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
December 31, 2007
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 o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large Accelerated Filer x Accelerated
Filer o
Non-accelerated
Filer o Smaller
reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x.
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, no par value – 643,576,598
shares
(January
31, 2008)
PART I - FINANCIAL
INFORMATION
|
ITEM 1.
|
FINANCIAL
STATEMENTS
|
Archer-Daniels-Midland
Company
Consolidated Statements of
Earnings
(Unaudited)
|
Three Months
Ended
|
||||||||
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(In
millions, except
|
||||||||
|
per
share amounts)
|
||||||||
|
Net
sales and other operating income
|
$ |
16,496
|
$ |
10,976
|
||||
|
Cost
of products sold
|
15,548
|
10,068
|
||||||
|
Gross
Profit
|
948
|
908
|
||||||
|
Selling,
general and administrative expenses
|
338
|
298
|
||||||
|
Other
(income) expense – net
|
(75 | ) | (19 | ) | ||||
|
Earnings Before Income
Taxes
|
685
|
629
|
||||||
|
Income
taxes
|
212
|
188
|
||||||
|
Net
Earnings
|
$ |
473
|
$ |
441
|
||||
|
Average
number of shares outstanding – basic
|
643
|
657
|
||||||
|
Average
number of shares outstanding – diluted
|
646
|
661
|
||||||
|
Basic
earnings per common share
|
$ |
.74
|
$ |
.67
|
||||
|
Diluted
earnings per common share
|
$ |
.73
|
$ |
.67
|
||||
|
Dividends
per common share
|
$ |
.115
|
$ |
.10
|
||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated Statements of
Earnings
(Unaudited)
|
Six Months
Ended
|
||||||||
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(In
millions, except
|
||||||||
|
per
share amounts)
|
||||||||
|
Net
sales and other operating income
|
$ |
29,324
|
$ |
20,423
|
||||
|
Cost
of products sold
|
27,446
|
18,650
|
||||||
|
Gross
Profit
|
1,878
|
1,773
|
||||||
|
Selling,
general and administrative expenses
|
693
|
608
|
||||||
|
Other
(income) expense – net
|
(146 | ) | (39 | ) | ||||
|
Earnings Before Income
Taxes
|
1,331
|
1,204
|
||||||
|
Income
taxes
|
418
|
360
|
||||||
|
Net
Earnings
|
$ |
913
|
$ |
844
|
||||
|
Average
number of shares outstanding – basic
|
644
|
657
|
||||||
|
Average
number of shares outstanding – diluted
|
646
|
661
|
||||||
|
Basic
earnings per common share
|
$ |
1.42
|
$ |
1.29
|
||||
|
Diluted
earnings per common share
|
$ |
1.41
|
$ |
1.28
|
||||
|
Dividends
per common share
|
$ |
.23
|
$ |
.20
|
||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated Balance
Sheets
|
(Unaudited)
|
||||||||
|
December
31,
|
June 30,
|
|||||||
|
2007
|
2007
|
|||||||
|
(In
millions)
|
||||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 1,105 | $ | 663 | ||||
|
Segregated
cash and investments
|
1,322 | 1,424 | ||||||
|
Receivables
|
10,026 | 6,404 | ||||||
|
Inventories
|
9,517 | 6,060 | ||||||
|
Other
assets
|
690 | 571 | ||||||
|
Total
Current Assets
|
22,660 | 15,122 | ||||||
|
Investments
and Other Assets
|
||||||||
|
Investments
in and advances to affiliates
|
2,736 | 2,498 | ||||||
|
Long-term
marketable securities
|
679 | 657 | ||||||
|
Goodwill
|
323 | 317 | ||||||
|
Other
assets
|
518 | 514 | ||||||
|
Total
Investments and Other Assets
|
4,256 | 3,986 | ||||||
|
Property,
Plant, and Equipment
|
||||||||
|
Land
|
230 | 227 | ||||||
|
Buildings
|
3,108 | 3,002 | ||||||
|
Machinery
and equipment
|
12,143 | 11,822 | ||||||
|
Construction
in progress
|
1,393 | 884 | ||||||
| 16,874 | 15,935 | |||||||
|
Accumulated
depreciation
|
(10,300 | ) | (9,925 | ) | ||||
|
Total
Property, Plant, and Equipment
|
6,574 | 6,010 | ||||||
|
Total
Assets
|
$ | 33,490 | $ | 25,118 | ||||
|
Liabilities and Shareholders’
Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Short-term
debt
|
$ | 4,536 | $ | 468 | ||||
|
Accounts
payable
|
6,156 | 4,919 | ||||||
|
Accrued
expenses
|
3,810 | 2,416 | ||||||
|
Current
maturities of long-term debt
|
59 | 65 | ||||||
|
Total
Current Liabilities
|
14,561 | 7,868 | ||||||
|
Long-Term
Liabilities
|
||||||||
| Long-term debt | 5,233 | 4,752 | ||||||
|
Deferred
income taxes
|
599 | 532 | ||||||
|
Other
|
773 | 713 | ||||||
|
Total
Long-Term Liabilities
|
6,605 | 5,997 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Common
stock
|
5,083 | 5,090 | ||||||
|
Reinvested
earnings
|
6,773 | 5,982 | ||||||
|
Accumulated
other comprehensive income
|
468 | 181 | ||||||
|
Total
Shareholders’ Equity
|
12,324 | 11,253 | ||||||
|
Total Liabilities and
Shareholders’ Equity
|
$ | 33,490 | $ | 25,118 | ||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Consolidated Statements of Cash
Flows
(Unaudited)
|
Six Months
Ended
|
||||||||
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(In
millions)
|
||||||||
|
Operating
Activities
|
||||||||
|
Net
earnings
|
$ |
913
|
$ |
844
|
||||
|
Adjustments
to reconcile net earnings to net cash provided by
|
||||||||
|
(used
in) operating activities
|
||||||||
|
Depreciation
|
360
|
345
|
||||||
|
Asset
abandonments
|
21
|
1
|
||||||
|
Deferred
income taxes
|
93
|
26
|
||||||
|
Equity
in earnings of affiliates, net of dividends
