adm10qfy13q1.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, 2013
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 – 659,029,761 shares
(April 30, 2013)
PART I - FINANCIAL INFORMATION
ITEM 1.
|
FINANCIAL STATEMENTS
|
Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions, except
|
|
|
|
per share amounts)
|
|
|
|
|
|
|
|
|
Net sales and other operating income
|
|
$ |
21,727 |
|
|
$ |
21,155 |
|
Cost of products sold
|
|
|
20,971 |
|
|
|
20,147 |
|
Gross Profit
|
|
|
756 |
|
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
436 |
|
|
|
402 |
|
Asset impairment, exit, and restructuring costs
|
|
|
- |
|
|
|
85 |
|
Interest expense
|
|
|
106 |
|
|
|
116 |
|
Equity in earnings of unconsolidated affiliates
|
|
|
(137 |
) |
|
|
(115 |
) |
Interest income
|
|
|
(27 |
) |
|
|
(26 |
) |
Other (income) expense – net
|
|
|
3 |
|
|
|
(22 |
) |
Earnings Before Income Taxes
|
|
|
375 |
|
|
|
568 |
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
105 |
|
|
|
163 |
|
Net Earnings Including Noncontrolling Interests
|
|
|
270 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
Less: Net earnings attributable to noncontrolling interests
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to Controlling Interests
|
|
$ |
269 |
|
|
$ |
399 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – basic
|
|
|
661 |
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding – diluted
|
|
|
662 |
|
|
|
663 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share
|
|
$ |
0.41 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$ |
0.19 |
|
|
$ |
0.175 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests
|
|
$ |
270 |
|
|
$ |
405 |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(154 |
) |
|
|
218 |
|
Tax effect
|
|
|
3 |
|
|
|
57 |
|
Net of tax amount
|
|
|
(151 |
) |
|
|
275 |
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit liabilities adjustment
|
|
|
21 |
|
|
|
(168 |
) |
Tax effect
|
|
|
(1 |
) |
|
|
65 |
|
Net of tax amount
|
|
|
20 |
|
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
Deferred gain (loss) on hedging activities
|
|
|
11 |
|
|
|
(41 |
) |
Tax effect
|
|
|
(4 |
) |
|
|
15 |
|
Net of tax effect
|
|
|
7 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments
|
|
|
(37 |
) |
|
|
(7 |
) |
Tax effect
|
|
|
11 |
|
|
|
3 |
|
Net of tax effect
|
|
|
(26 |
) |
|
|
(4 |
) |
Other comprehensive income (loss)
|
|
|
(150 |
) |
|
|
142 |
|
Comprehensive income (loss)
|
|
|
120 |
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
(8 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to controlling interests
|
|
$ |
128 |
|
|
$ |
539 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Balance Sheets
|
|
(Unaudited) |
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
(In millions) |
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,448 |
|
|
$ |
1,714 |
|
Short-term marketable securities
|
|
|
183 |
|
|
|
576 |
|
Segregated cash and investments
|
|
|
3,858 |
|
|
|
3,638 |
|
Trade receivables
|
|
|
3,553 |
|
|
|
3,450 |
|
Inventories
|
|
|
12,408 |
|
|
|
13,836 |
|
Other current assets
|
|
|
6,415 |
|
|
|
6,548 |
|
Total Current Assets
|
|
|
27,865 |
|
|
|
29,762 |
|
|
|
|
|
|
|
|
|
|
Investments and Other Assets
|
|
|
|
|
|
|
|
|
Investments in and advances to affiliates
|
|
|
3,252 |
|
|
|
3,170 |
|
Long-term marketable securities
|
|
|
683 |
|
|
|
717 |
|
Goodwill
|
|
|
544 |
|
|
|
551 |
|
Other assets
|
|
|
760 |
|
|
|
813 |
|
Total Investments and Other Assets
|
|
|
5,239 |
|
|
|
5,251 |
|
|
|
|
|
|
|
|
|
|
Property, Plant, and Equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
389 |
|
|
|
378 |
|
Buildings
|
|
|
4,626 |
|
|
|
4,807 |
|
Machinery and equipment
|
|
|
17,293 |
|
|
|
16,984 |
|
Construction in progress
|
|
|
945 |
|
|
|
1,004 |
|
|
|
|
23,253 |
|
|
|
23,173 |
|
Accumulated depreciation
|
|
|
(13,131 |
) |
|
|
(13,050 |
) |
Net Property, Plant, and Equipment
|
|
|
10,122 |
|
|
|
10,123 |
|
Total Assets
|
|
$ |
43,226 |
|
|
$ |
45,136 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
2,358 |
|
|
$ |
2,816 |
|
Trade payables
|
|
|
3,474 |
|
|
|
4,787 |
|
Accrued expenses and other payables
|
|
|
9,179 |
|
|
|
9,122 |
|
Current maturities of long-term debt
|
|
|
1,131 |
|
|
|
268 |
|
Total Current Liabilities
|
|
|
16,142 |
|
|
|
16,993 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
5,374 |
|
|
|
6,456 |
|
Deferred income taxes
|
|
|
1,256 |
|
|
|
1,267 |
|
Other
|
|
|
1,478 |
|
|
|
1,289 |
|
Total Long-Term Liabilities
|
|
|
8,108 |
|
|
|
9,012 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
6,175 |
|
|
|
6,134 |
|
Reinvested earnings
|
|
|
13,369 |
|
|
|
13,236 |
|
Accumulated other comprehensive income (loss)
|
|
|
(591 |
) |
|
|
(450 |
) |
Noncontrolling interests
|
|
|
23 |
|
|
|
211 |
|
Total Shareholders’ Equity
|
|
|
18,976 |
|
|
|
19,131 |
|
Total Liabilities and Shareholders’ Equity
|
|
$ |
43,226 |
|
|
$ |
45,136 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Operating Activities
|
|
|
|
|
|
|
Net earnings including noncontrolling interests
|
|
$ |
270 |
|
|
$ |
405 |
|
Adjustments to reconcile net earnings to net cash provided by
|
|
|
|
|
|
|
|
|
(used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
227 |
|
|
|
214 |
|
Asset impairment charges
|
|
|
- |
|
|
|
16 |
|
Deferred income taxes
|
|
|
(6 |
) |
|
|
20 |
|
Equity in earnings of affiliates, net of dividends
|
|
|
(79 |
) |
|
|
(102 |
) |
Stock compensation expense
|
|
|
15 |
|
|
|
7 |
|
Pension and postretirement accruals, net
|
|
|
8 |
|
|
|
66 |
|
Deferred cash flow hedges
|
|
|
12 |
|
|
|
(43 |
) |
Other – net
|
|
|
(85 |
) |
|
|
(64 |
) |
Changes in operating assets and liabilities, net of businesses
acquired
|
|
|
|
|
|
|
|
|
Segregated cash and investments
|
|
|
(243 |
) |
|
|
(84 |
) |
Trade receivables
|
|
|
(146 |
) |
|
|
2,170 |
|
Inventories
|
|
|
1,386 |
|
|
|
(629 |
) |
Other current assets
|
|
|
81 |
|
|
|
(1,354 |
) |
Trade payables
|
|
|
(1,552 |
) |
|
|
(1,071 |
) |
Accrued expenses and other payables
|
|
|
469 |
|
|
|
(334 |
) |
Total Operating Activities
|
|
|
357 |
|
|
|
(783 |
) |
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
(248 |
) |
|
|
(341 |
) |
Proceeds from sales of property, plant, and equipment
|
|
|
10 |
|
|
|
15 |
|
Net assets of businesses acquired
|
|
|
(16 |
) |
|
|
(33 |
) |
Purchases of marketable securities
|
|
|
(115 |
) |
|
|
(241 |
) |
Proceeds from sales of marketable securities
|
|
|
506 |
|
|
|
442 |
|
Other – net
|
|
|
32 |
|
|
|
(5 |
) |
Total Investing Activities
|
|
|
169 |
|
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Long-term debt borrowings
|
|
|
17 |
|
|
|
4 |
|
Long-term debt payments
|
|
|
(250 |
) |
|
|
(51 |
) |
Net borrowings (payments) under lines of credit agreements
|
|
|
