adm10kfy10.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2010

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________ to _________

Commission file number 1-44

ADM Logo
ARCHER-DANIELS-MIDLAND COMPANY
(Exact name of registrant as specified in its charter)

Delaware
41-0129150
(State or other jurisdiction of
(I. R. S. Employer
incorporation or organization)
Identification No.)
   
4666 Faries Parkway   Box 1470
Decatur, Illinois
62525
(Address of principal executive offices)
(Zip Code)
   
217-424-5200
(Registrant's telephone number, including area code)
   
Securities registered pursuant to Section 12(b) of the Act:
   
Title of each class
Name of each exchange on which registered
   
Common Stock, no par value
New York Stock Exchange
 
Frankfurt Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:                                                                                                           None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x   No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x  No ¨
 
 

 


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes x  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x                                                      Accelerated Filer  o
Non-accelerated Filer     o                                                      Smaller Reporting Company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Common Stock, no par value--$19.7 billion
(Based on the closing sale price of Common Stock as reported on the New York Stock Exchange
as of December 31, 2009)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock, no par value—639,324,639 shares
(July 31, 2010)

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of stockholders to be held November 4, 2010, are incorporated by reference into Part III.

SAFE HARBOR STATEMENT

This Form 10-K contains forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking information.  In some cases, you can identify forward-looking statements by our use of words such as “may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, potential or contingent,” the negative of these terms or other similar expressions.  The Company’s actual results could differ materially from those discussed or implied herein.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-K for the fiscal year ended June 30, 2010.  Among these risks are legislative acts; changes in the prices of food, feed, and other commodities, including gasoline; and macroeconomic conditions in various parts of the world.  To the extent permitted under applicable law, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events.

 
 

 



 
Table of Contents

Item No.
Description
Page No.
     
 
Part I
 
1.
Business
4
1A.
Risk Factors
11
1B.
Unresolved Staff Comments
14
2.
Properties
15
3.
Legal Proceedings
17
4.
Reserved
17
     
 
Part II
 
5.
Market for Registrant’s Common Equity, Related Stockholder Matters,
  and Issuer Purchases of Equity Securities
 
18
6.
Selected Financial Data
21
7.
Management’s Discussion and Analysis of Financial Condition and
  Results of Operations
 
22
7A.
Quantitative and Qualitative Disclosures About Market Risk
35
8.
Financial Statements and Supplementary Data
37
9.
Changes in and Disagreements With Accountants on Accounting
  and Financial Disclosure
 
86
9A.
Controls and Procedures
86
9B.
Other Information
86
     
 
Part III
 
10.
Directors, Executive Officers and Corporate Governance
87
11.
Executive Compensation
90
12.
Security Ownership of Certain Beneficial Owners and Management
  and Related Stockholder Matters
 
90
13.
Certain Relationships and Related Transactions, and Director Independence
90
14.
Principal Accounting Fees and Services
91
     
 
Part IV
 
15.
Exhibits and Financial Statement Schedules
91
 
Signatures
95
     


 
 

 

PART I

Item 1.
BUSINESS

Company Overview

Archer Daniels Midland Company (the Company) was incorporated in Delaware in 1923, successor to the Daniels Linseed Co. founded in 1902.  The Company is one of the world’s largest processors of oilseeds, corn, wheat, cocoa, and other agricultural commodities and is a leading manufacturer of vegetable oil and protein meal, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.  The Company also has an extensive grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities.

During the past five years, the Company has experienced significant growth, spending approximately $7.9 billion for construction of new plants, maintenance and expansions of existing plants, and the acquisitions of plants and transportation equipment.  The Company has recently completed construction of a coal cogeneration facility and two corn dry milling plants which will increase the Company’s annual ethanol production capacity by 600 million gallons to 1.8 billion gallons.  In addition, the Company has completed the initial phase of its polyhydroxy alkanoate (PHA) bioplastic production facility, and continues to work through start up at its propylene/ethylene glycol production facility and a new cocoa processing facility.  The Company currently expects to spend approximately $1.5 billion to complete the facilities under construction and other approved capital projects through calendar year 2013.  There have been no significant dispositions during the last five years.

Segment Descriptions

The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations, which include wheat processing, cocoa processing, and its financial business units are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other.  Financial information with respect to the Company’s reportable business segments is set forth in “Note 15 of Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data.”

Oilseeds Processing

The Oilseeds Processing segment includes activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, flaxseed, and palm into vegetable oils and protein meals.  The Oilseeds Processing segment principally produces and markets processed oilseed products as ingredients for the food, feed, energy, and other industrial products industries.  Crude vegetable oil is sold "as is" or is further processed by refining, blending, bleaching, and deodorizing into salad oils.  Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is used to produce biodiesel or is sold to other manufacturers for use in chemicals, paints, and other industrial products.  Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds.  The Oilseeds Processing segment also produces natural health and nutrition products and other specialty food and feed ingredients.  In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets.  In South America, the Oilseeds Processing segment utilizes a network of grain elevators, port facilities and transportation assets to buy, store, clean, and transport agricultural commodities and operates fertilizer blending facilities.

The Company produces a wide range of edible soy protein products including soy flour, soy grits, soy protein concentrates and soy isolates that are used in processed meats, baked foods, nutritional products, snacks, and dairy and meat analogs.

From co-products of oilseeds, the Company produces natural source vitamin E, tocopherol antioxidants and phytosterols which are marketed to the dietary supplement and food industry.  The Company produces soy isoflavones, a dietary supplement, from a co-product of edible soy processing.

 
 

 


Item 1.
BUSINESS (Continued)

Golden Peanut Company LLC, a joint venture between the Company and Alimenta (U.S.A.), Inc., is a major supplier of peanuts and peanut derived ingredients to both the domestic and export markets.  The Company has a 50% ownership interest in this joint venture.

The Company has a 50% interest in Edible Oils Limited, a joint venture between the Company and Princes Foods to procure, package, and sell edible oils in the United Kingdom.  The Company recently announced the formation of a new edible oils joint venture with Princes Foods in Poland.

Stratas Foods LLC, a joint venture between the Company and ACH Jupiter, LLC, a subsidiary of Associated British Foods, procures, packages, and sells edible oils in North America.  The Company has a 50% ownership interest in this joint venture.

The Company has a 16.4% ownership interest in Wilmar International Limited (Wilmar), a Singapore publicly listed company.  Wilmar, a leading agribusiness group in Asia, is the largest global processor and merchandiser of palm and lauric oils, and a major oil palm plantation owner.  In China, Wilmar is a leading consumer edible oils producer, oilseeds crusher, edible oils refiner, and specialty fats and oleochemicals manufacturer.  In India, Wilmar is one of the largest edible oils refiners and a leading producer of consumer edible oils.

The Company is a major supplier of agricultural commodity raw materials to Edible Oils Limited, Stratas Foods LLC, and Wilmar.

Corn Processing

The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, primarily in the United States, related to its production of ingredients used in the food and beverage industry including syrup, starch, glucose, dextrose, and sweeteners.  Dextrose is also used by the Company as a feedstock for its bioproducts operations.  Corn gluten feed and meal, as well as distillers grains, is produced for use as animal feed ingredients.  Corn germ, a by-product of the wet milling process, is further processed as an oilseed into vegetable oil and protein meal.

By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other specialty food and animal feed ingredients.  Ethyl alcohol is produced by the Company to beverage grade or for industrial use as ethanol.  In gasoline, ethanol increases octane and is used as an extender and oxygenate.  Amino acids, such as lysine and threonine, are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production.  The Corn Processing segment also produces, by fermentation, astaxanthin, a product used in aquaculture to enhance flesh coloration.  The Corn Processing segment produces citric and lactic acids, lactates, sorbitol, xanthan gum and glycols which are used in various food and industrial products.

Almidones Mexicanos S.A., in which the Company has a 50% interest, operates a wet corn milling plant in Mexico.

Eaststarch C.V. (Netherlands), in which the Company has a 50% interest, owns interests in companies that operate wet corn milling plants in Bulgaria, Hungary, Slovakia, and Turkey.

The Company has a 50% interest in Telles, LLC (Telles), a joint venture between the Company and Metabolix to market and sell PHA, which is being produced in a facility owned by the Company.  The first phase of plant construction was completed and operations began in December 2009.

The Company has entered into Brazilian joint ventures for the purposes of growing sugarcane and the production of sugar and ethanol from sugarcane.  Construction of the first joint venture ethanol production facility was completed and operations began in December 2009.

Red Star Yeast Company, LLC produces and sells fresh and dry yeast in the United States and Canada.  The Company has a 40% ownership interest in this joint venture.

 
 

 


Item 1.
BUSINESS (Continued)

Agricultural Services

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as  food and feed ingredients and as raw materials for the agricultural processing industry.  Agricultural Services’ grain sourcing and transportation network provides reliable and efficient services to the Company’s agricultural processing operations and customers.  Agricultural Services’ transportation network capabilities include ground, rail, river, and ocean freight services.

The Company processes and distributes edible beans in the United States for use as a food ingredient.  The Company produces and distributes formula feeds and animal health and nutrition products to the livestock, dairy, poultry, and pet food industries.

Alfred C. Toepfer International (Toepfer), in which the Company has an 80% interest, is a global merchandiser of agricultural commodities and processed products.  Toepfer has 36 sales offices worldwide and operates inland, river, and export facilities in Argentina, Romania, Ukraine, and the United States.

The Company has a 45% interest in Kalama Export Company, a grain export elevator in Washington.

Other

The Company is engaged in milling wheat, corn, and milo into flour in the United States, Canada, the Caribbean, and the United Kingdom.  Wheat flour is sold primarily to commercial bakeries, food manufacturing companies, food service companies, and retailers.  Bulgur, a gelatinized wheat food, is sold to both the export and the domestic food markets.  Corn meal and flour is sold primarily to the cereal, snack, and bakery mix markets.  The Company produces bakery products and mixes, wheat starch, and gluten, which are sold to the baking industry.  The Company also mills milo to produce industrial flour used in the manufacturing of wallboard for the building industry.

Gruma S.A.B. de C.V. (Gruma), in which the Company has a 23.2% interest, is the world’s largest producer and marketer of corn flour and tortillas with operations in Mexico, the United States, Central America, South America, and Europe.  Additionally, the Company has a 20% share, through a joint venture with Gruma, in six U.S. corn flour mills and one in Italy.  The Company also has a 40% share, through a joint venture with Gruma, in nine Mexican wheat flour mills.

The Company procures, transports, and processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds in North America, South America, Europe, Asia, and Africa for the food processing industry.

Hickory Point Bank and Trust Company, fsb, a wholly owned subsidiary of the Company, furnishes public banking and trust services, as well as cash management, transfer agency, and securities safekeeping services, for the Company.

ADM Investor Services, Inc., a wholly owned subsidiary of the Company, is a registered futures commission merchant and a clearing member of all principal commodities exchanges.  ADM Investor Services International, Ltd. and ADMIS Hong Kong Limited are wholly owned subsidiaries of the Company offering broker services in Europe and Asia.