|
(140 | ) | (78 | ) | ||||
|
Other
– net
|
118
|
113
|
||||||
|
Changes
in operating assets and liabilities
|
||||||||
|
Segregated
cash and investments
|
98
|
(113 | ) | |||||
|
Receivables
|
(1,694 | ) | (812 | ) | ||||
|
Inventories
|
(3,984 | ) | (1,626 | ) | ||||
|
Other
assets
|
(107 | ) | (152 | ) | ||||
|
Accounts
payable and accrued expenses
|
1,396
|
1,156
|
||||||
|
Total
Operating Activities
|
(2,926 | ) | (296 | ) | ||||
|
Investing
Activities
|
||||||||
|
Purchases
of property, plant, and equipment
|
(896 | ) | (560 | ) | ||||
|
Net
assets of businesses acquired
|
(10 | ) | (55 | ) | ||||
|
Investments
in and advances to affiliates
|
(13 | ) | (46 | ) | ||||
|
Distributions
from affiliates, excluding dividends
|
6
|
81
|
||||||
|
Purchases
of marketable securities
|
(462 | ) | (485 | ) | ||||
|
Proceeds
from sales of marketable securities
|
418
|
229
|
||||||
|
Other
– net
|
11
|
17
|
||||||
|
Total
Investing Activities
|
(946 | ) | (819 | ) | ||||
|
Financing
Activities
|
||||||||
|
Long-term
debt borrowings
|
515
|
15
|
||||||
|
Long-term
debt payments
|
(49 | ) | (130 | ) | ||||
|
Net
borrowings under line of credit agreements
|
4,042
|
1,180
|
||||||
|
Purchases
of treasury stock
|
(61 | ) | (136 | ) | ||||
|
Cash
dividends
|
(148 | ) | (131 | ) | ||||
|
Other
– net
|
15
|
27
|
||||||
|
Total
Financing Activities
|
4,314
|
825
|
||||||
|
Increase
(Decrease) In Cash and Cash Equivalents
|
442
|
(290 | ) | |||||
|
Cash
and Cash Equivalents-Beginning of Period
|
663
|
1,113
|
||||||
|
Cash
and Cash Equivalents-End of Period
|
$ |
1,105
|
$ |
823
|
||||
See notes
to consolidated financial statements.
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements
(Unaudited)
Note 1. Basis of
Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and six months
ended December 31, 2007 are not necessarily indicative of the results that
may be expected for the year ending June 30, 2008. 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,
2007.
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
July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation
48, Accounting for Uncertainty
in Income Taxes – an interpretation of FASB Statement Number 109 (FIN
48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum
requirements a tax position must meet before being recognized in the financial
statements. In addition, FIN 48 prohibits the use of Statement of
Financial Accounting Standards (SFAS) 5, Accounting for Contingencies,
in evaluating the recognition and measurement of uncertain tax
positions. The Company adopted the provisions of FIN 48 on July 1,
2007. The effect of the adoption was immaterial to the
Company.
The
Company files income tax returns in multiple jurisdictions and is subject to
examination by taxing authorities throughout the world. In the U.S.,
the Company remains subject to Federal examination for tax years 2003
through 2007. The amount of unrecognized tax benefits at December 31, 2007 was
immaterial. There were no significant increases or decreases in
unrecognized tax benefits as a result of tax positions taken during a prior
period or taken during the current quarter and there were no material
settlements during the quarter ended December 31, 2007. The Company
classifies interest and penalties related to uncertain tax positions as interest
expense and penalty expense which are included in the accompanying consolidated
statements of earnings in other income – net and selling, general and
administrative expenses, respectively. The amount of interest
expense and penalty expense was immaterial for the quarter ended December 31,
2007.
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
Note 2. New Accounting
Standards (Continued)
During
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) Number 157, Fair Value
Measurements (SFAS 157). SFAS 157
establishes a framework for measuring fair value within generally accepted
accounting principles, clarifies the definition of fair value within that
framework, and expands disclosures about the use of fair value measurements.
SFAS 157 does not require any new fair value measurements in generally accepted
accounting principles. However, the definition of fair value in SFAS
157 may affect assumptions used by companies in determining fair
value. The Company will be required to adopt SFAS 157 on July 1,
2008. The Company has not completed its evaluation of the impact of
adopting SFAS 157 on the Company’s financial statements, but currently believes
the impact of the adoption of SFAS 157 will not require material modification of
the Company’s fair value measurements and will be substantially limited to
expanded disclosures in the notes to the Company’s consolidated financial
statements.
During
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities. 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 will be required to adopt SFAS 159 on July 1, 2008 and has not yet
assessed the impact of the adoption of this standard on the Company’s financial
statements.