(441 |
) |
|
|
1,112 |
|
Purchases of treasury stock
|
|
|
- |
|
|
|
(56 |
) |
Cash dividends
|
|
|
(125 |
) |
|
|
(115 |
) |
Other – net
|
|
|
7 |
|
|
|
6 |
|
Total Financing Activities
|
|
|
(792 |
) |
|
|
900 |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(266 |
) |
|
|
(46 |
) |
Cash and cash equivalents beginning of period
|
|
|
1,714 |
|
|
|
864 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$ |
1,448 |
|
|
$ |
818 |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
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 December 31, 2012
|
|
659 |
|
|
$ |
6,134 |
|
|
$ |
13,236 |
|
|
$ |
(450 |
) |
|
$ |
211 |
|
|
$ |
19,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
269 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141 |
) |
|
|
(9 |
) |
|
|
|
|
Total comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 |
|
Cash dividends paid-$0.19
per share
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
(125 |
) |
Stock compensation expense
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Noncontrolling interests
associated with
mandatorily redeemable
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
(180 |
) |
Other
|
|
|
|
|
|
26 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
15 |
|
Balance March 31, 2013
|
|
659 |
|
|
$ |
6,175 |
|
|
$ |
13,369 |
|
|
$ |
(591 |
) |
|
$ |
23 |
|
|
$ |
18,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's transition report on Form 10-KT for the six months ended December 31, 2012.
Effective this quarter, the noncontrolling interest of certain of the Company’s less than wholly-owned subsidiaries was subject to a mandatorily redeemable put option. As a result, the Company reclassified $180 million of noncontrolling interest in shareholders’ equity to long-term liabilities at March 31, 2013.
Adoption of New Accounting Standards
Effective January 1, 2013, the Company adopted the amended guidance of Accounting Standards Codification (ASC) Topic 220, Comprehensive Income, which requires the Company to present, either on the face of the consolidated statement of earnings or in the notes, the effect on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. The adoption of this amended guidance requires expanded disclosures in the Company’s consolidated financial statements but does not impact results (see Note 11).
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.
|
Pending Accounting Standards
|
Effective January 1, 2014, the Company will be required to adopt the amended guidance of ASC Topic 830, Foreign Currency Matters (Topic 830), which requires the Company to transfer currency translation adjustments from other comprehensive income into net income in certain circumstances. The amended guidance aims to resolve diversity in practice as to whether ASC Topic 810, Consolidation or Topic 830 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business. The Company will be required to apply the amended guidance prospectively. The Company does not expect any impact on its financial results as a result of the adoption of this amended guidance.
Effective January 1, 2014, the Company will be required to adopt the amended guidance of ASC Topic 405, Liabilities, which addresses the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements, for which the total amount under the arrangement is fixed at the reporting date. The amended guidance aims to resolve diversity in practice among companies that are subject to joint and several liabilities. The Company will be required to apply the amended guidance retrospectively to all prior periods presented. The Company has not determined the impact on its financial results as a result of the adoption of this amended guidance.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
During the three months ended March 31, 2013, the Company acquired one business for a total cost of $16 million and recorded a preliminary allocation of the purchase price related to this acquisition.
The net cash purchase price for the acquisition of $16 million was preliminarily allocated to working capital.
Note 4.
|
Fair Value Measurements
|
The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2013 and December 31, 2012.
|
|
Fair Value Measurements at March 31, 2013
|
|
|
|
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
|
|
$ |
– |
|
|
$ |
4,746 |
|
|
$ |
2,022 |
|
|
$ |
6,768 |
|
Unrealized derivative gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
1,230 |
|
|
|
757 |
|
|
|
223 |
|
|
|
2,210 |
|
Foreign exchange contracts
|
|
|
– |
|
|
|
181 |
|
|
|
– |
|
|
|
181 |
|
Interest rate contracts
|
|
|
– |
|
|
|
1 |
|
|
|
– |
|
|
|
1 |
|
Marketable securities
|
|
|
2,045 |
|
|
|
17 |
|
|
|
– |
|
|
|
2,062 |
|
Deferred receivables consideration
|
|
|
– |
|
|
|
597 |
|
|
|
– |
|
|
|
597 |
|
Total Assets
|
|
$ |
3,275 |
|
|
$ |
6,299 |
|
|
$ |
2,245 |
|
|
$ |
11,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized derivative losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$ |
1,445 |
|
|
$ |
634 |
|
|
$ |
171 |
|
|
$ |
2,250 |
|
Foreign exchange contracts
|
|
|
– |
|
|
|
126 |
|
|
|
– |
|
|
|
126 |
|
Inventory-related payables
|
|
|
– |
|
|
|
547 |
|
|
|
216 |
|
|
|
763 |
|
Total Liabilities
|
|
$ |
1,445 |
|
|
$ |
1,307 |
|
|
$ |
387 |
|
|
$ |
3,139 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Fair Value Measurements (Continued)
|
|
|
Fair Value Measurements at December 31, 2012
|
|
|
|
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
|
|
$ |
– |
|
|
$ |
5,291 |
|
|
$ |
1,745 |
|
|
$ |
7,036 |
|
Unrealized derivative gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
1,426 |
|
|
|
936 |
|
|
|
143 |
|
|
|
2,505 |
|
Foreign exchange contracts
|
|
|
– |
|
|
|
170 |
|
|
|
– |
|
|
|
170 |
|
Interest rate contracts
|
|
|
– |
|
|
|
1 |
|
|
|
– |
|
|
|
1 |
|
Marketable securities
|
|
|
2,451 |
|
|
|
16 |
|
|
|
– |
|
|
|
2,467 |
|
Deferred receivables consideration
|
|
|
– |
|
|
|
900 |
|
|
|
– |
|
|
|
900 |
|
Total Assets
|
|
$ |
3,877 |
|
|
$ |
7,314 |
|
|
$ |
1,888 |
|
|
$ |
13,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized derivative losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$ |
1,600 |
|
|
$ |
638 |
|
|
$ |
138 |
|
|
$ |
2,376 |
|
Foreign exchange contracts
|
|
|
– |
|
|
|
215 |
|
|
|
– |
|
|
|
215 |
|
Inventory-related payables
|
|
|
– |
|
|
|
903 |
|
|
|
33 |
|
|
|
936 |
|
Total Liabilities
|
|
$ |
1,600 |
|
|
$ |
1,756 |
|
|
$ |
171 |
|
|
$ |
3,527 |
|
The Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Three levels are established within the fair value hierarchy that may be used to report fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange-traded derivative contracts, U.S. treasury securities and certain publicly traded equity securities.
