Archer Daniels Midland 2007 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2007 Archer Daniels Midland annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 94

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94

25
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Other operating profits increased $99 million to $409 million. Other – Food, Feed, and Industrial operating profits
increased $55 million and include a $53 million gain on the sale of the Company’s Arkady food ingredient business
and a $15 million charge for abandonment and write-down of long-lived assets. Other – Food, Feed, and Industrial
operating results for 2006 include a $51 million charge for abandonment and write-down of long-lived assets, a $2
million charge related to the adoption of FIN 47, a $9 million charge 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, a
$17 million gain from the sale of long-lived assets, and a $16 million charge related to exiting the European animal
feed business. Excluding the effect of these 2007 and 2006 items, Other – Food, Feed, and Industrial operating
profits declined $44 million due primarily to cocoa processing operating results declining from prior year levels
and costs related to the start-up of the Company’s natural plastics production operations. Cocoa processing
operating results declined primarily due to increased industry production capacity which caused downward
pressure on cocoa processing margins. These increases were partially offset by improved operating results of the
Company’s wheat flour processing and protein specialty operations. Other – Financial operating profits increased
$44 million principally due to increased valuations of the Company’s private equity fund investments and higher
operating results of the Company’s futures commission merchant business, partially offset by lower operating
results of the Company’s captive insurance operations. The results of the Company’s captive insurance operations
for 2007 include a $12 million charge related to a Hurricane Katrina trade disruption insurance settlement.
Corporate expense decreased $199 million to $7 million principally due to a $345 million increase in realized
securities gains principally resulting from sales of the Company’s equity securities of Tyson Foods, Inc. and
Overseas Shipholding Group, Inc. and a $103 million reduction in unallocated interest expense due principally to
higher levels of invested funds and higher interest rates. These decreases were partially offset by a $206 million
charge, compared to a $12 million credit in the prior year, related to the effect of changing commodity prices on
LIFO inventory valuations and a $46 million charge related to the repurchase of $400 million of the Company’s
outstanding debentures.
Income taxes increased due principally to higher pretax earnings and the absence of last year’s $36 million income
tax credit 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. The Company’s effective tax rate
during 2007 was 31.5% and, after excluding the effect of last year’s $36 million tax credit, was 31.2% for the prior
year. The increase in the Company’s effective tax rate is primarily due to changes in the geographic mix of pretax
earnings.
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.