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 September 30, 2008
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from __________ to __________
Commission
file number 1-44
ARCHER-DANIELS-MIDLAND
COMPANY
(Exact
name of registrant as specified in its charter)
|
Delaware
|
41-0129150
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.
R. S. Employer
Identification
No.)
|
|
4666
Faries Parkway Box 1470
Decatur,
Illinois
(Address
of principal executive offices)
|
62525
(Zip
Code)
|
|
(217)
424-5200
|
|
|
(Registrant's
telephone number, including area
code)
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer x Accelerated
Filer o
Non-accelerated
Filer o Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x.
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, no par value – 641,474,300 shares
(October
31, 2008)
PART
I - FINANCIAL INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
Archer-Daniels-Midland
Company
Consolidated
Statements of Earnings
(Unaudited)
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions, except
|
||||||||
|
per
share amounts)
|
||||||||
|
Net
sales and other operating income
|
$ | 21,160 | $ | 12,828 | ||||
|
Cost
of products sold
|
19,293 | 11,898 | ||||||
|
Gross
Profit
|
1,867 | 930 | ||||||
|
Selling,
general and administrative expenses
|
409 | 354 | ||||||
|
Other
income– net
|
(36 | ) | (71 | ) | ||||
|
Earnings
Before Income Taxes
|
1,494 | 647 | ||||||
|
Income
taxes
|
444 | 206 | ||||||
|
Net
Earnings
|
$ | 1,050 | $ | 441 | ||||
|
Average
number of shares outstanding – basic
|
644 | 644 | ||||||
|
Average
number of shares outstanding – diluted
|
645 | 647 | ||||||
|
Basic
and diluted earnings per common share
|
$ | 1.63 | $ | 0.68 | ||||
|
Dividends
per common share
|
$ | 0.13 | $ | 0.115 | ||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Balance Sheets
|
(Unaudited)
|
||||||||
|
September
30,
|
June
30,
|
|||||||
|
2008
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,532 | $ | 810 | ||||
|
Short-term
marketable securities
|
453 | 455 | ||||||
|
Segregated
cash and investments
|
2,285 | 2,035 | ||||||
|
Receivables
|
8,884 | 11,483 | ||||||
|
Inventories
|
8,333 | 10,160 | ||||||
|
Other
assets
|
587 | 512 | ||||||
|
Total
Current Assets
|
23,074 | 25,455 | ||||||
|
Investments
and Other Assets
|
||||||||
|
Investments
in and advances to affiliates
|
2,752 | 2,773 | ||||||
|
Long-term
marketable securities
|
641 | 590 | ||||||
|
Goodwill
|
501 | 506 | ||||||
|
Other
assets
|
584 | 607 | ||||||
|
Total
Investments and Other Assets
|
4,478 | 4,476 | ||||||
|
Property,
Plant, and Equipment
|
||||||||
|
Land
|
229 | 238 | ||||||
|
Buildings
|
3,072 | 3,207 | ||||||
|
Machinery
and equipment
|
12,200 | 12,410 | ||||||
|
Construction
in progress
|
2,168 | 1,924 | ||||||
| 17,669 | 17,779 | |||||||
|
Accumulated
depreciation
|
(10,514 | ) | (10,654 | ) | ||||
|
Net
Property, Plant, and Equipment
|
7,155 | 7,125 | ||||||
|
Total
Assets
|
$ | 34,707 | $ | 37,056 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Short-term
debt
|
$ | 707 | $ | 3,123 | ||||
|
Accounts
payable
|
7,189 | 6,544 | ||||||
|
Accrued
expenses
|
4,161 | 4,722 | ||||||
|
Current
maturities of long-term debt
|
44 | 232 | ||||||
|
Total
Current Liabilities
|
12,101 | 14,621 | ||||||
|
Long-Term
Liabilities
|
||||||||
|
Long-term
debt
|
7,754 | 7,690 | ||||||
|
Deferred
income taxes
|
548 | 473 | ||||||
|
Other
|
771 | 782 | ||||||
|
Total
Long-Term Liabilities
|
9,073 | 8,945 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Common
stock
|
5,001 | 5,039 | ||||||
|
Reinvested
earnings
|
8,446 | 7,494 | ||||||
|
Accumulated
other comprehensive income
|
86 | 957 | ||||||
|
Total
Shareholders’ Equity
|
13,533 | 13,490 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 34,707 | $ | 37,056 | ||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated
Statements of Cash Flows
(Unaudited)
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Operating
Activities
|
||||||||
|
Net
earnings
|
$ | 1,050 | $ | 441 | ||||
|
Adjustments
to reconcile net earnings to net cash provided by
|
||||||||
|
(used
in) operating activities
|
||||||||
|
Depreciation
|
177 | 185 | ||||||
|
Deferred
income taxes
|
65 | (18 | ) | |||||
|
Gains
on sales of marketable securities
|
(14 | ) | (15 | ) | ||||
|
Equity
in earnings of affiliates, net of dividends
|
(96 | ) | (52 | ) | ||||
|
Pension
and postretirement accruals, net of contributions
|
(7 | ) | 14 | |||||
|
Other
– net
|
(22 | ) | 88 | |||||
|
Changes
in operating assets and liabilities
|
||||||||
|
Segregated
cash and investments
|
(281 | ) | 246 | |||||
|
Receivables
|
652 | (814 | ) | |||||
|
Inventories
|
1,725 | (1,858 | ) | |||||
|
Other
assets
|
60 | (71 | ) | |||||
|
Accounts
payable and accrued expenses
|
1,371 | 644 | ||||||
|
Total
Operating Activities
|
4,680 | (1,210 | ) | |||||
|
Investing
Activities
|
||||||||
|
Purchases
of property, plant, and equipment
|
(483 | ) | (359 | ) | ||||
|
Proceeds
from sales of property, plant, and equipment
|
32 | 9 | ||||||
|
Proceeds
from sales of businesses
|
236 | – | ||||||
|
Net
assets of businesses acquired
|
(24 | ) | (5 | ) | ||||
|
Purchases
of marketable securities
|
(599 | ) | (122 | ) | ||||
|
Proceeds
from sales of marketable securities
|
532 | 242 | ||||||
|
Other
– net
|
7 | 11 | ||||||
|
Total
Investing Activities
|
(299 | ) | (224 | ) | ||||
|
Financing
Activities
|
||||||||
|
Long-term
debt borrowings
|
102 | 17 | ||||||
|
Long-term
debt payments
|
(15 | ) | (39 | ) | ||||
|
Net
borrowings (payments) under lines of credit agreements
|
(2,570 | ) | 2,041 | |||||
|
Purchases
of treasury stock
|
(100 | ) | (60 | ) | ||||
|
Cash
dividends
|
(84 | ) | (74 | ) | ||||
|
Other
– net
|
8 | 7 | ||||||
|
Total
Financing Activities
|
(2,659 | ) | 1,892 | |||||
|
Increase
in cash and cash equivalents
|
1,722 | 458 | ||||||
|
Cash
and cash equivalents beginning of period
|
810 | 663 | ||||||
|
Cash
and cash equivalents end of period
|
$ | 2,532 | $ | 1,121 | ||||
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 September 30, 2008 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 2009. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30,
2008.