Level 2: Observable inputs, including Level 1 prices that have been adjusted; quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be substantially corroborated by observable market data.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Fair Value Measurements (Continued)
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Level 3 amounts can include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.
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 all periods presented, the Company had no transfers between Levels 1 and 2. Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and 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 of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.
The Company uses the market approach valuation technique to measure the majority of its assets and liabilities carried at fair value. Estimated fair 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. Market valuations for the Company’s inventories are adjusted for location and quality because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. Generally, the valuations are based on price information that is observable by market participants, or rely only on insignificant unobservable information. In such cases, the inventory is classified in Level 2. Certain inventories may require management judgment or estimation for a more significant component of the fair value amount. For these inventories, the availability of sufficient third-party information is limited. In such cases, the inventory is classified as Level 3. Changes in the fair 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 4.
|
Fair Value Measurements (Continued)
|
The Company’s derivative contracts are measured at fair value including forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to agricultural commodities, ocean freight, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the Company’s exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in these tables. 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 contract, it is classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Based on historical experience with the Company’s suppliers and customers, the Company’s own credit risk and 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 certain cases, if the Company believes the nonperformance risk to be a significant input, the Company records estimated fair value adjustments, and classifies the contract in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair 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 value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense–net. The effective portions of changes in the fair 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 or it is probable the hedged transaction will no longer occur.
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 in Level 1. U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are valued using third-party pricing services and substantially all are classified in Level 2. Security values that are determined using pricing models are classified in Level 3. Unrealized changes in the fair 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.
The Company has deferred consideration under its accounts receivable securitization program (the “Program”) which represents a note receivable from the purchasers under the Program. This amount is reflected in other current assets on the consolidated balance sheet (see Note 15). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the program which have historically been insignificant.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2013.
|
|
Level 3 Fair Value Asset Measurements at
March 31, 2013
|
|
|
|
Inventories
Carried
at
Market
|
|
|
Commodity
Derivative
Contracts
Gains
|
|
|
Total
Assets
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$ |
1,745 |
|
|
$ |
143 |
|
|
$ |
1,888 |
|
Total increase (decrease) in unrealized gains
included in cost of products sold*
|
|
|
(697 |
) |
|
|
136 |
|
|
|
(561 |
) |
Purchases
|
|
|
4,684 |
|
|
|
– |
|
|
|
4,684 |
|
Sales
|
|
|
(3,700 |
) |
|
|
– |
|
|
|
(3,700 |
) |
Settlements
|
|
|
– |
|
|
|
(96 |
) |
|
|
(96 |
) |
Transfers into Level 3
|
|
|
40 |
|
|
|
48 |
|
|
|
88 |
|
Transfers out of Level 3
|
|
|
(50 |
) |
|
|
(8 |
) |
|
|
(58 |
) |
Ending balance, March 31, 2013
|
|
$ |
2,022 |
|
|
$ |
223 |
|
|
$ |
2,245 |
|
* Includes gains of $130 million that are attributable to the change in unrealized gains relating to Level 3 assets still held at March 31, 2013.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2013.
|
|
Level 3 Fair Value Liability Measurements at
March 31, 2013
|
|
|
|
Inventory-
related
Payables
|
|
|
Commodity
Derivative
Contracts
Losses
|
|
|
Total
Liabilities
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$ |
33 |
|
|
$ |
138 |
|
|
$ |
171 |
|
Total increase (decrease) in unrealized losses
included in cost of products sold*
|
|
|
10 |
|
|
|
118 |
|
|
|
128 |
|
Purchases
|
|
|
176 |
|
|
|
– |
|
|
|
176 |
|
Sales
|
|
|
(4 |
) |
|
|
– |
|
|
|
(4 |
) |
Settlements
|
|
|
– |
|
|
|
(102 |
) |
|
|
(102 |
) |
Transfers into Level 3
|
|
|
1 |
|
|
|
23 |
|
|
|
24 |
|
Transfers out of Level 3
|
|
|
– |
|
|
|
(6 |
) |
|
|
(6 |
) |
Ending balance, March 31, 2013
|
|
$ |
216 |
|
|
$ |
171 |
|
|
$ |
387 |
|
* Includes losses of $117 million that are attributable to the change in unrealized losses relating to Level 3 liabilities still held at March 31, 2013.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.
|
|
Level 3 Fair Value Asset Measurements at
March 31, 2012
|
|
|
|
Inventories
Carried
at
Market
|
|
|
Commodity
Derivative
Contracts
Gains
|
|
|
Total
Assets
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$ |
1,624 |
|
|
$ |
198 |
|
|
$ |
1,822 |
|
Total increase (decrease) in unrealized gains
included in cost of products sold
|
|
|
41 |
|
|
|
165 |
|
|
|
206 |
|
Purchases
|
|
|
1,286 |
|
|
|
– |
|
|
|
1,286 |
|
Sales
|
|
|
(285 |
) |
|
|
– |
|
|
|
(285 |
) |
Settlements
|
|
|
– |
|
|
|
(100 |
) |
|
|
(100 |
) |
Transfers into Level 3
|
|
|
72 |
|
|
|
19 |
|
|
|
91 |
|
Transfers out of Level 3
|
|
|
(1,013 |
) |
|
|
(50 |
) |
|
|
(1,063 |
) |
Ending balance, March 31, 2012
|
|
$ |
1,725 |
|
|
$ |
232 |
|
|
$ |
1,957 |
|
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.
