.S. tax liabilities which have not
been provided for in the consolidated financial statements.
Asset
Abandonments and Write-Downs
The
Company is principally engaged in the business of procuring, transporting,
storing, processing, and merchandising agricultural commodities and
products. This business is global in nature and is highly
capital-intensive. Both the availability of the Company’s raw
materials and the demand for the Company’s finished products are driven by
unpredictable factors such as weather, plantings, government programs and
policies, changes in global demand resulting from population growth and changes
in standards of living, and global production of similar and competitive
crops. These aforementioned unpredictable factors, therefore, may
cause a shift in the supply/demand dynamics for the Company’s raw materials and
finished products. Any such shift will cause management to evaluate
the efficiency and profitability of the Company’s asset base in terms of
geographic location, size, and age of its factories. The Company,
from time to time, will also invest in equipment, technology, and companies
related to new, value-added products produced from agricultural commodities and
products. These new products are not always successful from either a
commercial production or marketing perspective. Management evaluates the
Company’s property, plant, and equipment for impairment whenever indicators of
impairment exist. The Company evaluates goodwill and other intangible
assets with indefinite lives for impairment annually. Assets are
written down after consideration of the ability to utilize the assets for their
intended purpose or to employ the assets in alternative uses or sell the assets
to recover the carrying value. If management used different estimates
and assumptions in its evaluation of these assets, then the Company could
recognize different amounts of expense over future periods.
Valuation
of Marketable Securities and Investments in Affiliates
The
Company classifies the majority of its marketable securities as
available-for-sale and carries these securities at fair
value. Investments in affiliates are carried at cost plus equity in
undistributed earnings and are adjusted, where appropriate, for amortizable
basis differences between the investment balance and the underlying net assets
of the investee. For publicly traded securities, the fair value of
the Company’s investments is readily available based on quoted market
prices. For non-publicly traded securities, management’s assessment
of fair value is based on valuation methodologies including discounted cash
flows and estimates of sales proceeds. In the event of a decline in
fair value of an investment below carrying value, management may be required to
determine if the decline in fair value is other than temporary. In
evaluating the nature of a decline in the fair value of an investment,
management considers the market conditions, trends of earnings, discounted cash
flows, trading volumes, and other key measures of the investment as well as the
Company’s ability and intent to hold the investment. When such a
decline in value is deemed to be other than temporary, an impairment loss is
recognized in the current period operating results to the extent of the decline.
See Notes 3 and 5 to the Company’s consolidated financial statements for
information regarding the Company’s marketable securities and investments in
affiliates. If management used different estimates and assumptions in its
evaluation of these marketable securities, then the Company could recognize
different amounts of expense over future periods.
|
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
market risk inherent in the Company’s market risk sensitive instruments and
positions is the potential loss arising from adverse changes in: commodity
market prices as they relate to the Company’s net commodity position, foreign
currency exchange rates, and interest rates as described below.
Commodities
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, government
programs and policies, changes in global demand resulting from population growth
and changes in standards of living, and global production of similar and
competitive crops.
To reduce
price risk caused by market fluctuations, the Company generally follows a policy
of using exchange-traded futures and exchange-traded and over-the-counter
options contracts to minimize its net position of merchandisable agricultural
commodity inventories and forward cash purchase and sales
contracts. The Company will also use exchange-traded futures and
exchange-traded and over-the-counter options contracts as components of
merchandising strategies designed to enhance margins. The results of
these strategies can be significantly impacted by factors such as the volatility
of the relationship between the value of exchange-traded commodities futures
contracts and the cash prices of the underlying commodities, counterparty
contracts defaults, and volatility of freight markets. In addition, the Company
from time-to-time enters into derivative contracts which are designated as
hedges of specific volumes of commodities that will be purchased and processed,
or sold, in a future month. The changes in the market value of such futures
contracts have historically been, and are expected to continue to be, highly
effective at offsetting changes in price movements of the hedged item. Gains and
losses arising from open and closed hedging transactions are deferred in other
comprehensive income, net of applicable taxes, and recognized as a component of
cost of products sold in the statement of earnings when the hedged item is
recognized.
