adm10qty10q3.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2010
OR
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from __________ to __________
Commission file number 1-44
ARCHER-DANIELS-MIDLAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware
|
41-0129150
|
(State or other jurisdiction of
incorporation or organization)
|
(I. R. S. Employer
Identification No.)
|
|
|
4666 Faries Parkway Box 1470
Decatur, Illinois
(Address of principal executive offices)
|
62525
(Zip Code)
|
|
|
(217) 424-5200
|
(Registrant's telephone number, including area code)
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer o
Non-accelerated Filer o Smaller reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, no par value – 643,049,847 shares
PART I - FINANCIAL INFORMATION
ITEM 1.
|
FINANCIAL STATEMENTS
|
Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009 (1)
|
|
|
|
(In millions, except
|
|
|
|
per share amounts)
|
|
|
|
|
|
|
|
|
Net sales and other operating income
|
|
$ |
15,145 |
|
|
$ |
14,842 |
|
Cost of products sold
|
|
|
14,254 |
|
|
|
14,193 |
|
Gross Profit
|
|
|
891 |
|
|
|
649 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
355 |
|
|
|
346 |
|
Other (income) expense – net
|
|
|
2 |
|
|
|
160 |
|
Earnings Before Income Taxes
|
|
|
534 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
118 |
|
|
|
140 |
|
Net Earnings including Noncontrolling Interests
|
|
|
416 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Less: Net earnings (losses) attributable to noncontrolling interests
|
|
|
(5 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to Controlling Interests
|
|
$ |
421 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – basic
|
|
|
643 |
|
|
|
642 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – diluted
|
|
|
645 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share
|
|
$ |
0.65 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$ |
0.15 |
|
|
$ |
0.14 |
|
See notes to consolidated financial statements.
(1) As adjusted for Accounting Standards Codification (ASC) Topics 470-20 and 810.
Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009 (1)
|
|
|
|
(In millions, except
|
|
|
|
per share amounts)
|
|
|
|
|
|
|
|
|
Net sales and other operating income
|
|
$ |
45,979 |
|
|
$ |
52,675 |
|
Cost of products sold
|
|
|
43,062 |
|
|
|
48,947 |
|
Gross Profit
|
|
|
2,917 |
|
|
|
3,728 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,067 |
|
|
|
1,092 |
|
Other (income) expense – net
|
|
|
(185 |
) |
|
|
190 |
|
Earnings Before Income Taxes
|
|
|
2,035 |
|
|
|
2,446 |
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
561 |
|
|
|
818 |
|
Net Earnings including Noncontrolling Interests
|
|
|
1,474 |
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
|
Less: Net earnings (losses) attributable to noncontrolling interests
|
|
|
(10 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to Controlling Interests
|
|
$ |
1,484 |
|
|
$ |
1,626 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – basic
|
|
|
643 |
|
|
|
643 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – diluted
|
|
|
644 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$ |
2.31 |
|
|
$ |
2.53 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$ |
2.30 |
|
|
$ |
2.52 |
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$ |
0.43 |
|
|
$ |
0.40 |
|
See notes to consolidated financial statements.
(1) As adjusted for ASC Topics 470-20 and 810.
Archer-Daniels-Midland Company
Consolidated Balance Sheets
|
|
(Unaudited)
|
|
|
|
|
March 31,
|
June 30,
|
|
|
|
2010
|
2009
|
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,659 |
|
|
$ |
1,055 |
|
Short-term marketable securities
|
|
|
407 |
|
|
|
500 |
|
Segregated cash and investments
|
|
|
2,501 |
|
|
|
2,430 |
|
Receivables
|
|
|
5,876 |
|
|
|
7,311 |
|
Inventories
|
|
|
8,219 |
|
|
|
7,782 |
|
Other assets
|
|
|
538 |
|
|
|
330 |
|
Total Current Assets
|
|
|
19,200 |
|
|
|
19,408 |
|
|
|
|
|
|
|
|
|
|
Investments and Other Assets
|
|
|
|
|
|
|
|
|
Investments in and advances to affiliates
|
|
|
2,671 |
|
|
|
2,459 |
|
Long-term marketable securities
|
|
|
673 |
|
|
|
626 |
|
Goodwill
|
|
|
519 |
|
|
|
532 |
|
Other assets
|
|
|
621 |
|
|
|
607 |
|
Total Investments and Other Assets
|
|
|
4,484 |
|
|
|
4,224 |
|
|
|
|
|
|
|
|
|
|
Property, Plant, and Equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
262 |
|
|
|
240 |
|
Buildings
|
|
|
3,789 |
|
|
|
3,304 |
|
Machinery and equipment
|
|
|
14,585 |
|
|
|
13,052 |
|
Construction in progress
|
|
|
1,371 |
|
|
|
2,245 |
|
|
|
|
20,007 |
|
|
|
18,841 |
|
Accumulated depreciation
|
|
|
(11,365 |
) |
|
|
(10,891 |
) |
Net Property, Plant, and Equipment
|
|
|
8,642 |
|
|
|
7,950 |
|
Total Assets
|
|
$ |
32,326 |
|
|
$ |
31,582 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
266 |
|
|
$ |
356 |
|
Accounts payable
|
|
|
6,406 |
|
|
|
5,786 |
|
Accrued expenses
|
|
|
2,319 |
|
|
|
2,695 |
|
Current maturities of long-term debt
|
|
|
245 |
|
|
|
48 |
|
Total Current Liabilities
|
|
|
9,236 |
|
|
|
8,885 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
6,910 |
|
|
|
7,592 |
|
Deferred income taxes
|
|
|
425 |
|
|
|
308 |
|
Other
|
|
|
986 |
|
|
|
1,144 |
|
Total Long-Term Liabilities
|
|
|
8,321 |
|
|
|
9,044 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
5,245 |
|
|
|
5,204 |
|
Reinvested earnings
|
|
|
10,011 |
|
|
|
8,778 |
|
Accumulated other comprehensive income (loss)
|
|
|
(512 |
) |
|
|
(355 |
) |
Noncontrolling interests
|
|
|
25 |
|
|
|
26 |
|
Total Shareholders’ Equity
|
|
|
14,769 |
|
|
|
13,653 |
|
Total Liabilities and Shareholders’ Equity
|
|
$ |
32,326 |
|
|
$ |
31,582 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009 (1)
|
|
|
|
(In millions)
|
|
Operating Activities
|
|
|
|
|
|
|
Net earnings including noncontrolling interests
|
|
$ |
1,474 |
|
|
$ |
1,628 |
|
Adjustments to reconcile net earnings to net cash provided by
|
|
|
|
|
|
|
|
|
(used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
673 |
|
|
|
576 |
|
Deferred income taxes
|
|
|
90 |
|
|
|
156 |
|
Equity in (earnings) losses of affiliates, net of dividends
|
|
|
(232 |
) |
|
|
74 |
|
Pension and postretirement contributions, net
|
|
|
(133 |
) |
|
|
(96 |
) |
Charges on early extinguishment of debt
|
|
|
75 |
|
|
|
– |
|
Deferred cash flow hedges
|
|
|
17 |
|
|
|
(358 |
) |
Other – net
|
|
|
54 |
|
|
|
40 |
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Segregated cash and investments
|
|
|
(88 |
) |
|
|
(224 |
) |
Receivables
|
|
|
1,228 |
|
|
|
3,468 |
|
Inventories
|
|
|
(551 |
) |
|
|
1,575 |
|
Other assets
|
|
|
(190 |
) |
|
|
187 |
|
Accounts payable and accrued expenses
|
|
|
358 |
|
|
|
(1,175 |
) |
Total Operating Activities
|
|
|
2,775 |
|
|
|
5,851 |
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
(1,230 |
) |
|
|
(1,462 |
) |
Proceeds from sales of property, plant, and equipment
|
|
|
25 |
|
|
|
58 |
|
Proceeds from sales of businesses
|
|
|
– |
|
|
|
258 |
|
Net assets of businesses acquired
|
|
|
(59 |
) |
|
|
(44 |
) |
Purchases of marketable securities
|
|
|
(1,012 |
) |
|
|
(1,861 |
) |
Proceeds from sales of marketable securities
|
|
|
1,086 |
|
|
|
1,840 |
|
Other – net
|
|
|
(23 |
) |
|
|
(11 |
) |
Total Investing Activities
|
|
|
(1,213 |
) |
|
|
(1,222 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Long-term debt borrowings
|
|
|
14 |
|
|
|
102 |
|
Long-term debt payments
|
|
|
(546 |
) |
|
|
(18 |
) |
Debt repurchase premium and costs
|
|
|
(71 |
) |
|
|
– |
|
Net payments under lines of credit agreements
|
|
|
(89 |
) |
|
|
(2,989 |
) |
Purchases of treasury stock
|
|
|
– |
|
|
|
(100 |
) |
Cash dividends
|
|
|
(276 |
) |
|
|
(257 |
) |
Other – net
|
|
|
10 |
|
|
|
11 |
|
Total Financing Activities
|
|
|
(958 |
) |
|
|
(3,251 |
) |
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
604 |
|
|
|
1,378 |
|
Cash and cash equivalents beginning of period
|
|
|
1,055 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$ |
1,659 |
|
|
$ |
2,188 |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
(1) As adjusted for ASC Topics 470-20 and 810.
