Archer Daniels Midland 2009 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2009 Archer Daniels Midland annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

22
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company’s Corn Processing operations and certain other food and animal feed processing operations also
utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. In these
operations, agricultural commodity market price changes can result in significant fluctuations in cost of products
sold, and such price changes cannot necessarily be passed directly through to the selling price of the finished
products.
The Company conducts its business in many countries. For the majority of the Company’s subsidiaries located
outside the United States, the local currency is the functional currency. Revenues and expenses denominated in
foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods.
Fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, and Canadian dollar, as
compared to the U.S. dollar will result in corresponding fluctuations in the U.S. dollar value of revenues and
expenses reported by the Company. The impact of these currency exchange rate changes, where significant, is
discussed below.
The Company measures the performance of its business segments using key operating statistics such as segment
operating profit, return on fixed capital investment, return on net assets, and return on equity. The Company’s
operating results can vary significantly due to changes in factors such as fluctuations in energy prices, weather
conditions, crop 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. Due to these
unpredictable factors, the Company does not provide forward-looking information in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
2009 Compared to 2008
As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect
the Company’s operating results. Net corn costs increased significantly in 2009 compared to 2008, negatively
impacting ethanol margins, and, to a lesser extent, sweeteners and starches margins as the higher net corn costs
were only partially offset by increased selling prices for sweeteners and starches. Additionally, lower demand for
gasoline, decreased gasoline prices and excess ethanol industry capacity negatively impacted ethanol margins.
Demand for agricultural commodities, freight, and other products was weaker during 2009 in line with the
downturn in the global economy. Results were negatively impacted by decreased equity earnings in unconsolidated
affiliates including significant non-cash charges related to currency derivative losses incurred by the Company’s
equity investee, Gruma S.A.B. de C.V., and losses from the Company’s managed fund investments.
Earnings before income taxes for 2009 include a credit of $517 million from the effect of changing commodity
prices on LIFO inventory valuation reserves, compared to a charge of $569 million in 2008.
Income taxes for 2009 include charges of $158 million resulting from the restructuring of a holding company in
which the Company holds a portion of its equity investment in Wilmar International Limited.