Last-in,
First-out (LIFO) Inventories
Interim
period LIFO calculations are based on interim period costs and management’s
estimates of year-end inventory levels. Because the availability and
price of agricultural commodity-based LIFO inventories are unpredictable due to
factors such as weather, government farm programs and policies, and changes in
global demand, quantities of LIFO-based inventories at interim periods may vary
significantly from management’s estimates of year-end inventory
levels.
|
Note
2.
|
New
Accounting Standards
|
During
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 allows
entities to voluntarily choose, at specified election dates, to measure many
financial assets and financial liabilities at fair value. The election is made
on an instrument-by-instrument basis and is irrevocable. If the fair value
option is elected for an instrument, SFAS 159 specifies that all subsequent
changes in fair value for that instrument shall be reported in
earnings. The Company adopted SFAS 159 on July 1, 2008 with no effect
because the Company made no fair value measurement elections.
During
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)) and SFAS No. 160, Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (SFAS 160). SFAS 141(R) replaces SFAS 141, Business
Combinations. SFAS 141(R) and SFAS 160 will change the
financial accounting and reporting of business combination transactions and
noncontrolling (or minority) interests in consolidated financial
statements. SFAS 141(R) requires recognizing, with certain
exceptions, 100 percent of the fair values of assets acquired, liabilities
assumed, and noncontrolling interests in acquisitions of less than a 100 percent
controlling interest when the acquisition constitutes a change in control of the
acquired entity; measuring acquirer shares issued and contingent consideration
arrangements in connection with a business combination at fair value on the
acquisition date with subsequent changes in fair value reflected in earnings;
and expensing as incurred acquisition-related transaction costs. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also
amends the consolidation procedures of Accounting Research Bulletin No. 51,
Consolidated Financial
Statements (ARB 51) for consistency with the requirements of SFAS
141(R). The Company will be required to adopt SFAS 141(R) for
business combination transactions for which the acquisition date is on or after
July 1, 2009. The Company will also be required to adopt SFAS 160 on July 1,
2009. The Company has not yet assessed the impact of the adoption of
these standards on its financial statements.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
2.
|
New
Accounting Standards (Continued)
|
During
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 expands and disaggregates the disclosure
requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). The disclosure
provisions of SFAS 161 apply to all entities with derivative instruments subject
to SFAS 133 and also apply to related hedged items, bifurcated derivatives, and
nonderivative instruments that are designated and qualify as hedging
instruments. SFAS 161 requires an entity with derivatives to disclose how and
why it uses derivative instruments; how derivative instruments and related
hedged items are accounted for under SFAS 133; and how derivative instruments
and related hedged items affect the entity’s financial position, financial
performance, and cash flows. Entities must provide tabular disclosures of the
location, by line item, of amounts of gains and losses reported in the statement
of earnings. The Company will be required to adopt SFAS 161 on
January 1, 2009. The adoption of this standard will require expanded
disclosure in the notes to the Company’s consolidated financial statements but
will not impact financial results.
During
May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1). FSP APB 14-1 addresses the accounting for
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. Currently, most forms of convertible debt securities
are treated solely as debt. Under this FSP, issuers of convertible debt
securities within its scope must separate these securities into two accounting
components; a debt component, representing the issuer’s contractual obligation
to pay principal and interest; and an equity component, representing the
holder’s option to convert the debt security into equity of the issuer or, if
the issuer so elects, an equivalent amount of cash. The Company will be required
to adopt FSP APB 14-1 on July 1, 2009 in connection with its outstanding
convertible debt and must apply it retrospectively to all past periods
presented, even if the instrument has matured, converted, or otherwise been
extinguished as of the FSP’s effective date. The Company has not yet assessed
the impact of the adoption of this standard on its financial
statements.
During
June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP
EITF 03-6-1). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment transactions
are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share (EPS) under
the two-class method. The FSP clarifies that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders and are
considered to be participating securities. As such, the issuing entity is
required to apply the two-class method of computing basic and diluted EPS. The
Company will be required to adopt FSP EITF 03-6-1 on July 1, 2009 and has not
yet assessed the impact of the adoption of this standard on the Company’s
financial statements.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
3.
|
Fair
Value Measurements
|
Effective
July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157), which establishes a framework for measuring fair value and clarifies the
definition of fair value within that framework. SFAS 157 defines fair
value as an exit price, which is the price that would be received for an asset
or paid to transfer a liability in the Company’s principal or most advantageous
market for the asset or liability, in an orderly transaction between market
participants on the measurement date. The fair value hierarchy
established in SFAS 157 generally requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. Observable inputs reflect the assumptions market participants would
use in pricing the asset or liability and are developed based on market data
obtained from sources independent of the reporting
entity. Unobservable inputs reflect the entity’s own assumptions
based on market data and the entity’s judgments about the assumptions that
market participants would use in pricing the asset or liability, and are to be
developed based on the best information available in the
circumstances. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset in a Market That Is Not Active, which clarifies that when
an active market does not exist it may be appropriate to use unobservable inputs
to determine fair value. The Company determines the fair market value
of certain of its inventories of agricultural commodities, derivative contracts,
and marketable securities based on the fair value definition and hierarchy
levels established in SFAS 157. SFAS 157 establishes three levels
within its hierarchy that may be used to measure fair value:
Level
1: Quoted prices (unadjusted) in active markets for identical assets
or liabilities. Level 1 assets and liabilities include
exchange-traded derivative contracts, U.S. treasury securities and certain
publicly traded equity securities.