During
December 2007, FASB issued SFAS 141(R), Business Combinations (SFAS
141(R)) and SFAS 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. These new standards 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 ARB 51’s
consolidation procedures 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 and has not yet assessed the impact of adopting SFAS 160 on the Company’s
financial statements.
Note 3. Debt and Financing
Arrangements
The
Company has outstanding $1.2 billion principal amount of convertible senior
notes (the Notes) due in 2014. As of December 31, 2007 none of the conditions
permitting conversion of the Notes had been satisfied and 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 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, 2007.
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
Note 3. Debt and Financing
Arrangements (Continued)
In
December 2007, the Company issued $500 million of debentures which are due in
2038 and bear interest at a rate of 6.45%.
At
December 31, 2007, the Company had lines of credit totaling $5.7 billion, of
which $1.2 billion was unused. The weighted average interest rates on
short-term borrowings outstanding at December 31, 2007 and 2006
were 4.58% and 5.85%, respectively. Of the Company’s total lines of
credit, $4.1 billion support a commercial paper borrowing facility, against
which there were borrowings of $3.6 billion at December 31, 2007.
Note 4. Comprehensive
Income
The
components of comprehensive income, net of related tax, are as
follows:
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Net
earnings
|
$ |
473
|
$ |
441
|
$ |
913
|
$ |
844
|
||||||||
|
Net
change in unrealized gain
|
||||||||||||||||
|
(loss)
on investments
|
(4 | ) |
7
|
(6 | ) |
15
|
||||||||||
|
Deferred
gain on hedging
|
||||||||||||||||
|
activities
|
19
|
79
|
25
|
127
|
||||||||||||
|
Pension
|
||||||||||||||||
|
liability
adjustment
|
(1 | ) |
–
|
(6 | ) |
–
|
||||||||||
|
Foreign
currency translation
|
||||||||||||||||
|
adjustment
|
64
|
136
|
274
|
165
|
||||||||||||
|
Comprehensive
income
|
$ |
551
|
$ |
663
|
$ |
1,200
|
$ |
1,151
|
||||||||
Note 5. Other Income -
Net
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Interest
expense
|
$ |
113
|
$ |
111
|
$ |
201
|
$ |
208
|
||||||||
|
Investment
income
|
(69 | ) | (65 | ) | (132 | ) | (125 | ) | ||||||||
|
Net
gain on marketable
|
||||||||||||||||
|
securities
transactions
|
(13 | ) | (6 | ) | (27 | ) | (11 | ) | ||||||||
|
Equity
in earnings of affiliates
|
(124 | ) | (66 | ) | (210 | ) | (123 | ) | ||||||||
|
Other
– net
|
18
|
7
|
22
|
12
|
||||||||||||
| $ | (75 | ) | $ | (19 | ) | $ | (146 | ) | $ | (39 | ) | |||||
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
Note 6. Segment
Information
The
Company is principally engaged in procuring, transporting, storing, processing,
and merchandising agricultural commodities and products. Beginning
July 1, 2007, the Company has reclassified certain operations within its
reportable segments to reflect how the Company now manages its
businesses following a realignment of the organizational structure of the
Company and to reflect the activities of the Company as viewed by the
Company’s chief operating decision maker. 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 reclassification of certain operations in the Company’s
reportable segments principally resulted in the movement of certain food, feed,
and industrial operations previously classified in Other to the respective
segment which produces the raw material feedstock used in those
operations. The Oilseeds Processing segment now includes the
Company’s natural health and nutrition and protein specialties operations, the
Corn Processing segment now includes the Company’s industrial bioproducts
operations, and the Agricultural Services segment now includes the Company’s
formula feed processing and edible bean origination operations. Prior
period segment information has been reclassified to conform to the new
presentation.
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 meals principally for the food and
feed industries. In addition, oilseeds and oilseed products may
be used 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 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.
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
Note 6. Segment
Information (Continued)
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 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
for the beverage industry. 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 the related equity in earnings of
affiliates based on the equity method of accounting. General
corporate expenses, investment income, unallocated interest expense, marketable
securities transactions, and FIFO to LIFO inventory adjustments 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, 2007.