Agrinational Insurance Company, a wholly owned subsidiary of the Company, provides insurance coverage for certain property, casualty, marine, and other miscellaneous risks of the Company and participates in certain third-party reinsurance arrangements.

The Company is a limited partner in various private equity funds which invest primarily in emerging markets.


 
 

 


Item 1.
BUSINESS (Continued)

Corporate

Compagnie Industrielle et Financiere des Produits Amylaces SA (Luxembourg) and affiliates, of which the Company has a 41.5% interest, is a joint venture which targets investments in food, feed ingredients and bioenergy businesses.

In July 2010, the Company made a $100 million cornerstone investment in Agricultural Bank of China, to help advance its strategic growth plans in China.

Methods of Distribution

Since the Company’s customers are principally other manufacturers and processors, the Company’s products are distributed mainly in bulk from processing plants or storage facilities directly to customers’ facilities.  The Company has developed a comprehensive transportation system to efficiently move both commodities and processed products virtually anywhere in the world.  The Company owns or leases large numbers of the trucks, trailers, railroad tank and hopper cars, river barges, towboats, and ocean-going vessels used in this transportation system.

Concentration of Sales by Product

The following products account for 10% or more of net sales and other operating income for the last three fiscal years:

   
% of Net Sales and Other Operating Income
 
   
2010
   
2009
   
2008
 
                   
Soybeans
    22%       19%       16%  
Soybean Meal
    12%       11%       11%  
Corn
    10%       12%       14%  
Wheat
      6%         9%       10%  

Status of New Products

The Company continues to expand the size and global reach of its business through the development of new products.

For retail and foodservice markets, the Company’s researchers continue to develop custom fats and oils with low levels of trans fats. In addition, the Company is working to develop vegetable oil products with reduced saturated fats.  During the first quarter of fiscal year 2010, the Company successfully introduced oils with lower levels of naturally occurring trace compounds in Europe.

The Company continues to develop the market for its cooked, dried edible bean products of the Vegefull™ line to meet customer demands for increased protein and fiber in food.

In 2007, the Company entered into a development agreement with ConocoPhillips to develop affordable, renewable transportation biofuels from biomass.  A technology platform has been developed following extensive evaluation of potential options for the production of bio-crude materials.  The Company is piloting the technology and has produced quantities of biocrude that can be upgraded to gasoline components by ConocoPhillips.

In December 2009, the Company started production of Mirel®, a renewable plastic in our Clinton, Iowa facility.  This new bioplastic is being marketed by Telles, a joint venture of the Company and Metabolix.


 
 

 


Item 1.
BUSINESS (Continued)

The Company has completed modifications to its sorghum mill in Plainview, Texas to produce food-grade sorghum flour to be used in the growing market for gluten-free, multigrain and whole-grain bakery and snack products.  The Company has introduced a new chocolate that contains fiber for use in nutrition bars.

The Company is moving toward the completion of its propylene glycol plant in Decatur, Illinois.  The Company expects this plant to be fully operational in the fourth quarter of this calendar year.

The Company has begun offering isosorbide under its Evolution Chemicals™ line.  Isosorbide is an industrial ingredient made from corn that is a potential alternative to the petroleum-based chemical Bisphenol A in plastics and other applications.

Source and Availability of Raw Materials

Substantially all of the Company’s raw materials are agricultural commodities.  In any single year, the availability and price of these commodities are subject to factors such as weather, plantings, government programs and policies, changes in global demand created by population growth and changes in standards of living, and global production of similar and competitive crops.  The Company’s raw materials are procured from thousands of growers, grain elevators, and wholesale merchants, in North America, South America, Europe, Asia, and Africa, pursuant to short-term (less than one year) agreements or on a spot basis.  The Company is not dependent upon any particular grower, elevator, or merchant as a source for its raw materials.

Patents, Trademarks, and Licenses

The Company owns valuable patents, trademarks, and licenses but does not consider any segment of its business dependent upon any single or group of patents, trademarks or licenses.

Seasonality, Working Capital Needs, and Significant Customers

Since the Company is widely diversified in global agribusiness markets, there are no material seasonal fluctuations in the manufacture, sale, and distribution of its products and services.  There is a degree of seasonality in the growing cycles, procurement, and transportation of the Company’s principal raw materials: oilseeds, corn, wheat, cocoa beans, sugarcane, and other grains.  However, the physical movement of the millions of metric tons of these crops through the Company’s global processing facilities is reasonably constant throughout the year.

Price variations and availability of raw agricultural commodities may cause fluctuations in the Company’s working capital levels.  No material part of the Company’s business is dependent upon a single customer or very few customers.

Competition

The Company has significant competition in the markets in which it operates based principally on price, quality, products and alternative products, some of which are made from different raw materials than those utilized by the Company.  Given the commodity-based nature of many of its businesses, the Company, on an ongoing basis,   focuses on managing unit costs and improving efficiency through technology improvements, productivity enhancements, and regular evaluation of the Company’s asset portfolio.

Research and Development Expenditures

The Company’s research and development expenditures are focused on improving processing efficiency and developing food, feed, fuel, and industrial products from renewable agricultural crops.


 
 

 


Item 1.
BUSINESS (Continued)

The Company maintains a research laboratory in Decatur, Illinois, where product and process development activities are conducted.  Activities at Decatur include the development of new bioproducts and the improvement of existing bioproducts by utilizing new microbial strains that are developed using classical mutation and genetic engineering.  Protein and vegetable oil research is also conducted in Decatur where bakery, meat and dairy pilot plants support food ingredient research.  Vegetable oil research is also conducted in Hamburg, Germany; Erith, UK; and Arras, France.  Research to support sales and development for flour and bakery products is performed in Overland Park, Kansas.  Sales and development support for cocoa and chocolate products is performed in Milwaukee, Wisconsin, and Koog aan de Zaan, the Netherlands.  Research and technical support for industrial and food wheat starch applications is conducted in Ontario, Canada.  The Company recently opened its Advantage Centre in Singapore which supports customers with de Zaan cocoa product solutions through seminars, demonstrations and collaborative product development.

The Company uses technical service representatives to interact with customers to understand the customers’ product needs.  These technical service representatives then interact with researchers who are familiar with the Company’s wide range of food, feed, fuel, and industrial products as well as applications technology.  These individuals form quick-acting teams to develop solutions to customer needs.  

As part of the Company’s partnership with ConocoPhillips, the Company is continuing its development of advanced biofuels.  Piloting work has been undertaken for the conversion of biomass into bio-crude which can be utilized within an existing petroleum refinery to produce gasoline components.  In addition, the Company is developing a technology for the conversion of vegetable oils into green diesel.

The Company is continuing to work on a grant awarded by the Department of Energy to build and operate a pilot plant for the production of ethanol and ethyl acrylate from corn stover and other cellulosic materials.

The Company’s biodiesel research is focused on cost, product quality, and alternative feed stocks.  Several new technologies have been developed to minimize the chemical input costs for biodiesel production while simultaneously reducing waste streams and improving yield. Selected technologies are being deployed in the Company’s current biodiesel production facilities to reduce costs and improve quality.

The Company has entered into a joint development agreement with John Deere and Monsanto to evaluate the sustainable collection, storage and transportation of corn stover – the stalks, cobs and leaves of the corn plant left in the field after combine harvesting.  The insights from this research will continue to help the Company understand the volume potential and economics of corn stover as a biomass feedstock for advanced biofuels.

The Company is working with the U.S. Department of Energy’s National Energy Technology Laboratory and other key academic and corporate partners on projects to demonstrate carbon capture and sequestration as a viable option for reducing carbon dioxide emissions from manufacturing operations.  The first project will demonstrate the viability of sequestering carbon dioxide in the Mt. Simon Sandstone, an underground saline-bearing rock formation.  A second project, announced in June 2010, is currently investigating the feasibility to sequester up to one million tons of carbon dioxide annually.

The Company is continuing to invest in research to develop a broad range of industrial chemicals.  The approach is to build key chemical-building blocks that serve as a platform for producing a variety of commodity chemicals.  The key chemical-building blocks are derived from the Company’s starch and oilseed- based feedstocks.  Conversion technologies include utilizing expertise in both fermentation and catalysis.  The chemicals pipeline includes the development of chemicals and intermediates that are currently produced from petrochemical resources as well as new to the market bio-based products.  The Company’s current portfolio includes products that are in the early development phase and those that are close to pilot plant demonstration.

The expense during the three years ended June 30, 2010, 2009 and 2008 for such technical efforts, including expenditures subsequently reimbursed by grants, was approximately $56 million, $50 million, and $49 million, respectively.


 
 

 


Item 1.
BUSINESS (Continued)

Environmental Compliance

During the year ended June 30, 2010, $90 million was spent specifically to improve equipment, facilities, and programs for pollution control and compliance with the requirements of various environmental agencies.

On July 31, 2009, the United States Environmental Protection Agency (U.S. EPA) issued a Notice of Violation indicating that one of the Company’s facilities in Memphis, Tennessee, may have violated section 311(j) of the Clean Water Act relating to a release of product that occurred on January 2, 2008.  The Company and the U.S. EPA have reached a tentative agreement to resolve this matter which includes a penalty of approximately $120,000.

There have been no material effects upon the earnings and competitive position of the Company resulting from compliance with federal, state, and local laws or regulations enacted or adopted relating to the protection of the environment.

The Company’s business could be affected in the future by national and global regulation or taxation of greenhouse gas emissions. In the United States, the U.S. Environmental Protection Agency (Agency) has recently adopted regulations requiring the owners of certain facilities to measure and report their greenhouse gas emissions, and the Agency has begun a process to regulate these emissions under the Clean Air Act. The U.S. Congress is currently considering climate change-related legislation which may include cap and trade provisions or a carbon tax. Globally, a number of countries that are parties to the Kyoto Protocol have instituted or are considering climate change legislation and regulations. Most notable is the European Union Greenhouse Gas Emission Trading System (EU-ETS). The Company has several facilities in Europe that participate in this system.  It is difficult at this time to estimate the likelihood of passage, or predict the potential impact, of any additional legislation. Potential consequences could include increased energy, transportation and raw material costs and may require the Company to make additional investments in its facilities and equipment.

Number of Employees

The number of full-time employees of the Company was approximately 29,300 at June 30, 2010.

Financial Information About Foreign and Domestic Operations

Item 1A, “Risk Factors,” and Item 2, “Properties,” includes information relating to the Company’s foreign and domestic operations.  Geographic financial information is set forth in “Note 15 of Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data”.

Available Information

The Company’s internet address is http://www.adm.com.  The Company makes available, free of charge, through its internet site, the Company’s annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Directors and Officers Forms 3, 4, and 5; and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the Securities and Exchange Commission (SEC).

In addition, the Company makes available, through its Internet site, the Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines, and the written charters of the Audit, Compensation/Succession, Nominating/Corporate Governance, and Executive Committees.

References to our website addressed in this report are provided as a convenience and do not constitute, or should not be viewed as, an incorporation by reference of the information contained on, or available through, the website.  Therefore, such information should not be considered part of this report.