Level
2: Observable inputs, including Level 1 prices that have been
adjusted; quoted prices for similar assets or liabilities; quoted prices in
markets that are less active than traded exchanges; and other inputs that are
observable or can be substantially corroborated by observable market
data.
Level
3: Unobservable inputs that are supported by little or no market
activity and that are a significant component of the fair value of the assets or
liabilities. In evaluating the significance of fair value inputs, the
Company generally classifies assets or liabilities as Level 3 when their fair
value is determined using unobservable inputs that individually, or when
aggregated with other unobservable inputs, represent more than 10% of the fair
value of the assets or liabilities. Judgment is required in
evaluating both quantitative and qualitative factors in the determination of
significance for purposes of fair value level classification. Level 3
amounts can include assets and liabilities whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as
well as assets and liabilities for which the determination of fair value
requires significant management judgment or estimation.
The
following table sets forth, by level, the Company’s assets and liabilities that
were accounted for at fair value on a recurring basis as of September 30,
2008. Pursuant to FSP No. FAS 157-2 Effective Date of FASB Statement No.
157, the Company will delay the adoption of SFAS 157 for its nonfinancial
assets and liabilities that are recognized on a nonrecurring basis, including
goodwill, other intangible assets, and asset retirement obligations to July 1,
2009. In many cases, a valuation technique used to measure fair value
includes inputs from multiple levels of the fair value hierarchy. The lowest
level of input that is a significant component of the fair value measurement
determines the placement of the entire fair value measurement in the
hierarchy. The Company’s assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect
the classification of fair value assets and liabilities within the fair value
hierarchy levels.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
3.
|
Fair
Value Measurements (Continued)
|
|
Fair
Value Measurements at September 30, 2008
|
||||||||||||||||
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
Total
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Inventories
carried at market
|
$ | – | $ | 3,687 | $ | 311 | $ | 3,998 | ||||||||
|
Unrealized
gains on derivative
contracts
|
396 | 1,988 | 44 | 2,428 | ||||||||||||
|
Available-for-sale
marketable
securities
|
1,242 | 654 | 17 | 1,913 | ||||||||||||
|
Total
Assets
|
$ | 1,638 | $ | 6,329 | $ | 372 | $ | 8,339 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Unrealized
losses on derivative
contracts
|
$ | 331 | $ | 1,901 | $ | 66 | $ | 2,298 | ||||||||
|
Inventory-related
liabilities
|
– | 452 | – | 452 | ||||||||||||
|
Total
Liabilities
|
$ | 331 | $ | 2,353 | $ | 66 | $ | 2,750 | ||||||||
The
Company uses the market approach valuation technique to measure the majority of
its assets and liabilities carried at fair value. Estimated fair
market values for inventories carried at market are based on exchange-quoted
prices, adjusted for differences in local markets, broker or dealer quotations,
or market transactions in either listed or OTC markets. In such
cases, the inventory is classified in Level 2. Certain inventories
may require management judgment or estimation for a significant component of the
fair value amount. In such cases, the inventory is classified as
Level 3. Changes in the fair market value of inventories are recognized in the
consolidated statements of earnings as a component of cost of products
sold.
The
Company’s derivative contracts that are measured at fair value include forward
commodity purchase and sale contracts, exchange-traded commodity futures and
option contracts, and OTC instruments related primarily to agricultural
commodities, energy, and foreign currencies. Exchange-traded futures
and options contracts are valued based on unadjusted quoted prices in active
markets and are classified in Level 1. The majority of the Company’s
exchange-traded futures and options contracts are cash settled on a daily basis
and, therefore, are not included in this table. Fair value for
forward commodity purchase and sale contracts is estimated based on
exchange-quoted prices adjusted for differences in local
markets. These differences are generally valued using inputs from
broker or dealer quotations or market transactions in either the listed or OTC
markets. When observable inputs are available for substantially the
full term of the asset or liability, the derivative contracts are classified in
Level 2. When unobservable inputs have a significant impact on the
measurement
of fair value, the contract’s fair value is classified in Level 3. Based on
historical experience with our suppliers and customers and our knowledge of
current market conditions, the Company does not view counterparty 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 counterparty 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
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
3.
|
Fair
Value Measurements (Continued)
|
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 –net. The effective
portions of changes in the fair market value of derivatives designated as cash
flow hedges are recognized in the consolidated balance sheets as a component of
accumulated other comprehensive income.
The
Company’s available-for-sale securities are comprised of U.S. Treasury
securities, obligations of U.S. government agencies, corporate and municipal
debt securities, and equity investments. U.S. Treasury securities and
certain publicly traded equity investments are valued using quoted market prices
and are classified in Level 1. U.S. government agency obligations,
corporate and municipal debt securities and certain equity investments are
valued using third-party pricing services and substantially all are classified
as Level 2. Security values that are determined using pricing models
are classified in Level 3. Unrealized changes in the fair market
value of available-for-sale marketable securities are recognized in the
consolidated balance sheets as a component of accumulated other comprehensive
income.
The
Company’s assessment of the significance of a particular input to a fair value
measurement requires judgment and may affect the classification of assets and
liabilities within the fair value hierarchy.
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 September 30, 2008.
|
Level
3 Fair Value Measurements
|
||||||||||||||||
|
Inventories
Carried
at
Market
|
Derivative
Contracts,
Net
|
Available-for-
Sale
Marketable
Securities
|
Total
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Balance,
July 1, 2008
|
$ | 343 | $ | (6 | ) | $ | 10 | $ | 347 | |||||||
|
Total
gains and losses (realized or
unrealized)
included in earnings
before
income taxes*
|
(78 | ) | (5 | ) | (1 | ) | (84 | ) | ||||||||
|
Purchases,
issuances and settlements
|
(28 | ) | – | 8 | (20 | ) | ||||||||||
|
Transfers
in and/or out of Level 3
|
74 | (11 | ) | – | 63 | |||||||||||
|
Ending
balance, September 30, 2008
|
$ | 311 | $ | (22 | ) | $ | 17 | $ | 306 | |||||||
*Includes
losses that are attributable to the change in unrealized gains or losses
relating to Level 3 assets and liabilities still held at September 30, 2008 of
$60 million.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
4.
|
Debt
and Financing Arrangements
|
The
Company has outstanding $1.2 billion principal amount of convertible senior
notes (the Notes) due in 2014. As of September 30, 2008 none of the conditions
permitting conversion of the Notes had been satisfied. Therefore, no
share amounts related to the conversion of the Notes or exercise of the warrants
sold in connection with the issuance of the Notes were included in diluted
average shares outstanding.
