Archer Daniels Midland 2007 Annual Report Download - page 38

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
At June 30, 2007, the Company continued to show substantial liquidity with working capital of $7.3 billion and a
current ratio, defined as current assets divided by current liabilities, of 1.9 to 1. Included in working capital is $875
million of cash, cash equivalents, and short-term marketable securities as well as $4.4 billion of readily marketable
commodity inventories. Cash generated from operating activities totaled $303 million for the year compared to
$1.4 billion last year. This decrease was primarily due to an increase in working capital requirements principally
related to increased prices and quantities of agricultural commodity inventories and increased receivables, partially
offset by increased cash earnings. Despite increased investment in property, plant, and equipment, cash used in
investing activities decreased $714 million for the year to $355 million due primarily to increased sales of
marketable securities and proceeds from sales of businesses including the sale of the Company’s equity interests in
Tyson Foods, Inc., Overseas Shipholding Group, Inc. and Agricore United. Cash used in financing activities was
$398 million compared to cash generated by financing activities of $284 million last year. Net long-term
borrowings increased primarily as a result of the issuance of $1.2 billion of convertible senior notes in February
2007 (described in detail below), compared to $600 million of 30-year debentures issued in September 2005. This
increase was partially offset by $283 million of increased payments on long-term debt principally related to the
Company retiring $400 million of debentures in 2007.
Capital resources were strengthened as shown by the increase in the Company’s net worth from $9.8 billion to
$11.3 billion. The Company’s ratio of long-term debt to total capital (the sum of the Company’s long-term debt
and shareholders’ equity) was 30% at June 30, 2007, and 29% at June 30, 2006. This ratio is a measure of the
Company’s long-term liquidity and is an indicator of financial flexibility. The Company currently has $3.9 billion
of commercial paper and commercial bank lines available to meet seasonal cash requirements of which $2.6 billion
are committed and $1.3 billion are uncommitted. At June 30, 2007, the Company had $468 million of short-term
debt outstanding. Standard & Poor’s, Moody’s, and Fitch rate the Company’s commercial paper as A-1, P-1, and
F1, respectively, and rate the Company’s long-term debt as A, A2, and A+, respectively. In addition to the cash
flow generated from operations, the Company has access to equity and debt capital through numerous alternatives
from public and private sources in domestic and international markets.
In February 2007, the Company issued $1.2 billion principal amount of convertible senior notes due in 2014 (the
Notes) in a private placement. The Notes were issued at par and bear interest at a rate of 0.875% per year, payable
semiannually. The Notes are convertible based on an initial conversion rate of 22.8343 shares per $1,000 principal
amount of Notes (which is equal to an initial conversion price of approximately $43.79 per share). The Notes may
be converted, subject to adjustment, only under the following circumstances: 1) during any calendar quarter
beginning after March 31, 2007, if the closing price of the Company’s common stock for at least 20 trading days in
the 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is more than
140% of the applicable conversion price per share, which is $1,000 divided by the then applicable conversion rate,
2) during the five consecutive business day period immediately after any five consecutive trading day period (the
note measurement period) in which the average of the trading price per $1,000 principal amount of Notes was equal
to or less than 98% of the average of the product of the closing price of the Company’s common stock and the
conversion rate at each date during the note measurement period, 3) if the Company makes specified distributions
to its common stockholders or specified corporate transactions occur, or 4) at any time on or after January 15, 2014,
through the business day preceding the maturity date. Upon conversion, a holder would receive an amount in cash
equal to the lesser of 1) $1,000 and 2) the conversion value, as defined. If the conversion value exceeds $1,000, the
Company will deliver, at the Company’s election, cash or common stock or a combination of cash and common
stock for the conversion value in excess of $1,000. If the Notes are converted in connection with a change in
control, as defined, the Company may be required to provide a make-whole premium in the form of an