Archer Daniels Midland 2007 Annual Report Download - page 42

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Undistributed earnings of the Company’s foreign subsidiaries and affiliated corporate joint ventures accounted for
on the equity method are considered to be permanently reinvested, and accordingly, no provision for U.S. income
taxes has been provided thereon. If the Company were to receive distributions from any of these foreign
subsidiaries or affiliates or determine the undistributed earnings of these foreign subsidiaries or affiliates to not be
permanently reinvested, the Company could be subject to U.S. tax liabilities which have not been provided for in
the consolidated financial statements.
Asset Abandonments and Write-Downs
The Company is principally engaged in the business of procuring, transporting, storing, processing, and
merchandising agricultural commodities and products. This business is global in nature and is highly capital-
intensive. Both the availability of the Company’s raw materials and the demand for the Company’s finished
products are driven by unpredictable factors such as weather, plantings, government (domestic and foreign) farm
programs and policies, changes in population growth, changes in standards of living, and production of similar and
competitive crops. These aforementioned unpredictable factors, therefore, may cause a shift in the supply/demand
dynamics for the Company’s raw materials and finished products. Any such shift will cause management to
evaluate the efficiency and profitability of the Company’s fixed asset base in terms of geographic location, size,
and age of its factories. The Company, from time to time, will also invest in equipment and technology related to
new, value-added products produced from agricultural commodities and products. These new products are not
always successful from either a commercial production or marketing perspective. Management evaluates the
Company’s property, plant, and equipment for impairment whenever indicators of impairment exist. Assets are
abandoned after consideration of the ability to utilize the assets for their intended purpose or to employ the assets in
alternative uses or sell the assets to recover the carrying value. If management used different estimates and
assumptions in its evaluation of this fixed asset base, then the Company could recognize different amounts of
expense over future periods.
Valuation of Marketable Securities and Investments in Affiliates
The Company classifies the majority of its marketable securities as available-for-sale and carries these securities at
fair value. Investments in affiliates are carried at cost plus equity in undistributed earnings. For publicly traded
securities, the fair value of the Company’s investments is readily available based on quoted market prices. For
non-publicly traded securities, management’s assessment of fair value is based on valuation methodologies
including discounted cash flows and estimates of sales proceeds. In the event of a decline in fair value of an
investment below carrying value, management may be required to determine if the decline in fair value is other
than temporary. In evaluating the nature of a decline in the fair value of an investment, management considers the
market conditions, trends of earnings, discounted cash flows, trading volumes, and other key measures of the
investment as well as the Company’s ability and intent to hold the investment. When such a decline in value is
deemed to be other than temporary, an impairment loss is recognized in the current period operating results to the
extent of the decline. See Notes 3 and 5 to the Company’s consolidated financial statements for information
regarding the Company’s marketable securities and investments in affiliates. If management used different
estimates and assumptions in its evaluation of these marketable securities, then the Company could recognize
different amounts of expense over future periods.