Archer-Daniels-Midland-Company
Consolidated Statement of Shareholders’ Equity
(Unaudited)
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
Common Stock
|
|
Reinvested
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Shareholders’
|
|
Shares
|
|
|
Amount
|
|
Earnings
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009
|
|
642 |
|
|
$ |
5,204 |
|
$ |
8,778 |
|
$ |
(355 |
) |
|
$ |
26 |
|
|
$ |
13,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
1,484 |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
(157 |
) |
|
|
|
|
|
|
|
|
Total comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317 |
|
Cash dividends paid-$.43 per
share
|
|
|
|
|
|
|
|
|
(276 |
) |
|
|
|
|
|
|
|
|
|
(276 |
) |
Other
|
|
1 |
|
|
|
41 |
|
|
25 |
|
|
|
|
|
|
9 |
|
|
|
75 |
|
Balance March 31, 2010
|
|
643 |
|
|
$ |
5,245 |
|
$ |
10,011 |
|
$ |
(512 |
) |
|
$ |
25 |
|
|
$ |
14,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements
(Unaudited)
Note 1.
|
Basis of Presentation
|
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2009.
Adoption of New Accounting Standards
On July 1, 2009, the Company adopted Financial Accounting Standards Board (FASB) amended guidance in Accounting Standards Codification (ASC) Topic 805, Business Combinations, which changes the financial accounting and reporting of business combination transactions. The guidance is to be applied prospectively to business combinations completed on or after the adoption date. This amended guidance requires recognizing, with certain exceptions, 100 percent of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity; measuring acquirer shares issued and contingent consideration arrangements in connection with a business combination at fair value on the acquisition date with subsequent changes in fair value reflected in earnings; and expensing as incurred acquisition-related transaction costs. The amended guidance also includes requirements relating to the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and establishes a model to account for certain pre-acquisition contingencies. Under the amended guidance, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer should follow the recognition criteria in ASC Topic 450, Contingencies. There was no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.
On July 1, 2009, the Company adopted the amended guidance in ASC Topic 470-20, Debt with Conversion and Other Options, which specifies that issuers of convertible debt instruments that may settle in cash upon conversion must bifurcate the proceeds from the debt issuance between the debt and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The equity component reflects the value of the conversion feature of the notes at adoption. The amended guidance requires retrospective application to all periods presented. See Note 6 for further information regarding the impact of adoption of this guidance.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1.
|
Basis of Presentation (Continued)
|
On July 1, 2009, the Company adopted amended guidance in ASC Topic 810, Consolidation, pertaining to the accounting and reporting of noncontrolling interests in financial statements. The amended guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. As required by the amended guidance, the Company reclassified $26 million attributable to noncontrolling interests from other long-term liabilities to a separate component of shareholders’ equity. The net earnings attributable to noncontrolling interests is now presented as a separate line item on the consolidated statements of earnings. Presentation and disclosure requirements are to be applied retrospectively for all periods presented and accordingly, the Company’s consolidated financial statements have been restated for the impact of the amended guidance. In addition, the Company consolidates certain noncontrolling interests which are associated with mandatorily redeemable instruments outside of the Company’s control. In accordance with guidance contained in SEC Accounting Series Release 268, Redeemable Preferred Stock and ASC Topic 480, Distinguishing Liabilities from Equity, noncontrolling interests which are associated with mandatorily redeemable instruments outside of the Company’s control have not been reclassified as a separate component of shareholders’ equity. The income or loss attributable to the mandatorily redeemable interests in consolidated subsidiaries adjusts the redeemable value of the redeemable instruments and is included in Other (income) expense - net.
On July 1, 2009 the Company adopted the amended guidance in ASC Topic 260, Earnings per Share, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method. It also clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and are considered to be participating securities, thus requiring the issuing entity to apply the two-class method of computing basic and diluted EPS. There was no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.
On July 1, 2009, the Company adopted the guidance in ASC Topic 820, Fair Value Measurements and Disclosures, for its nonfinancial assets and liabilities that are recognized at fair value on a nonrecurring basis, including goodwill, other intangible assets, and asset retirement obligations. The Company recorded no significant new or remeasured fair values during the period for its nonfinancial assets and liabilities that are recognized on a nonrecurring basis.
On October 1, 2009, the Company adopted the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures. The amendment permits certain entities to use Net Asset Value (NAV) as a practical expedient to estimate the fair value of investments within its scope provided the NAV is calculated as of the Company’s reporting date. The amendment also indicates how investments within its scope would be classified in the fair value hierarchy and requires enhanced disclosures about the nature and risks of investments. The disclosure requirements apply to all investments within the scope of the amendment, regardless of whether the Company elects to measure the investment using NAV as a practical expedient. The adoption of this amendment requires expanded disclosure in the notes to the Company’s consolidated financial statements but does not materially impact financial results.