|
|
Level 3 Fair Value Liability Measurements at
March 31, 2012
|
|
|
|
Inventory-
related
Payables
|
|
|
Commodity
Derivative
Contracts
Losses
|
|
|
Total
Liabilities
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$ |
196 |
|
|
$ |
192 |
|
|
$ |
388 |
|
Total increase (decrease) in unrealized losses
included in cost of products sold
|
|
|
– |
|
|
|
159 |
|
|
|
159 |
|
Purchases
|
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
Sales
|
|
|
82 |
|
|
|
– |
|
|
|
82 |
|
Settlements
|
|
|
– |
|
|
|
(141 |
) |
|
|
(141 |
) |
Transfers into Level 3
|
|
|
– |
|
|
|
12 |
|
|
|
12 |
|
Transfers out of Level 3
|
|
|
(140 |
) |
|
|
(38 |
) |
|
|
(178 |
) |
Ending balance, March 31, 2012
|
|
$ |
137 |
|
|
$ |
184 |
|
|
$ |
321 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4.
|
Fair Value Measurements (Continued)
|
Fair values for inventories and commodity purchase and sale contracts are generally estimated based on observable, exchange-quoted futures prices adjusted as needed to arrive at prices in local markets. Exchange-quoted futures prices represent quotes for contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. In some cases, the price components that result in differences between the exchange-traded prices and the local prices are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as Basis.
The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components.
The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of March 31, 2013 and December 31, 2012. The Company’s Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with Basis, the unobservable component is a weighted average 26.9% of the total price for assets and 4.9% for liabilities.
|
|
Weighted Average
% of Total Price
|
|
|
|
March 31, 2013 |
|
|
December 31, 2012 |
|
Component Type |
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
Basis
|
|
|
26.9% |
|
|
|
4.9% |
|
|
|
13.5% |
|
|
|
26.2% |
|
Transportation cost
|
|
|
24.5% |
|
|
|
10.6% |
|
|
|
8.4% |
|
|
|
9.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Derivative Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis
|
|
|
18.6% |
|
|
|
33.0% |
|
|
|
45.7% |
|
|
|
17.0% |
|
Transportation cost
|
|
|
10.5% |
|
|
|
15.3% |
|
|
|
16.2% |
|
|
|
7.7% |
|
In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, the Company considers these price quotes as 100 percent unobservable and, therefore, the fair value of these items is reported in Level 3.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
Derivative Instruments and Hedging Activities
|
The Company recognizes all of its derivative instruments as either assets or liabilities at fair value in its consolidated balance sheets. 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. The majority of the Company’s derivatives have not been designated as hedging instruments. 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. As of March 31, 2013 and December 31, 2012, the Company has certain derivatives designated as cash flow hedges. Within the Note 5 tables, zeros represent minimal amounts.
Derivatives Not Designated as Hedging Instruments
The Company generally uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. 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 correlation between the value of exchange-traded commodities futures contracts and the value 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 accounted for as derivatives by the Company 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 certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately. 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 sheets as other current assets and accrued expenses and other payables, respectively.
The following table sets forth the fair value of derivatives not designated as hedging instruments as of March 31, 2013 and December 31, 2012.
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
$ |
181 |
|
|
$ |
126 |
|
|
$ |
170 |
|
|
$ |
215 |
|
Interest Contracts
|
|
|
1 |
|
|
|
– |
|
|
|
1 |
|
|
|
– |
|
Commodity Contracts
|
|
|
2,209 |
|
|
|
2,250 |
|
|
|
2,504 |
|
|
|
2,376 |
|
Total
|
|
$ |
2,391 |
|
|
$ |
2,376 |
|
|
$ |
2,675 |
|
|
$ |
2,591 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
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 statements of earnings for the three months ended March 31, 2013 and 2012.
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Interest Contracts
|
|
|
|
|
|
|
Interest expense
|
|
$ |
0 |
|
|
$ |
0 |
|
Other income (expense) – net
|
|
|
0 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
FX Contracts
|
|
|
|
|
|
|
|
|
Net sales and other operating income
|
|
$ |
73 |
|
|
$ |
9 |
|
Cost of products sold
|
|
|
(1 |
) |
|
|
30 |
|
Other income (expense) – net
|
|
|
(45 |
) |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
$ |
68 |
|
|
$ |
(232 |
) |
Total gain (loss) recognized in earnings
|
|
$ |
95 |
|
|
$ |
(52 |
) |
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 table above. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately.
Derivatives Designated as Cash Flow Hedging Strategies
For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument that is in excess of the cumulative change in the cash flows of the hedged item, if any (i.e., the ineffective portion), hedge components excluded from the assessment of effectiveness, and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.
For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge will be reclassified from AOCI to either net sales and other operating income, cost of products sold, interest expense or other income (expense) – net, as applicable. As of March 31, 2013, the Company has $8 million of after-tax losses in AOCI related to gains and losses from commodity cash flow hedge transactions. The Company expects to recognize $8 million of these after-tax losses in its consolidated statement of earnings during the next 12 months.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
Derivative Instruments and Hedging Activities (Continued)
|
The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants currently grind approximately 76 million bushels of corn per month. During the past 12 months, the Company hedged between 15% and 26% of its monthly anticipated grind. At March 31, 2013, the Company has designated hedges representing between 0.1% and 19% of its anticipated monthly grind of corn for the next 15 months.
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 3.8 million MMbtus of natural gas per month. During the past 12 months, the Company hedged between 11% and 66% of the quantity of its anticipated monthly natural gas purchases. At March 31, 2013, the Company has designated hedges representing between 13% and 49% of its anticipated monthly natural gas purchases for the next 9 months.
The Company, from time to time, also uses futures, options, and swaps to fix the sales price of certain ethanol sales contracts. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s sales of ethanol under sales contracts that are indexed to unleaded gasoline prices. During the past 12 months, the Company hedged between 1 million and 21 million gallons of ethanol per month under this program. At March 31, 2013, the Company has designated hedges representing between 2 million and 12 million gallons of contracted ethanol sales per month over the next 9 months.
The Company started a new hedge program this quarter using soybean meal futures to fix the sales price of certain corn gluten meal sales contracts. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s sales of corn gluten meal under sales contracts, entered into for deliveries within the next 12 months, that are indexed to soybean meal prices. At March 31, 2013, the Company has designated hedges of up to 23,000 tons of contracted corn gluten meal sales per month.
