Archer Daniels Midland 2009 Annual Report Download - page 38

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32
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Asset Abandonments and Write-Downs
The Company is principally engaged in the business of procuring, transporting, storing, processing, and
merchandising agricultural commodities and products. This business is global in nature and is highly capital-
intensive. Both the availability of the Company’s raw materials and the demand for the Company’s finished
products are driven by factors such as weather, plantings, government programs and policies, changes in global
demand resulting from population growth and changes in standards of living, and global production of similar and
competitive crops. These aforementioned factors may cause a shift in the supply/demand dynamics for the
Company’s raw materials and finished products. Any such shift will cause management to evaluate the efficiency
and cash flows of the Company’s assets in terms of geographic location, size, and age of its factories. The
Company, from time to time, will also invest in equipment, technology, and companies related to new, value-added
products produced from agricultural commodities and products. These new products are not always successful
from either a commercial production or marketing perspective. Management evaluates the Company’s property,
plant, and equipment for impairment whenever indicators of impairment exist. The Company evaluates goodwill
and other intangible assets with indefinite lives for impairment annually. Assets are written down after
consideration of the ability to utilize the assets for their intended purpose or to employ the assets in alternative uses
or sell the assets to recover the carrying value. If management used different estimates and assumptions in its
evaluation of these assets, then the Company could recognize different amounts of expense over future periods.
Valuation of Marketable Securities and Investments in Affiliates
The Company classifies the majority of its marketable securities as available-for-sale and carries these securities at
fair value. The Company applies the equity method for investments in investees over which the Company has the
ability to exercise significant influence. These investments in affiliates are carried at cost plus equity in
undistributed earnings and are adjusted, where appropriate, for amortizable basis differences between the
investment balance and the underlying net assets of the investee. For publicly traded securities, the fair value of the
Company’s investments is readily available based on quoted market prices. For non-publicly traded securities,
management’s assessment of fair value is based on valuation methodologies including discounted cash flows and
estimates of sales proceeds. In the event of a decline in fair value of an investment below carrying value,
management is required to determine if the decline in fair value is other than temporary. In evaluating the nature of
a decline in the fair value of an investment, management considers the market conditions, trends of earnings,
discounted cash flows, trading volumes, and other key measures of the investment as well as the Company’s ability
and intent to hold the investment. When such a decline in value is deemed to be other than temporary, an
impairment loss is recognized in the current period operating results to the extent of the decline. See Notes 5 and 6
to the Company’s consolidated financial statements for information regarding the Company’s marketable securities
and investments in affiliates. If management used different estimates and assumptions in its evaluation of these
marketable securities, then the Company could recognize different amounts of expense over future periods.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss
arising from adverse changes in: commodity market prices as they relate to the Company’s net commodity position,
foreign currency exchange rates, and interest rates as described below.
Commodities
The availability and price of agricultural commodities are subject to wide fluctuations due to factors such as
weather, plantings, government programs and policies, changes in global demand resulting from population growth
and changes in standards of living, and global production of similar and competitive crops.