On October 1, 2009, the Company adopted the amendment to ASC Topic 820, Fair Value Measurements and Disclosures, which provides guidance for the fair value measurement of liabilities. It clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, fair value must be measured using specified valuation techniques. It further clarifies that both (a) a quoted price in an active market for the identical liability at the measurement date, and (b) the quoted price for the identical liability when traded as an asset in an active market (such as bonds), when no adjustments to the quoted price of the asset are required, are Level 1 fair value measurements. There is no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1.
|
Basis of Presentation (Continued)
|
Effective March 31, 2010, the Company adopted the first phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose the amounts and reasons for significant transfers between Levels 1 and 2 in the fair value hierarchy as well reasons for any transfers in or out of Level 3. The amended guidance also requires the Company to provide fair value measurement disclosures for each class of assets and liabilities and disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The adoption of this amendment requires expanded disclosure in the notes to the Company’s consolidated financial statements but does not impact financial results.
Reclassifications
Certain items in prior year’s consolidated statements of cash flows have been reclassified to conform to the current year’s presentation with no impact to total cash provided by (used in) operating, investing, or financing activities.
Last-in, First-out (LIFO) Inventories
Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels. Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventories at interim periods may vary significantly from management’s estimates of year-end inventory levels.
Note 2.
|
New Accounting Standards
|
Effective June 30, 2010, the Company will be required to adopt the amended guidance in ASC Topic 715, Compensation – Retirement Benefits, which expands disclosure requirements and requires entities to disclose investment policies and strategies, major categories of plan assets, fair value measurements for each major category of plan assets segregated by fair value hierarchy level as defined in ASC Topic 820, the effect of fair value measurements using Level 3 inputs on changes in plan assets for the period, and significant concentrations of risk within plan assets. The adoption of this amended guidance will require expanded disclosure in the notes to the Company’s consolidated financial statements but will not impact financial results.
Effective July 1, 2010, the Company will be required to adopt the amended guidance in ASC Topic 810, Consolidations, which will change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights (known as variable interest entities or VIEs) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This amended guidance will require a number of new disclosures including disclosures about the reporting entity’s involvement with VIEs, how its involvement with VIEs affects the reporting entity’s financial statements, and any significant changes in risk exposure due to that involvement. The Company has not yet completed its assessment of the impact from the adoption of this amended guidance on the Company’s financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 2.
|
New Accounting Standards (Continued)
|
Effective July 1, 2011, the Company will be required to adopt the second phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis, separately for assets and liabilities. The adoption of this amended guidance will require expanded disclosure in the notes to the Company’s consolidated financial statements but will not impact financial results.
Note 3.
|
Fair Value Measurements
|
The Company determines the fair market value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels established in the guidance of ASC Topic 820, Fair Value Measurements and Disclosures. Three levels are established within the hierarchy that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange-traded derivative contracts, U.S. treasury securities and certain publicly traded equity securities.
Level 2: Observable inputs, including Level 1 prices that have been adjusted; quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be substantially corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Level 3 amounts can include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of input that is a significant component of the fair value measurement determines the placement of the entire fair value measurement in the hierarchy. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.
The Company’s policy regarding the timing of transfers between levels, including both transfers into and transfers out of Level 3, is to measure and record the transfers at the end of the reporting period. For the period ended March 31, 2010, the Company had no transfers between Levels 1 and 2.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3.
|
Fair Value Measurements (Continued)
|
The following table sets forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2010.
|
|
Fair Value Measurements at March 31, 2010
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories carried at market
|
|
$ |
– |
|
|
$ |
3,848 |
|
|
$ |
500 |
|
|
$ |
4,348 |
|
Unrealized derivative gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
773 |
|
|
|
597 |
|
|
|
47 |
|
|
|
1,417 |
|
Foreign exchange contracts
|
|
|
63 |
|
|
|
31 |
|
|
|
– |
|
|
|
94 |
|
Interest rate contracts
|
|
|
– |
|
|
|
33 |
|
|
|
– |
|
|
|
33 |
|
Marketable securities
|
|
|
1,276 |
|
|
|
514 |
|
|
|
– |
|
|
|
1,790 |
|
Total Assets
|
|
$ |
2,112 |
|
|
$ |
5,023 |
|
|
$ |
547 |
|
|
$ |
7,682 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized derivative losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$ |
863 |
|
|
$ |
775 |
|
|
$ |
78 |
|
|
$ |
1,716 |
|
Foreign exchange contracts
|
|
|
50 |
|
|
|
63 |
|
|
|
– |
|
|
|
113 |
|
Interest rate contracts
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Inventory-related payables
|
|
|
– |
|
|
|
378 |
|
|
|
95 |
|
|
|
473 |
|
Total Liabilities
|
|
$ |
913 |
|
|
$ |
1,216 |
|
|
$ |
173 |
|
|
$ |
2,302 |
|
The Company uses the market approach valuation technique to measure the majority of its assets and liabilities carried at fair value. Estimated fair market values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets, broker or dealer quotations, or market transactions in either listed or over-the-counter (OTC) markets. In such cases, the inventory is classified in Level 2. Certain inventories may require management judgment or estimation for a significant component of the fair value amount. In such cases, the inventory is classified as Level 3. Changes in the fair market value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3.
|
Fair Value Measurements (Continued)
|
The Company’s derivative contracts that are measured at fair value include forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to agricultural commodities, energy, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. Majority of the Company’s exchange-traded futures and options contracts are cash settled on a daily basis and, therefore, are not included in this table. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are available for substantially the full term of the asset or liability, the derivative contracts are classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract’s fair value is classified in Level 3. Based on historical experience with the Company’s suppliers and customers, the Company’s own credit risk, and the Company’s knowledge of current market conditions, the Company does not view nonperformance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. However, in situations when the Company believes the nonperformance risk to be a significant input, the Company records estimated fair value adjustments, and classifies the contracts in Level 3 in the fair value hierarchy. Changes in the fair market value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair market value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense – net, depending on the nature of the foreign currency-related commercial transaction. The effective portions of changes in the fair market value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) until the hedged items are recorded in earnings.
The Company’s marketable securities are comprised of U.S. Treasury securities, obligations of U.S. government agencies, corporate and municipal debt securities, and equity investments. U.S. Treasury securities and certain publicly traded equity investments are valued using quoted market prices and are classified as Level 1. U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are valued using third-party pricing services and substantially all are classified as Level 2. Security values that are determined using pricing models are classified as Level 3. Unrealized changes in the fair market value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the quarter ended March 31, 2010.
|
|
Level 3 Fair Value Measurements
|
|
|
|
Inventories
Carried at
Market, Net
|
|
|
Commodity
Derivative
Contracts,
Net
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$ |
600 |
|
|
$ |
77 |
|
|
$ |
677 |
|
Total gains (losses), realized or
unrealized, included in earnings
before income taxes*
|
|
|
72 |
|
|
|
(62 |
) |
|
|
10 |
|
Purchases, issuances and settlements
|
|
|
(99 |
) |
|
|
(6 |
) |
|
|
(105 |
) |
Transfers into Level 3
|
|
|
– |
|
|
|
(5 |
) |
|
|
(5 |
) |
Transfers out of Level 3
|
|
|
(168 |
) |
|
|
(35 |
) |
|
|
(203 |
) |
Ending balance, March 31, 2010
|
|
$ |
405 |
|
|
$ |
(31 |
) |
|
$ |
374 |
|
*Includes losses of $99 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2010.
