Archer Daniels Midland 2006 Annual Report Download - page 28

26 Archer Daniels Midland Company
MANAGEMENT’S DISCUSSION OF
OPERATIONS AND FINANCIAL CONDITION - JUNE 30, 2006 (CONTINUED)
2006 COMPARED TO 2005
As an agricultural-based commodity business, the Company is
subject to a variety of market factors which affect the Company’s
operating results. Strong biodiesel demand in Europe continued to
create increased vegetable oil demand and has positively impacted
rapeseed crushing margins in Europe. Abundant oilseed supplies
and strong protein meal demand have positively impacted oilseed
crushing margins in North America. A good corn supply resulting
in lower price levels for corn favorably impacted corn processing
operations, while ethanol experienced good demand due to gasoline
refiners replacing MTBE with ethanol. Solid demand for sweetener
and starch products has also improved corn processing results.
During the first half of 2006, hurricanes in the gulf coast region of
the United States disrupted North American grain origination and
agricultural commodity export operations, negatively impacting
export sales volumes. The gulf coast hurricanes also disrupted
river transportation, resulting in increased barge demand and barge
freight rates.
Net earnings increased principally due to improved operating
results of Oilseeds Processing and Corn Processing. In addition,
net earnings also increased due to a $36 million reduction in
income tax expense related to the recognition of federal and
state income tax credits and adjustments resulting from the
reconciliation of filed tax returns to the previously estimated
tax provision. Earnings before income taxes include charges of
$31 million resulting from the Company’s adoption of Statement
of Financial Accounting Standards (SFAS) Number 123(R) Share
Based Payment, $15 million resulting from the Company’s
adoption of Financial Accounting Standards Board Interpretation
Number 47, Accounting for Conditional Asset Retirement
Obligations, an Interpretation of FASB Statement No. 143 (FIN 47),
$71 million related to abandonment and write-down of long-lived
assets, $9 million representing the Company’s share of a charge for
abandonment and write-down of long-lived assets reported by an
unconsolidated affiliate of the Company, $12 million from the effect
of changing commodity prices on LIFO inventory valuations, and
$22 million associated with the closure of a citric acid plant and
exiting the European animal feed business. Earnings before income
taxes also include credits of $17 million from the sale of long-lived
assets, $46 million related to Brazilian transactional tax credits,
and $40 million related to realized securities gains. Last year’s
earnings before income taxes included credits of $114 million
from the effect of changing commodity prices on LIFO inventory
valuations, $114 million of realized securities gain from the sale of
Tate & Lyle PLC shares, and $45 million representing the Company’s
equity share of the gain reported by the Company’s unconsolidated
affiliate, Compagnie Industrielle et Financiere des Produits
Amylaces SA (CIP), upon the sale of its interest in Tate & Lyle PLC
(the “CIP Gain”). Last year’s earnings before income taxes also
include a $42 million charge for abandonment and write-down of
long-lived assets.
ANALYSIS OF STATEMENTS OF EARNINGS
Net sales and other operating income increased 2% to $36.6 billion
due primarily to higher average selling prices of agricultural
commodities and increased sales volumes and selling prices of corn
processing products, partially offset by decreased average selling
prices of cocoa products and currency exchange rate decreases of $415 million.
Net sales and other operating income by segment are as follows:
2006 2005 Change
(In thousands)
Oilseeds Processing . . . . . . . . . . . . . . . . . . $11,866,895 $11,803,309 $ 63,586
Corn Processing
Sweeteners and Starches . . . . . . . . . . . 2,133,115 1,905,218 227,897
Bioproducts ..................... 2,726,968 2,458,706 268,262
Total Corn Processing . . . . . . . . . . 4,860,083 4,363,924 496,159
Agricultural Services . . . . . . . . . . . . . . . . . 15,439,567 15,198,831 240,736
Other
Food and Feed Ingredients . . . . . . . . . 4,354,267 4,505,788 (151,521)
Financial ....................... 75,299 71,958 3,341
Total Other . . . . . . . . . . . . . . . . . . . 4,429,566 4,577,746 (148,180)
Total ........................... $36,596,111 $35,943,810 $652,301
Oilseeds Processing sales increased $64 million to $11.9 billion
principally due to higher average selling prices of South American
oilseed exports and of vegetable oil. These increases were partially
offset by lower average selling prices of protein meal. Corn Processing
sales increased 11% to $4.9 billion due to sales increases in both
Sweeteners and Starches and Bioproducts. Sweeteners and Starches
sales increased due to higher average selling prices and sales
volumes. Sales volumes and prices have increased primarily due to
solid demand for sweetener and starch products. Bioproducts sales
increased primarily due to increased sales volumes and average
selling prices of ethanol, partially offset by lower average selling
prices of lysine. The increases in ethanol sales volumes and sales
prices were principally due to increased demand from gasoline
refiners as refiners used ethanol to replace MTBE as a gasoline
additive and to increased gasoline prices. Agricultural Services sales
increased 2% to $15.4 billion primarily due to increased commodity
prices in North America and, to a lesser extent, increased barge
freight rates as the gulf coast hurricanes reduced barge capacities
and created strong demand for North American river transportation.
These increases were partially offset by decreased commodity sales
volumes in North America. The decreased sales volumes were