Archer Daniels Midland 2006 Annual Report Download - page 39

2006 Annual Report 37
Property, Plant, and Equipment
Property, plant, and equipment is recorded at cost. Repair and
maintenance costs are expensed as incurred. The Company generally
uses the straight-line method in computing depreciation for
financial reporting purposes and generally uses accelerated methods
for income tax purposes. The annual provisions for depreciation
have been computed principally in accordance with the following
ranges of asset lives: buildings - 10 to 50 years; machinery and
equipment - 3 to 30 years.
Asset Abandonments and Write-Downs
The Company recorded a $61 million, a $42 million, and a
$51 million charge in cost of products sold during 2006, 2005, and
2004, respectively, principally related to the abandonment and write-
down of certain long-lived assets. In addition, the Company recorded
a $9 million loss in equity in earnings of affiliates during 2006
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. The majority of these assets were idle or related to
underperforming product lines, and the decision to abandon was
finalized after consideration of the ability to utilize the assets for
their intended purpose, employ the assets in alternative uses, or sell
the assets to recover the carrying value. After the write-downs, the
carrying value of these assets is immaterial.
Net Sales
The Company follows a policy of recognizing sales revenue at the time
of delivery of the product and when all of the following have occurred:
a sales agreement is in place, pricing is fixed or determinable, and
collection is reasonably assured. Freight costs and handling charges
related to sales are recorded as a component of cost of products
sold. Net sales to unconsolidated affiliates during 2006 and 2005 were
$3.1 billion and $2.9 billion, respectively.
Per Share Data
Basic earnings per common share are determined by dividing
net earnings by the weighted average number of common shares
outstanding. In computing diluted earnings per share, the weighted
average number of common shares outstanding is increased by
common stock options outstanding with exercise prices lower than
the average market prices of common shares. During 2006, 2005,
and 2004, diluted average shares outstanding included incremental
shares related to outstanding common stock options of 2.7 million,
1.9 million, and 2.1 million, respectively.
New Accounting Standards
In March 2005, the FASB issued FIN 47, Accounting for Conditional
Asset Retirement Obligations, an Interpretation of FASB Statement
No. 143. FIN 47 clarifies that the term conditional asset retirement
obligation as used in SFAS Number 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement
are conditional on a future event that may or may not be within the
control of the entity. However, the obligation to perform the asset
retirement activity is unconditional even though uncertainty exists
about the timing and/or method of settlement. FIN 47 clarifies when
an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The Company adopted
FIN 47 on July 1, 2005. As a result of adopting FIN 47, the Company
recorded a long-term liability related to asset retirement obligations
(ARO) of $18 million, increased property, plant, and equipment by
$3 million, and recorded cumulative depreciation expense related to
AROs of $15 million.
During July 2006, the FASB issued Interpretation Number 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48
clarifies the accounting for income taxes by prescribing the minimum
requirements a tax position must meet before being recognized
in the financial statements. In addition, FIN 48 prohibits the use
of SFAS Number 5, Accounting for Contingencies, in evaluating
the recognition and measurement of uncertain tax positions. The
Company will be required to adopt FIN 48 on July 1, 2007, and has
not yet assessed the impact of the adoption of this standard on the
Company’s financial statements.
Stock Compensation
Effective July 1, 2004, the Company adopted the fair value recognition
provisions of SFAS Number 123, Accounting for Stock-Based
Compensation, for stock-based employee compensation. Prior
to July 1, 2004, the Company accounted for stock-based employee
compensation under the recognition and measurement provisions of
APB Opinion Number 25, Accounting for Stock Issued to Employees,
and related interpretations. Under the modified prospective method
of adoption selected by the Company under the provisions of
SFAS Number 148, Accounting for Stock-Based Compensation
– Transition and Disclosure, stock-based employee compensation
expense recognized during 2005 was the same as the expense which
would have been recognized had the fair value recognition provisions
of SFAS Number 123 been applied to all options granted after
July 1, 1995. Effective July 1, 2005, the Company adopted the fair