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2010.
|
|
Level 3 Fair Value Measurements
|
|
|
|
Inventories
Carried at
Market, Net
|
|
|
Commodity
Derivative
Contracts,
Net
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$ |
468 |
|
|
$ |
(2 |
) |
|
$ |
466 |
|
Total gains (losses), realized or
unrealized, included in earnings
before income taxes*
|
|
|
30 |
|
|
|
(18 |
) |
|
|
12 |
|
Purchases, issuances and settlements
|
|
|
(127 |
) |
|
|
(23 |
) |
|
|
(150 |
) |
Transfers in and/or out of Level 3
|
|
|
34 |
|
|
|
12 |
|
|
|
46 |
|
Ending balance, March 31, 2010
|
|
$ |
405 |
|
|
$ |
(31 |
) |
|
$ |
374 |
|
*Includes losses of $4 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2010.
Transfers into Level 3 previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement on certain derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement on certain products falling below the 10% threshold and thus permitting reclassification to Level 2.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Derivative Instruments and Hedging Activities
|
ASC Topic 815, Derivatives and Hedging, requires the Company to recognize all of its derivative instruments as either assets or liabilities at fair value in its consolidated balance sheet. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a reporting entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. The Company does not currently have any derivatives designated as hedges of net investment in foreign operations or fair value hedges. The Company has certain derivatives designated as cash flow hedges; however, the majority of the Company’s derivatives have not been designated as hedging instruments. Within Note 4 tables, zeros represent minimal amounts.
Derivatives Not Designated as Hedging Instruments
To reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies, the Company generally follows a policy of using exchange-traded futures and exchange-traded and OTC options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of exchange-traded commodities futures contracts and the cash prices of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Exchange-traded futures and exchange-traded and OTC options contracts, and forward cash purchase and sales contracts of certain merchandisable agricultural commodities are stated at fair value. Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Inventory is not a derivative and therefore is not included in the tables below. Changes in the market value of inventories of merchandisable agricultural commodities, forward cash purchase and sales contracts, and exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately, resulting in cost of products sold approximating first-in, first-out (FIFO) cost. Unrealized gains and unrealized losses on forward cash purchase contracts, forward foreign currency exchange (FX) contracts, forward cash sales contracts, and exchange-traded and OTC options contracts represent the fair value of such instruments and are classified on the Company’s consolidated balance sheet as receivables and accrued expenses, respectively.
The following table sets forth the fair value of derivatives not designated as hedging instruments as of March 31, 2010.
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$ |
94 |
|
|
$ |
113 |
|
Commodity Contracts
|
|
|
1,417 |
|
|
|
1,708 |
|
Total
|
|
$ |
1,511 |
|
|
$ |
1,821 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Derivative Instruments and Hedging Activities (Continued)
|
The following table sets forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statement of earnings for the indicated time periods. The amended disclosure requirements of ASC Topic 815 were first implemented for the period ended March 31, 2009. As a result, comparative year-to-date information is not available for fiscal year 2009.
|
|
Three months ended March 31,
|
|
|
|
2010
|
2009
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Interest Contracts
|
|
|
|
|
|
|
Other income (expense) – net
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
|
|
|
|
|
|
|
Net sales and other operating income
|
|
$ |
19 |
|
|
$ |
(7 |
) |
Cost of products sold
|
|
|
21 |
|
|
|
(22 |
) |
Other income (expense) - net
|
|
|
(9 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
$ |
553 |
|
|
$ |
(297 |
) |
Total gain (loss) recognized in earnings
|
|
$ |
584 |
|
|
$ |
(324 |
) |
|
|
Nine months ended
|
|
|
March 31, 2010
|
|
|
(In millions)
|
|
|
|
|
Interest Contracts
|
|
|
|
Other income (expense) – net
|
|
$ |
2 |
|
|
|
|
|
|
FX Contracts
|
|
|
|
|
Net sales and other operating income
|
|
$ |
(1 |
) |
Cost of products sold
|
|
|
46 |
|
Other income (expense) - net
|
|
|
19 |
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
Cost of products sold
|
|
$ |
144 |
|
Total gain (loss) recognized in earnings
|
|
$ |
210 |
|
Derivatives Designated as Cash Flow Hedging Strategies
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss of the derivative instrument is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss of the derivative instrument that is in excess of the cumulative change in the cash flows of the hedged item, if any (i.e., the ineffective portion), hedge components excluded from the assessment of effectiveness, and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Derivative Instruments and Hedging Activities (Continued)
|
For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge will be reclassified from accumulated other comprehensive income (AOCI) to either net sales and other operating income, or cost of products sold. As of March 31, 2010, the Company has $19 million of after-tax losses in AOCI related to gains and losses from commodity cash flow hedge transactions. The Company expects to recognize all of these after-tax losses in the statement of earnings during the next 15 months. During the current period, the Company had no amounts recognized in earnings from cash flow hedges that were discontinued.
The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants currently grind approximately 67 million bushels of corn per month which is expected to increase to approximately 75 million bushels per month when the Company’s second new dry-grind ethanol plant in the U.S. is completed in the summer of 2010. During the past 12 months, the Company hedged between 35% and 100% of its monthly anticipated grind. At March 31, 2010, the Company has hedged portions of its anticipated monthly purchases of corn over the next 11 months, ranging from 1% to 22% of its anticipated monthly grind.
The Company, from time to time, also uses futures, options, and swaps to fix the purchase price of the Company’s anticipated natural gas requirements for certain production facilities. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of natural gas. These production facilities use approximately 3.5 million MMbtus of natural gas per month. During the past 12 months, the Company hedged between 25% and 77% of the quantity of its anticipated monthly natural gas purchases. At March 31, 2010, the Company has hedged portions of its anticipated monthly purchases of natural gas over the next 15 months, ranging from 20% to 52% of its anticipated monthly natural gas purchases.
To protect against fluctuations in cash flows due to foreign currency exchange rates, the Company from time to time will use forward foreign exchange contracts as cash flow hedges. Certain production facilities have manufacturing expenses and some sales contracts denominated in non-functional currency. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currency, the Company will hedge some portion of the forecasted foreign currency expenditures and/or receipts. The fair value of foreign exchange contracts designated as cash flow hedging instruments as of March 31, 2010 was immaterial.
At March 31, 2010, AOCI included $26 million of after-tax gains related to treasury-lock agreements and interest rate swaps. These instruments were executed in order to lock in the Company’s interest rate prior to the issuance or remarketing of debentures. Both the treasury-lock agreements and interest rate swaps were designated as cash flow hedges of the risk of changes in the future interest payments attributable to changes in the benchmark interest rate. The objective of the treasury-lock agreements and interest rate swaps was to protect the Company from changes in the benchmark rate from the date the Company decided to issue the debt to the date when the debt will actually be issued. The Company will recognize the $26 million of gains in its consolidated statement of earnings over the terms of the hedged items. At March 31, 2010, the Company discontinued hedge accounting treatment on interest rate swaps with $21 million of after-tax gains in AOCI. These gains will remain in AOCI until the hedged transactions occur. Future gains and losses on the swaps will immediately affect earnings.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Derivative Instruments and Hedging Activities (Continued)
|
The following table sets forth the fair value of derivatives designated as hedging instruments as of March 31, 2010.
