Archer Daniels Midland 2010 Annual Report Download - page 48

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44
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 2010, 2009, and 2008 were $8.4 billion, $7.3 billion,
and $8.5 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, restricted
stock units, performance stock units, and stock options. The fair values of stock options and performance stock
units are estimated at the date of grant using the Black-Scholes option valuation model and a lattice valuation
model, respectively. These valuation models require 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 $56 million,
$50 million, and $49 million for the years ended June 30, 2010, 2009, and 2008, respectively.
Per Share Data
Basic earnings per common share are determined by dividing net earnings attributable to controlling interests 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 using the treasury share method. During 2010, 2009,
and 2008, diluted average shares outstanding included incremental shares related to outstanding common stock
options of 1 million, 1 million, and 2 million, respectively.
As further described in Note 8, certain potentially dilutive securities were excluded from the diluted average shares
calculation because their impact was anti-dilutive.
New Accounting Standards
On July 1, 2009, the Company adopted FASB amended guidance in ASC Topic 805, Business Combinations,
which changes the financial accounting and reporting of business combination transactions. The guidance was
applied prospectively to business combinations completed on or after the adoption date. This amended guidance
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. The amended guidance also includes requirements relating to the accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies and establishes a model to account for
certain pre-acquisition contingencies. Under the amended guidance, 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, the acquirer should follow the recognition criteria in ASC Topic
450, Contingencies. There was no material effect on the Company‘s consolidated financial statements as a result of
the adoption of this amended guidance.