Archer Daniels Midland 2006 Annual Report Download - page 32

30 Archer Daniels Midland Company
MANAGEMENT’S DISCUSSION OF
OPERATIONS AND FINANCIAL CONDITION - JUNE 30, 2006 (CONTINUED)
Operating profit by segment is as follows:
2005 2004 Change
(In thousands)
Oilseeds Processing . . . . . . . . . . . . . . . . . . . . . . . $ 344,654 $ 290,732 $ 53,922
Corn Processing
Sweeteners and Starches . . . . . . . . . . . . . . . . 271,487 318,369 (46,882)
Bioproducts . . . . . . . . . . . . . . . . . . . . . . . . . . 258,746 342,578 (83,832)
Total Corn Processing . . . . . . . . . . . . . . . 530,233 660,947 (130,714)
Agricultural Services . . . . . . . . . . . . . . . . . . . . . . 261,659 249,863 11,796
Other
Food and Feed Ingredients . . . . . . . . . . . . . . 263,617 260,858 2,759
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,777 98,611 52,166
Total Other . . . . . . . . . . . . . . . . . . . . . . . . 414,394 359,469 54,925
Total Segment Operating Profit . . . . . . . . . . 1,550,940 1,561,011 (10,071)
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,565) (843,000) 808,435
Earnings Before Income Taxes . . . . . . . . . . . $1,516,375 $ 718,011 $ 798,364
Oilseeds Processing operating profits increased 19% to $345 million
due primarily to improved operating results in Europe resulting
from improved crop conditions and good biodiesel demand, as
well as to improved South American oilseed origination results.
These increases were partially offset by lower operating results of
the Company’s North American oilseed crushing operations. Oilseed
crush margins in North America decreased due to a near-term tight
soybean supply in the United States which resulted in higher soybean
price levels. Industry overcapacity in South America continues to
have an adverse effect on oilseed crushing margins. Operating profits
include a charge of $13 million and $4 million for abandonment and
write-down of long-lived assets in 2005 and 2004, respectively.
Corn Processing operating profits decreased 20% to $530 million as
higher net corn costs, higher energy costs, and lower lysine average
selling prices negatively impacted operating results. Sweeteners and
Starches operating profits decreased $47 million principally due to
higher net corn and energy costs. Last year’s Sweeteners and Starches
operating profits include a $15 million gain from an insurance-
related lawsuit pertaining to the flood of 1993. Bioproducts operating
profits decreased $84 million principally due to lower lysine average
selling prices. Lysine average selling prices are lower due to increased
supply from China. This decrease was partially offset by improved
ethanol operating results due to higher ethanol selling prices.
Ethanol selling prices remained strong and more than offset the
effect of lower ethanol sales volumes and higher net corn and energy
costs. Bioproducts operating profits include a charge of $16 million
and $14 million for abandonment and write-down of long-lived
assets in 2005 and 2004, respectively.
Agricultural Services operating profits increased 5% to $262 million
principally due to improved North American origination and
transportation operating results. The record United States corn and
soybean crops provided the Company with the opportunity for solid
storage, transportation, origination, and marketing profits. These
increases were partially offset by lower global grain merchandising
results. Global grain merchandising results decreased principally
due to improved crop conditions in Europe and North America,
which resulted in lower European demand for imported agricultural
commodities and related products. Last year’s operating profits
include a $5 million charge for abandonment and write-down of
long-lived assets.
Other operating profits increased 15% to $414 million. Other – Food
and Feed Ingredient operating profits were comparable to the prior
year, while Other – Financial operating profits increased $52 million
primarily due to improved results of the Company’s captive insurance
operations and improved valuations of the Company’s private equity
fund investments. Last year’s captive insurance results included
a loss incurred from a fire at a Company-owned cocoa finished
products warehouse. Other – Food and Feed Ingredient operating
profits include charges of $13 million in both 2005 and 2004 for
abandonment and write-down of long-lived assets.
Corporate improved $808 million to $35 million primarily due to
the absence of last year’s fructose litigation settlement expense of
$400 million, the CIP Gain, $114 million of income in the current
year as compared to a $119 million charge in the prior year from
the effect of commodity price changes on LIFO inventory valuations,
$114 million of realized securities gains from the sale of Tate & Lyle
PLC shares, and last year’s $14 million charge for abandonment and
write-down of long-lived assets.
Income taxes increased due principally to higher pretax earnings.
This increase was partially offset by the effect of the CIP Gain. No tax
has been provided on the CIP Gain as CIP, a corporate joint venture
of the Company, intends to permanently reinvest the proceeds from
the sale. The Company’s effective tax rate, excluding the effect of the
CIP Gain, was 32.1% compared to 31.1% for the prior year. The
increase in the Company’s effective tax rate is principally due to
changes in the jurisdictional mix of pretax earnings and the result of
tax benefits derived from the majority of the Company’s tax planning
initiatives being fixed in nature.