 
 

 


Item 1.
BUSINESS (Continued)

The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site which contains reports, proxy and information statements, and other information regarding issuers that file information electronically with the SEC.  The SEC’s Internet address is http://www.sec.gov.


Item 1A.
RISK FACTORS

The availability and prices of the agricultural commodities and agricultural commodity products the Company procures, transports, stores, processes, and merchandises can be affected by weather conditions, disease, government programs, competition, and various other factors beyond the Company’s control and could adversely affect the Company’s operating results.

The availability and prices of agricultural commodities are subject to wide fluctuations due to factors such as changes in weather conditions, disease, plantings, government programs and policies, competition, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops.  These factors have historically caused volatility in agricultural commodity prices and, consequently, in the Company’s operating results.  Reduced supply of agricultural commodities due to weather-related factors or other reasons could adversely affect the Company’s profitability by increasing the cost of raw materials and/or limit the Company’s ability to procure, transport, store, process, and merchandise agricultural commodities in an efficient manner.

The Company has significant competition in the markets in which it operates.

The Company faces significant competition in each of its businesses and has numerous competitors.  Pricing of the Company’s products is partly dependent upon industry processing capacity, which is impacted by competitor actions to  bring on-line idled capacity or build new production capacity.  Many of the products bought and sold by the Company are global commodities or are derived from global commodities.  The markets for global commodities are highly price competitive and in many cases the commodities are subject to substitution.  To compete effectively, the Company focuses on improving efficiency in its production and distribution operations, developing and maintaining appropriate market share, and providing high levels of customer service.  Competition could increase the Company’s costs to purchase raw materials, lower selling prices of its products, or reduce the Company’s market share, which may result in lower and more inefficient operating rates.  If the Company is unable to compete on price, service, or other factors, it could have an adverse effect on its operating results.

Fluctuations in energy prices could adversely affect the Company’s operating results.

The Company’s operating costs and the selling prices of certain finished products are sensitive to changes in energy prices.  The Company’s processing plants are powered principally by electricity, natural gas, and coal.  The Company’s transportation operations are dependent upon diesel fuel and other petroleum-based products.  Significant increases in the cost of these items, including any consequences of regulation or taxation of greenhouse gases, could adversely affect the Company’s production costs and operating results.

The Company has certain finished products, such as ethanol and biodiesel, which are closely related to, or may be substituted for, petroleum products.  Therefore, the selling prices of ethanol and biodiesel can be impacted by the selling prices of gasoline and diesel fuel.  A significant decrease in the price of gasoline or diesel fuel could result in a significant decrease in the selling price of the Company’s ethanol and biodiesel and could adversely affect the Company’s revenues and operating results.


 
 

 


Item 1A.
RISK FACTORS (Continued)

The Company is subject to economic downturns, political instability and other risks of doing business globally which could adversely affect the Company’s operating results.

The Company conducts its business and has substantial assets located in many countries and geographic areas. The Company’s operations are principally in the United States and developed countries in Western Europe and South America, but the Company also operates in, or plans to expand or develop its business in, emerging market areas such as Asia, Eastern Europe, the Middle East, and Africa. Both developed and emerging market areas are subject to impacts of economic downturns, including decreased demand for the Company’s products, reduced availability of credit, or declining credit quality of the Company’s suppliers, customers, and other counterparties.  In addition, emerging market areas could be subject to more volatile economic, political and market conditions.  Economic downturns and volatile conditions may have a negative impact on the Company’s operating results and ability to execute its business strategies.

The Company’s operating results could be affected by changes in trade, monetary, fiscal and environmental policies, laws and regulations, and other activities of governments, agencies, and similar organizations.  These conditions include but are not limited to changes in a country’s or region’s economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities, currency exchange fluctuations, burdensome taxes and tariffs, enforceability of legal agreements and judgments, other trade barriers, and regulation or taxation of greenhouse gases.  International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities, and war, could limit the Company’s ability to transact business in these markets and could adversely affect the Company’s revenues and operating results.

Government policies and regulations, in general, and specifically affecting the agricultural sector and related industries, could adversely affect the Company’s operating results.

Agricultural production and trade flows are subject to government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives, and import and export restrictions on agricultural commodities and commodity products, including policies related to genetically modified organisms, renewable fuel, and low carbon fuel mandates, can influence the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume and types of imports and exports, the availability and competitiveness of feedstocks as raw materials, the viability and volume of production of certain of the Company’s products, and industry profitability.  In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Future government policies may adversely affect the supply of, demand for, and prices of the Company’s products, restrict the Company’s ability to do business in its existing and target markets, and could negatively impact the Company’s revenues and operating results.

The Company is subject to industry-specific risks which could adversely affect the Company’s operating results.

The Company is subject to risks which include, but are not limited to, product quality or contamination; shifting consumer preferences; federal, state, and local food processing regulations; socially unacceptable farming practices; environmental, health and safety regulations; and customer product liability claims.  The liability which could result from certain of these risks may not always be covered by, or could exceed liability insurance related to product liability and food safety matters maintained by the Company.  The occurrence of any of the matters described above could adversely affect the Company’s revenues and operating results.

Certain of the Company’s merchandised commodities and finished products are used as ingredients in livestock and poultry feed.  The Company is subject to risks associated with the outbreak of disease in livestock and poultry, including, but not limited to, mad-cow disease and avian influenza.  The outbreak of disease could adversely affect demand for the Company’s products used as ingredients in livestock and poultry feed.  A decrease in demand for these products could adversely affect the Company’s revenues and operating results.

 
 

 


Item 1A.
RISK FACTORS (Continued)

The Company is subject to numerous laws and regulations globally which could adversely affect the Company’s operating results.

The Company does business globally, operating facilities in over 60 countries.  In addition, the Company distributes product to countries in which we do not operate facilities.  The Company is required to comply with the numerous and broad reaching laws and regulations administered by United States federal, state and local, and foreign governmental authorities.  The Company must comply with other general business regulations such as those directed toward accounting and income taxes, anti-corruption, anti-bribery, global trade, handling of regulated substances, and other commercial activities, conducted by the Company’s employees and third party representatives globally.  Any failure to comply with applicable laws and regulations could subject the Company to administrative penalties and injunctive relief, and civil remedies including fines, injunctions, and recalls of its products.

The production of the Company’s products requires the use of materials which can create emissions of certain regulated substances including greenhouse gas emissions.  Although the Company has programs in place throughout the organization globally to guard against non-compliance, failure to comply with these regulations can have serious consequences, including civil and administrative penalties as well as a negative impact on the Company’s reputation, business, cash flows, and results of operations.

In addition, changes to regulations or implementation of additional regulations, for example the imposition of regulatory restrictions on greenhouse gases, may require the Company to modify existing processing facilities and/or processes which could significantly increase operating costs and negatively impact operating results.

The Company is exposed to potential business disruption, including but not limited to disruption of transportation services, supply of non-commodity raw materials used in its processing operations, and other impacts resulting from acts of terrorism or war, natural disasters, severe weather conditions, and accidents which could adversely affect the Company’s operating results.

The Company’s operations rely on dependable and efficient transportation services.  A disruption in transportation services could result in difficulties supplying materials to the Company’s facilities and impair the Company’s ability to deliver products to its customers in a timely manner.  In addition, if certain non-agricultural commodity raw materials, such as certain chemicals used in the Company’s processing operations, are not available, the Company’s business could be disrupted.  Certain factors which may impact the availability of non-agricultural commodity raw materials are out of the Company’s control including but not limited to disruptions resulting from economic conditions, manufacturing delays or disruptions at suppliers, shortage of materials, and unavailable or poor supplier credit conditions.

The assets and operations of the Company could be subject to extensive property damage and business disruption from various events which include, but are not limited to, acts of terrorism or war, natural disasters and severe weather conditions,  accidents, explosions, and fires. The potential effects of these conditions could impact the Company’s revenues and operating results.

The Company’s business is capital intensive in nature and the Company relies on cash generated from its operations and external financing to fund its growth and ongoing capital needs.  Limitations on access to external financing could adversely affect the Company’s operating results.

The Company requires significant capital to operate its current business and fund its growth strategy.  The Company’s working capital requirements are directly affected by the price of agricultural commodities, which may fluctuate significantly and change quickly.  The Company also requires substantial capital to maintain and upgrade its extensive network of storage facilities, processing plants, refineries, mills, ports, transportation assets and other facilities to keep pace with competitive developments, technological advances, regulations and changing safety standards in the industry.  Moreover, the expansion of the Company’s business and pursuit of acquisitions or other business opportunities may require significant amounts of capital.  If the Company is unable to generate sufficient cash flows or raise adequate external financing, it may restrict the Company’s current operations and its growth opportunities which could adversely affect the Company’s operating results.

 
 

 


Item 1A.
RISK FACTORS (Continued)

The Company’s risk management strategies may not be effective.

The Company’s business is affected by fluctuations in agricultural commodity prices, transportation costs, energy prices, interest rates, and foreign currency exchange rates.  The Company engages in hedging strategies to manage these risks.  However, these hedging strategies may not be successful in mitigating the Company’s exposure to these fluctuations.  See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

The Company has limited control over and  may not realize the expected benefits of its equity investments and joint ventures.

The Company has many joint ventures and investments of which the Company has limited control as to the governance and management activities of these investments.  The Company expects to benefit from these investments, which typically aim to expand or enhance the Company’s market for its products or offer other benefits including but not limited to geographic or product line expansion. The Company may encounter unanticipated operating issues or financial results related to these investments that may impact the Company’s revenues and operating results.

The Company’s information technology systems, processes, and sites may suffer interruptions or failures which may affect the Company’s ability to conduct its business.

The Company’s information technology systems, some of which are dependent on services provided by third-parties, provide critical data connectivity, information and services for internal and external users.  These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, and other processes necessary to manage the business.  The Company has put in place business continuity plans for its critical systems.  However, if the Company’s information technology systems are damaged, or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, and the Company’s business continuity plans do not effectively compensate on a timely basis, the Company may suffer interruptions in the ability to manage its operations, which may adversely impact the Company’s revenues and operating results.


Item 1B.
UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments.


 
 

 


Item 2.
PROPERTIES

The Company owns or leases, under operating leases, the following processing plants and procurement facilities:

   
Processing Plants
   
Procurement Facilities
 
   
United
   
International
   
Total
   
United
   
International
   
Total
 
   
States
               
States
             
Owned
    132       112       244       178       114       292  
Leased
    1       2       3       13       27       40  
      133       114       247       191       141       332  

The Company’s operations are such that most products are efficiently processed near the source of raw materials.  Consequently, the Company has many plants strategically located in agricultural commodity producing areas.  The annual volume of commodities processed will vary depending upon availability of raw materials and demand for finished products.

To enhance the efficiency of transporting large quantities of raw materials and finished products between the Company’s procurement facilities and processing plants and also the final delivery of products to our customers around the world, the Company owns approximately 1,500 barges, 14,100 rail cars, 700 trucks, 1,600 trailers, and 7 ocean going vessels; and leases, under operating leases, approximately 200 barges and 10,600 railcars.