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 equipment purchases denominated in non-functional currencies. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currencies, the Company will hedge some portion of the forecasted foreign currency expenditures. During the past 12 months, the Company hedged between $13 million and $25 million of forecasted foreign currency expenditures. As of March 31, 2013, the Company has designated hedges of $13 million of its forecasted foreign currency expenditures. At March 31, 2013, the Company has $1 million of after-tax losses in AOCI related to foreign exchange contracts designated as cash flow hedging instruments. The Company will recognize the $1 million of losses in its consolidated statement of earnings over the life of the hedged transactions.
The Company, from time to time, uses treasury-lock agreements and interest rate swaps in order to lock in the Company’s interest rate prior to the issuance or remarketing of its long-term debt. 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 of hedge designation to the date when the debt was actually issued. At March 31, 2013, AOCI included $21 million of after-tax gains related to treasury-lock agreements and interest rate swaps. The Company will recognize the $21 million of gains in its consolidated statement of earnings over the terms of the hedged items, which range from 10 to 30 years.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5.
|
Derivative Instruments and Hedging Activities (Continued)
|
The following tables set forth the fair value of derivatives designated as hedging instruments as of March 31, 2013 and December 31, 2012.
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
$ |
1 |
|
|
$ |
0 |
|
|
$ |
1 |
|
|
$ |
0 |
|
Total
|
|
$ |
1 |
|
|
$ |
0 |
|
|
$ |
1 |
|
|
$ |
0 |
|
The following table sets forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three months ended March 31, 2013 and 2012.
|
|
|
Three months ended
|
|
|
Consolidated Statement of
|
|
March 31,
|
|
|
Earnings Locations
|
|
2013
|
|
|
2012
|
|
|
|
|
(In millions)
|
|
Effective amounts recognized in earnings
|
|
|
|
|
|
|
|
FX Contracts
|
Other income/expense – net
|
|
$ |
0 |
|
|
$ |
0 |
|
Interest Contracts
|
Interest expense
|
|
|
0 |
|
|
|
0 |
|
Commodity Contracts
|
Cost of products sold
|
|
|
(2 |
) |
|
|
(3 |
) |
|
Net sales and other operating
income
|
|
|
(1 |
) |
|
|
(10 |
) |
Ineffective amount recognized in earnings
|
|
|
|
|
|
|
|
|
|
Interest Contracts
|
Other income/expense – net
|
|
|
– |
|
|
|
– |
|
Commodity Contracts
|
Cost of products sold
|
|
|
(42 |
) |
|
|
(27 |
) |
Total amount recognized in earnings
|
|
|
$ |
(45 |
) |
|
$ |
(40 |
) |
Hedge ineffectiveness results when the change in the price of the underlying commodity in a specific cash market differs from the change in the price of the derivative financial instrument used to establish the hedging relationship. As an example, if the change in the price of a corn futures contract is strongly correlated to the change in cash price paid for corn, the gain or loss on the derivative instrument is deferred and recognized at the time the corn grind occurs. If the change in price of the derivative does not strongly correlate to the change in the cash price of corn, in the same example, some portion or all of the derivative gains or losses may be required to be recognized in earnings prior to the corn grind occurring.
The following tables set forth the changes in AOCI related to derivatives gains (losses) for the three months ended March 31, 2013 and 2012.
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Balance at December 31, 2012 and 2011
|
|
$ |
4 |
|
|
$ |
30 |
|
Unrealized gains (losses)
|
|
|
9 |
|
|
|
(54 |
) |
Losses (gains) reclassified to earnings
|
|
|
3 |
|
|
|
13 |
|
Tax effect
|
|
|
(5 |
) |
|
|
15 |
|
Balance at March 31, 2013 and 2012
|
|
$ |
11 |
|
|
$ |
4 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6.
|
Marketable Securities and Cash Equivalents
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
Value
|
|
|
(In millions)
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
$ |
375 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
375 |
|
Maturity 1 to 5 years
|
|
|
90 |
|
|
|
– |
|
|
|
– |
|
|
|
90 |
|
Government–sponsored enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity 1 to 5 years
|
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity 1 to 5 years
|
|
|
14 |
|
|
|
– |
|
|
|
– |
|
|
|
14 |
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
645 |
|
|
|
– |
|
|
|
– |
|
|
|
645 |
|
Maturity 1 to 5 years
|
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
611 |
|
|
|
– |
|
|
|
(38 |
) |
|
|
573 |
|
|
|
$ |
1,741 |
|
|
$ |
– |
|
|
$ |
(38 |
) |
|
$ |
1,703 |
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In millions)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
$ |
583 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
583 |
|
Maturity 1 to 5 years
|
|
|
93 |
|
|
|
– |
|
|
|
– |
|
|
|
93 |
|
Government–sponsored enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity 1 to 5 years
|
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
2 |
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity 1 to 5 years
|
|
|
15 |
|
|
|
– |
|
|
|
– |
|
|
|
15 |
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
|
|
1,038 |
|
|
|
– |
|
|
|
– |
|
|
|
1,038 |
|
Maturity 1 to 5 years
|
|
|
3 |
|
|
|
– |
|
|
|
– |
|
|
|
3 |
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
606 |
|
|
|
3 |
|
|
|
(5 |
) |
|
|
604 |
|
|
|
$ |
2,340 |
|
|
$ |
3 |
|
|
$ |
(5 |
) |
|
$ |
2,338 |
|
All of the $38 million in unrealized losses at March 31, 2013 arose within the last 12 months and are related to the Company’s investment in three available-for-sale equity securities with a market value of $571 million. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Company’s ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7.
|
Other Current Assets
|
The following table sets forth the items in other current assets:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Unrealized gains on derivative contracts
|
|
$ |
2,392 |
|
|
$ |
2,676 |
|
Deferred receivables consideration
|
|
|
597 |
|
|
|
900 |
|
Other current assets
|
|
|
3,426 |
|
|
|
2,972 |
|
|
|
$ |
6,415 |
|
|
$ |
6,548 |
|
Note 8.
|
Accrued Expenses and Other Payables
|
The following table sets forth the items in accrued expenses and other payables:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Unrealized losses on derivative contracts
|
|
$ |
2,376 |
|
|
$ |
2,591 |
|
Grain accounts and margin deposits
|
|
|
5,005 |
|
|
|
4,620 |
|
Accrued expenses and other payables
|
|
|
1,798 |
|
|
|
1,911 |
|
|
|
$ |
9,179 |
|
|
$ |
9,122 |
|
Note 9.
|
Debt and Financing Arrangements
|
The Company has outstanding $1.15 billion principal amount of convertible senior notes (the “Notes”) due in February 2014. As of March 31, 2013, none of the conditions permitting conversion of the Notes had been satisfied. Therefore, no share amounts related to the conversion of the Notes or exercise of the warrants sold in connection with the issuance of the Notes were included in diluted average shares outstanding. For further information on the Notes, refer to Note 10 “Debt and Financing Arrangements” in the consolidated financial statements included in the Company’s transition report on Form 10-KT for the six months ended December 31, 2012.