A
sensitivity analysis has been prepared to estimate the Company’s exposure to
market risk of its daily net commodity position. The Company’s daily net
commodity position consists of merchandisable agricultural commodity
inventories, related purchase and sale contracts, and exchange-traded futures
and exchange-traded and over-the-counter option contracts, including those
contracts used to hedge portions of production requirements. The fair value of
such daily net commodity position is a summation of the fair values calculated
for each commodity by valuing each net position at quoted futures prices. Market
risk is estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in such prices. Actual results may
differ.
|
2008
|
2007
|
|||||||||||||||
|
Long/(Short)
|
Fair
Value
|
Market
Risk
|
Fair
Value
|
Market
Risk
|
||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Highest
position
|
$ | 1,260 | $ | 126 | $ | 703 | $ | 70 | ||||||||
|
Lowest
position
|
(915 | ) | (92 | ) | (565 | ) | (57 | ) | ||||||||
|
Average
position
|
251 | 25 | 180 | 18 | ||||||||||||
The
change in fair value of the average position for 2008 compared to 2007 was
principally a result of increases in commodity prices and, to a lesser extent,
quantities underlying the daily net commodity position.
|
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
Currencies
In order
to reduce the risk of foreign currency exchange rate fluctuations, except for
amounts permanently invested as described below, the Company follows a policy of
entering into currency exchange forward contracts to mitigate its foreign
currency risk related to transactions denominated in a currency other than the
functional currencies applicable to each of its various entities. The
instruments used are forward contracts, swaps with banks, and exchange-traded
futures contracts. The changes in market value of such contracts have
a high correlation to the price changes in the currency of the related
transactions. The potential loss in fair value for such net currency position
resulting from a hypothetical 10% adverse change in foreign currency exchange
rates is not material.
The
amount the Company considers permanently invested in foreign subsidiaries and
affiliates and translated into dollars using the year-end exchange rates is $7.0
billion at June 30, 2008, and $5.4 billion at June 30, 2007. This
increase is due to an increase in retained earnings of the foreign subsidiaries
and affiliates and appreciation of foreign currencies versus the U.S.
dollar. The potential loss in fair value resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates is
$695 million and $543 million for 2008 and 2007, respectively. Actual
results may differ.
Interest
The fair
value of the Company’s long-term debt is estimated using quoted market prices,
where available, and discounted future cash flows based on the Company’s current
incremental borrowing rates for similar types of borrowing arrangements. Such
fair value exceeded the long-term debt carrying value. Market risk is estimated
as the potential increase in fair value resulting from a hypothetical .5%
decrease in interest rates. Actual results may differ.
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Fair
value of long-term debt
|
$ | 7,789 | $ | 4,862 | ||||
|
Excess
of fair value over carrying value
|
99 | 110 | ||||||
|
Market
risk
|
308 | 232 | ||||||
The
increase in fair value of long-term debt in 2008 resulted principally from the
Company’s issuance of approximately $3.1 billion in long-term debt in
2008.
|
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
Financial
Statements
|
Page
No.
|
|||
|
Consolidated
Statements of Earnings
|
37
|
|||
|
Consolidated
Balance Sheets
|
38 | |||
|
Consolidated
Statements of Cash Flows
|
39
|
|||
|
Consolidated
Statements of Shareholders’ Equity
|
40
|
|||
|
Notes
to Consolidated Financial Statements
|
41
|
|||
|
Reports
of Independent Registered Public Accounting Firm
|
73
|
|||
Archer
Daniels Midland Company
Consolidated
Statements of Earnings
|
Year
Ended June 30
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions, except per share amounts)
|
||||||||||||
|
Net
sales and other operating income
|
$ | 69,816 | $ | 44,018 | $ | 36,596 | ||||||
|
Cost
of products sold
|
65,974 | 40,781 | 33,630 | |||||||||
|
Gross
Profit
|
3,842 | 3,237 | 2,966 | |||||||||
|
Selling,
general and administrative expenses
|
1,419 | 1,195 | 1,193 | |||||||||
|
Other
income - net
|
(201 | ) | (1,112 | ) | (82 | ) | ||||||
|
Earnings
Before Income Taxes
|
2,624 | 3,154 | 1,855 | |||||||||
|
Income
taxes
|
822 | 992 | 543 | |||||||||
|
Net
Earnings
|
$ | 1,802 | $ | 2,162 | $ | 1,312 | ||||||
|
Average
number of shares outstanding – basic
|
644 | 651 | 654 | |||||||||
|
Average
number of shares outstanding – diluted
|
646 | 656 | 656 | |||||||||
|
Basic
earnings per common share
|
$ | 2.80 | $ | 3.32 | $ | 2.01 | ||||||
|
Diluted
earnings per common share
|
$ | 2.79 | $ | 3.30 | $ | 2.00 | ||||||
See notes
to consolidated financial statements.
