Archer Daniels Midland 2007 Annual Report Download - page 51

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43
Archer Daniels Midland Company
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Business
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural
commodities and products.
Principles of Consolidation
The consolidated financial statements as of June 30, 2007, and for the three years then ended include the accounts
of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated. Investments in affiliates are carried at cost plus equity in undistributed earnings since acquisition.
The Company evaluates its less than majority-owned investments for consolidation pursuant to Financial
Accounting Standards Board (FASB) Interpretation Number 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 (FIN 46). A variable interest entity (VIE) is a corporation,
partnership, trust, or any other legal structure used for business purposes that does not have equity investors with
voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a VIE to be consolidated by a company if that company is the primary beneficiary of the
VIE. The primary beneficiary of a VIE is an entity that is subject to a majority of the risk of loss from the VIE’s
activities or entitled to receive a majority of the entity’s residual returns, or both. As of June 30, 2007, the
Company has $165 million of investments in private equity funds included in investments in affiliates which are
considered VIEs pursuant to FIN 46. The Company’s residual risk and rewards from these VIEs are proportional to
the Company’s ownership interest and the Company is not the primary beneficiary of any of these VIEs.
Therefore, the Company does not consolidate any of these VIEs.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all non-segregated, highly-liquid investments with a maturity of three months or less at the
time of purchase to be cash equivalents.
Segregated Cash and Investments
The Company segregates certain cash and investment balances in accordance with certain regulatory requirements,
commodity exchange requirements, and insurance arrangements. These segregated balances represent deposits
received from customers trading in exchange-traded commodity instruments, securities pledged to commodity
exchange clearinghouses, and cash and securities pledged as security under certain insurance arrangements.
Segregated cash and investments primarily consist of cash, United States government securities, and money-market
funds.
Receivables
The Company records trade accounts receivable at net realizable value. This value includes an appropriate
allowance for estimated uncollectible accounts, $69 million and $54 million at June 30, 2007 and 2006,
respectively, to reflect any loss anticipated on the trade accounts receivable balances. The Company calculates this
allowance based on its history of write-offs, level of past-due accounts, and its relationships with, and the economic
status of, its customers.