At March 31, 2013, the fair value of the Company’s long-term debt exceeded the carrying value by $1.3 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At March 31, 2013, the Company had lines of credit totaling $8.6 billion, of which $6.3 billion was unused. Of the Company’s total lines of credit, $6.0 billion support a commercial paper borrowing facility, against which $1.5 billion of commercial paper was outstanding at March 31, 2013.
On March 27, 2012, the Company entered into an amendment of its accounts receivable securitization program (the “Program”). The Program provides the Company with up to $1.0 billion in funding resulting from the sale of accounts receivable. As of March 31, 2013, the Company utilized all of its $1.0 billion facility under the Program (see Note 15 for more information on the Program).
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The Company’s effective tax rate for the quarter ended March 31, 2013 was 28.0% in line with 28.7% for the quarter ended March 31, 2012.
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 positions taken by the Company related to 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 the applicable accounting standard. However, the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.
The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), received three separate tax assessments from the Brazilian Federal Revenue Service (BFRS) challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006 and 2007 in the amounts of $486 million, $20 million, and $85 million, respectively (inclusive of interest and adjusted for variation in currency exchange rates). ADM do Brasil’s tax return for 2005 was also audited and no assessment was received. The statute of limitations for 2005 has expired. If the BFRS were to challenge commodity hedging deductions in tax years after 2007, the Company estimates it could receive additional claims of approximately $104 million (as of March 31, 2013 and subject to variation in currency exchange rates).
ADM do Brasil enters into commodity hedging transactions that 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. The Company has evaluated its tax position regarding these hedging transactions and concluded, based 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 BFRS.
ADM do Brasil filed an administrative appeal for each of the assessments. During the second quarter of fiscal 2011, a decision in favor of the BFRS on the 2004 assessment was received and a second level administrative appeal has been filed. In January of 2012, a decision in favor of the BFRS on the 2006 and 2007 assessments was received and a second level administrative appeal has been filed. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, further appeals are available in the Brazilian federal courts. While the Company believes 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 additional payments of, and expense for, income tax and the associated interest and penalties. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2007.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10.
|
Income Taxes (Continued)
|
The Company’s subsidiaries in Argentina have received tax assessments challenging transfer prices used to price grain exports totaling $60 million (inclusive of interest and adjusted for variation in currency exchange rates) for the tax years 2004, 2005, and 2006. The Argentine tax authorities have been conducting a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. While the Company believes that it has complied with all Argentine tax laws, it cannot rule out receiving additional assessments, which could be material to the Company, challenging transfer prices used to price grain exports for years subsequent to 2006. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2006. The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, the Company has not recorded a tax liability for these assessments.
In accordance with the accounting requirements for uncertain tax positions, the Company has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits. The Company has not recorded an uncertain tax liability for these assessments partly because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in the payment and expense of up to the entire amount of these assessments.
Note 11.
|
Accumulated Other Comprehensive Income (AOCI)
|
The following tables set forth the changes in AOCI by component and the reclassifications out of AOCI for the quarter ended March 31, 2013:
|
|
Foreign
|
|
|
Deferred
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Currency
|
|
|
Gain (Loss)
|
|
Pension
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
Translation
|
|
|
on Hedging
|
|
Liability
|
|
|
On
|
|
|
|
|
|
|
Adjustment
|
|
|
Activities
|
|
Adjustment
|
|
|
Investments
|
|
|
Total
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$ |
136 |
|
|
$ |
4 |
|
|
$ |
(590 |
) |
|
$ |
– |
|
|
$ |
(450 |
) |
Other comprehensive income
before reclassifications
|
|
|
(148 |
) |
|
|
9 |
|
|
|
9 |
|
|
|
(37 |
) |
|
|
(167 |
) |
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCI
|
|
|
– |
|
|
|
3 |
|
|
|
15 |
|
|
|
– |
|
|
|
18 |
|
Tax effect
|
|
|
3 |
|
|
|
(5 |
) |
|
|
(1 |
) |
|
|
11 |
|
|
|
8 |
|
Net current period other
comprehensive income
|
|
|
(145 |
) |
|
|
7 |
|
|
|
23 |
|
|
|
(26 |
) |
|
|
(141 |
) |
Balance at March 31, 2013
|
|
$ |
(9 |
) |
|
$ |
11 |
|
|
$ |
(567 |
) |
|
$ |
(26 |
) |
|
$ |
(591 |
) |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 11.
|
Accumulated Other Comprehensive Income (AOCI) (Continued)
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
reclassified
|
|
Affected line item in the
|
Details about AOCI components
|
|
from AOCI
|
|
consolidated statement of earnings
|
|
|
(In millions)
|
|
|
Deferred gain (loss) on hedging activities
|
|
|
|
|
|
|
|
$
|
2
|
|
Cost of products sold
|
|
|
|
1
|
|
Net sales and other operating income
|
|
|
|
3
|
|
Total before tax
|
|
|
|
(1)
|
|
Tax
|
|
|
$
|
2
|
|
Net of tax
|
Pension liability adjustment
|
|
|
|
|
|
Amortization of defined benefit
pension items:
|
|
|
|
|
|
Prior service costs
|
|
$
|
(4)
|
|
|
Actuarial gains (losses)
|
|
|
19
|
|
|
|
|
|
15
|
|
Total before tax
|
|
|
|
–
|
|
Tax
|
|
|
$
|
15
|
|
Net of tax
|
Note 12.
|
Other (Income) Expense – Net
|
The following tables set forth the items in other (income) expense:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
$ |
(5 |
) |
|
$ |
(9 |
) |
Net gain on marketable securities transactions
|
|
|
- |
|
|
|
(8 |
) |
Other – net
|
|
|
8 |
|
|
|
(5 |
) |
Other (Income) Expense - Net
|
|
$ |
3 |
|
|
$ |
(22 |
) |
Note 13.
|
Segment Information
|
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are organized, managed and 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 not reportable segments, as defined by the applicable accounting standard, and are classified as Other.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in segment operating profit is equity in earnings of affiliates based on the equity method of accounting. Certain Corporate items are not allocated to the Company’s reportable business segments. Corporate results principally include the impact of LIFO-related adjustments, unallocated corporate expenses, and interest cost net of investment income.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13.
|
Segment Information (Continued)
|
In June 2012, the Company reorganized and streamlined its business unit reporting structure and broadened management spans of control. Also in June 2012, the Company discontinued the allocation of interest expense from Corporate to the operating segments. Throughout this quarterly report on Form 10-Q, prior period information has been reclassified to conform to the current period segment presentation.