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Interest Contracts
|
|
$ |
33 |
|
|
$ |
– |
|
Commodity Contracts
|
|
|
0 |
|
|
|
8 |
|
Total
|
|
$ |
33 |
|
|
$ |
8 |
|
The following tables set forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statement of earnings for the indicated periods. The amended disclosure requirements of ASC Topic 815 were first implemented for the quarter ended March 31, 2009. As a result, comparative year-to-date information is not available for fiscal year 2009.
|
|
|
Three months ended
|
|
|
Consolidated Statement of
|
|
March 31,
|
|
|
Earnings Location
|
|
2010
|
|
|
2009
|
|
|
|
|
(In millions)
|
|
FX Contracts
|
|
|
|
|
|
|
|
Effective amount recognized in earnings
|
Other (income) expense – net
|
|
$ |
0 |
|
|
$ |
0 |
|
Commodity Contracts
|
|
|
|
|
|
|
|
|
|
Effective amount recognized in earnings
|
Cost of products sold
|
|
|
(18 |
) |
|
|
(136 |
) |
|
Net sales and other operating income
|
|
|
0 |
|
|
|
10 |
|
Ineffective amount recognized in earnings
|
Cost of products sold
|
|
|
(82 |
) |
|
|
4 |
|
Total amount recognized in earnings
|
|
|
$ |
(100 |
) |
|
$ |
(122 |
) |
|
|
|
Nine months ended
|
|
|
Consolidated Statement of
Earnings Location
|
|
March 31,
2010
|
|
|
|
|
(In millions)
|
|
FX Contracts
|
|
|
|
|
Effective amount recognized in earnings
|
Other (income) expense – net
|
|
$ |
(1 |
) |
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
Effective amount recognized in earnings
|
Cost of products sold
|
|
|
(68 |
) |
|
Net sales and other operating income
|
|
|
0 |
|
Ineffective amount recognized in earnings
|
Cost of products sold
|
|
|
(60 |
) |
Total amount recognized in earnings
|
|
|
$ |
(129 |
) |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Derivative Instruments and Hedging Activities (Continued)
|
The following tables set forth the changes in accumulated other comprehensive income related to derivatives gains (losses) for the period ended March 31, 2010.
|
|
Three months ended
|
|
|
|
March 31, 2010
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$ |
54 |
|
Unrealized gains (losses)
|
|
|
(94 |
) |
Losses reclassified to earnings
|
|
|
19 |
|
Tax effect
|
|
|
28 |
|
Balance at March 31, 2010
|
|
$ |
7 |
|
|
|
Nine months ended
|
|
|
|
March 31, 2010
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$ |
(13 |
) |
Unrealized gains (losses)
|
|
|
(36 |
) |
Losses reclassified to earnings
|
|
|
70 |
|
Tax effect
|
|
|
(14 |
) |
Balance at March 31, 2010
|
|
$ |
7 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
Marketable Securities and Cash Equivalents
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
Value
|
|
|
(In millions)
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
$ |
460 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
460 |
|
Maturity 1 to 5 years
|
|
|
41 |
|
|
|
1 |
|
|
|
– |
|
|
|
42 |
|
Government–sponsored enterprise
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
20 |
|
|
|
– |
|
|
|
– |
|
|
|
20 |
|
Maturity 1 to 5 years
|
|
|
64 |
|
|
|
2 |
|
|
|
– |
|
|
|
66 |
|
Maturity 5 to 10 years
|
|
|
137 |
|
|
|
– |
|
|
|
– |
|
|
|
137 |
|
Maturity greater than 10 years
|
|
|
251 |
|
|
|
6 |
|
|
|
|
|
|
|
257 |
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
6 |
|
Maturity 1 to 5 years
|
|
|
32 |
|
|
|
2 |
|
|
|
– |
|
|
|
34 |
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
1,071 |
|
|
|
– |
|
|
|
– |
|
|
|
1,071 |
|
Maturity 5 to 10 years
|
|
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
6 |
|
Maturity greater than 10 years
|
|
|
11 |
|
|
|
– |
|
|
|
(1 |
) |
|
|
10 |
|
Equity securities
|
|
|
91 |
|
|
|
47 |
|
|
|
(17 |
) |
|
|
121 |
|
|
|
$ |
2,190 |
|
|
$ |
58 |
|
|
$ |
(18 |
) |
|
$ |
2,230 |
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In millions)
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
$ |
645 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
645 |
|
Maturity 1 to 5 years
|
|
|
29 |
|
|
|
1 |
|
|
|
– |
|
|
|
30 |
|
Government–sponsored enterprise
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
8 |
|
|
|
– |
|
|
|
– |
|
|
|
8 |
|
Maturity 1 to 5 years
|
|
|
59 |
|
|
|
2 |
|
|
|
– |
|
|
|
61 |
|
Maturity 5 to 10 years
|
|
|
104 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
104 |
|
Maturity greater than 10 years
|
|
|
268 |
|
|
|
6 |
|
|
|
– |
|
|
|
274 |
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
10 |
|
|
|
– |
|
|
|
– |
|
|
|
10 |
|
Maturity 1 to 5 years
|
|
|
37 |
|
|
|
1 |
|
|
|
– |
|
|
|
38 |
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
463 |
|
|
|
– |
|
|
|
– |
|
|
|
463 |
|
Maturity 5 to 10 years
|
|
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
6 |
|
Maturity greater than 10 years
|
|
|
16 |
|
|
|
– |
|
|
|
(3 |
) |
|
|
13 |
|
Equity securities
|
|
|
88 |
|
|
|
33 |
|
|
|
(29 |
) |
|
|
92 |
|
|
|
$ |
1,733 |
|
|
$ |
44 |
|
|
$ |
(33 |
) |
|
$ |
1,744 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
Marketable Securities and Cash Equivalents (Continued)
|
None of the $18 million in unrealized losses at March 31, 2010 arose within the last 12 months. The market value of the investments that have been in an unrealized loss position for 12 months and longer is $31 million. The market value of other debt securities with unrealized losses as of March 31, 2010, is $3 million. The $1 million of unrealized losses associated with other debt securities are not considered to be other-than-temporary because the present value of expected cash flows to be collected is equivalent to or exceeds the amortized cost basis of the securities. The market value of available-for-sale equity securities with unrealized losses as of March 31, 2010 is $28 million. All of the $17 million in unrealized losses associated with available-for-sale equity securities is related to the Company’s investment in one security. The Company does not intend to sell any of its impaired debt and equity securities, and, based upon its evaluation, the Company does not believe it is likely that the Company will be required to sell the investments before recovery of their amortized cost bases which is expected in the foreseeable future.
Note 6.
|
Debt and Financing Arrangements
|
The Company has outstanding $1.15 billion principal amount of convertible senior notes (the Notes) due in 2014. As of March 31, 2010, none of the conditions permitting conversion of the Notes had been satisfied. Therefore, no share amounts related to the conversion of the Notes or exercise of the warrants sold in connection with the issuance of the Notes were included in diluted average shares outstanding.