Archer
Daniels Midland Company
Consolidated
Balance Sheets
|
June
30
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 810 | $ | 663 | ||||
|
Short-term
marketable securities
|
455 | 212 | ||||||
|
Segregated
cash and investments
|
2,035 | 1,424 | ||||||
|
Receivables
|
11,483 | 6,404 | ||||||
|
Inventories
|
10,160 | 6,060 | ||||||
|
Other
assets
|
512 | 359 | ||||||
|
Total Current Assets
|
25,455 | 15,122 | ||||||
|
Investments
and Other Assets
|
||||||||
|
Investments
in and advances to affiliates
|
2,773 | 2,498 | ||||||
|
Long-term
marketable securities
|
590 | 657 | ||||||
|
Goodwill
|
506 | 317 | ||||||
|
Other
assets
|
607 | 514 | ||||||
|
Total Investments and Other Assets
|
4,476 | 3,986 | ||||||
|
Property,
Plant, and Equipment
|
||||||||
|
Land
|
238 | 227 | ||||||
|
Buildings
|
3,207 | 3,002 | ||||||
|
Machinery
and equipment
|
12,410 | 11,822 | ||||||
|
Construction
in progress
|
1,924 | 884 | ||||||
| 17,779 | 15,935 | |||||||
|
Accumulated
depreciation
|
(10,654 | ) | (9,925 | ) | ||||
|
Net Property, Plant, and Equipment
|
7,125 | 6,010 | ||||||
|
Total
Assets
|
$ | 37,056 | $ | 25,118 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Short-term
debt
|
$ | 3,123 | $ | 468 | ||||
|
Accounts
payable
|
6,544 | 4,919 | ||||||
|
Accrued
expenses
|
4,722 | 2,416 | ||||||
|
Current
maturities of long-term debt
|
232 | 65 | ||||||
|
Total Current Liabilities
|
14,621 | 7,868 | ||||||
|
Long-Term
Liabilities
|
||||||||
|
Long-term
debt
|
7,690 | 4,752 | ||||||
|
Deferred
income taxes
|
473 | 532 | ||||||
|
Other
|
782 | 713 | ||||||
|
Total Long-Term Liabilities
|
8,945 | 5,997 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Common
stock
|
5,039 | 5,090 | ||||||
|
Reinvested
earnings
|
7,494 | 5,982 | ||||||
|
Accumulated
other comprehensive income
|
957 | 181 | ||||||
|
Total Shareholders’ Equity
|
13,490 | 11,253 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 37,056 | $ | 25,118 | ||||
See notes
to consolidated financial statements.
Archer
Daniels Midland Company
Consolidated
Statements of Cash Flows
|
Year
Ended June 30
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Operating
Activities
|
||||||||||||
|
Net
earnings
|
$ | 1,802 | $ | 2,162 | $ | 1,312 | ||||||
|
Adjustments
to reconcile net earnings to net cash provided by
(used
in) operating activities
|
||||||||||||
|
Depreciation
|
721 | 701 | 657 | |||||||||
|
Asset
abandonments and impairments
|
32 | 21 | 71 | |||||||||
|
Deferred
income taxes
|
(128 | ) | 109 | (106 | ) | |||||||
|
Gain
on sales of marketable securities
|
(38 | ) | (393 | ) | (40 | ) | ||||||
|
Gain
on exchange of unconsolidated affiliates
|
(8 | ) | (440 | ) | – | |||||||
|
Gain
on sale of businesses
|
(8 | ) | (209 | ) | – | |||||||
|
Equity
in earnings of affiliates, net of dividends
|
(283 | ) | (193 | ) | (69 | ) | ||||||
|
Stock
contributed to employee benefit plans
|
29 | 27 | 25 | |||||||||
|
Pension
and postretirement accruals (contributions), net
|
36 | 61 | (164 | ) | ||||||||
|
Other
– net
|
249 | 99 | 91 | |||||||||
|
Changes
in operating assets and liabilities
|
||||||||||||
|
Segregated
cash and investments
|
(614 | ) | (191 | ) | (240 | ) | ||||||
|
Receivables
|
(1,975 | ) | (953 | ) | (177 | ) | ||||||
|
Inventories
|
(4,580 | ) | (1,215 | ) | (601 | ) | ||||||
|
Other
assets
|
(174 | ) | (66 | ) | (28 | ) | ||||||
|
Accounts
payable and accrued expenses
|
1,735 | 783 | 645 | |||||||||
|
Total
Operating Activities
|
(3,204 | ) | 303 | 1,376 | ||||||||
|
Investing
Activities
|
||||||||||||
|
Purchases
of property, plant, and equipment
|
(1,779 | ) | (1,198 | ) | (762 | ) | ||||||
|
Proceeds
from sales of property, plant, and equipment
|
52 | 45 | 54 | |||||||||
|
Proceeds
from sale of businesses
|
11 | 385 | – | |||||||||
|
Net
assets of businesses acquired
|
(13 | ) | (103 | ) | (182 | ) | ||||||
|
Investments
in and advances to affiliates
|
(32 | ) | (53 | ) | (126 | ) | ||||||
|
Distributions
from affiliates, excluding dividends
| ||||||||||||