For detailed information regarding the Company’s reportable segments, see Note 18 to the consolidated financial statements included in the Company’s transition report on Form 10-KT for the six months ended December 31, 2012.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
8,143 |
|
|
$ |
7,715 |
|
Corn Processing
|
|
|
3,053 |
|
|
|
2,835 |
|
Agricultural Services
|
|
|
10,500 |
|
|
|
10,571 |
|
Other
|
|
|
31 |
|
|
|
34 |
|
Total
|
|
$ |
21,727 |
|
|
$ |
21,155 |
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
569 |
|
|
$ |
548 |
|
Corn Processing
|
|
|
34 |
|
|
|
33 |
|
Agricultural Services
|
|
|
1,641 |
|
|
|
1,410 |
|
Other
|
|
|
56 |
|
|
|
40 |
|
Total
|
|
$ |
2,300 |
|
|
$ |
2,031 |
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
8,712 |
|
|
$ |
8,263 |
|
Corn Processing
|
|
|
3,087 |
|
|
|
2,868 |
|
Agricultural Services
|
|
|
12,141 |
|
|
|
11,981 |
|
Other
|
|
|
87 |
|
|
|
74 |
|
Intersegment elimination
|
|
|
(2,300 |
) |
|
|
(2,031 |
) |
Total
|
|
$ |
21,727 |
|
|
$ |
21,155 |
|
|
|
|
|
|
|
|
|
|
Segment operating profit
|
|
|
|
|
|
|
|
|
Oilseeds Processing
|
|
$ |
313 |
|
|
$ |
542 |
|
Corn Processing
|
|
|
153 |
|
|
|
133 |
|
Agricultural Services
|
|
|
151 |
|
|
|
261 |
|
Other
|
|
|
13 |
|
|
|
(18 |
) |
Total segment operating profit
|
|
|
630 |
|
|
|
918 |
|
Corporate
|
|
|
(255 |
) |
|
|
(350 |
) |
Earnings before income taxes
|
|
$ |
375 |
|
|
$ |
568 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14.
|
Asset Impairment Charges and Exit Costs
|
There were no significant asset impairment charges and exit costs recognized in the quarter ended March 31, 2013.
The following table summarizes the Company’s significant asset impairment, exit, and restructuring costs for the three months ended March 31, 2012:
|
|
Three Months Ended
March 31, 2012
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related costs (1)
|
|
$ |
71 |
|
Facility exit and other related costs (2)
|
|
|
14 |
|
Total asset impairment, exit, and restructuring costs
|
|
$ |
85 |
|
|
|
|
|
|
(1)
|
These costs primarily consist of one-time termination benefits provided to employees who were involuntarily terminated and $34 million for pension remeasurement charges triggered by an amendment of the Company’s U.S. plans due to the voluntary early retirement program.
|
(2)
|
Facility exit and other related costs consist of asset impairment charges and other costs related to the exit of the Walhalla, ND ethanol facility.
|
In January 2012, the Company announced a plan to streamline its organizational structure, reducing its global workforce to enhance the cost structure of the Company. Over 1,200 positions, primarily salaried, were eliminated. To help achieve this reduction, the Company offered a voluntary early retirement incentive in the U.S. These actions, in concert with other targeted cost reductions have reduced the Company’s annual pre-tax expenses by approximately $150 million. The Company achieved a significant portion of the position reductions through the voluntary early retirement incentive in the U.S. and offered severance and outplacement assistance to other affected employees.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 15. Sale of Accounts Receivable
On March 27, 2012, the Company entered into an amendment of its accounts receivable securitization program (as amended, the “Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Purchasers”). Under the Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables in turn transfers such purchased accounts receivable in their entirety to the Purchasers pursuant to a receivables purchase agreement. In exchange for the transfer of the accounts receivable, ADM Receivables receives a cash payment of up to $1.0 billion and an additional amount upon the collection of the accounts receivable (deferred consideration). ADM Receivables uses the cash proceeds from the transfer of receivables to the Purchasers and other consideration to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables. The Company accounts for these transfers as sales. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred consideration. At March 31, 2013 and December 31, 2012, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold. The Program terminates on June 29, 2013 unless extended. The Company intends to renew this $1.0 billion facility on or before June 29, 2013.
As of March 31, 2013, the fair value of trade receivables transferred to the Purchasers under the Program and derecognized from the Company’s consolidated balance sheet was $1.6 billion. In exchange for the transfer, the Company received cash of $1.0 billion and recorded a $0.6 billion receivable for deferred consideration included in other current assets. Cash collections from customers on receivables sold were $9.8 billion and $355 million for the quarter ended March 31, 2013 and 2012, respectively. Of this amount, $9.8 billion and $355 million pertains to cash collections on the deferred consideration for the quarter ended March 31, 2013 and 2012, respectively. Deferred consideration is paid to the Company in cash on behalf of the Purchasers as receivables are collected; however, as this is a revolving facility, cash collected from the Company’s customers is reinvested by the Purchasers daily in new receivable purchases under the Program.
The Company’s risk of loss following the transfer of accounts receivable under the Program is limited to the deferred consideration outstanding. The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received and is principally based on observable inputs (a Level 2 measurement under the applicable accounting standards) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the program which have historically been insignificant.
Transfers of receivables under the Program during the three months ended March 31, 2013 and 2012 resulted in an expense for the loss on sale of $1 million for both periods, classified as other (income) expense - net in the consolidated statements of earnings.
The Company reflects all cash flows related to the Program as operating activities in its consolidated statement of cash flows for the three months ended March 31, 2013 and 2012 because the cash received from the Purchasers upon both the sale and collection of the receivables are not subject to significantly different risks given the short-term nature of the Company’s trade receivables.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Since August 2008, the Company has been conducting an internal review of its policies, procedures and internal controls pertaining to the adequacy of its anti-corruption compliance program and of certain transactions conducted by the Company and its affiliates and joint ventures, primarily relating to grain and feed exports, that may have violated company policies, the U.S. Foreign Corrupt Practices Act, and other U.S. and foreign laws. The Company initially disclosed this review to the U.S. Department of Justice, the Securities and Exchange Commission, and certain foreign regulators in March 2009 and has subsequently provided periodic updates to the agencies. The Company engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has recently completed its internal review and has initiated discussions with the Department of Justice and the Securities and Exchange Commission on the resolution of this matter. In connection with this review, government agencies could impose civil penalties or criminal fines and/or order that the Company disgorge any profits derived from any contracts involving inappropriate payments. Included in selling, general, and administrative expenses for the quarter ended March 31, 2013 was a $25 million provision for the estimate of potential disgorgement, penalties or fines that may be imposed by government agencies pertaining to this matter. However, a final agreement has not been reached as of the date of this filing, and therefore the ultimate settlement is uncertain and may exceed $25 million. These events have not had, and are not expected to have, a material impact on the Company’s business or financial condition.