On July 1, 2009, the Company began accounting for the Notes in accordance with the amended guidance in ASC Topic 470-20, Debt with Conversion and Other Options, pertaining to convertible debt instruments with cash settlement features. The amendment addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. Previously, most forms of convertible debt securities were treated solely as debt. Under the new guidance, issuers of convertible debt securities within its scope must bifurcate these securities into two accounting components; a debt component, representing the issuer’s contractual obligation to pay principal and interest; and an equity component, representing the holder’s option to convert the debt security into equity of the issuer or, if the issuer so elects, an equivalent amount of cash.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6.
|
Debt and Financing Arrangements (Continued)
|
The amended guidance required retrospective application to all periods presented. The following tables reflect the Company’s previously reported amounts, along with adjustments required by the amended guidance:
|
|
Consolidated Statement of Earnings Impact
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
As Originally
|
|
|
Adjustment due to
|
|
|
|
|
|
|
Reported
|
|
|
Topic 470-20
|
|
|
As Adjusted
|
|
|
|
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense reported in
|
|
|
|
|
|
|
|
|
|
Other (income) expense – net
|
|
$ |
93 |
|
|
$ |
10 |
|
|
$ |
103 |
|
Income taxes
|
|
|
144 |
|
|
|
(4 |
) |
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
8 |
|
|
|
(5 |
) |
|
|
3 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
common share
|
|
|
0.01 |
|
|
|
(0.01 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2009
|
|
|
|
As Originally
|
|
|
Adjustment due to
|
|
|
|
|
|
|
|
Reported
|
|
|
Topic 470-20
|
|
|
As Adjusted
|
|
|
|
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense reported in
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense – net
|
|
$ |
342 |
|
|
$ |
29 |
|
|
$ |
371 |
|
Income taxes
|
|
|
829 |
|
|
|
(11 |
) |
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1,643 |
|
|
|
(17 |
) |
|
|
1,626 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
|
2.56 |
|
|
|
(0.03 |
) |
|
|
2.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
common share
|
|
|
2.55 |
|
|
|
(0.03 |
) |
|
|
2.52 |
|
(1)
|
Currently presented as “net earnings attributable to controlling interests” in the consolidated statements of earnings as a result of the adoption of ASC Topic 810 on July 1, 2009.
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6.
|
Debt and Financing Arrangements (Continued)
|
The Company also has outstanding $1.75 billion principal amount of Equity Units (the Units) due in 2011. The Units are a combination of (a) debt and (b) forward purchase contracts for the holder to purchase the Company’s common stock. The forward purchase contracts issued in connection with the Units will be settled for the Company’s common stock no later than June 1, 2011. Until settlement of the forward purchase contracts, the shares of stock underlying each forward purchase contract are not outstanding. The forward purchase contracts will only be included in the computation of diluted earnings per share to the extent they are dilutive. As of March 31, 2010, the forward purchase contracts were not considered dilutive and therefore were not included in the computation of diluted earnings per share.
At March 31, 2010, the fair value of the Company’s long-term debt exceeded the carrying value by $581 million, as estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
For further information on the Notes and Units and additional information on the impact of ASC Topic 470-20 (formerly FSP APB 14-1), refer to Note 1 “Summary of Significant Accounting Policies” and Note 8 “Debt and Financing Arrangements” in the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2009 and in the revised financial statements and footnotes furnished with the Company’s Current Report on Form 8-K filed on March 22, 2010.
In February 2010, the Company announced cash tender offers to repurchase a portion of its outstanding debentures with varying terms and maturities. In March 2010, the Company repurchased an aggregate principal amount of $500 million of its outstanding debentures in accordance with its announced tender offers, resulting in charges on early extinguishment of debt of $75 million, which consisted of $71 million in premium and other related expenses and $4 million in write-off of debt issuance costs.
The Company’s effective tax rate for the quarter and nine months ended March 31, 2010, was 22.1% and 27.6%, respectively, compared to 97.9% and 33.4% for the quarter and nine months ended March 31, 2009. In the third quarter of 2009, the Company recorded a $97 million deferred income tax charge related to the partial restructuring of the holding company structure through which the Company holds a portion of its equity investment in Wilmar International, Ltd. (WIL). Excluding the $97 million deferred income tax expense, the Company’s effective income tax rate was 30.1% and 29.5% for the quarter and nine months ended March 31, 2009. The decrease in the Company’s effective tax rate in 2010, excluding the $97 million charge, is primarily due to changes in the geographic mix of pretax earnings and the recognition of certain foreign currency benefits. In addition, this quarter the Company recorded $10 million in additional income tax expense related to changes in the income tax treatment of Medicare Part D subsidies resulting from newly enacted U.S. health care reforms.
The Company has an investment in Wilmar International Holdings, Limited (WIHL), a subsidiary of ADM Asia Pacific, Limited (ADMAP), a wholly-owned subsidiary of the Company. Through WIHL, ADMAP holds an indirect ownership interest in Wilmar International Ltd. (WIL). Historically, the Company considered the retained earnings of its investment in ADMAP to be permanently reinvested outside the U.S. and did not provide a deferred income tax liability associated with the undistributed earnings of this investment. In February 2009, the shareholders of WIHL approved a plan of voluntary liquidation which was followed by a partial liquidating distribution in April 2009. Pursuant to this distribution, ADMAP received publicly traded shares of WIL that represented approximately 40% of the WIL shares indirectly held by WIHL. The liquidation caused the difference between the market value of the WIL shares received and the tax basis of ADMAP’s investment in WIHL to be subject to U.S. income tax as a deemed distribution from ADMAP to the Company. Consequently, the Company concluded that a portion of its investment in ADMAP related to its investment in WIHL was not permanently reinvested and recognized a $97 million deferred tax charge for this partial restructuring in the third quarter of 2009.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7.
|
Income Taxes (Continued)
|
The finalization of the liquidation process is anticipated to occur during calendar year 2010 and is contingent on certain regulatory approvals. While the ultimate impact of the transaction is uncertain, based on the May 6, 2010 market value of WIL shares and certain other assumptions, including the applicable foreign currency exchange rate and the U.S. income tax rate, the finalization of the liquidation could result in additional income tax expense for the Company of approximately $590 million in the period(s) that the liquidation occurs.
The Company is subject to income taxation in many jurisdictions around the world. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include questions regarding the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. Resolution of the related tax positions through negotiation with relevant tax authorities or through litigation may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential additional tax owed by the Company in accordance with ASC 740, Income Taxes. However, the Company cannot accurately predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.
In December 2009, the Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (“ADM do Brasil”), received a tax assessment in the amount of $457 million (subject to variation in currency exchange rates) consisting of tax, penalty, and interest, from the Brazilian Federal Revenue Service challenging the tax deductibility of commodity hedging losses incurred by ADM do Brasil in 2004. Commodity hedging transactions can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. If the Brazilian Federal Revenue Service were to challenge similar deductions in all tax years still open to assessment (2005-2009), the Company estimates it could receive further assessments totaling approximately $150 million in addition to the $457 million assessment related to 2004 (as at March 31, 2010 and subject to variation in currency exchange rates).
The Company has evaluated its tax position regarding these hedging transactions and concluded, based in part upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the Brazilian Federal Revenue Service. The Company intends to vigorously defend its position against the current assessment and any similar assessments that may be issued for years subsequent to 2004.