The
Company also has outstanding $1.75 billion principal amount of Equity Units (the
Units) due in 2011. The Units are a combination of (a) debt and (b)
forward purchase contracts for the holder to purchase the Company’s common
stock. The forward purchase contracts issued in connection with the
Units will be settled for the Company’s common stock on June 1,
2011. Until settlement of the forward purchase contracts, the shares
of stock underlying each forward purchase contact are not
outstanding. The forward purchase contracts will only be included in
the computation of diluted earnings per share to the extent they are
dilutive. As of September 30, 2008, the forward purchase contracts
were not considered dilutive and therefore were not included in the computation
of diluted earnings per share.
For
further information on the Notes and Units, refer to Note 7 “Debt and Financing
Arrangements” in the consolidated financial statements and footnotes thereto
included in the Company’s annual report on Form 10-K for the year ended June 30,
2008.
At
September 30, 2008, the Company had lines of credit totaling $7.2 billion, of
which $6.5 billion was unused. The weighted average interest rates on
short-term borrowings outstanding at September 30, 2008 and 2007 were 3.56% and
5.02%, respectively. Of the Company’s total lines of credit, $5.1
billion support a commercial paper borrowing facility, against which there were
borrowings of $10 million at September 30, 2008.
|
Note
5.
|
Comprehensive
Income
|
The
components of comprehensive income, net of related tax, are as
follows:
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Net
earnings
|
$ | 1,050 | $ | 441 | ||||
|
Net
change in unrealized gain (loss) on investments
|
(19 | ) | (2 | ) | ||||
|
Deferred
gain (loss) on hedging activities
|
(232 | ) | 5 | |||||
|
Pension
liability adjustment
|
5 | (5 | ) | |||||
|
Foreign
currency translation adjustment
|
(625 | ) | 210 | |||||
|
Comprehensive
income
|
$ | 179 | $ | 649 | ||||
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
6.
|
Other
Income - Net
|
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Interest
expense
|
$ | 129 | $ | 88 | ||||
|
Investment
income
|
(54 | ) | (63 | ) | ||||
|
Net
gains on marketable securities transactions
|
(9 | ) | (15 | ) | ||||
|
Equity
in earnings of unconsolidated affiliates
|
(123 | ) | (85 | ) | ||||
|
Other
– net
|
21 | 4 | ||||||
| $ | (36 | ) | $ | (71 | ) | |||
|
Note
7.
|
Postretirement
Plans
|
SFAS No.
158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans (SFAS 158),
requires companies to measure plan assets and benefit obligations as of the end
of the fiscal year instead of a date up to three months prior to the end of the
fiscal year. The Company adopted the measurement provisions of SFAS
158 as of July 1, 2008. The Company previously measured plan assets
and pension and other postretirement benefit obligations at March 31 of each
year. As a result of adopting the measurement date provisions of SFAS
158, the Company recorded an additional three months of pension and other
postretirement benefit obligations as of July 1, 2008, which resulted in a $13
million decrease in retained earnings, a $1 million increase in accumulated
other comprehensive income, and a $19 million increase in pension and
postretirement benefit obligations.
Effective
January 1, 2009, the Company will adopt changes to both the pension and
postretirement plans for certain U.S. employees. The Company
recognized an $8 million gain this quarter as a result of the changes made to
the postretirement plans.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
8.
|
Segment
Information
|
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. The
Company’s operations are classified into three reportable business
segments: Oilseeds Processing, Corn Processing and Agricultural
Services. Each of these segments is organized based upon the nature
of products and services offered. The Company’s remaining operations
are aggregated and classified as Other.
The
Oilseeds Processing segment includes activities related to the crushing and
origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and protein meals principally for the
food and feed industries. In addition, oilseeds and oilseed products
may be processed internally or resold into the marketplace as raw materials for
other processing. Crude vegetable oil is sold "as is" or is further
processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food products. Partially
refined oil is sold for use in chemicals, paints, and other industrial
products. Refined oil can be further processed for use in the
production of biodiesel. Oilseed meals are primary ingredients used
in the manufacture of commercial livestock and poultry
feeds. Oilseeds Processing includes activities related to the
production of natural health and nutrition products and the production of other
specialty food and feed ingredients. This segment also includes
activities related to the Company’s interests in unconsolidated affiliates in
Asia, principally Wilmar International Limited.
The Corn
Processing segment includes activities related to the production of sweeteners,
starches, dextrose, and syrups primarily for the food and beverage industry as
well as activities related to the production, by fermentation, of bioproducts
such as ethanol, amino acids, and other food, feed and industrial
products.
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network to buy, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, barley, and edible
beans, and resells or processes these commodities primarily as food and feed
ingredients for the agricultural processing industry. Agricultural
Services’ grain sourcing and transportation network provides reliable and
efficient services to the Company’s agricultural processing operations. Also
included in Agricultural Services are the activities of A.C. Toepfer
International, a global merchandiser of agricultural commodities and processed
products.
Other
includes the Company’s remaining processing operations, consisting of activities
related to processing agricultural commodities into 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 are equity in
earnings of affiliates based on the equity method of
accounting. General corporate expenses, investment income,
unallocated interest expense, marketable securities transactions, FIFO to LIFO
inventory adjustments and minority interest eliminations have been excluded from
segment operations and classified as Corporate.
For
detailed information regarding the Company’s reportable segments, see Note 14 to
the consolidated financial statements included in the Company’s annual report on
Form 10-K for the year ended June 30, 2008.