Archer-Daniels-Midland
Company
Notes to Consolidated Financial
Statements (Continued)
(Unaudited)
Note 6. Segment
Information (Continued)
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Sales
to external customers
|
||||||||||||||||
|
Oilseeds
Processing
|
$ |
5,255
|
$ |
3,360
|
$ |
9,865
|
$ |
6,598
|
||||||||
|
Corn
Processing
|
1,683
|
1,414
|
3,204
|
2,765
|
||||||||||||
|
Agricultural
Services
|
8,233
|
5,205
|
13,773
|
9,180
|
||||||||||||
|
Other
|
1,325
|
997
|
2,482
|
1,880
|
||||||||||||
|
Total
|
$ |
16,496
|
$ |
10,976
|
$ |
29,324
|
$ |
20,423
|
||||||||
|
Intersegment
sales
|
||||||||||||||||
|
Oilseeds
Processing
|
$ |
127
|
$ |
96
|
$ |
274
|
$ |
179
|
||||||||
|
Corn
Processing
|
20
|
12
|
39
|
22
|
||||||||||||
|
Agricultural
Services
|
794
|
559
|
1,215
|
863
|
||||||||||||
|
Other
|
35
|
31
|
66
|
61
|
||||||||||||
|
Total
|
$ |
976
|
$ |
698
|
$ |
1,594
|
$ |
1,125
|
||||||||
|
Net
sales
|
||||||||||||||||
|
Oilseeds
Processing
|
$ |
5,382
|
$ |
3,456
|
$ |
10,139
|
$ |
6,777
|
||||||||
|
Corn
Processing
|
1,703
|
1,426
|
3,243
|
2,787
|
||||||||||||
|
Agricultural
Services
|
9,027
|
5,764
|
14,988
|
10,043
|
||||||||||||
|
Other
|
1,360
|
1,028
|
2,548
|
1,941
|
||||||||||||
|
Intersegment
elimination
|
(976 | ) | (698 | ) | (1,594 | ) | (1,125 | ) | ||||||||
|
Total
|
$ |
16,496
|
$ |
10,976
|
$ |
29,324
|
$ |
20,423
|
||||||||
|
Segment
operating profit
|
||||||||||||||||
|
Oilseeds
Processing
|
$ |
219
|
$ |
192
|
$ |
428
|
$ |
362
|
||||||||
|
Corn
Processing
|
275
|
336
|
528
|
625
|
||||||||||||
|
Agricultural
Services
|
315
|
131
|
544
|
246
|
||||||||||||
|
Other
|
146
|
108
|
252
|
182
|
||||||||||||
|
Total
segment operating profit
|
955
|
767
|
1,752
|
1,415
|
||||||||||||
|
Corporate
|
(270 | ) | (138 | ) | (421 | ) | (211 | ) | ||||||||
|
Earnings
before income taxes
|
$ |
685
|
$ |
629
|
$ |
1,331
|
$ |
1,204
|
||||||||
|
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 crushing and
origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola,
peanuts, and flaxseed into vegetable oils and meals principally for the food and
feed industries. In addition, oilseeds and oilseed products may be
used 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 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 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
for the beverage industry. 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, 2007.
|
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 segment selling prices move in relationship to changes in prices of the
commodity-based agricultural raw materials. Therefore, changes in
agricultural commodity prices have relatively equal impacts on both net sales
and cost of products sold and minimal impact on the gross profit of underlying
transactions. As a result, changes in net sales amounts of these business
segments do not necessarily correspond to the changes in gross profit realized
by these businesses.
The
Company’s Corn Processing operations and certain other food and feed processing
operations also utilize agricultural commodities (or products derived from
agricultural commodities) as raw materials. In these operations,
agricultural commodity 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. For products
such as ethanol, selling prices bear no direct relationship to the raw material
cost of the agricultural commodity from which it is produced.
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 and British pound, as compared to the
U.S. dollar will result in corresponding fluctuations in the relative U.S.
dollar value of the Company’s revenues and expenses. The impact of
these currency exchange rate changes was not significant during the quarter and
six months ended December 31, 2007.
The
Company measures the performance of its business segments using key operating
statistics such as segment operating profit and return on fixed capital
investment and net assets. The Company’s operating results can vary
significantly due to changes in unpredictable factors such as fluctuations in
energy prices, weather conditions, 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. 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.” Additionally, the Company’s
operating results for the current quarter are not necessarily indicative of the
results that may be expected for the year ending June 30, 2008.
Three Months Ended December 31, 2007
Compared to Three Months Ended December 31, 2006
As an
agricultural-based business, the Company is subject to a variety of market
factors which affect the Company’s operating results. Net earnings
for the quarter increased principally due to increased segment operating
profits, partially offset by increased corporate expenses related primarily to
LIFO inventory valuation charges resulting from increased commodity
prices. Volatile market conditions, large North American crops and
global wheat shortages created exceptional profit opportunities in agricultural
merchandising and handling operations. Increased oilseed supplies and
good demand for vegetable oil and soybean meal improved crushing margins and
merchandising results in North and South America. Higher raw material
costs as a result of tighter supplies of European rapeseed negatively impacted
crushing margins in Europe. Ethanol sales volumes increased as the
Company captured opportunities to decrease its inventory. Ethanol
selling prices decreased due to increased industry capacity coming on line, and
strong demand for corn increased net corn 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 50% to $16.5 billion. Increased
selling prices resulting from increases in commodity prices accounted for 78% of
the increase while higher sales volumes, principally feed grains, ethanol,
oilseeds and wheat, accounted for the remainder.
Net sales
and other operating income by segment for the quarter are as
follows:
|
Three Months
Ended
|
|||||||||||||
|
December
31,
|
|||||||||||||
|
2007
|
2006
|
Change
|
|||||||||||
|
(in
millions)
|
|||||||||||||
|
Oilseeds
Processing
|
|||||||||||||
|
Crushing
& Origination
|
$ |
3,280
|
$ |
1,899
|
$ |
1,381
|
|||||||
|
Refining,
Packaging, Biodiesel & Other
|
1,919
|
1,423
|
496
|
||||||||||
|
Asia
|
56
|
38
|
18
|
||||||||||
|
Total
Oilseeds Processing
|
5,255
|
3,360
|
1,895
|
||||||||||
|
Corn
Processing
|
|||||||||||||
|
Sweeteners
and Starches
|
791
|
621
|
170
|
||||||||||
|
Bioproducts
|
892
|
793
|
99
|
||||||||||
|
Total
Corn Processing
|
1,683
|
1,414
|
269
|
||||||||||
|
Agricultural
Services
|
|||||||||||||
|
Merchandising
& Handling
|
8,179
|
5,152
|
3,027
|
||||||||||
|
Transportation
|
54
|
53
|
1
|
||||||||||
|
Total
Agricultural Services
|
8,233
|
5,205
|
3,028
|
||||||||||
|
Other
|
|||||||||||||
|
Wheat,
Cocoa, and Malt
|
1,303
|
970
|
333
|
||||||||||
|
Financial
|
22
|
27
|
(5 | ) | |||||||||
|
Total
Other
|
1,325
|
997
|
328
|
||||||||||
|
Total
|
$ |
16,496
|
$ |
10,976
|
$ |
5,520
|
|||||||
Oilseeds
Processing sales increased 56% to $5.3 billion principally due to increased
average selling prices, and to a lesser extent, to increased sales volumes.
