Archer Daniels Midland 2007 Annual Report Download - page 58

50
Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 4. Inventories and Derivatives (Continued)
The Company, from time to time, uses futures contracts to fix the purchase price of anticipated volumes of
commodities to be purchased and processed in a future month. The Company also uses futures, options, and swaps
to fix the purchase price of the Company’s anticipated natural gas requirements for certain production facilities. In
addition, certain of the Company’s ethanol sales contracts are indexed to unleaded gasoline prices. The Company
uses futures and options to fix the sales price of anticipated volumes of these ethanol sales in future months. These
derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have
historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of
the hedged item. The amounts representing the ineffectiveness of these cash flow hedges are immaterial. Gains
and losses arising from open and closed hedging transactions are deferred in other comprehensive income, net of
applicable income taxes, and recognized as a component of cost of products sold in the statement of earnings when
the hedged item is recognized. As of June 30, 2007, the Company has recorded $16 million of after-tax losses in
accumulated other comprehensive income related to gains and losses from cash flow hedge transactions. The
Company expects to recognize these after-tax losses in the statement of earnings during fiscal 2008.
At June 30, 2007, accumulated other comprehensive income included a $7 million after-tax gain related to a
treasury-lock agreement entered into and settled during 2006. This treasury-lock agreement was designated as a
cash flow hedge of the anticipated proceeds from the Company’s issuance of $600 million of debentures in
September 2005. The Company will recognize the $7 million after-tax gain in the statement of earnings over the
term of the debentures. At June 30, 2007, accumulated other comprehensive income also included $3 million in
after-tax gains representing the Company’s share of derivative gains reported by unconsolidated affiliates of the
Company.
Note 5. Investments in and Advances to Affiliates
The Company has ownership interests in non-majority-owned affiliates accounted for under the equity method.
The Company had 79 and 89 unconsolidated affiliates as of June 30, 2007 and 2006, respectively, located in
North and South America, Africa, Europe, and Asia. The decrease in the number of affiliates in 2007 is
principally due to the exchange of the Company’s ownership interest in 11 affiliates for shares of stock in a new
affiliate. The following table summarizes the combined balance sheets and the combined statements of earnings
of the Company’s unconsolidated affiliates as of and for each of the three years ended June 30, 2007, 2006, and
2005.
2007 2006 2005
(In millions)
Current assets $ 7,683 $ 6,715
Non-current assets 11,156 8,778
Current liabilities 5,758 4,964
Non-current liabilities 1,975 2,309
Minority interests 915 935
Net assets $ 10,191 $ 7,285
Net sales $ 25,127 $ 20,304 $ 20,215
Gross profit 3,123 2,328 2,310
Net income 1,684 793 758