Note 17.
|
Subsequent Event
|
As of March 31, 2013, the Company held a 19.8% common equity interest in GrainCorp Limited (GrainCorp). This interest was initially obtained through the use of two transactions with investment bank counterparties. These transactions were accounted for as derivatives, and the derivatives were settled in equity shares of GrainCorp during the quarter ended December 31, 2012.
The purpose of these transactions was to facilitate the Company’s planned acquisition of GrainCorp. During the quarter ended December 31, 2012, the Company delivered an initial non-binding proposal, followed later by a second non-binding proposal, with the aim of arriving at an agreement with GrainCorp’s Board of Directors under which they would recommend to GrainCorp shareholders an acquisition by the Company of all of GrainCorp, with the most recent proposal of Australian $12.20 per share in cash.
On April 25, 2013, the Company announced that it has signed a takeover bid implementation deed with GrainCorp. On May 1, 2013, the Company announced that it intends to make a cash offer to acquire the outstanding common shares of GrainCorp for Australian $12.20 per share under the terms of the takeover bid implementation deed. The offer implies an aggregate transaction value of about Australian $3.4 billion, including GrainCorp’s outstanding net debt. As part of the agreement, GrainCorp will pay to its shareholders, dividends out of current and retained earnings totaling Australian $1.00 per share prior to the completion of the transaction. GrainCorp has indicated that the Company’s offer would be unanimously recommended by the GrainCorp board. The offer is subject to conditions set out in the takeover bid implementation deed, which include regulatory approvals and a minimum acceptance level by GrainCorp shareholders.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Company Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements.
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in more than 140 countries. The Company also processes corn, oilseeds, wheat and cocoa into products for food, animal feed, chemical and energy uses. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for its shareholders, principally from margins earned on these activities.
The Company’s operations are organized, managed and 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 not reportable segments, as defined by the applicable accounting standard, and are classified as Other.
The Oilseeds Processing segment includes global activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals. Oilseeds products produced and marketed by the Company include ingredients for the food, feed, energy, and industrial products industries. Crude vegetable oils produced by the segment’s crushing activities are sold “as is” or are further processed by refining, blending, bleaching, and deodorizing into salad oils. Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oils are used to produce biodiesel or are sold to other manufacturers for use in chemicals, paints, and other industrial products. Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds. In Europe and South America, the Oilseeds Processing segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets. These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds. The Oilseeds Processing segment produces natural health and nutrition products and other specialty food and feed ingredients. The Oilseeds Processing segment is a major supplier of peanuts and peanut-derived ingredients to both the U.S. and export markets. In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets. In South America, the Oilseeds Processing segment operates fertilizer blending facilities. The Oilseeds Processing segment also includes activities related to the procurement, transportation and processing of cocoa beans into 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 Oilseeds Processing segment also includes the Company’s share of the results of its equity investment in Wilmar and its share of results for its Stratas Foods LLC and Edible Oils Limited joint ventures.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, with its asset base primarily located in the central part of the United States. The Corn Processing segment converts corn into sweeteners and starches, and bioproducts. Its products include ingredients used in the food and beverage industry including sweeteners, starch, syrup, glucose, and dextrose. Dextrose and starch are used by the Corn Processing segment as feedstocks for its bioproducts operations. By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other specialty food and animal feed ingredients. Ethyl alcohol is produced by the Company for industrial use as ethanol or as beverage grade. Ethanol, in gasoline, increases octane and is used as an extender and oxygenate. Bioproducts also include amino acids such as lysine and threonine that are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production. 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 into vegetable oil and protein meal. Other Corn Processing products include citric and lactic acids, lactates, sorbitol, xanthan gum, and glycols which are used in various food and industrial products. The Corn Processing segment includes the activities of a propylene and ethylene glycol facility and the Company’s Brazilian sugarcane ethanol plant and related operations. This segment also includes the Company’s share of the results of its equity investments in Almidones Mexicanos S.A., Eaststarch C.V., and Red Star Yeast Company LLC.
The Agricultural Services segment utilizes its extensive U.S. grain elevator, global transportation network, and port operations 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 and as raw materials for the agricultural processing industry. Agricultural Services’ grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. Agricultural Services’ transportation network capabilities include barge, ocean-going vessel, truck, and rail freight services. The Agricultural Services segment also includes the activities related to the processing of wheat into wheat flour, the processing and distribution of formula feeds, animal health and nutrition products, and the procurement, processing, and distribution of edible beans. The Agricultural Services segment includes the activities of Alfred C. Toepfer International, an 80% owned global merchant of agricultural commodities and processed products. The Agricultural Services segment also includes the Company’s share of the results of its Kalama Export Company joint venture and its equity investment in Gruma until December 2012, when the Company’s interest in Gruma was sold.
Other includes the Company’s remaining operations, primarily its financial business units, related principally to futures commission merchant activities and captive insurance. In December 2012, the Company sold its remaining common equity interest in Hickory Point Bank resulting in no material effect to the Company’s earnings.
Corporate results principally include the impact of LIFO-related inventory adjustments, unallocated corporate expenses, and interest cost net of investment income.
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 transition report on Form 10-KT for the six months ended December 31, 2012.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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The Company’s oilseeds processing and agricultural services 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. Thus, changes in margins and 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 has consolidated subsidiaries in over 75 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. For the majority of the Company’s business activities in Brazil, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require conversion to the functional currency. 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 can result in corresponding fluctuations in the U.S. dollar value of revenues and expenses reported by the Company.
The Company measures the performance of its business segments using key financial metrics such as segment operating profit, profit per metric ton, return on invested capital, EBITDA, and cost per metric ton. 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, general global economic conditions, 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, 2013 Compared to Three Months Ended March 31, 2012
Net earnings attributable to controlling interests decreased $130 million to $269 million due principally to lower segment operating profit. Segment operating profit decreased $288 million or 31% on lower Oilseeds and Agricultural Services profits. Partially offsetting the lower segment operating profit were lower charges related to changes in LIFO inventory valuations and the absence of $74 million of prior year corporate costs mainly related to the global workforce reduction program. Earnings before income taxes this quarter includes charges of $34 million from the effect of increasing agricultural commodity prices on LIFO inventory valuation reserves, compared to $107 million for the three months ended March 31, 2012. The prior quarter global workforce reduction costs included in corporate primarily consist of one-time termination benefits provided to employees who were involuntarily terminated and $34 million for pension remeasurement charges reflecting the impact of the voluntary early retirement program.
Income taxes decreased $58 million due to lower earnings before income taxes. The Company’s effective tax rate for the quarter ended March 31, 2013 was 28.0% in line with 28.7% for the quarter ended March 31, 2012.