Strong global demand for protein and vegetable oil resulted in higher average
selling prices. Sales volume increases, principally in vegetable oil
and grain merchandising operations, also contributed to increased
sales. Corn Processing sales increased 19% to $1.7
billion. Increased demand for sweeteners and starches drove higher
average selling prices. Bioproducts sales increased 13% to $892
million primarily as a result of increased ethanol sales volumes as the Company
captured opportunities to decrease its inventory, partially offset by decreased
average ethanol selling prices due to additional production capacity coming on
line. Agricultural Services sales increased 58% to $8.2 billion
primarily due to increased commodity selling prices and, to a lesser extent,
increased sales volumes. Average selling prices of corn, soybeans,
and wheat for the quarter increased approximately 15%, 69%, and 64%,
respectively, from average selling prices of a year earlier. Other
sales increased 33% to $1.3 billion primarily due to higher average selling
prices of wheat flour and higher average selling prices and volumes of cocoa
products.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Cost of
products sold increased 54% to $15.5 billion primarily due to higher
agricultural commodity prices and increased sales
volumes. Manufacturing costs increased $105 million primarily due to
increased energy and employee-related costs, higher quantities produced, $15
million of asset abandonment charges this quarter compared to $2 million in the
prior year, and higher plant depreciation expense.
Selling,
general and administrative expenses increased $40 million to $338 million
reflecting higher employee-related costs including $8 million relating to the
Company’s European headquarters relocation.
Other
income increased $56 million due primarily to increased equity in earnings of
affiliates.
Operating
profit by segment for the quarter is as follows:
|
Three Months
Ended
|
||||||||||||
|
December
31,
|
||||||||||||
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ |
141
|
$ |
129
|
$ |
12
|
||||||
|
Refining,
Packaging, Biodiesel & Other
|
46
|
53
|
(7 | ) | ||||||||
|
Asia
|
32
|
10
|
22
|
|||||||||
|
Total
Oilseeds Processing
|
219
|
192
|
27
|
|||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
and Starches
|
147
|
152
|
(5 | ) | ||||||||
|
Bioproducts
|
128
|
184
|
(56 | ) | ||||||||
|
Total
Corn Processing
|
275
|
336
|
(61 | ) | ||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
258
|
64
|
194
|
|||||||||
|
Transportation
|
57
|
67
|
(10 | ) | ||||||||
|
Total
Agricultural Services
|
315
|
131
|
184
|
|||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, and Malt
|
78
|
50
|
28
|
|||||||||
|
Financial
|
68
|
58
|
10
|
|||||||||
|
Total
Other
|
146
|
108
|
38
|
|||||||||
|
Total
Segment Operating Profit
|
955
|
767
|
188
|
|||||||||
|
Corporate
|
(270 | ) | (138 | ) | (132 | ) | ||||||
|
Earnings
Before Income Taxes
|
$ |
685
|
$ |
629
|
$ |
56
|
||||||
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Oilseeds
Processing operating profits increased 14% to $219 million. Crushing
and Origination operating profits increased 9% to $141 million due principally
to improved crushing margins in North America and improved origination results
in South America, partially offset by lower margins in Europe. North
American crushing margins improved due to strong demand for protein meal and
oil. South American origination results increased due to improved
fertilizer and merchandising margins. European crushing results
declined due to higher raw material costs as a result of current tight supplies
of European rapeseed. Refining, Packaging, Biodiesel, and Other
operating profits decreased 13%, or $7 million, to $46 million. Asset
abandonment charges in Refining, Packaging, Biodiesel and Other increased $13
million in this period. Excluding asset abandonment charges,
operating profits in Refining, Packaging, Biodiesel and Other increased $6
million, reflecting improved margins and volumes. Asia results
increased $22 million reflecting the Company’s share of improved operating
earnings of Wilmar International Limited.
Corn
Processing operating profits decreased 18% to $275
million. Sweeteners and Starches operating profit decreased 3% to
$147 million reflecting higher net corn costs and higher manufacturing costs,
partially offset by higher average sales prices. Bioproducts operating profit
decreased 30% to $128 million, principally due to higher net corn costs and
lower ethanol selling prices, partially offset by increased ethanol sales
volumes. Lysine operating profits improved $12 million due to
increased average selling prices and increased volumes, partially offset by
increased net corn and manufacturing costs.
Agricultural
Services operating profit increased 140% to $315 million. Merchandising and
Handling operating profit increased $194 million to $258 million. This increase
was principally due to volatile commodity market conditions, large North
American crops and global wheat shortages providing significantly better margin
and volume opportunities. Transportation operating profits decreased
$10 million to $57 million principally due to lower barge freight rates and
increased fuel costs.
Other
operating profits increased 35% to $146 million. Wheat, Cocoa and
Malt operating profit increased 56% to $78 million principally related to
favorable wheat risk management results, partially offset by increased wheat
manufacturing expenses and lower cocoa press margins. Financial
operating profits increased 17% to $68 million principally due to marketable
securities gains on sales of equity securities held by the Company’s futures
commission merchant business.