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
8.
|
Segment
Information (Continued)
|
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Sales
to external customers
|
||||||||
|
Oilseeds
Processing
|
$ | 7,772 | $ | 4,610 | ||||
|
Corn
Processing
|
2,241 | 1,521 | ||||||
|
Agricultural
Services
|
9,569 | 5,540 | ||||||
|
Other
|
1,578 | 1,157 | ||||||
|
Total
|
$ | 21,160 | $ | 12,828 | ||||
|
Intersegment
sales
|
||||||||
|
Oilseeds
Processing
|
$ | 52 | $ | 147 | ||||
|
Corn
Processing
|
40 | 19 | ||||||
|
Agricultural
Services
|
812 | 420 | ||||||
|
Other
|
39 | 31 | ||||||
|
Total
|
$ | 943 | $ | 617 | ||||
|
Net
sales
|
||||||||
|
Oilseeds
Processing
|
$ | 7,824 | $ | 4,757 | ||||
|
Corn
Processing
|
2,281 | 1,540 | ||||||
|
Agricultural
Services
|
10,381 | 5,960 | ||||||
|
Other
|
1,617 | 1,188 | ||||||
|
Intersegment
elimination
|
(943 | ) | (617 | ) | ||||
|
Total
|
$ | 21,160 | $ | 12,828 | ||||
|
Segment
operating profit
|
||||||||
|
Oilseeds
Processing
|
$ | 510 | $ | 209 | ||||
|
Corn
Processing
|
118 | 253 | ||||||
|
Agricultural
Services
|
428 | 229 | ||||||
|
Other
|
120 | 106 | ||||||
|
Total
segment operating profit
|
1,176 | 797 | ||||||
|
Corporate
|
318 | (150 | ) | |||||
|
Earnings
before income taxes
|
$ | 1,494 | $ | 647 | ||||
Archer-Daniels-Midland
Company
Notes
to Consolidated Financial Statements (Continued)
(Unaudited)
|
Note
9.
|
Subsequent
Event
|
The
Company has a 23% ownership interest in Gruma S.A.B. de C.V. (Gruma), one of the
world’s leading producers and marketers of corn flour and tortillas. The Company
employs the equity method of accounting for its investment in Gruma, and records
its share of Gruma’s reported financial results on a one-quarter lag
basis. The carrying value of the Company’s investment in Gruma
is $333 million as of September 30, 2008. On October 28, 2008, Gruma
publicly announced that it had $788 million of unrealized mark-to-market
losses on currency derivative positions which are not subject to margin calls
and mature between 2008 and 2011. Additionally, Gruma disclosed that it also had
derivative loss positions which were subject to margin calls. Gruma
stated in its announcement that it has entered into a release with its
counterparty in settlement of amounts due under the derivative instruments
subject to margin calls. The settlement agreement contemplates that
the counterparty will not make margin calls and requires that Gruma make payment
to the counterparty of the settlement amount by November 25, 2008. Failure
to make such payment when due under the settlement may result in Gruma being
required to promptly pay the counterparty $276 million, the amount specified as
the full amount due to the counterparty under the terms of the derivative
instruments. $291 million of Gruma’s derivative loss existed as of
September 30, 2008, and is reflected in Gruma’s reported net loss of Ps. 1.7
billion (US $165 million) for the quarter ending September 30,
2008. Gruma stated that its results have been affected by the
non-cash charges resulting from the mark-to-market changes in the value of its
currency derivative instruments and it expects that such fluctuations in value
may continue.
The
Company expects to record its share of Gruma’s quarter-ended September 30,
2008 financial results in the Company’s second quarter (December 31, 2008)
financial statements, on a consistent one-quarter lag basis. The Company
accounts for its investment in Gruma using the equity method of accounting,
which will result in a non-cash loss of approximately $24 million, after income
tax, in the Company’s second quarter. In addition, based on Gruma’s
disclosures regarding the unrealized currency derivative losses arising
subsequent to September 30, 2008, the Company may report additional losses in
future reporting periods. The Company has evaluated the carrying value of its
investment in Gruma as of September 30, 2008 in light of Gruma’s announcement,
and does not consider its investment in Gruma to be other-than-temporarily
impaired. The Company based its evaluation on Gruma’s public
disclosures about its currency derivative losses and its expected future cash
flows, and the Company’s knowledge of Gruma’s business. The Company’s evaluation
required the use of assumptions and management judgment, including forecasts of
Gruma’s future operating results and impacts resulting from its derivative
positions. If different assumptions and judgment had been applied, the
conclusion could have differed.
The
Company has no present obligation to provide funding to Gruma.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Company
Overview
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. The
Company’s operations are classified into three reportable business segments:
Oilseeds Processing, Corn Processing and Agricultural Services. Each
of these segments is organized based upon the nature of products and services
offered. The Company’s remaining operations are aggregated and
classified as Other.
The
Oilseeds Processing segment includes activities related to the origination and
crushing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and protein meals principally for the
food and feed industries. In addition, oilseeds and oilseed products
may be processed internally or resold into the marketplace as raw materials for
other processing. Crude vegetable oil is sold "as is" or is further
processed by refining, bleaching, and deodorizing into salad
oils. Salad oils can be further processed by hydrogenating and/or
interesterifying into margarine, shortening, and other food products. Partially
refined oil is sold for use in chemicals, paints, and other industrial
products. Refined oil can be further processed for use in the
production of biodiesel. Oilseed protein meals are primary
ingredients used in the manufacture of commercial livestock and poultry
feeds. Oilseeds Processing includes activities related to the
production of natural health and nutrition products and the production of other
specialty food and feed ingredients. This segment also includes
activities related to the Company’s interests in unconsolidated affiliates in
Asia, principally Wilmar International Limited.
The Corn
Processing segment includes activities related to the production of sweeteners,
starches, dextrose, and syrups primarily for the food and beverage industry as
well as activities related to the production, by fermentation, of bioproducts
such as ethanol, amino acids, and other food, feed and industrial
products.
The
Agricultural Services segment utilizes the Company’s extensive grain elevator
and transportation network to buy, store, clean, and transport agricultural
commodities, such as oilseeds, corn, wheat, milo, oats, barley, and edible
beans, and resells or processes these commodities primarily as food and feed
ingredients for the agricultural processing industry. Agricultural
Services’ grain sourcing and transportation network provides reliable and
efficient services to the Company’s agricultural processing operations. Also
included in Agricultural Services are the activities of A.C. Toepfer
International, a global merchant of agricultural commodities and processed
products.
