Archer Daniels Midland 2007 Annual Report Download - page 53

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Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Stock Compensation
Effective July 1, 2004, the Company adopted the fair value recognition provisions of SFAS Number 123,
Accounting for Stock-Based Compensation, for stock-based employee compensation. Under the modified
prospective method of adoption selected by the Company under the provisions of SFAS Number 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, stock-based employee compensation expense
recognized during 2005 was the same as the expense which would have been recognized had the fair value
recognition provisions of SFAS Number 123 been applied to all options granted after July 1, 1995. Effective
July 1, 2005, the Company adopted the fair value recognition provisions of SFAS Number 123(R), Share-Based
Payment, using the modified prospective transition method. Under the modified prospective transition method,
compensation expense includes: (a) compensation expense for all share-based payments granted prior to, but not
yet vested as of, July 1, 2005 based on the grant date fair value estimated in accordance with the original provisions
of SFAS Number 123; and (b) compensation expense for all share-based payments granted subsequent to
July 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS Number
123(R). Results of prior periods have not been restated.
Per Share Data
Basic earnings per common share are determined by dividing net earnings by the weighted average number of
common shares outstanding. In computing diluted earnings per share, the weighted average number of common
shares outstanding is increased by common stock options outstanding with exercise prices lower than the average
market prices of common shares. During 2007, 2006, and 2005, diluted average shares outstanding included
incremental shares related to outstanding common stock options of 5 million, 2 million, and 2 million, respectively.
New Accounting Standards
During July 2006, the FASB issued Interpretation Number 48, Accounting for Uncertainty in Income Taxes (FIN
48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum requirements a tax position must
meet before being recognized in the financial statements. In addition, FIN 48 prohibits the use of SFAS Number 5,
Accounting for Contingencies, in evaluating the recognition and measurement of uncertain tax positions. The
Company is required to adopt FIN 48 on July 1, 2007, and the adoption is not expected to have a material effect on
the Company’s financial statements.
During September 2006, the FASB issued SFAS Number 157, Fair Value Measurements. SFAS Number 157
establishes a framework for measuring fair value within generally accepted accounting principles, clarifies the
definition of fair value within that framework, and expands disclosures about the use of fair value measurements.
SFAS Number 157 does not require any new fair value measurements in generally accepted accounting principles.
However, the definition of fair value in SFAS Number 157 may affect assumptions used by companies in
determining fair value. The Company will be required to adopt SFAS Number 157 on July 1, 2008. The Company
has not completed its evaluation, but currently believes the impact will not require material modification of the
Company’s fair value measurements and will be substantially limited to expanded disclosures in the notes to the
Company’s consolidated financial statements.
During September 2006, the FASB issued SFAS Number 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans. SFAS Number 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability
in its balance sheet and to recognize changes in the funded status of a defined benefit postretirement plan in
comprehensive income in the year in which the changes occur. SFAS Number 158 also requires companies to
measure the funded status of defined benefit postretirement plans as of the end of the fiscal year instead of a date up
to three months prior to the end of the fiscal year. At June 30, 2007, the Company recorded the funded status of its