Corporate
expense increased $132 million to $270 million principally due to a $225 million
charge, compared to a $107 million charge in the prior year, related to the
effect of increased commodity prices on LIFO inventory valuations.
Income
taxes increased principally due to higher pretax earnings. The
Company’s effective tax rate for the quarter is 31% as compared to 30% in the
prior year’s quarter. The increase 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)
|
Six Months Ended December 31, 2007
Compared to Six Months Ended December 31. 2006
As an
agricultural-based business, the Company is subject to a variety of market
factors which affect the Company’s operating results. Net earnings
for the period increased principally due to increased segment operating profits,
partially offset by increased corporate expenses related primarily to LIFO
inventory valuation charges resulting from increased commodity
prices. Volatile market conditions, large North American crops and
global wheat shortages created exceptional profit opportunities in agricultural
merchandising and handling operations. Increased oilseed supplies and
good demand for vegetable oil and soybean meal improved crushing margins and
merchandising results in North and South America. Abundant crops and
increased fertilizer margins positively impacted South America oilseeds
operating results. Higher raw material costs as a result of tighter
supplies of European rapeseed coupled with weaker biodiesel demand due to higher
vegetable oil prices negatively impacted European crushing
margins. Ethanol sales volumes increased as the company captured
opportunities to decrease its inventory. Ethanol selling prices
decreased due to additional industry capacity coming on line, and strong demand
for corn increased net corn costs.
Analysis of Statements of
Earnings
Net sales
and other operating income increased $8.9 billion to $29.3 billion for the six
months. Increased selling prices accounted for 77% of the increase
and the remainder was due to increased sales volumes, principally feed grains,
wheat, oilseeds and vegetable oil.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Net sales
and other operating income by segment for the six months are as
follows:
|
Six Months
Ended
|
||||||||||||
|
December 31,
|
||||||||||||
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ |
6,088
|
$ |
3,815
|
$ |
2,273
|
||||||
|
Refining,
Packaging, Biodiesel & Other
|
3,686
|
2,719
|
967
|
|||||||||
|
Asia
|
91
|
64
|
27
|
|||||||||
|
Total
Oilseeds Processing
|
9,865
|
6,598
|
3,267
|
|||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
and Starches
|
1,625
|
1,250
|
375
|
|||||||||
|
Bioproducts
|
1,579
|
1,515
|
64
|
|||||||||
|
Total
Corn Processing
|
3,204
|
2,765
|
439
|
|||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
13,659
|
9,066
|
4,593
|
|||||||||
|
Transportation
|
114
|
114
|
–
|
|||||||||
|
Total
Agricultural Services
|
13,773
|
9,180
|
4,593
|
|||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, and Malt
|
2,436
|
1,829
|
607
|
|||||||||
|
Financial
|
46
|
51
|
(5 | ) | ||||||||
|
Total
Other
|
2,482
|
1,880
|
602
|
|||||||||
|
Total
|
$ |
29,324
|
$ |
20,423
|
$ |
8,901
|
||||||
Oilseeds
Processing sales increased 50% to $9.9 billion principally due to increased
average selling prices and, to a lesser extent, to increased sales volumes.
Strong global demand for protein and vegetable oil resulted in higher average
selling prices. Sales volume increases in vegetable oil, biodiesel
and grain merchandising operations also contributed to increased
sales. Corn Processing sales increased 16% to $3.2 billion. Increased
demand for sweeteners and starches drove higher average selling
prices. Bioproducts sales increased 4% to $1.6 billion primarily as a
result of increased ethanol sales volumes as the Company captured opportunities
to decrease its inventory, partially offset by decreased average ethanol selling
prices due to additional industry production capacity coming on
line. Agricultural Services sales increased 50% to $13.8 billion
primarily due to increased commodity prices and, to a lesser extent, increased
sales volumes. Average selling prices of corn, soybeans, and wheat
for the six months increased approximately 28%, 58%, and 44%, respectively, from
average selling prices of a year earlier. Other sales increased 32%
to $2.5 billion primarily due to higher average selling prices of wheat flour
and higher average selling prices and volumes of cocoa products.
Cost of
products sold increased 47% to $27.4 billion primarily due to higher
agricultural commodity prices and increased sales
volumes. Manufacturing costs increased $156 million primarily due to
increased employee-related costs, higher quantities produced, $21 million of
asset abandonment charges this period compared to $2 million in the prior year,
and higher plant maintenance and depreciation expenses.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Selling,
general and administrative expenses increased $85 million to $693 million
reflecting higher employee-related costs including $23 million related to an
organizational realignment and $9 million relating to the relocation of our
European headquarters.
Other
income increased $107 million due primarily to increased equity in earnings of
affiliates.