Other
includes the Company’s remaining processing operations, consisting of activities
related to processing agricultural commodities into 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, 2008.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
The
Company’s Oilseeds Processing, Agricultural Services, and wheat processing
operations are principally agricultural commodity-based businesses where changes
in selling prices move in relationship to changes in prices of the
commodity-based agricultural raw materials. Therefore, changes in
agricultural commodity prices have relatively equal impacts on both net sales
and cost of products sold. As a result, changes in gross profit of
these businesses do not necessarily correspond to the changes in net sales
amounts.
The
Company’s Corn Processing operations and certain other food and animal feed
processing operations also utilize agricultural commodities (or products derived
from agricultural commodities) as raw materials. In these operations,
agricultural commodity market price changes can result in significant
fluctuations in cost of products sold, and such price changes cannot necessarily
be passed directly through to the selling price of the finished
products.
The
Company conducts its business in many countries. For the majority of
the Company’s subsidiaries located outside the United States, the local currency
is the functional currency. Revenues and expenses denominated in
foreign currencies are translated into U.S. dollars at the weighted average
exchange rates for the applicable periods. Fluctuations in the
exchange rates of foreign currencies, primarily the Euro, British pound, and
Canadian dollar, as compared to the U.S. dollar will result in corresponding
fluctuations in the U.S. dollar value of revenues and expenses reported by the
Company. The impact of these currency exchange rate changes, where
significant, is discussed below.
The
Company measures the performance of its business segments using key operating
statistics such as segment operating profit, return on fixed capital investment,
return on equity and return on net assets. The Company’s operating
results can vary significantly due to changes in unpredictable factors such as
fluctuations in energy prices, weather conditions, crop
plantings, government programs and policies, changes in global demand
resulting from population growth and changes in standards of living, and global
production of similar and competitive crops. Due to these
unpredictable factors, the Company does not provide forward-looking information
in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Three
Months Ended September 30, 2008 Compared to Three Months Ended September 30,
2007
Net
earnings for the quarter increased principally due to increased segment
operating profits and a credit related to decreased LIFO inventory valuation
reserves resulting from a sharp decline in commodity costs during the current
quarter.
As an
agricultural-based commodity business, the Company is subject to a variety of
market factors which affect the Company’s operating results. Shifting
global sources of grain supplies, continuing commodity and freight market
volatility and the delayed U.S. harvest created enhanced profit opportunities
for the Company. Improved global crop outlooks coupled with concerns
over weakening demand caused by economic uncertainty, high commodity market
prices, and other factors contributed to a sharp decline in agricultural
commodity market prices this quarter, although market prices remained generally
higher than they were the previous year. Biodiesel
markets continued to develop, particularly in South America, and contributed to
the increased demand for refined and crude vegetable oils. Compared
to last year, market prices for corn increased sharply due to increased demand,
resulting in higher raw material costs for Corn Processing which were only
partially passed on in the form of increased selling prices for sweeteners and
starches and bioproducts. Higher energy and fuel costs negatively
impacted manufacturing costs.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Analysis
of Statements of Earnings
Net sales
and other operating income increased 65% to $21.2 billion,
with approximately 95% of the increase due to increased average selling
prices across all product lines. Sales volumes were comparable
overall between periods, with increases for merchandised oilseeds, sweeteners
and starches and ethanol offset by decreases for vegetable oil, protein meal,
feed grains and wheat. Currency exchange rate fluctuations accounted
for approximately 5% of the increase in net sales and other operating
income.
Net sales
and other operating income by segment for the quarter are as
follows:
|
Three
Months Ended
|
||||||||||||
|
September
30,
|
||||||||||||
|
2008
|
2007
|
Change | ||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 4,883 | $ | 2,808 | $ | 2,075 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
2,844 | 1,767 | 1,077 | |||||||||
|
Asia
|
45 | 35 | 10 | |||||||||
|
Total
Oilseeds Processing
|
7,772 | 4,610 | 3,162 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
and Starches
|
1,039 | 834 | 205 | |||||||||
|
Bioproducts
|
1,202 | 687 | 515 | |||||||||
|
Total
Corn Processing
|
2,241 | 1,521 | 720 | |||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
9,496 | 5,480 | 4,016 | |||||||||
|
Transportation
|
73 | 60 | 13 | |||||||||
|
Total
Agricultural Services
|
9,569 | 5,540 | 4,029 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, and Malt
|
1,550 | 1,133 | 417 | |||||||||
|
Financial
|
28 | 24 | 4 | |||||||||
|
Total
Other
|
1,578 | 1,157 | 421 | |||||||||
|
Total
|
$ | 21,160 | $ | 12,828 | $ | 8,332 | ||||||
Oilseeds
Processing sales increased 69% to $7.8 billion due principally to increased
average selling prices across all product lines. Overall, Oilseeds
Processing sales volumes were comparable, with higher sales volumes of
merchandised oilseeds, fertilizer and biodiesel offset by lower sales volumes of
vegetable oils and protein meal. Corn Processing sales increased 47%
to $2.2 billion due to higher average selling prices and higher sales volumes
for Bioproducts and Sweetener and Starches. Agricultural Services
sales increased 73% to $9.6 billion, due principally to increased average
selling prices of agricultural commodities, partially offset by lower sales
volumes. Other sales increased 36% to $1.6 billion primarily due to
higher average selling prices of wheat flour and increased average selling
prices and sales volumes of cocoa products partially offset by decreased sales
volumes of malt resulting from the disposal of the Company’s malt business
during the quarter.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Cost of
products sold increased 62% to $19.3 billion due principally to increased
agricultural commodity costs. Manufacturing expenses increased $193
million primarily due to increased energy, fuel and employee-related
costs. Foreign currency translation effects accounted for
approximately 6% of the increase in cost of products sold.
Selling,
general and administrative expenses increased 16% to $409 million due
principally to higher employee-related costs, increased provisions for doubtful
accounts, and the impact of foreign currency translation.
Other
income –net decreased $35 million primarily due to higher interest expense
related to increased long term debt, decreased investment income, and decreased
gains on marketable securities transactions, partially offset by higher equity
in earnings of affiliates.