Oilseeds Processing

   
Processing Plants
   
Procurement Facilities
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
                                     
Owned
    47       67       114       13       90       103  
Leased
                            15       15  
      47       67       114       13       105       118  

The Company operates twenty-three domestic and twenty-two international oilseed crushing plants with a daily processing capacity of approximately 95,000 metric tons (3.5 million bushels).  The domestic plants are located in Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Carolina, Tennessee, and Texas.  The international plants are located in Bolivia, Brazil, Canada, Czech Republic, England, Germany, India, Mexico, the Netherlands, Poland, and Ukraine.

The Company operates thirteen domestic oilseed refineries in Georgia, Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and Tennessee, as well as nineteen international refineries in Bolivia, Brazil, Canada, Czech Republic, England, Germany, India, the Netherlands, and Poland.  The Company packages oils at ten international plants located in Bolivia, Brazil, England, Germany, India, Peru, and Poland.  The Company operates one domestic and six international biodiesel plants located in North Dakota, Brazil, Germany, and India.  In addition, the Company operates four fertilizer blending plants in Brazil.

The Oilseeds Processing segment operates thirteen domestic country grain elevators as adjuncts to its processing plants.  These elevators, with an aggregate storage capacity of approximately 8 million bushels, are located in Illinois, Missouri, North Carolina, and Ohio.

This segment also operates 105 international elevators, including port facilities, in Bolivia, Brazil, Canada, India, Germany, the Netherlands, Paraguay, and Poland.  These facilities have a storage capacity of approximately 133 million bushels.


 
 

 


Item 2.
PROPERTIES (Continued)

The Company operates two soy protein specialty plants in Illinois and one plant in the Netherlands.  Lecithin products are produced at six domestic and four international plants in Illinois, Iowa, Nebraska, Canada, Germany, and the Netherlands.  The Company produces vitamin E, sterols, and isoflavones at two plants in Illinois.  The Company also operates a specialty oils and fats plant in France that produces various value-added products for the pharmaceutical, cosmetic and food industries.

Corn Processing

   
Processing Plants
   
Procurement Facilities
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
                                     
Owned
    17       1       18       5             5  

The Company operates five wet corn milling plants and four dry corn milling plants with a daily grind capacity of approximately 66,000 metric tons (2.6 million bushels). The Company also operates corn germ extraction plants, sweeteners and starches production facilities, a glycols production facility, a polymer production facility and bioproducts production facilities in Illinois, Iowa, Minnesota, Nebraska, North Carolina, and North Dakota and a sugarcane processing plant in Brazil.  The Corn Processing segment also operates five domestic grain terminal elevators as adjuncts to its processing plants.  These elevators, with an aggregate storage capacity of approximately 13 million bushels, are located in Minnesota.

Agricultural Services

   
Processing Plants
   
Procurement Facilities
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
                                     
Owned
    29       6       35       160       18       178  
Leased
    1       1       2       13       9       22  
      30       7       37       173       27       200  

The Company operates 142 domestic terminal, sub-terminal, country, and river elevators covering the major grain producing states, and also operates eight grain export elevators in Florida, Louisiana, Ohio, and Texas.  Elevators are located in Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Tennessee, and Texas.  These elevators have an aggregate storage capacity of approximately 400 million bushels.  The Company has five grain export elevators in Argentina, Mexico, and Ukraine that have an aggregate storage capacity of approximately 29 million bushels.  The Company has thirteen country elevators located in the Dominican Republic, Ireland, Romania, and Ukraine.  In addition, the Company has nine leased river elevators located in Romania and Ukraine.

The Company operates twenty-three domestic edible bean procurement facilities located in Colorado, Idaho, Michigan, Minnesota, North Dakota, and Wyoming.

The Company operates a rice mill located in California, an animal feed facility in Illinois, and an edible bean plant in North Dakota.  The Company also operates twenty-seven domestic and seven international formula feed and animal health and nutrition plants.  The domestic plants are located in Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, Ohio, Pennsylvania, Texas, Washington, and Wisconsin.  The international plants are located in Canada, China, Puerto Rico, and Trinidad & Tobago.


 
 

 


Item 2.
PROPERTIES (Continued)

Other

   
Processing Plants
   
Procurement Facilities
 
   
United States
   
International
   
Total
   
United States
   
International
   
Total
 
                                     
Owned
    39       38       77             6       6  
Leased
          1       1             3       3  
      39       39       78             9       9  

The Company operates twenty-three domestic wheat flour mills, a domestic bulgur plant, two domestic corn flour mills, two domestic milo mills, and twenty international flour mills with a total daily milling capacity of approximately 28,000 metric tons (1.0 million bushels).  The Company also operates six bakery mix plants.  These plants and related properties are located in California, Illinois, Indiana, Kansas, Minnesota, Missouri, Nebraska, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, Washington, Barbados, Belize, Canada, England, Grenada, and Jamaica.  The Company operates two formula feed plants as adjuncts to the wheat flour mills in Belize and Grenada, a rice milling plant in Jamaica, and a starch and gluten plant in Iowa and one in Canada.  The Company also operates a honey drying operation in Wisconsin.

The Company operates six domestic and twelve international chocolate and cocoa bean processing plants with a total daily production capacity of approximately 3,000 metric tons.  The domestic plants are located in Massachusetts, New Jersey, Pennsylvania, and Wisconsin, and the international plants are located in Belgium, Brazil, Canada, England, Germany, Ghana, Ivory Coast, the Netherlands, and Singapore.  The Company operates nine cocoa bean procurement and handling facilities/port sites in Brazil, Indonesia, and Ivory Coast.


Item 3.
LEGAL PROCEEDINGS

The Company is a party to routine legal proceedings that arise in the course of its business.  The Company is not currently a party to any legal proceeding or environmental claim that it believes would have a material adverse effect on its financial position, results of operations, or liquidity.


Item 4.
RESERVED




 
 

 


PART II


Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Market Prices and Dividends

The Company’s common stock is listed and traded on the New York Stock Exchange and the Frankfurt Stock Exchange. The following table sets forth, for the periods indicated, the high and low market prices of the common stock as reported on the New York Stock Exchange and common stock cash dividends declared per share.

               
Cash
 
   
Market Price
   
Dividends
 
   
High
   
Low
   
Per Share
 
                   
Fiscal 2010-Quarter Ended
                 
   June 30
  $ 29.26     $ 24.22     $ 0.15  
   March 31
    31.89       28.06       0.15  
   December 31
    33.00       27.66       0.14  
   September 30
    32.13       26.00       0.14  
                         
Fiscal 2009-Quarter Ended
                       
   June 30
  $ 29.40     $ 23.13     $ 0.14  
   March 31
    29.50       24.08       0.14  
   December 31
    29.08       13.53       0.13  
   September 30
    33.91       19.70       0.13  

The number of registered shareholders of the Company’s common stock at June 30, 2010, was 15,384.  The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements, and financial condition.


 
 

 


Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)

Issuer Purchases of Equity Securities

               
Total Number of
   
Number of Shares
 
   
Total Number
   
Average
   
Shares Purchased as
   
Remaining to be
 
   
of Shares
   
Price Paid
   
Part of Publicly
   
Purchased Under the
 
Period
 
Purchased (1)
   
per Share
   
Announced Program (2)
   
Program (2)
 
                         
April 1, 2010 to
April 30, 2010
    33,035     $ 28.600       220       99,999,376  
                                 
May 1, 2010 to
May 31, 2010
    3,776,252       26.482       3,776,252       96,223,124  
                                 
June 1, 2010 to
June 30, 2010
    196       26.792             96,223,124  
                                 
Total
    3,809,483     $ 26.500       3,776,472       96,223,124  

(1)  Total shares purchased represents those shares purchased as part of the Company’s publicly announced share repurchase program described below and shares received as payment of the exercise price for stock option exercises.  During the three-month period ended June 30, 2010, the Company received 33,011 shares as payment of the exercise price for stock option exercises.
 
(2)  On November 5, 2009, 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, 2010 and ending December 31, 2014.



 
 

 


Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)

Performance Graph

The graph below compares five-year returns of the Company’s common stock with those of the S&P 500 Index and the S&P Consumer Staples Index.  The graph assumes all dividends have been reinvested and assumes an initial investment of $100 on June 30, 2005.  Information in the graph is presented on a June 30 fiscal year basis.

Graph
Graph produced by Research Data Group, Inc.


 
 

 

 
Item 6.
SELECTED FINANCIAL DATA

 
Selected Financial Data
(In millions, except ratio and per share data)

   
2010
   
2009
   
2008
   
2007
   
2006
 
                               
Net sales and other operating income
  $ 61,682     $ 69,207     $ 69,816     $ 44,018     $ 36,596  
Depreciation
    857       730       721       701       657  
Net earnings attributable to controlling interests
    1,930       1,684       1,780       2,154       1,312  
Basic earnings per common share
    3.00       2.62       2.76       3.31       2.01  
Diluted earnings per common share
    3.00       2.62       2.75       3.28       2.00  
Cash dividends
    372       347       316       281       242  
Per common share
    0.58       0.54       0.49       0.43       0.37  
                                         
Working capital
  $ 9,561     $ 10,523     $ 10,833     $ 7,254     $ 5,661  
Current ratio
    2.1       2.2       1.7       1.9       1.9  
Inventories
    7,611       7,782       10,160       6,060       4,677  
Net property, plant, and equipment
    8,712       7,950       7,125       6,010       5,293  
Gross additions to property, plant, and
  equipment
    1,788       2,059       1,789       1,404       841  
Total assets
    31,548       31,582       37,052       25,114       21,269  
Long-term debt, excluding current maturities
    6,830       7,592       7,443       4,468       4,050  
Shareholders’ equity
    14,631       13,653       13,666       11,446       9,838  
Per common share
    22.89       21.27       21.22       17.80       15.00  
                                         
Weighted average shares outstanding-basic
    643       643       644       651       654  
Weighted average shares outstanding-diluted
    644       644       646       656       656  

Significant items affecting the comparability of the financial data shown above are as follows:

·  
Net earnings attributable to controlling interests for 2010 include a charge of $75 million ($47 million after tax, equal to $0.07 per share) related to loss on extinguishment of debt resulting from the repurchase of $500 million in aggregate principal amount of the Company’s outstanding debentures, and start up costs for the Company’s significant new greenfield plants of $110 million ($68 million after tax, equal to $0.11 per share).

·  
Net earnings attributable to controlling interests for 2009 include a non-cash charge of $275 million ($171 million after tax, equal to $0.27 per share) related to currency derivative losses of the Company’s equity investee, Gruma S.A.B. de C.V., and a $158 million income tax charge (equal to $0.24 per share) related to the reorganization of the holding company structure in which the Company holds a portion of its equity investment in Wilmar.  For further information concerning Wilmar-related tax matters see Note 12 in Item 8, Financial Statements and Supplementary Data (Item 8).