Operating
profit by segment for the six months is as follows:
|
Six
Months Ended
|
||||||||||||
|
December 31,
|
||||||||||||
|
2007
|
2006
|
Change
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Oilseeds
Processing
|
||||||||||||
|
Crushing
& Origination
|
$ |
272
|
$ |
233
|
$ |
39
|
||||||
|
Refining,
Packaging, Biodiesel & Other
|
108
|
102
|
6
|
|||||||||
|
Asia
|
48
|
27
|
21
|
|||||||||
|
Total
Oilseeds Processing
|
428
|
362
|
66
|
|||||||||
|
Corn
Processing
|
||||||||||||
|
Sweeteners
and Starches
|
311
|
271
|
40
|
|||||||||
|
Bioproducts
|
217
|
354
|
(137 | ) | ||||||||
|
Total
Corn Processing
|
528
|
625
|
(97 | ) | ||||||||
|
Agricultural
Services
|
||||||||||||
|
Merchandising
& Handling
|
443
|
129
|
314
|
|||||||||
|
Transportation
|
101
|
117
|
(16 | ) | ||||||||
|
Total
Agricultural Services
|
544
|
246
|
298
|
|||||||||
|
Other
|
||||||||||||
|
Wheat,
Cocoa, and Malt
|
116
|
93
|
23
|
|||||||||
|
Financial
|
136
|
89
|
47
|
|||||||||
|
Total
Other
|
252
|
182
|
70
|
|||||||||
|
Total
Segment Operating Profit
|
1,752
|
1,415
|
337
|
|||||||||
|
Corporate
|
(421 | ) | (211 | ) | (210 | ) | ||||||
|
Earnings
Before Income Taxes
|
$ |
1,331
|
$ |
1,204
|
$ |
127
|
||||||
Oilseeds
Processing operating profits increased 18% to $428 million. Crushing
and Origination operating profits increased 17% to $272 million due principally
to improved crushing margins in North America and improved origination results
in South America, partially offset by lower margins in Europe. North
and South American crushing margins improved due to strong demand for protein
meal and oil. European crushing margins declined due to higher raw
material costs resulting from tight supplies of European
rapeseed. Refining, Packaging, Biodiesel, and Other operating profits
increased 6%, or $6 million, to $108 million. Asset abandonment
charges in Refining, Packaging, Biodiesel and Other increased $16 million in
this period. Excluding asset abandonment charges, operating profits
in Refining, Packaging, Biodiesel and Other increased $22 million, reflecting
improved margins and volumes. Asia results increased $21 million
reflecting the Company’s share of improved operating earnings of Wilmar
International Limited.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Corn
Processing operating profits decreased 16% to $528
million. Sweeteners and Starches operating profit increased 15% to
$311 million reflecting higher average sales prices and favorable risk
management results, partially offset by higher net corn costs and higher
manufacturing costs. Bioproducts operating profit decreased 39% to $217 million,
principally due to higher net corn costs and lower ethanol selling prices,
partially offset by increased ethanol sales volumes and favorable risk
management results. Lysine operating profits improved $18 million due
to increased average selling prices and increased volumes, partially offset by
increased net corn and manufacturing costs.
Agricultural
Services operating profit increased 121% to $544 million. Merchandising and
Handling operating profit increased $314 million to $443 million. This increase
was principally due to improved global merchandising and handling results as
volatile commodity market conditions, large North American crops and global
wheat shortages provided significantly better margin and volume
opportunities. Transportation operating profits decreased $16 million
to $101 million principally due to increased fuel costs.
Other
operating profits increased 38% to $252 million. Financial operating
profits increased $47 million to $136 million principally due to marketable
securities gains on sales of equity securities held by the Company’s futures
commission merchant business and increased valuations of the company’s private
equity fund investments. Wheat, Cocoa and Malt operating profit
increased $23 million to $116 million principally due to favorable wheat risk
management results, partially offset by increased wheat manufacturing expenses
and lower cocoa press margins.
Corporate
expense increased $210 million to $421 million principally due to a $307 million
charge, compared to a $124 million charge in the prior year, related to the
effect of sharply increasing commodity prices on LIFO inventory
valuations.
Income
taxes increased principally due to higher pretax earnings. The
Company’s effective tax rate for the six month period is 31% as compared to 30%
in the prior year. The increase in the Company’s effective tax rate
is primarily due to changes in the geographic mix of pretax
earnings.
Liquidity and Capital
Resources
The
Company’s 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
December 31, 2007, the Company continued to show substantial liquidity with
working capital of $8.1 billion and a current ratio, defined as current assets
divided by current liabilities, of 1.6 to 1. Included in working
capital is $1.4 billion of cash, cash equivalents, and short-term marketable
securities as well as $6 billion of readily marketable commodity
inventories. The increase in inventories during the six months ended
December 31, 2007 resulted principally from the significant increase in
commodity prices and, to a lesser extent, to increases in inventory ownership
levels. These working capital increases were financed by $4.5 billion
of additional long and short term borrowings as the Company had adequate access
to debt capital through numerous alternatives to meet these expanding working
capital needs. At December 31, 2007 the Company had lines of credit
totaling $5.7 billion, of which $1.2 billion was unused. Capital
resources remained strong as reflected by the increase in the Company’s net
worth from $11.3 billion to $12.3 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 30% at both December 31, 2007 and June 30,
2007. This ratio is a measure of the Company’s long-term liquidity
and is an indicator of financial flexibility.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
Contractual Obligations and Commercial Commitments
During the
six months ended December 31, 2007, the Company’s inventory purchase obligations
increased $5.2 billion to $18.9 billion. This increase was
principally due to increased commodity prices and, to a lesser extent, increased
obligations to purchase agricultural commodities. As of December 31,
2007, the Company expects to make payments related to inventory purchase
obligations of $15 billion within the next twelve months and expects no material
change in the current year’s rate of capital expenditures.
During
December 2007, the Company issued $500 million of debentures which are due in
2038 and bear interest at a rate of 6.45%. There were no other
material changes in the Company’s contractual obligations and off balance sheet
arrangements during the six months ended December 31, 2007.