Operating
profit by segment for the quarter is as follows:
|
Three
Months Ended
|
||||||||||||
|
September
30,
|
||||||||||||
|
2008
|
2007
|
Change | ||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ | 339 | $ | 131 | $ | 208 | ||||||
|
Refining,
Packaging, Biodiesel & Other
|
106 | 62 | 44 | |||||||||
|
Asia
|
65 | 16 | 49 | |||||||||
|
Total
Oilseeds Processing
|
510 | 209 | 301 | |||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
and Starches
|
65 | 167 | (102 | ) | ||||||||
|
Bioproducts
|
53 | 86 | (33 | ) | ||||||||
|
Total
Corn Processing
|
118 | 253 | (135 | ) | ||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
385 | 185 | 200 | |||||||||
|
Transportation
|
43 | 44 | (1 | ) | ||||||||
|
Total
Agricultural Services
|
428 | 229 | 199 | |||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, and Malt
|
103 | 38 | 65 | |||||||||
|
Financial
|
17 | 68 | (51 | ) | ||||||||
|
Total
Other
|
120 | 106 | 14 | |||||||||
|
Total
Segment Operating Profit
|
1,176 | 797 | 379 | |||||||||
|
Corporate
|
318 | (150 | ) | 468 | ||||||||
|
Earnings
Before Income Taxes
|
$ | 1,494 | $ | 647 | $ | 847 | ||||||
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profit increased 144% to $510 million. Crushing and
Origination results increased 159% to $339 million due principally to improved
global crush margins primarily related to favorable raw material
positioning. Origination margins increased in Europe and South
America and fertilizer results improved in South America due principally to
increased sales volumes. Refining, Packaging, Biodiesel and Other
results increased 71% to $106 million due principally to improved refining
margins and improved biodiesel margins in Europe and South
America. In addition, average selling prices of value-added soy
products increased and biodiesel sales volumes in South America increased due to
the recently-opened plant in Rondonopolis, Brazil. Asia results
increased $49 million due principally to increased equity earnings related to
our investment in Wilmar International Ltd.
Corn
Processing operating profits declined 53% to $118 million. Sweetener
and Starches operating profits declined 61% to $65 million due principally
to sharply higher net corn and energy costs, partially offset by increased sales
volumes and higher average selling prices. Bioproducts operating
profit declined 38% to $53 million due principally to higher net corn and energy
costs partially offset by higher average selling prices and increased sales
volumes for ethanol and lysine. Net corn costs increased sharply and
were negatively impacted this quarter by mark-to-market losses on corn futures
and options used to economically hedge sales obligations.
Agricultural
Services operating profits increased 87% to $428 million, primarily due to
improved global Merchandising and Handling margins resulting from opportunities
created by volatile commodity and freight market conditions, global shifts in
the sources of grain supplies and the delayed U.S.
harvest. Transportation results were similar as lower barge freight
volumes and increased operating costs were partially offset by increased barge
freight rates.
Other
operating profits increased 13% to $120 million due principally to improved
operating margins in wheat and cocoa, higher equity earnings of affiliates and
increased sales volumes of cocoa and chocolate products partially offset by
decreased interest income from the Company’s brokerage services business and
reduced income from the Company’s managed fund investments. Wheat,
Cocoa and Malt includes one-time gains of $9 million related to the disposal of
the Company’s malt business.
Corporate
results increased $468 million due principally to a LIFO credit of
$453 compared to a LIFO charge of $83 million in the prior year quarter,
related to the effect of decreasing commodity costs on LIFO inventory
valuations. Corporate unallocated interest was a net expense of $19
million for the quarter compared to net income of $45 million in the prior year
quarter. Corporate interest expense increased due principally to
additional long term debt borrowings, and corporate interest income
decreased primarily due to lower average interest rates.
Income
taxes increased due principally to higher pretax earnings. The
Company’s effective tax rate for the quarter is 29.7% as compared to 31.8% in
the prior year’s quarter. The decrease in the Company’s effective tax
rate is primarily due to changes in the geographic mix of pretax
earnings.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Liquidity
and Capital Resources
A Company
objective is to have sufficient liquidity, balance sheet strength, and financial
flexibility to fund the operating and capital requirements of a capital
intensive agricultural-based commodity business.
At
September 30, 2008, the Company had $3.0 billion of cash, cash equivalents, and
short-term marketable securities and a current ratio, defined as current assets
divided by current liabilities, of 1.9 to 1. Included in working
capital is $5.8 billion of readily marketable commodity
inventories. Cash provided by operating activities totaled
$4.7 billion for the quarter compared to $1.2 billion of cash
used in operations the same quarter last year. This change was
primarily due to a decrease in working capital requirements principally related
to decreased market prices and, to a lesser extent, decreased quantities of
agricultural commodity inventories, principally readily marketable commodity
inventories, and decreased receivables. Cash used in financing
activities was $2.7 billion compared to cash generated by financing
activities of $1.9 billion the same quarter last year due principally to
changes in short-term borrowing requirements. Net short-term borrowings
decreased primarily as a result of decreased working capital
requirements.
Capital
resources remained strong as reflected by the Company’s net worth of $13.5
billion. The Company’s ratio of long-term debt to total capital (the
sum of the Company’s long-term debt and shareholders’ equity) was 36% at
September 30, 2008 and at June 30, 2008. This ratio is a measure of
the Company’s long-term liquidity and is an indicator of financial
flexibility.
Contractual
Obligations and Commercial Commitments
During
the three months ended September 30, 2008, the Company’s purchase obligations
decreased $3.7 billion to $21.6 billion. This decrease was
principally related to obligations to purchase inventory, principally related to
agricultural commodities. As of September 30, 2008, the Company
expects to make payments related to purchase obligations of $20.0 billion within
the next twelve months. There were no other material changes in the
Company’s contractual obligations and off balance sheet arrangements during the
three months ended September 30, 2008.
