Archer Daniels Midland 2009 Annual Report Download - page 34

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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
profits increased 59% to $132 million, principally reflecting the Company’s share of improved operating profits of
Wilmar International Limited.
Corn Processing operating profits decreased 13% to $961 million, primarily due to higher net corn costs.
Sweeteners and Starches operating profits increased 9% to $557 million due principally to higher average selling
prices partially offset by higher net corn costs and increased manufacturing costs. Manufacturing cost increases
reflect higher energy costs, higher repair and maintenance expenses, and higher costs for chemicals used in the
manufacturing process. Bioproducts operating profits decreased 32% to $404 million primarily due to higher net
corn costs, higher manufacturing expenses, and decreased average ethanol selling prices, partially offset by higher
sales volumes for ethanol and, to a lesser extent, higher average lysine selling prices and higher lysine sales
volumes.
Agricultural Services operating profits increased 89% to $1.0 billion. 2007 operating profits in Merchandising and
Handling include a $153 million gain on the sale of the Company’s interest in Agricore United. Excluding this
gain, Merchandising and Handling operating profits increased 281% to $873 million. This increase was primarily
due to enhanced merchandising and handling margins caused by volatile global grain and freight markets, favorable
risk management results, and to a lesser extent, increased sales volumes. Transportation operating profits decreased
8% to $144 million primarily due to increased fuel costs.
Other operating profits increased 12% to $423 million. Wheat, Cocoa and Malt operating profits increased 4% to
$217 million. 2007 operating profits for Wheat included a gain of $39 million from the sale of the Company’s
Arkady food ingredient business. Excluding the Arkady gain, Wheat, Cocoa and Malt operating profits improved
28%, primarily due to improved wheat and malt margins reflecting increased demand, partially offset by decreased
cocoa processing margins reflecting higher raw material and operating costs and competitive pressures experienced
in the North American chocolate market. Financial operating profits improved 21% to $206 million primarily due
to improvements in the Company’s futures commission merchant business.
Corporate expense increased $810 million to $817 million, primarily due to a $362 million increase in the charge
related to the effects of changing commodity prices on LIFO inventory valuations, a $371 million decrease in
realized securities gains primarily reflecting the $357 million gain recorded in 2007 from sales of the Company’s
equity securities of Tyson Foods, Inc. and Overseas Shipholding Group, Inc., a $51 million increase in corporate
expenses due principally to reorganization and realignment costs, partially offset by a charge of $46 million
recorded in 2007 related to the repurchase of $400 million of the Company’s outstanding debentures.
Income taxes decreased primarily due to lower pretax earnings. The Company’s effective tax rate during 2008 of
31.3% was comparable to the 2007 rate of 31.5%.
Liquidity and Capital Resources
A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the
operating and capital requirements of a capital intensive agricultural commodity-based business.
At June 30, 2009, the Company had $1.6 billion of cash, cash equivalents, and short-term marketable securities and
a current ratio, defined as current assets divided by current liabilities, of 2.2 to 1. Included in working capital is
$5.5 billion of readily marketable commodity inventories. Cash generated from operations totaled $5.3 billion for
the year compared to $3.2 billion cash used in operating activities last year. This change was primarily due to a
decrease in working capital requirements related to lower agricultural commodity market prices. Cash used in
investing activities of $1.9 billion was comparable to last year. Cash used in financing activities was $3.2 billion
compared to cash generated by financing activities of $5.2 billion last year. In 2008, the Company issued $3.1
billion of long-term debt compared to $101 million in total net long-term borrowings in 2009. As a result of
decreased working capital requirements, payments under line of credit agreements were $2.9 billion in 2009. In
2008, the Company increased its borrowings under line of credit agreements by $2.6 billion.