·  
Net earnings attributable to controlling interests for 2007 include a gain of $440 million ($286 million after tax, equal to $0.44 per share) related to the exchange of the Company’s interests in certain Asian joint ventures for shares of Wilmar, realized securities gains of $357 million ($225 million after tax, equal to $0.34 per share) related to the Company’s sale of equity securities of Tyson Foods Inc. and Overseas Shipholding Group Inc. and a $209 million gain ($132 million after tax, equal to $0.20 per share) related to the sale of businesses.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products.  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, which include wheat processing, cocoa processing, and its financial business units, are not reportable segments, as defined by the applicable accounting standard, and are classified as Other.

The Oilseeds Processing segment includes activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, flaxseed, and palm into vegetable oils and protein meals.  The Oilseeds Processing segment principally produces and markets processed oilseed products as ingredients for the food, feed, energy, and other industrial products industries.  Crude vegetable oil is sold "as is" or is further processed by refining, blending, bleaching, and deodorizing into salad oils.  Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is used to produce biodiesel or is sold to other manufacturers for use in chemicals, paints, and other industrial products.  Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds.  The Oilseeds Processing segment also produces natural health and nutrition products and other specialty food and feed ingredients.  In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets.  In South America, the Oilseeds Processing segment utilizes a network of grain elevators, port facilities and transportation assets to buy, store, clean, and transport agricultural commodities and operates fertilizer blending facilities.  This segment also includes the Company’s share of the results of its equity method investment in Wilmar and its Golden Peanut Company LLC, Edible Oils Limited, and Stratas Foods LLC joint ventures.

The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, primarily in the United States, related to its production of ingredients used in the food and beverage industry including syrup, starch, glucose, dextrose, and sweeteners.  Dextrose is also used by the Company as a feedstock for its bioproducts operations.  Corn gluten feed and meal, as well as distillers grains, is produced for use as animal feed ingredients.  Corn germ, a by-product of the wet milling process, is further processed as an oilseed into vegetable oil and protein meal.

By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other specialty food and animal feed ingredients.  Ethyl alcohol is produced by the Company to beverage grade or for industrial use as ethanol.  In gasoline, ethanol increases octane and is used as an extender and oxygenate.  Amino acids, such as lysine and threonine, are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production.  The Corn Processing segment also produces, by fermentation, astaxanthin, a product used in aquaculture to enhance flesh coloration.  The Corn Processing segment produces citric and lactic acids, lactates, sorbitol, xanthan gum and glycols which are used in various food and industrial products.  The Corn Processing segment includes the activities of the Company’s Brazilian sugarcane operations, propylene and ethylene glycol facility, and investments in renewable plastics.  This segment also includes the Company’s share of the results of its equity method investments in Almidones Mexicanos S.A., Eaststarch C.V., and Red Star Yeast Company LLC.

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry.  Agricultural Services’ grain sourcing and transportation network provides reliable and efficient services to the Company’s agricultural processing operations and customers.  Agricultural Services’ transportation network capabilities include ground, rail, river, and ocean freight services.  The Agricultural Services segment also includes activities related to procuring, processing, and distributing edible beans, and the processing and distributing of formula feeds and animal health and nutrition products.  In addition, the Agricultural Services segment includes the activities of Alfred C. Toepfer International, a global merchant of agricultural commodities and processed products, and the Company’s share of the results of its Kalama Export Company joint venture.
 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
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 and cocoa into chocolate and cocoa products.  Other also includes financial activities related to banking, captive insurance, private equity fund investments, futures commission merchant activities, and the Company’s share of the results of its equity method investment in Gruma S.A.B. de C.V.

Certain Corporate items are not allocated to the Company’s reportable business segments.  Corporate results include the impact of LIFO-related adjustments, the after-tax elimination of income attributable to mandatorily redeemable interests in consolidated subsidiaries, unallocated corporate expenses, and unallocated net interest costs.

Operating Performance Indicators

The Company’s Oilseeds Processing, Agricultural Services, and wheat processing operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials.  Thus, changes in agricultural commodity prices have relatively equal impacts on both sales revenue and cost of products sold. Therefore, changes in gross profit of these businesses do not necessarily correspond to the changes in net sales and other operating income amounts.

The Company’s Corn Processing operations and certain other food and animal feed processing operations also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials.  In these operations, agricultural commodity market price changes can result in significant fluctuations in cost of products sold, and such price changes cannot necessarily be passed directly through to the selling price of the finished products.

The Company conducts its business in over 60 countries.  For the majority of the Company’s subsidiaries located outside the United States the local currency is the functional currency.  Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil, the functional currency is the U.S. dollar, however certain transactions, including taxes, occur in local currency and require conversion to the functional currency.  The impact of these currency exchange rate changes, where significant, is discussed in Item 7A.  Fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar and Brazilian real, as compared to the U.S. dollar will result in corresponding fluctuations in the U.S. dollar value of revenues and expenses reported by the Company.

The Company measures the performance of its business segments using key operating statistics such as segment operating profit, return on fixed capital investment, return on invested capital, and return on equity.  The Company’s operating results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, changes in global demand resulting from population growth, general global economic conditions, 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.”



 
 

 
 
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

2010 Compared to 2009

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company’s operating results.  Market expectations throughout most of fiscal 2010 for fewer global crop supply and demand imbalances, coupled with continuing uncertainty about short-term demand, led to generally lower and less volatile agricultural commodity market prices and conditions.  In addition, the late, extended U.S. harvest reduced profit opportunities.  North American oilseed exports and domestic crushing volumes were enhanced by the poor supply of 2009 crop year soybeans in South America.  Increased government mandates for the use of biodiesel in South America and Europe resulted in increased biodiesel demand and helped keep overall demand for refined and crude vegetable oil steady in these regions.  However, in North America, demand for vegetable oils remained weak due to low consumption of oils in the food service and biodiesel industries, in part due to the expiration of the biodiesel blending credit in the U.S. on January 1, 2010.  Soybean protein meal demand improved, particularly in Asia.  Market prices for corn decreased resulting in lower raw material costs for Corn Processing and decreased average selling prices for sweeteners and starches.  Lower energy, fuel and chemical costs per unit positively impacted the Company’s manufacturing costs.  More favorable ethanol blending economics together with increased ethanol merchandising activity resulted in increased demand, higher ethanol sales volumes, and improved margins.

Earnings before income taxes for 2010 include a credit of $42 million from the effect of changing commodity prices on LIFO inventory valuations, compared to a credit of $517 million in 2009.

Income taxes decreased $146 million due to a lower effective income tax rate, partially offset by higher pretax earnings.  Income taxes for 2009 included a $158 million charge resulting from the restructuring of a holding company in which the Company holds a portion of its equity investment in Wilmar.

Analysis of Statements of Earnings

Net sales and other operating income by segment are as follows:

    2010     2009     Change  
    (In millions)  
Oilseeds Processing
                 
Crushing & Origination
  $ 15,732     $ 15,579     $ 153  
Refining, Packaging, Biodiesel & Other
    7,136       8,760       (1,624 )
Asia
    190       179       11  
Total Oilseeds Processing
    23,058       24,518       (1,460 )
                         
Corn Processing
                       
Sweeteners & Starches
    3,333       3,785       (452 )
Bioproducts
    4,609       3,938       671  
Total Corn Processing
    7,942       7,723       219  
                         
Agricultural Services
                       
Merchandising & Handling
    25,273       31,342       (6,069 )
Transportation
    167       242       (75 )
Total Agricultural Services
    25,440       31,584       (6,144 )
                         
Other
                       
Wheat, Cocoa & Malt
    5,147       5,272       (125 )
Financial
    95       110       (15 )
Total Other
    5,242       5,382       (140 )
Total
  $ 61,682     $ 69,207     $ (7,525 )

 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Net sales and other operating income decreased 11% to $61.7 billion due principally to lower average selling prices in line with year-over-year declines in underlying commodity costs.  Oilseeds Processing sales decreased 6% to $23.1 billion, due principally to lower average selling prices for soybeans, protein meal, refined oil, and biodiesel partially offset by increased sales volumes of soybeans and fertilizer.  Corn Processing sales increased 3% to $7.9 billion primarily as a result of increased sales volumes of ethanol and lysine partially offset by lower average selling prices of ethanol, sweeteners, and starches.  Agricultural Services sales decreased 19% to $25.4 billion, due to lower average selling prices, in line with year-over-year declines in underlying commodity prices, and lower sales volumes.  Other sales decreased 3% to $5.2 billion, primarily due to lower average selling prices of wheat flour partially offset by increased wheat flour sales volumes and higher average selling prices and sales volumes for cocoa products.

Cost of products sold decreased 11% to $57.8 billion, due principally to decreased agricultural commodity costs including the impact of changes in LIFO inventory valuations which reduced cost of products sold by $42 million in 2010 compared to $517 million in 2009.  Manufacturing expenses decreased 1% or $60 million, primarily due to lower energy, chemical and fuel costs partially offset by higher employee-related costs and a $124 million increase in depreciation and amortization expense.  In 2010, manufacturing expenses included additional costs associated with the Company’s new greenfield plants.

Selling, general and administrative expenses decreased 1% to $1.4 billion, due principally to decreased provisions for doubtful accounts partially offset by increased expenses for legal, professional, and commercial services.
 
Other (income) expense - net improved $317 million primarily due to increased equity earnings of unconsolidated affiliates of $416 million, and decreased expense for the elimination of after-tax mandatorily redeemable interests in consolidated subsidiaries.  These increases were partially offset by pre-tax charges of $75 million related to the early extinguishment of debt and $59 million for unrealized losses on interest rate swaps (for more information see Note 8 in Item 8, Financial Statements and Supplementary Data).  Equity earnings of unconsolidated affiliates in 2009 included a non-cash charge of $275 million related to currency derivative losses of the Company’s equity investee, Gruma S.A.B. de C.V.