In January 2010, ADM do Brasil filed an appeal with the Brazilian Federal Revenue Service. If ADM do Brasil is unsuccessful in the administrative appellate process, further appeals are available in the Brazilian federal courts. While the Company believes that its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of significant additional payments of, and expense for, income tax and the associated interest and penalties.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 8.
|
Comprehensive Income
|
The components of comprehensive income, net of related tax, are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings including noncontrolling
interests
|
|
$ |
416 |
|
|
$ |
3 |
|
|
$ |
1,474 |
|
|
$ |
1,628 |
|
Unrealized gain (loss) on investments
|
|
|
2 |
|
|
|
(7 |
) |
|
|
18 |
|
|
|
(34 |
) |
Deferred gain (loss) on hedging
activities
|
|
|
(47 |
) |
|
|
71 |
|
|
|
20 |
|
|
|
(183 |
) |
Pension liability adjustment
|
|
|
10 |
|
|
|
2 |
|
|
|
5 |
|
|
|
16 |
|
Foreign currency translation adjustment
|
|
|
(322 |
) |
|
|
(269 |
) |
|
|
(200 |
) |
|
|
(1,211 |
) |
Comprehensive income
|
|
|
59 |
|
|
|
(200 |
) |
|
|
1,317 |
|
|
|
216 |
|
Less: Comprehensive income
attributable to noncontrolling interests
|
|
|
(5 |
) |
|
|
– |
|
|
|
(10 |
) |
|
|
2 |
|
Comprehensive income attributable
to controlling interests
|
|
$ |
64 |
|
|
$ |
(200 |
) |
|
$ |
1,327 |
|
|
$ |
214 |
|
Note 9.
|
Other (Income) Expense - Net
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$ |
101 |
|
|
$ |
103 |
|
|
$ |
304 |
|
|
$ |
371 |
|
Investment income
|
|
|
(34 |
) |
|
|
(43 |
) |
|
|
(100 |
) |
|
|
(145 |
) |
Net (gain) loss on marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities transactions
|
|
|
– |
|
|
|
– |
|
|
|
(7 |
) |
|
|
(9 |
) |
Equity in (earnings) losses of affiliates
|
|
|
(137 |
) |
|
|
136 |
|
|
|
(428 |
) |
|
|
(80 |
) |
Charges on early extinguishment of debt
|
|
|
75 |
|
|
|
– |
|
|
|
75 |
|
|
|
– |
|
Other – net
|
|
|
(3 |
) |
|
|
(36 |
) |
|
|
(29 |
) |
|
|
53 |
|
|
|
$ |
2 |
|
|
$ |
160 |
|
|
$ |
(185 |
) |
|
$ |
190 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10.
|
Segment Information
|
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are aggregated and classified as Other.
The Oilseeds Processing segment includes activities related to the crushing and origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, 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 paints and other industrial products. Refined oil can be further processed for use in the production of biodiesel. Oilseed meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds. Oilseeds Processing includes activities related to the production of natural health and nutrition products and the production of other specialty food and feed ingredients. This segment also includes activities related to the Company’s interest in its unconsolidated affiliate in Asia, 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 Corn Processing segment also includes activities related to the processing of sugarcane into ethanol.
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, rice, and barley, and resells these commodities primarily as food and feed ingredients for the agricultural processing industry. In addition, the Agricultural Services segment includes activities related to edible bean procurement, rice milling, formula feed, and animal health and nutrition. Agricultural Services’ grain sourcing and transportation network also 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. The Company sold its malt operations on July 31, 2008. Other also includes financial activities related to banking, captive insurance, private equity fund investments, and futures commission merchant activities.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses, including an interest charge related to working capital usage. Also included in segment operating profit is equity in earnings of affiliates based on the equity method of accounting. Unallocated corporate expenses, investment income, unallocated interest expense, marketable securities transactions, FIFO to LIFO inventory adjustments, and noncontrolling interests have been excluded from segment operations and classified as Corporate.
For detailed information regarding the Company’s reportable segments, see Note 15 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended June 30, 2009 and in the revised financial statements and footnotes furnished with the Company’s Current Report on Form 8-K filed on March 22, 2010.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10.
|
Segment Information (Continued)
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
5,084 |
|
|
$ |
4,689 |
|
|
$ |
16,322 |
|
|
$ |
17,757 |
|
Corn Processing
|
|
|
1,960 |
|
|
|
1,725 |
|
|
|
5,905 |
|
|
|
5,819 |
|
Agricultural Services
|
|
|
6,788 |
|
|
|
7,302 |
|
|
|
19,750 |
|
|
|
25,012 |
|
Other
|
|
|
1,313 |
|
|
|
1,126 |
|
|
|
4,002 |
|
|
|
4,087 |
|
Total
|
|
$ |
15,145 |
|
|
$ |
14,842 |
|
|
$ |
45,979 |
|
|
$ |
52,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
17 |
|
|
$ |
23 |
|
|
$ |
54 |
|
|
$ |
91 |
|
Corn Processing
|
|
|
9 |
|
|
|
13 |
|
|
|
26 |
|
|
|
72 |
|
Agricultural Services
|
|
|
697 |
|
|
|
702 |
|
|
|
1,845 |
|
|
|
2,314 |
|
Other
|
|
|
36 |
|
|
|
38 |
|
|
|
110 |
|
|
|
116 |
|
Total
|
|
$ |
759 |
|
|
$ |
776 |
|
|
$ |
2,035 |
|
|
$ |
2,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
5,101 |
|
|
$ |
4,712 |
|
|
$ |
16,376 |
|
|
$ |
17,848 |
|
Corn Processing
|
|
|
1,969 |
|
|
|
1,738 |
|
|
|
5,931 |
|
|
|
5,891 |
|
Agricultural Services
|
|
|
7,485 |
|
|
|
8,004 |
|
|
|
21,595 |
|
|
|
27,326 |
|
Other
|
|
|
1,349 |
|
|
|
1,164 |
|
|
|
4,112 |
|
|
|
4,203 |
|
Intersegment elimination
|
|
|
(759 |
) |
|
|
(776 |
) |
|
|
(2,035 |
) |
|
|
(2,593 |
) |
Total
|
|
$ |
15,145 |
|
|
$ |
14,842 |
|
|
$ |
45,979 |
|
|
$ |
52,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
405 |
|
|
$ |
224 |
|
|
$ |
1,041 |
|
|
$ |
1,053 |
|
Corn Processing
|
|
|
104 |
|
|
|
49 |
|
|
|
582 |
|
|
|
196 |
|
Agricultural Services
|
|
|
165 |
|
|
|
121 |
|
|
|
490 |
|
|
|
1,011 |
|
Other
|
|
|
22 |
|
|
|
(140 |
) |
|
|
327 |
|
|
|
(15 |
) |
Total segment operating profit
|
|
|
696 |
|
|
|
254 |
|
|
|
2,440 |
|
|
|
2,245 |
|
Corporate
|
|
|
(162 |
) |
|
|
(111 |
) |
|
|
(405 |
) |
|
|
201 |
|
Earnings before income taxes
|
|
$ |
534 |
|
|
$ |
143 |
|
|
$ |
2,035 |
|
|
$ |
2,446 |
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Company Overview
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are aggregated and classified as Other.