Critical
Accounting Policies
There
were no material changes in the Company’s critical accounting policies during
the three months ended September 30, 2008.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
market risk inherent in the Company’s market risk sensitive instruments and
positions is the potential loss arising from adverse changes in: commodity
prices as they relate to the Company’s net commodity position; marketable equity
security prices; foreign currency exchange rates; and interest
rates. Significant changes in market risk sensitive instruments and
positions for the quarter ended September 30, 2008 are described
below. There were no material changes during the quarter in the
Company’s potential loss arising from changes in marketable equity securities,
foreign currency exchange rates, and interest rates.
For
detailed information regarding the Company’s market risk sensitive instruments
and positions, see Item 7A, “Quantitative and Qualitative disclosures About
Market Risk” included in the Company’s annual report on Form 10-K for the year
ended June 30, 2008.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
Commodities
The
availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings, global
government farm programs and policies, changes in global demand resulting from
population growth and changes in standards of living, and global production of
similar and competitive crops. A sensitivity analysis has been
prepared to estimate the Company’s exposure to market risk of its commodity
position. The Company’s daily net commodity position consists of inventories,
related purchase and sale contracts, and exchange-traded futures contracts,
including those to hedge portions of production requirements. The fair value of
such position is a summation of the fair values calculated for each commodity by
valuing each net position at quoted futures prices. Market risk is estimated as
the potential loss in fair value resulting from a hypothetical ten percent
adverse change in such prices. Actual results may
differ.
|
Three
months ended
|
Year
ended
|
|||||||||||||||
|
September
30, 2008
|
June
30, 2008
|
|||||||||||||||
|
Long/(Short)
|
Fair
Value
|
Market
Risk
|
Fair
Value
|
Market
Risk
|
||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Highest
position
|
$ | 300 | $ | 30 | $ | 1,260 | $ | 126 | ||||||||
|
Lowest
position
|
(815 | ) | (82 | ) | (915 | ) | (92 | ) | ||||||||
|
Average
position
|
(153 | ) | (15 | ) | 251 | 25 | ||||||||||
The
decrease in fair value of the average position was principally the result of a
decrease in quantities underlying the daily net commodity position.
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
As of
September 30, 2008, an evaluation was performed under the supervision and with
the participation of the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s “disclosure controls and procedures” (as defined in
Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)). Based on that evaluation, the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, concluded the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (a) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms and (b) accumulated and communicated to the Company’s management,
including the Chief Executive Officer and the Chief Financial Officer, to allow
timely decisions regarding required disclosure. There was no change in the
Company’s internal controls over financial reporting during the Company’s most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II – OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
Environmental
Matters
The
United States Environmental Protection Agency and the Missouri Department of
Natural Resources have initiated a criminal investigation of the wastewater
discharge practices at one of the Company’s barge facilities in
Missouri. Since February 2008, several employees at the facility have
received grand jury subpoenas relating to wastewater discharges from the
facility. The Company has been cooperating with the
investigation. The Company has also undertaken an internal
investigation of those discharge practices and does not believe that the filing
of any criminal action would be appropriate. The Company does not yet have
enough information to reasonably estimate any penalty that may be imposed if any
enforcement action is brought.
The
Company is involved in approximately twenty administrative and judicial
proceedings in which it has been identified as a potentially responsible party
(PRP) under the federal Superfund law and its state analogs for the study and
cleanup of sites contaminated by material discharged into the
environment. In all of these matters there are numerous
PRPs. Due to various factors, such as the required level of
remediation and participation in the cleanup effort by others, the Company’s
future cleanup costs at these sites cannot be reasonably estimated.
In
management’s opinion, these proceedings will not, either individually or in the
aggregate, have a material adverse effect on the Company’s financial condition
or results of operations.
|
ITEM
1A.
|
RISK
FACTORS
|
There
were no significant changes in the Company’s risk factors during the three
months ended September 30, 2008.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
Issuer
Purchases of Equity Securities
|
Total
|
|
Total
Number of
|
Number
of Shares
|
|||||||||||||
|
Number
|
Average
|
Shares
Purchased as
|
Remaining
that May be
|
|||||||||||||
|
of
Shares
|
Price
Paid
|
Part
of Publicly
|
Purchased
Under the
|
|||||||||||||
|
Period
|
Purchased
(1)
|
per
Share
|
Announced
Program (2)
|
Program
(2)
|
||||||||||||
|
July
1, 2008 to
|
||||||||||||||||
|
July
31, 2008
|
83 | $ | 28.25 | 83 | 75,630,206 | |||||||||||
|
August
1, 2008 to
|
||||||||||||||||
|
August
31, 2008
|
626,658 | 26.03 | 58 | 75,630,148 | ||||||||||||
|
September
1, 2008 to
|
||||||||||||||||
|
September
30, 2008
|
4,383,097 | 24.33 | 4,283,097 | 71,347,051 | ||||||||||||
|
Total
|
5,009,838 | $ | 24.54 | 4,283,238 | 71,347,051 | |||||||||||
|
(1)
|
Total
shares purchased represents those shares purchased as part of the
Company’s publicly announced share repurchase program described below,
shares received as payment of the exercise price for stock option
exercises, and shares received as payment of the withholding taxes on
vested restricted stock grants.
|
|
(2)
|
On
November 4, 2004, the Company’s Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 100,000,000
shares of the Company’s common stock during the period commencing January
1, 2005 and ending December 31,
2009.
|
|
ITEM
6.
|
EXHIBITS
|
|
(3)(i)
|
Composite
Certificate of Incorporation, as amended, filed on November 13, 2001 as
Exhibit 3(i) to Form 10-Q for the quarter ended September 30, 2001 (File
No. 1-44), is incorporated herein by
reference.
|
|
(ii)
|
Bylaws,
as amended, filed on February 6, 2007 as Exhibit 3(ii) to Form 8-K (File
No. 1-44), are incorporated herein by
reference.
|
|
(31.1)
|
Certification
of Chief Executive Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a)
of the Securities Exchange Act, as
amended.
|
|
(31.2)
|
Certification
of Chief Financial Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a)
of the Securities Exchange Act, as
amended.
|
|
(32.1)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
(32.2)
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ARCHER-DANIELS-MIDLAND
COMPANY
|
|
/s/
S. R. Mills
S.
R. Mills
Executive
Vice President and
Chief
Financial Officer
/s/
D. J. Smith
D.
J. Smith
Executive
Vice President, Secretary and
General
Counsel
|
Dated:
November 10, 2008