Income taxes decreased $146 million due to a lower effective income tax rate partially offset by higher pretax earnings.  The Company’s effective income tax rate during 2010 was 25.8%.  In 2009, the effective income tax rate was 32.5% which included $158 million of income tax charges related to the partial restructuring of the holding company structure through which the Company holds a portion of its equity investment in Wilmar.  Excluding these Wilmar charges, the Company’s effective income tax rate for 2009 was 26.2%.  For more information concerning Wilmar tax matters see Note 12 in Item 8.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating profit by segment is as follows:

    2010     2009     Change  
    (In millions)  
Oilseeds Processing
                 
Crushing & Origination
  $ 818     $ 767     $ 51  
Refining, Packaging, Biodiesel & Other
    291       265       26  
Asia
    291       248       43  
Total Oilseeds Processing
    1,400       1,280       120  
                         
Corn Processing
                       
Sweeteners & Starches
    529       500       29  
Bioproducts
    193       (315 )     508  
Total Corn Processing
    722       185       537  
                         
Agricultural Services
                       
Merchandising & Handling
    583       832       (249 )
Transportation
    85       162       (77 )
Total Agricultural Services
    668       994       (326 )
                         
Other
                       
Wheat, Cocoa & Malt
    403       51       352  
Financial
    46       (57 )     103  
Total Other
    449       (6 )     455  
Total Segment Operating Profit
    3,239       2,453       786  
Corporate (see below)
    (654 )     47       (701 )
Earnings Before Income Taxes
  $ 2,585     $ 2,500     $ 85  


Corporate results are as follows:

   
2010
   
2009
   
Change
 
   
(In millions)
 
                   
LIFO credit
  $ 42     $ 517     $ (475 )
Unallocated interest expense - net
    (283 )     (192 )     (91 )
Unallocated corporate costs
    (266 )     (252 )     (14 )
Charges on early extinguishment of debt
    (75 )           (75 )
Unrealized losses on interest rate swaps
    (59 )           (59 )
Other
    (13 )     (26 )     13  
Total Corporate
  $ (654 )   $ 47     $ (701 )

Oilseeds Processing operating profit increased 9% to $1.4 billion.  Crushing and origination results increased $51 million due to higher North American soybean crushing margins and favorable soft seed commodity positioning partially offset by lower soybean crushing margins in Europe and South America.  Refining, packaging, biodiesel and other operating profit increased $26 million due primarily to higher South American biodiesel results and improved margins in Europe.  Oilseeds processing results in Asia increased $43 million to $291 million due principally to improved equity earnings of Wilmar.

 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Corn Processing operating profit increased $537 million to $722 million.  Bioproducts operating profit increased $508 million due to improved ethanol and lysine sales volumes and improved ethanol margins resulting from lower net corn costs and decreased manufacturing costs.  Ethanol sales volumes increased due to favorable gasoline blending economics and increased merchandising activity.  Sweeteners and starches operating profit increased $29 million due to lower net corn and manufacturing costs due principally to lower energy and chemical prices.  These lower manufacturing costs were partially offset by lower average selling prices.

Agricultural Services operating profit decreased $326 million to $668 million.  Merchandising and handling results decreased $249 million.  Enhanced volume and margin opportunities created by last year’s volatile commodity markets and tight credit markets did not recur.  Volumes and margins in 2010 benefited from strong demand for U.S. soybean exports following the short South American 2009 crop.  Transportation results decreased $77 million due to lower barge freight rates and decreased barge utilization levels resulting from weaker U.S. economic conditions and the late, extended North American harvest.
 
 
Other operating profit increased $455 million to $449 million.  Wheat, cocoa and malt operating profit increased $352 million due to improved equity earnings from the Company’s investment in Gruma, improved wheat milling margins, and improved cocoa processing results.  Financial operating profit increased $103 million due primarily to the absence of losses experienced last year from managed fund investments and captive insurance operations.

Corporate results decreased $701 million.  The effects of changing commodity prices on LIFO inventory valuations resulted in a credit of $42 million for the year ended June 30, 2010, compared to a credit of $517 million for the year ended June 30, 2009.  Unallocated interest expense – net increased $91 million reflecting a reduction in corporate interest income caused by lower short-term interest rates and lower working capital requirements of the operating segments.  In January 2010, the Company repurchased $500 million of long-term debt which generated a $75 million pretax charge on early extinguishment of debt.  In connection with a debt remarketing planned for 2011, the Company entered into interest rate swaps to fix the interest rate on a portion of the planned remarketing which resulted in $59 million of unrealized losses on interest rate swaps.


2009 Compared to 2008

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company’s operating results.  Net corn costs increased significantly in 2009 compared to 2008, negatively impacting ethanol margins, and, to a lesser extent, sweeteners and starches margins as the higher net corn costs were only partially offset by increased selling prices for sweeteners and starches.  Additionally, lower demand for gasoline, decreased gasoline prices and excess ethanol industry capacity negatively impacted ethanol margins.  Demand for agricultural commodities, freight, and other products was weaker during 2009 in line with the downturn in the global economy.  Results were negatively impacted by decreased equity earnings in unconsolidated affiliates including significant non-cash charges related to currency derivative losses incurred by the Company’s equity investee, Gruma S.A.B. de C.V., and losses from the Company’s managed fund investments.

Earnings before income taxes for 2009 include a credit of $517 million from the effect of changing commodity prices on LIFO inventory valuation reserves, compared to a charge of $569 million in 2008.

 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Income taxes for 2009 include charges of $158 million resulting from the restructuring of a holding company in which the Company holds a portion of its equity investment in Wilmar.

Analysis of Statements of Earnings

Net sales and other operating income decreased 1% to $69.2 billion due to foreign exchange translation impacts and decreased sales volumes partially offset by higher average selling prices.  Net sales and other operating income increased $3.0 billion due to higher average selling prices primarily related to higher underlying commodity costs, decreased $2.0 billion due to foreign exchange translation impacts, and decreased $1.6 billion due to lower sales volumes and other.

Net sales and other operating income by segment are as follows:

    2009     2008     Change  
    (In millions)  
Oilseeds Processing
                 
Crushing & Origination
  $ 15,579     $ 14,477     $ 1,102  
Refining, Packaging, Biodiesel & Other
    8,760       8,588       172  
Asia
    179       214       (35 )
Total Oilseeds Processing
    24,518       23,279       1,239  
                         
Corn Processing
                       
Sweeteners & Starches
    3,785       3,546       239  
Bioproducts
    3,938       3,591       347  
Total Corn Processing
    7,723       7,137       586  
                         
Agricultural Services
                       
Merchandising & Handling
    31,342       33,749       (2,407 )
Transportation
    242       219       23  
Total Agricultural Services
    31,584       33,968       (2,384 )
                         
Other
                       
Wheat, Cocoa & Malt
    5,272       5,335       (63 )
Financial
    110       97       13  
Total Other
    5,382       5,432       (50 )
Total
  $ 69,207     $ 69,816     $ (609 )

Oilseeds Processing sales increased 5% to $24.5 billion due principally to increased sales volumes of merchandised oilseeds and biodiesel partially offset by lower sales volumes of vegetable oil and protein meal.  Corn Processing sales increased 8% to $7.7 billion due principally to higher sales volumes of ethanol and higher average selling prices of sweeteners and starches, partially offset by lower average selling prices of ethanol.  Agricultural Services sales decreased 7% to $31.6 billion due principally to lower sales volumes of grain.  Other sales decreased 1% to $5.4 billion primarily due to the sale of the Company’s malting business during the first quarter of fiscal year 2009 and lower average selling prices of wheat flour.  Partially offsetting these decreases were higher average selling prices of cocoa products and increased chocolate sales volumes.

Cost of products sold decreased 1% to $65.1 billion, in line with the decrease in net sales and other operating income.  Cost of products sold decreased $856 million due principally to decreased sales volumes, decreased LIFO inventory valuations and approximately $1.9 billion from the impact of foreign currency translation, partially offset by increased agricultural commodity costs.  Manufacturing expenses decreased $215 million primarily due to decreased energy and fuel costs.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Selling, general and administrative expenses of $1.4 billion were comparable to 2008.  Decreased employee-related costs and favorable impacts from foreign currency translation were offset by increases in provisions for doubtful accounts.

Other (income) expense – net decreased $348 million primarily due to decreased results from equity earnings of unconsolidated affiliates of $270 million, and decreased investment income.  Equity earnings in unconsolidated affiliates included a non-cash charge of $275 million of foreign exchange derivative losses incurred by the Company’s equity investee, Gruma S.A.B. de C.V.

Operating profit by segment is as follows:

    2009     2008     Change  
    (In millions)  
Oilseeds Processing
                 
Crushing & Origination
  $ 767     $ 727     $ 40  
Refining, Packaging, Biodiesel & Other
    265       181       84  
Asia
    248       132       116  
Total Oilseeds Processing
    1,280       1,040       240  
                         
Corn Processing
                       
Sweeteners & Starches
    500       557       (57 )
Bioproducts
    (315 )     404       (719 )
Total Corn Processing
    185       961       (776 )
                         
Agricultural Services
                       
Merchandising & Handling
    832       873       (41 )
Transportation
    162       144       18  
Total Agricultural Services
    994       1,017       (23 )
                         
Other
                       
Wheat, Cocoa & Malt
    51       217       (166 )
Financial
    (57 )     206       (263 )
Total Other
    (6 )     423       (429 )
Total Segment Operating Profit
    2,453       3,441       (988 )
Corporate (see below)
    47       (847 )     894  
Earnings Before Income Taxes
  $ 2,500     $ 2,594     $ (94 )


Corporate results are as follows:

   
2009
   
2008
   
Change
 
   
(In millions)
 
                   
LIFO credit (charge)
  $ 517     $ (569 )   $ 1,086  
Interest expense (income) - net
    (192 )     49       (241 )
Corporate costs
    (252 )     (262 )     10  
Other
    (26 )     (65 )     39  
Total Corporate
  $ 47     $ (847 )   $ 894  



 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 
Oilseeds Processing operating profit increased 23% to $1.3 billion.  Crushing and origination results increased $40 million. Improved global crushing margins were partially offset by lower fertilizer sales volumes and margins and lower North American crushing volumes due to decreased demand for vegetable oil and protein meal.  Refining, packaging, biodiesel and other results increased $84 million due principally to higher biodiesel sales volumes in South America and increased average margins for value-added products.  2008 results for refining, packaging, biodiesel and other included asset abandonment charges of $27 million.  Asia results increased $116 million due principally to the Company’s share in improved operating results of Wilmar.

Corn Processing operating profits decreased 81% to $185 million.  Sweeteners and starches decreased $57 million due to the impact of higher net corn costs partially offset by higher average sweetener and starches selling prices.  Bioproducts operating profit decreased $719 million for the year as ethanol and lysine margins declined significantly due to higher corn costs and lower average selling prices.  Ethanol margins were also impacted by lower demand for gasoline, decreased gasoline prices, and excess ethanol industry capacity.

Agricultural Services operating profits decreased 2% to $994 million.  Merchandising and handling profit decreased $41 million.  Merchandising margins moderated as demand for commodities slowed following the downturn in the global economy.  Transportation results increased $18 million due to higher barge freight rates.
 
Other operating profits decreased 101% to a loss of $6 million.  Wheat, cocoa, and malt processing operating profit decreased $166 million for the year primarily due to equity losses from the Company’s investment in Gruma, partially offset by improved cocoa and wheat processing margins.  Financial operating profit decreased $263 million due to losses on managed fund investments compared to gains for the year ended June 30, 2008, increased captive insurance loss provisions and decreased interest income and lower marketable security gains of the Company’s brokerage service business.

Corporate results increased $894 million to $47 million, primarily due to the effects of changing commodity prices on LIFO inventory valuations which resulted in credits of $517 million for the year ended June 30, 2009, compared to $569 million of LIFO charges for the year ended June 30, 2008.  Unallocated interest expense increased $241 million primarily due to higher long-term debt interest expense and decreased interest income.  Corporate interest income decreased due to lower short-term interest rates and lower working capital requirements of the operating segments.

