Archer Daniels Midland 2009 Annual Report Download - page 48

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Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 1.
Summary of Significant Accounting Policies (Continued)
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 2009, 2008, and 2007 were $7.3 billion, $8.5 billion,
and $3.7 billion, respectively.
Stock Compensation
The Company recognizes expense for its share-based compensation based on the fair value of the awards that are
granted. The Company’s share-based compensation plans provide for the granting of restricted stock and restricted
stock units (Restricted Stock Awards), and stock options. The fair value of stock options is estimated at the date of
grant using the Black-Scholes option valuation model which requires the input of highly subjective assumptions.
Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the
related share-based compensation award.
Research and Development
Costs associated with research and development are expensed as incurred. Such costs incurred were $50 million,
$49 million, and $45 million for the years ended June 30, 2009, 2008, and 2007, respectively.
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 price of common shares. During 2009, 2008, and 2007, diluted average shares outstanding included
incremental shares related to outstanding common stock options of 1 million, 2 million, and 5 million, respectively.
New Accounting Standards
During December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) replaces SFAS
141, Business Combinations and will change the financial accounting and reporting of business combination
transactions. SFAS 141(R) requires recognizing, with certain exceptions, 100 percent of the fair values of assets
acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100 percent controlling
interest when the acquisition constitutes a change in control of the acquired entity; measuring acquirer shares issued
and contingent consideration arrangements in connection with a business combination at fair value on the
acquisition date with subsequent changes in fair value reflected in earnings; and expensing as incurred acquisition-
related transaction costs. In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1 which amends
SFAS 141(R) by establishing a model to account for certain pre-acquisition contingencies. Under the FSP, an
acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that
arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the
measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the
recognition criteria in SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable
Estimation of the Amount of a Loss – an interpretation of FASB Statement No. 5. The Company is required to
adopt SFAS 141(R) and FSP FAS 141(R)-1 on July 1, 2009, and will apply them prospectively to business
combinations completed on or after that date. The impact of the adoption of SFAS 141(R) and FSP FAS 141(R)-1
will depend on the nature of acquisitions completed after the date of adoption.