The Oilseeds Processing segment includes activities related to the origination and crushing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, 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 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 unconsolidated affiliate in Asia, 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 Corn Processing segment also includes activities related to the processing of sugarcane into ethanol.
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, rice, and barley, and resells these commodities primarily as food and feed ingredients for the agricultural processing industry. In addition, the Agricultural Services segment includes activities related to edible bean procurement, rice milling, formula feed, and animal health and nutrition. Agricultural Services’ grain sourcing and transportation network also 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. The Company sold its malt operations on July 31, 2008. Other also includes financial activities related to banking, captive insurance, private equity fund investments, and futures commission merchant activities.
Operating Performance Indicators
The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Item 1A, “Risk Factors” included in the Company’s annual report on Form 10-K for the year ended June 30, 2009.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
The Company’s Oilseeds Processing, Agricultural Services, and wheat processing operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore, changes in agricultural commodity prices have relatively equal impacts on both net sales and other operating income 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 and other operating income amounts.
The Company’s Corn Processing operations and certain other food and animal feed processing operations also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. In these operations, agricultural commodity market price changes can result in significant fluctuations in cost of products sold, and such price changes cannot necessarily be passed directly through to the selling price of the finished products.
The Company conducts its business in many countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. Fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, 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 financial metrics such as segment operating profit, return on fixed capital investment, return on net assets, return on invested capital, and return on equity. The Company’s operating results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, changes in global demand resulting from population growth, general global economic conditions, and changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company does not provide forward-looking information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Net earnings attributable to controlling interests increased $418 million to $421 million primarily due to a $442 million pretax improvement in segment operating profit, a favorable impact from changing LIFO inventory valuations, and lower income tax expense, partially offset by after-tax charges of $47 million for the early extinguishment of debt. Segment operating profit in the quarter ended March 31, 2009 included a $212 million loss for the Company’s share of foreign currency derivative losses of equity investee, Gruma S.A.B. de C.V. (Gruma). Changes in LIFO inventory valuation reserves resulted in after-tax credits of $27 million for the quarter compared to after-tax charges of $3 million for the quarter ended March 31, 2009. Additionally, income tax expense for the quarter ended March 31, 2009 included a $97 million charge for deferred income tax expense associated with the reorganization of the holding company structure related to the Company’s equity investee, Wilmar International Ltd.
Market Factors Influencing Operations or Results
As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company’s operating results. North American oilseed crushing volumes and oilseed export volumes increased due to the short supply of soybeans in South America. Biodiesel markets continued to develop in South America and Europe and increased the overall demand for refined and crude vegetable oils. However, in North America, demand for vegetable oils was weak due to lower demand for oils in the food service and biodiesel industries. Protein meal demand improved, particularly in Asia and South America. Average selling prices for corn sweetener products in 2010 have decreased primarily due to lower market prices for corn. Ethanol blending economics were more favorable this quarter resulting in increased demand and improved margins.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
Analysis of Statements of Earnings
Net sales and other operating income by segment for the quarter are as follows:
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions)
|
|
Oilseeds Processing
|
|
|
|
|
|
|
|
|
|
Crushing & Origination
|
|
$ |
3,306 |
|
|
$ |
2,786 |
|
|
$ |
520 |
|
Refining, Packaging, Biodiesel & Other
|
|
|
1,735 |
|
|
|
1,858 |
|
|
|
(123 |
) |
Asia
|
|
|
43 |
|
|
|
45 |
|
|
|
(2 |
) |
Total Oilseeds Processing
|
|
|
5,084 |
|
|
|
4,689 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners & Starches
|
|
|
769 |
|
|
|
852 |
|
|
|
(83 |
) |
Bioproducts
|
|
|
1,191 |
|
|
|
873 |
|
|
|
318 |
|
Total Corn Processing
|
|
|
1,960 |
|
|
|
1,725 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandising & Handling
|
|
|
6,750 |
|
|
|
7,253 |
|
|
|
(503 |
) |
Transportation
|
|
|
38 |
|
|
|
49 |
|
|
|
(11 |
) |
Total Agricultural Services
|
|
|
6,788 |
|
|
|
7,302 |
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheat, Cocoa & Malt
|
|
|
1,290 |
|
|
|
1,100 |
|
|
|
190 |
|
Financial
|
|
|
23 |
|
|
|
26 |
|
|
|
(3 |
) |
Total Other
|
|
|
1,313 |
|
|
|
1,126 |
|
|
|
187 |
|
Total
|
|
$ |
15,145 |
|
|
$ |
14,842 |
|
|
$ |
303 |
|
Net sales and other operating income increased 2% to $15.1 billion due to foreign exchange translation impacts of $0.5 billion and increased sales volumes partially offset by lower average selling prices. Sales volumes increased primarily due to higher capacity utilization rates in the Company’s Oilseeds Processing facilities and new and/or expanded Corn Processing and Cocoa production facilities. Oilseeds Processing sales increased 8% to $5.1 billion due principally to increased North American crushing volumes resulting from higher plant capacity utilization levels and expanded production capacity, and increased North American oilseed exports. Corn Processing sales increased 14% to $2.0 billion, due to higher average selling prices and increased sales volumes of bioproducts, partially offset by lower average selling prices for sweeteners and starches. Higher bioproducts sales volumes, primarily ethanol, were due to favorable blending economics and the startup of the Company’s new corn mill in Columbus, Nebraska. Agricultural Services sales decreased 7% to $6.8 billion, due to decreased sales volumes. Other sales increased 17% to $1.3 billion due principally to higher average selling prices for cocoa products and increased sales volumes of wheat flour and cocoa products, in part due to new cocoa operations, partially offset by the impact of lower average selling prices for wheat flour.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
Cost of products sold increased less than 1% to $14.3 billion reflecting increased sales volumes and foreign exchange effects of $0.5 billion, partially offset by lower agricultural commodity costs. Manufacturing expenses, principally higher employee-related costs and depreciation expense, increased $105 million, or 9%, materially in line with the increase in processing volumes.
Selling, general and administrative expenses increased 3% to $355 million primarily due to foreign currency translation impacts and, to a lesser extent, additional expenses related to acquisitions and new operations.
Other (income) expense – net improved $158 million primarily due to increased equity earnings of affiliates, partially offset by pretax charges of $75 million related to the early extinguishment of debt (See Note 6).
Operating profit by segment for the quarter is as follows:
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(In millions)
|
|
Oilseeds Processing
|
|
|
|
|
|
|
|
|
|
Crushing & Origination
|
|
$ |
272 |
|
|
$ |
100 |
|
|
$ |
172 |
|
Refining, Packaging, Biodiesel & Other
|
|
|
66 |
|
|
|
52 |
|
|
|
14 |
|
Asia
|
|
|
67 |
|
|
|
72 |
|
|
|
(5 |
) |
Total Oilseeds Processing
|
|
|
405 |
|
|
|
224 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
Sweeteners and Starches
|
|
|
45 |
|
|
|
146 |
|
|
|
(101 |
) |
Bioproducts
|
|
|
59 |
|
|
|
(97 |
) |
|
|
156 |
|
Total Corn Processing
|
|
|
104 |
|
|
|
49 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|