The Company’s effective tax rate during 2009 was 32.5% compared to 31.1% during 2008.  Income taxes increased $4 million.  Lower pre-tax earnings and positive impacts from favorable changes in geographic mix of earnings, currency translation impacts in South America, lower tax rates in certain foreign jurisdictions, and return to provision adjustments, were offset by charges of $158 million resulting from the restructuring of a holding company in which the Company holds a portion of its equity investment in Wilmar.



 
 

 


Item 7.
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 commodity-based business.  The primary source of funds to finance the Company’s operations and capital expenditures is cash generated by operations.  In addition, the Company maintains a commercial paper borrowing facility and has access to equity and debt capital from public and private sources in both domestic and international markets.

At June 30, 2010, the Company had $1.4 billion of cash, cash equivalents, and short-term marketable securities and a current ratio, defined as current assets divided by current liabilities, of 2.1 to 1.  Included in working capital is $4.9 billion of readily marketable commodity inventories.  Cash generated by operating activities decreased to $2.7 billion for the year compared to $5.3 billion last year due primarily to a $3.1 billion decrease in 2009 working capital requirements related to lower agricultural commodity market prices.  Cash used in investing activities was $1.7 billion compared to $1.9 billion last year.  Cash used in financing activities was $1.0 billion for the year compared to $3.2 billion last year due principally to a decrease in repayments of commercial paper borrowings partially offset by the repurchase of $500 million of long-term debt.

At June 30, 2010, the Company’s capital resources included net worth of $14.6 billion and lines of credit totaling $6.0 billion, of which $5.7 billion was unused.  The Company’s ratio of long-term debt to total capital (the sum of the Company’s long-term debt and shareholders’ equity) was 32% at June 30, 2010 and 36% at June 30, 2009.  This ratio is a measure of the Company’s long-term liquidity and is an indicator of financial flexibility.  Of the Company’s total lines of credit, $4.2 billion support a commercial paper borrowing facility, against which there were no borrowings at June 30, 2010.

The Company has outstanding $1.15 billion principal amount of convertible senior notes.  As of June 30, 2010, none of the conditions permitting conversion of these notes had been satisfied.  The Company has purchased call options and warrants intended to reduce the potential shareholder dilution upon future conversion of the notes.  As of June 30, 2010, the market price of the Company’s common stock was not greater than the exercise price of the purchased call options or warrants related to the convertible senior notes.

In June 2008, the Company issued $1.75 billion of debentures as a component of Equity Units (see Note 8 in Item 8).  The debentures will be remarketed in 2011.  The Equity Units are a combination of debt and forward contracts for the holder to purchase the Company’s common stock.  Each purchase contract obligates the holder to purchase from the Company, no later than June 1, 2011, for a price of $50 in cash, a certain number of shares, ranging from 1.0453 shares to 1.2544 shares, of the Company’s common stock, based on a formula established in the contract.

The Company’s credit facilities and certain debentures require the Company to comply with specified financial and non-financial covenants including maintenance of minimum tangible net worth as well as limitations related to incurring liens, secured debt, and certain other financing arrangements.  The Company is in compliance with these covenants as of June 30, 2010.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Contractual Obligations and Off-Balance Sheet Arrangements

In the normal course of business, the Company enters into contracts and commitments which obligate the Company to make payments in the future.  The following table sets forth the Company’s significant future obligations by time period.  Purchases include commodity-based contracts entered into in the normal course of business, which are further described in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” energy-related purchase contracts entered into in the normal course of business, and other purchase obligations related to the Company’s normal business activities.  The following table does not include unrecognized income tax benefits of $84 million as at June 30, 2010, due to uncertainty of the timing of deductibility.  Where applicable, information included in the Company’s consolidated financial statements and notes is cross-referenced in this table.

           
Payments Due by Period
 
Contractual
Item 8
Note
       
Less
than
      1 - 3       3 – 5    
More than
 
Obligations
Reference
 
Total
   
1 Year
   
Years
   
Years
   
5 Years
 
     
(In millions)
 
Purchases
                                   
Inventories
    $ 9,949     $ 9,508     $ 417     $ 6     $ 18  
Energy
      498       284       137       31       46  
Other
      409       143       208       56       2  
Total purchases
      10,856       9,935       762       93       66  
                                           
Short-term debt
      374       374                    
Long-term debt
Note 8
    7,174       344       428       1,076       5,326  
Estimated interest payments
      7,928       381       700       636       6,211  
Operating leases
Note 13
    1,381       235       371       333       442  
Estimated pension and other
  postretirement plan
  contributions  (1)
 
 
Note 14
    150       45       17       21       67  
Total
    $ 27,863     $ 11,314     $ 2,278     $ 2,159     $ 12,112  
 
(1) The Company is unable to estimate the amount of pension contributions beyond fiscal year 2011.  For more information concerning the Company’s pension and other postretirement plans, see Note 14 in Item 8.

At June 30, 2010, the Company estimates it will spend approximately $1.5 billion through calendar year 2013 to complete currently approved capital projects which are not included in the table above.  The Company also has outstanding letters of credit and surety bonds of $459 million at June 30, 2010.

In addition, the Company has entered into agreements, primarily debt guarantee agreements related to equity-method investees, which could obligate the Company to make future payments.  The Company’s liability under these agreements arises only if the primary entity fails to perform its contractual obligation.  The Company has collateral for a portion of these contingent obligations.  At June 30, 2010, these contingent obligations totaled approximately $131 million.  Amounts outstanding for the primary entity under these contingent obligations were $74 million at June 30, 2010.

 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies

The process of preparing financial statements requires management to make estimates and judgments that affect the carrying values of the Company’s assets and liabilities as well as the recognition of revenues and expenses.  These estimates and judgments are based on the Company’s historical experience and management’s knowledge and understanding of current facts and circumstances.  Certain of the Company’s accounting policies are considered critical, as these policies are important to the depiction of the Company’s financial statements and require significant or complex judgment by management.  Management has discussed with the Company’s Audit Committee the development, selection, disclosure, and application of these critical accounting policies.  Following are the accounting policies management considers critical to the Company’s financial statements.

Inventories and Derivatives

Certain of the Company’s merchandisable agricultural commodity inventories, forward fixed-price purchase and sale contracts, and exchange-traded futures and exchange-traded and over-the-counter options contracts are valued at estimated market values.  These merchandisable agricultural commodities are freely traded, have quoted market prices, and may be sold without significant additional processing.  Management estimates market value based on exchange-quoted prices, adjusted for differences in local markets.  Changes in the market values of these inventories and contracts are recognized in the statement of earnings as a component of cost of products sold.  If management used different methods or factors to estimate market value, amounts reported as inventories and cost of products sold could differ materially.  Additionally, if market conditions change subsequent to year-end, amounts reported in future periods as inventories and cost of products sold could differ materially.

The Company, from time to time, uses derivative contracts designated as cash flow hedges to fix the purchase price of anticipated volumes of commodities to be purchased and processed in a future month, to fix the purchase price of the Company’s anticipated natural gas requirements for certain production facilities, and to fix the sales price of anticipated volumes of ethanol.  The change in the market value of such derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item.  Gains and losses arising from open and closed hedging transactions are deferred in other comprehensive income, net of applicable income taxes, and recognized as a component of cost of products sold and net sales and other operating income in the statement of earnings when the hedged item is recognized.  If it is determined that the derivative instruments used are no longer effective at offsetting changes in the price of the hedged item, then the changes in the market value of these exchange-traded futures and exchange-traded and over-the-counter option contracts would be recorded in the statement of earnings as a component of cost of products sold.

Employee Benefit Plans

The Company provides substantially all domestic employees and employees at certain international subsidiaries with pension benefits.  Eligible domestic employees with five or more years of service prior to January 1, 2009 participate in a defined benefit pension plan.  Eligible domestic employees hired on or after January 1, 2009 (and eligible salaried employees with less than five years of service prior to January 1, 2009) participate in a “cash balance” pension formula.  The Company provides eligible domestic employees who retire under qualifying conditions with access to postretirement health care, at full cost to the retiree (certain employees are “grandfathered” into subsidized coverage).  In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including interest rates used to discount certain liabilities, rates of return on assets set aside to fund these plans, rates of compensation increases, employee turnover rates, anticipated mortality rates, and anticipated future health care costs.  These estimates and assumptions are based on the Company’s historical experience combined with management’s knowledge and understanding of current facts and circumstances.  Management also uses third-party actuaries to assist in measuring the expense and funded status of these employee benefit plans.  If management used different estimates and assumptions regarding these plans, the funded status of the plans could vary significantly, and the Company could recognize different amounts of expense over future periods.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Income Taxes

The Company frequently faces challenges from domestic and foreign tax authorities regarding the amount of taxes due.  These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.  In evaluating the exposure associated with various tax filing positions, the Company records reserves for estimates of potential additional tax owed by the Company.  As an example, a subsidiary of the Company received a tax assessment in the amount of $456 million (subject to variation in currency exchange rates) consisting of  tax, penalty, and interest from the Brazilian Federal Revenue Service challenging the deductibility of commodity hedging losses incurred by the Company in 2004.  The Company evaluated its tax position regarding these hedging transactions and concluded, based in part upon advice from Brazilian legal counsel, that it was appropriate to recognize the tax benefits of these deductions (See Note 12 in Item 8 for additional information).  Deferred tax assets represent items to be used as tax deductions or credits in future tax returns, and the related tax benefit has already been recognized in the Company’s income statement.  The realization of the Company’s deferred tax assets is dependent upon future taxable income in specific tax jurisdictions, the timing and amount of which are uncertain.  The Company evaluates all available positive and negative evidence including estimated future reversals of existing temporary differences, projected future taxable income, tax planning strategies, and recent financial results.   Valuation allowances related to these deferred tax assets have been established to the extent the realization of the tax benefit is not likely. To the extent the Company were to favorably resolve matters for which accruals have been established or be required to pay amounts in excess of the aforementioned reserves, the Company’s effective tax rate in a given financial statement period may be impacted.

Undistributed earnings of  the Company’s foreign subsidiaries and affiliated corporate joint ventures accounted for on the equity method are considered to be permanently reinvested, and accordingly, no provision for U.S. income taxes has been provided thereon.  If the Company were to receive distributions from any of these foreign subsidiaries or affiliates or determine the undistributed earnings of these foreign subsidiaries or affiliates to not be permanently reinvested, the Company could be subject to U.S. tax liabilities which have not been provided for in the consolidated financial statements.

Asset Abandonments and Write-Downs

The Company is principally engaged in the business of procuring, transporting, storing, processing, and merchandising agricultural commodities and products.  This business is global in nature and is highly capital-intensive.  Both the availability of the Company’s raw materials and the demand for the Company’s finished products are driven by factors such as weather, plantings, government programs and policies, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops.  These aforementioned factors may cause a shift in the supply/demand dynamics for the Company’s raw materials and finished products.  Any such shift will cause management to evaluate the efficiency and cash flows of the Company’s assets in terms of geographic location, size, and age of its factories.  The Company, from time to time, will also invest in equipment, technology, and companies related to new, value-added products produced from agricultural commodities and products.  These new products are not always successful from either a commercial production or marketing perspective.  Management evaluates the Company’s property, plant, and equipment for impairment whenever indicators of impairment exist.  The Company evaluates goodwill and other intangible assets with indefinite lives for impairment annually.  Assets are written down after consideration of the ability to utilize the assets for their intended purpose or to employ the assets in alternative uses or sell the assets to recover the carrying value.  If management used different estimates and assumptions in its evaluation of these assets, then the Company could recognize different amounts of expense over future periods.