Critical Accounting
Policies
There were
no material changes in the Company’s critical accounting policies during the six
months ended December 31, 2007.
|
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; market prices of limited partnerships’ investments; foreign currency
exchange rates; and interest rates. There were no material changes
during the quarter in the Company’s potential loss arising from changes in
market prices of limited partnerships’ investments, marketable equity
securities, foreign currency exchange rates, and interest
rates. Significant changes in market risk sensitive instruments and
positions for the quarter ended December 31, 2007 are described
below.
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, 2007.
|
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
|
|||||||||||||||
|
December 31,
2007
|
June 30,
2007
|
|||||||||||||||
| Long/(Short) |
Fair
Value
|
Market
Risk
|
Fair
Value
|
Market
Risk
|
||||||||||||
|
(in
millions)
|
||||||||||||||||
|
Highest
position
|
$ |
1,260
|
$ |
126
|
$ |
703
|
$ |
70
|
||||||||
|
Lowest
position
|
(419 | ) | (42 | ) | (565 | ) | (57 | ) | ||||||||
|
Average
position
|
666
|
67
|
180
|
18
|
||||||||||||
The
increase in fair value of the average position was principally the result of an
increase in quantities underlying the daily net commodity position.
|
ITEM 4.
|
CONTROLS AND
PROCEDURES
|
As of
December 31, 2007, 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
Company is involved in approximately twenty administrative and judicial
proceedings in which it has been identified as a potentially responsible party
(PRP) under the federal Superfund law and its state analogs for the study and
cleanup of sites contaminated by material discharged into the
environment. In all of these matters there are numerous
PRPs. Due to various factors, such as the required level of
remediation and participation in the cleanup effort by others, the Company’s
future cleanup costs at these sites cannot be reasonably
estimated. In management’s opinion, these proceedings will not,
either individually or in the aggregate, have a material adverse affect on the
Company’s financial condition or results of operations.
|
ITEM 1A.
|
RISK
FACTORS
|
There were
no significant changes in the Company’s risk factors during the three months
ended December 31, 2007.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF
PROCEEDS
|
Issuer Purchases of Equity
Securities
|
Total Number
of
|
Number of
Shares
|
|||||||||||||||
|
Total
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)
|
||||||||||||
|
October
1, 2007 to
|
||||||||||||||||
|
October
31, 2007
|
32,357
|
$ |
33.28
|
32,010
|
75,632,160
|
|||||||||||
|
November
1, 2007 to
|
||||||||||||||||
|
November
30, 2007
|
26,288
|
37.03
|
157
|
75,632,003
|
||||||||||||
|
December
1, 2007 to
|
||||||||||||||||
|
December
31, 2007
|
156
|
35.94
|
156
|
75,631,847
|
||||||||||||
|
Total
|
58,801
|
$ |
34.96
|
32,323
|
75,631,847
|
|||||||||||
| (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 4.
|
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
|
The Annual
Meeting of Stockholders was held on November 8, 2007. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended. There was no solicitation in
opposition to the Board of Director nominees as listed in the proxy statement
and all nominees were elected as follows:
|
Nominee
|
Shares Cast
For
|
Shares
Withheld
|
|
|
A.
L. Boeckmann
|
499,183,039
|
16,914,396
|
|
|
M.
H. Carter
|
455,618,044
|
60,479,392
|
|
|
V.
F. Haynes
|
504,482,901
|
11,614,534
|
|
|
A.
Maciel
|
504,568,091
|
11,529,344
|
|
|
P.
J. Moore
|
492,139,700
|
23,957,735
|
|
|
M.
B. Mulroney
|
477,591,739
|
38,505,696
|
|
|
T.
F. O’Neill
|
489,646,879
|
26,450,556
|
|
|
K.
R. Westbrook
|
474,364,036
|
41,733,399
|
|
|
P.
A. Woertz
|
503,114,398
|
12,983,037
|
The
Stockholder’s Proposal No. 1 (Code of Conduct Regarding Global Human Rights
Standards) was defeated as follows:
|
For
|
Against
|
Abstain
|
|
|
81,998,494
|
296,389,910
|
43,164,073
|
The
Stockholder’s Proposal No. 2 (Advisory Resolution to Ratify Compensation Listed
in Summary Compensation Table) was defeated as follows:
|
For
|
Against
|
Abstain
|
|
|
|
|
||
|
139,100,657
|
274,079,161
|
8,372,659
|
|
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.
|
|
(4)
|
Form of 6.45% Debenture due 2038, filed on December 14, 2007as Exhibit 4 to Form 8-K (File No. 1-44), as incorporated herein by reference. | |
|
(10.1)
|
Separation
Agreement dated as of November 26, 2007, between Archer-Daniels-Midland
Company and William H. Camp, filed on November 30, 2007, as Exhibit 10.1
for Form 8-K (File No. 1-44), is incorporated herein by
reference.
|
|
|
(10.2)
|
Separation
Agreement dated as of February 6, 2008, between
Archer-Daniels-Midland Company and Douglas J. Schmalz, filed
on February 7, 2008, as Exhibit 10.1 for Form 8-K (File No. 1-44), is
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/
D. J. Schmalz
|
||
|
D.
J. Schmalz
|
||
|
Senior
Vice President
|
||
|
and
Chief Financial Officer
|
||
|
/s/
D. J. Smith
|
||
|
D.
J. Smith
|
||
|
Executive
Vice President, Secretary and
|
||
|
General
Counsel
|
Dated:
February 7, 2008