Archer Daniels Midland 2007 Annual Report Download - page 52

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44
Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Credit risk on trade receivables is minimized as a result of the large and diversified nature of the Company’s
worldwide customer base. The Company controls its exposure to credit risk through credit approvals, credit limits,
and monitoring procedures. Collateral is generally not required for the Company’s trade receivables. Trade
accounts receivable due from unconsolidated affiliates as of June 30, 2007 and 2006 was $260 million and $58
million, respectively.
Inventories
Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred
pricing contracts, are stated at market value. In addition, the Company values certain inventories using the lower of
cost, determined by either the first-in, first-out (FIFO) or last-in, first-out (LIFO) methods, or market.
Marketable Securities
The Company classifies its marketable securities as available-for-sale, except for certain designated securities
which are classified as trading securities. Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of income taxes, reported as a component of other comprehensive income. Unrealized gains
and losses related to trading securities are included in income on a current basis. The Company uses the specific
identification method when securities are sold or reclassified out of accumulated other comprehensive income into
earnings.
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 $21 million, a $71 million, and a $42 million charge in cost of products sold during 2007,
2006, and 2005, respectively, principally related to the abandonment and write-down of certain long-lived assets.
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 2007, 2006, and 2005 were $3.7 billion, $3.1 billion,
and $2.9 billion, respectively.