 
 

 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Valuation of Marketable Securities and Investments in Affiliates

The Company classifies the majority of its marketable securities as available-for-sale and carries these securities at fair value.  The Company applies the equity method for investments in investees over which the Company has the ability to exercise significant influence.  These investments in affiliates are carried at cost plus equity in undistributed earnings and are adjusted, where appropriate, for amortizable basis differences between the investment balance and the underlying net assets of the investee.  For publicly traded securities, the fair value of the Company’s investments is readily available based on quoted market prices.  For non-publicly traded securities, management’s assessment of fair value is based on valuation methodologies including discounted cash flows and estimates of sales proceeds.  In the event of a decline in fair value of an investment below carrying value, management is required to determine if the decline in fair value is other than temporary.  In evaluating the nature of a decline in the fair value of an investment, management considers the market conditions, trends of earnings, discounted cash flows, trading volumes, and other key measures of the investment as well as the Company’s ability and intent to hold the investment.  When such a decline in value is deemed to be other than temporary, an impairment loss is recognized in the current period operating results to the extent of the decline. See Notes 5 and 6 in Item 8 for information regarding the Company’s marketable securities and investments in affiliates. If management used different estimates and assumptions in its evaluation of these marketable securities, then the Company could recognize different amounts of expense over future periods.


Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in: commodity market prices as they relate to the Company’s net commodity position, foreign currency exchange rates, and interest rates as described below.

Commodities

The availability and prices of agricultural commodities are subject to wide fluctuations due to factors such as changes in weather conditions, disease, plantings, government programs and policies, competition, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange-traded futures and exchange-traded and over-the-counter options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts.  The Company will also use exchange-traded futures and exchange-traded and over-the-counter options contracts as components of merchandising strategies designed to enhance margins.  The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of exchange-traded commodities futures contracts and the cash prices of the underlying commodities, counterparty contracts defaults, and volatility of freight markets. In addition, the Company, from time-to-time, enters into derivative contracts which are designated as hedges of specific volumes of commodities that will be purchased and processed, or sold, in a future month. The changes in the market value of such futures contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Gains and losses arising from open and closed hedging transactions are deferred in other comprehensive income, net of applicable taxes, and recognized as a component of cost of products sold or net sales and other operating income in the statement of earnings when the hedged item is recognized.

 
 

 


Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its daily net commodity position. The Company’s daily net commodity position consists of merchandisable agricultural commodity inventories, related purchase and sale contracts, and exchange-traded futures and exchange-traded and over-the-counter option contracts, including those contracts used to hedge portions of production requirements. The fair value of such daily net commodity position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices.  Actual results may differ.

   
2010
   
2009
 
  Long/(Short)
 
Fair Value
   
Market Risk
   
Fair Value
   
Market Risk
 
   
(In millions)
 
Highest position
  $ 429     $ 43     $ 845     $ 85  
Lowest position
    (667 )     (67 )     (1,342 )     (134 )
Average position
    (190 )     (19 )     (392 )     (39 )

The change in fair value of the average position for 2010 compared to 2009 was principally the result of changes in average quantities underlying the daily net commodity position.

Currencies

The Company conducts its business in over 60 countries.  For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency.  In order to reduce the risks associated with foreign currency exchange rate fluctuations, except for amounts permanently invested as described below, the Company follows a policy of entering into currency exchange contracts to mitigate its foreign currency risk related to transactions denominated in a currency other than the functional currencies applicable to each of its various entities, primarily the Euro, British pound, Canadian dollar, and Brazilian real.  The instruments used are forward contracts, swaps with banks, exchange-traded futures contracts, and over-the-counter options.  The changes in market value of such contracts have a high correlation to the price changes in the currency of the related transactions. The potential loss in fair value for such net currency position resulting from a hypothetical 10% adverse change in foreign currency exchange rates is not material.

The amount the Company considers permanently invested in foreign subsidiaries and affiliates and translated into dollars using the year-end exchange rates is $6.4 billion at June 30, 2010, and $6.6 billion at June 30, 2009.  This decrease is due to the depreciation of foreign currencies versus the U.S. dollar partially offset by an increase in retained earnings of the foreign subsidiaries and affiliates.  The potential loss in fair value, which would principally be recognized in Other Comprehensive Income, resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates is $639 million and $664 million for 2010 and 2009, respectively.  Actual results may differ.

Interest

The fair value of the Company’s long-term debt is estimated using quoted market prices, where available, and discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. Such fair value exceeded the long-term debt carrying value. Market risk is estimated as the potential increase in fair value resulting from a hypothetical .5% decrease in interest rates.  Actual results may differ.

   
2010
   
2009
 
   
(In millions)
 
Fair value of long-term debt
  $ 7,700     $ 8,103  
Excess of fair value over carrying value
    870       511  
Market risk
    289       310  

The decrease in fair value of long-term debt in 2010 resulted principally from the repurchase of $500 million in aggregate principal amount of the Company’s outstanding debentures.

 
 

 


Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements
Page No.
   
Consolidated Statements of Earnings
38
   
Consolidated Balance Sheets
39
   
Consolidated Statements of Cash Flows
40
   
Consolidated Statements of Shareholders’ Equity
41
   
Notes to Consolidated Financial Statements
42
   
Reports of Independent Registered Public Accounting Firm
84

 
 

 
Archer Daniels Midland Company

Consolidated Statements of Earnings
 
   
Year Ended June 30
 
   
2010
   
2009
   
2008
 
   
(In millions, except per share amounts)
 
                   
Net sales and other operating income
  $ 61,682     $ 69,207     $ 69,816  
Cost of products sold
    57,839       65,118       65,974  
Gross Profit
    3,843       4,089       3,842  
                         
Selling, general and administrative expenses
    1,398       1,412       1,419  
Other (income) expense - net
    (140 )     177       (171 )
Earnings Before Income Taxes
    2,585       2,500       2,594  
                         
Income taxes
    666       812       808  
Net Earnings Including Noncontrolling Interests
    1,919       1,688       1,786  
                         
Less:  Net earnings (losses) attributable to noncontrolling interests
    (11 )     4       6  
                         
Net Earnings Attributable to Controlling Interests
  $ 1,930     $ 1,684     $ 1,780  
                         
Average number of shares outstanding – basic
    643       643       644  
                         
Average number of shares outstanding – diluted
    644       644       646  
                         
Basic earnings per common share
  $ 3.00     $ 2.62     $ 2.76  
                         
Diluted earnings per common share
  $ 3.00     $ 2.62     $ 2.75  


See notes to consolidated financial statements.

 
 

 
Archer Daniels Midland Company

Consolidated Balance Sheets

   
June 30
 
   
2010
2009
 
   
(In millions)
 
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 1,046     $ 1,055  
Short-term marketable securities
    394       500  
Segregated cash and investments
    2,337       2,430  
Receivables
    6,122       7,311  
Inventories
    7,611       7,782  
Other assets
    624       330  
Total Current Assets
    18,134       19,408  
                 
Investments and Other Assets
               
Investments in and advances to affiliates
    2,799       2,459  
Long-term marketable securities
    678       626  
Goodwill
    523       532  
Other assets
    702       607  
Total Investments and Other Assets
    4,702       4,224  
                 
Property, Plant, and Equipment
               
Land
    277       240  
Buildings
    4,008       3,304  
Machinery and equipment
    15,107       13,052  
Construction in progress
    612       2,245  
      20,004       18,841  
Accumulated depreciation
    (11,292 )     (10,891 )
Net Property, Plant, and Equipment
    8,712       7,950  
Total Assets
  $ 31,548     $ 31,582  
                 
Liabilities and Shareholders’ Equity
               
Current Liabilities
               
Short-term debt
  $ 374     $ 356  
Accounts payable
    5,538       5,786  
Accrued expenses
    2,317       2,695  
Current maturities of long-term debt
    344       48  
Total Current Liabilities
    8,573       8,885  
                 
Long-Term Liabilities
               
Long-term debt
    6,830       7,592  
Deferred income taxes
    439       308  
Other
    1,075       1,144  
Total Long-Term Liabilities
    8,344       9,044  
                 
Shareholders’ Equity
               
Common stock
    5,151       5,204  
Reinvested earnings
    10,357       8,778  
Accumulated other comprehensive income (loss)
    (899 )     (355 )
Noncontrolling interests
    22       26  
Total Shareholders’ Equity
    14,631       13,653  
Total Liabilities and Shareholders’ Equity
  $ 31,548     $ 31,582  

See notes to consolidated financial statements.
 
 

 
Archer Daniels Midland Company

Consolidated Statements of Cash Flows

   
Year Ended June 30
 
   
2010
   
2009
   
2008
 
   
(In millions)
 
Operating Activities
                 
Net earnings including noncontrolling interests
  $ 1,919     $ 1,688     $ 1,786  
Adjustments to reconcile net earnings to net cash provided by
   (used in) operating activities
                       
Depreciation and amortization
    912       780       767  
Asset abandonments and impairments
    9       13       32  
Deferred income taxes
    30       20       (142 )
(Gain) loss on sales of marketable securities
    6       4       (38 )
(Gain) loss on sale or exchange of unconsolidated affiliates
    (15 )     11       (8 )
Gain on sale of businesses
          (24 )     (8 )
Equity in (earnings) losses of affiliates, net of dividends
    (326 )     54       (283 )
Stock compensation expense
    45       65       70  
Stock contributed to employee benefit plans
          18       29  
Pension and postretirement accruals (contributions), net
    (110 )     (161 )     36  
Charges on early extinguishment of debt
    75              
Deferred cash flow hedges
    49       (235 )     161  
Other – net
    84       26       164  
Changes in operating assets and liabilities
                       
Segregated cash and investments
    74       (426 )     (614 )
Receivables
    740       3,680       (4,781 )
Inventories
    (144 )     1,899       (3,736 )
Other assets
    (211 )     152       (174 )
Accounts payable and accrued expenses
    (453 )     (2,223 )     3,535  
Total Operating Activities
    2,684       5,341       (3,204 )
                         
Investing Activities
                       
Purchases of property, plant, and equipment
    (1,607 )     (1,898 )     (1,779 )
Proceeds from sales of property, plant, and equipment
    35       65       52  
Proceeds from sale of businesses
          258       11  
Net assets of businesses acquired
    (62 )     (198 )     (13 )
Investments in and advances to affiliates
    (146 )     (15 )     (32 )
Distributions from affiliates, excluding dividends
    57       11       54  
Purchases of marketable securities
    (1,387 )     (2,402 )     (1,405 )
Proceeds from sales of marketable securities
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