10-K 1 adm-20131231x10k.htm 10-K ADM-2013.12.31-10K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

Commission file number 1-44
ARCHER-DANIELS-MIDLAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware
41-0129150
(State or other jurisdiction of
(I. R. S. Employer
incorporation or organization)
Identification No.)
 
 
4666 Faries Parkway   Box 1470
Decatur, Illinois
62525
(Address of principal executive offices)
(Zip Code)
 
 
217-424-5200
(Registrant's telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
Name of each exchange on which registered
 
 
Common Stock, no par value
New York Stock Exchange
 
Frankfurt Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:                 None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x  No ¨





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x                                                      Accelerated Filer  o
Non-accelerated Filer     o                                                      Smaller Reporting Company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Common Stock, no par value--$21.9 billion
(Based on the closing sale price of Common Stock as reported on the New York Stock Exchange
as of June 30, 2013)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock, no par value—658,371,076 shares
(January 31, 2014)

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of stockholders to be held May 1, 2014, are incorporated by reference into Part III

SAFE HARBOR STATEMENT

This Form 10-K contains forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking information.  In some cases, you can identify forward-looking statements by our use of words such as “may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, potential or contingent,” the negative of these terms or other similar expressions.  The Company’s actual results could differ materially from those discussed or implied herein.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-K for the year ended December 31, 2013.  Among these risks are legislative acts; changes in the prices of food, feed, and other commodities, including gasoline; and macroeconomic conditions in various parts of the world.  To the extent permitted under applicable law, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events.

2



Table of Contents

Item No.
Description
Page No.
 
 
 
 
Part I
 
1.
1A.
1B.
2.
3.
4.
 
 
 
 
Part II
 
5.
6.
7.
  24
7A.
8.
9.
9A.
9B.
 
 
 
 
Part III
 
10.
11.
12.
13.
14.
 
 
 
 
Part IV
 
15.
 

3



PART I

Item 1.
BUSINESS

Company Overview

Archer-Daniels-Midland Company (the Company) was incorporated in Delaware in 1923, successor to the Daniels Linseed Co. founded in 1902.  The Company is one of the world’s largest processors of oilseeds, corn, wheat, cocoa, and other agricultural commodities and is a leading manufacturer of protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.  The Company also has an extensive global grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities.  The Company has significant investments in joint ventures.  The Company expects to benefit from these investments, which typically aim to expand or enhance the Company’s market for its products or offer other benefits including, but not limited to, geographic or product line expansion.

The Company’s vision is to be the most admired global agribusiness while creating value and growing responsibly.  The Company’s strategy involves expanding the volume and diversity of crops that it merchandises and processes, expanding the global reach of its core model, and expanding its value-added product portfolio.  The Company seeks to serve vital needs by connecting the harvest to the home and transforming crops into food and energy products.  The Company desires to execute this vision and these strategies by conducting its business in accordance with its core values of operating with integrity, treating others with respect, achieving excellence, being resourceful, displaying teamwork, and being responsible.

On May 3, 2012, the Board of Directors of the Company determined that, in accordance with its Bylaws and upon the recommendation of the Audit Committee, the Company’s fiscal year shall begin on January 1 and end on December 31 of each year, starting on January 1, 2013. The required transition period of July 1, 2012 to December 31, 2012 is included in this Form 10-K report.  Amounts included in this report for the year ended December 31, 2012 and the six months ended December 31, 2011 are unaudited.

Segment Descriptions
 
The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other.  Financial information with respect to the Company’s reportable business segments is set forth in Note 18 of “Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data.”

Oilseeds Processing

The Oilseeds Processing segment includes global activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals.  Oilseeds products produced and marketed by the Company include ingredients for the food, feed, energy, and industrial products industries.  Crude vegetable oils produced by the segment’s crushing activities are sold “as is” or are further processed by refining, blending, bleaching, and deodorizing into salad oils.  Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oils are used to produce biodiesel or are sold to other manufacturers for use in chemicals, paints, and other industrial products.  Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds.  In Europe and South America, the Oilseeds Processing segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets.  These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds.  The Oilseeds Processing segment produces natural health and nutrition products and other specialty food and feed ingredients.  In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets.  In South America, the Oilseeds Processing segment operates fertilizer blending facilities.
 
The Company has a 16.4% ownership interest in Wilmar International Limited (Wilmar), a Singapore publicly   listed company.  Wilmar, a leading agribusiness group in Asia, is engaged in the businesses of oil palm cultivation, oilseeds crushing, edible oils refining, sugar milling and refining, specialty fats, oleo chemicals, biodiesel and fertilizers manufacturing, and grains processing.


4




Item 1.
BUSINESS (Continued)

The Oilseeds Processing segment also includes activities related to the procurement, transportation and processing of cocoa beans into cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds in North America, South America, Europe, Asia, and Africa for the food industry.

Golden Peanut Company LLC (Golden Peanut), a wholly owned subsidiary of the Company, is a major supplier of peanuts and peanut-derived ingredients to both the U.S. and export markets and operator of a peanut shelling facility in Argentina.  The Company began consolidating the operating results of Golden Peanut in the third quarter of fiscal 2011.

Stratas Foods LLC, a joint venture between the Company and ACH Jupiter, LLC, a subsidiary of Associated British Foods, procures, packages, and sells edible oils in North America.  The Company has a 50% ownership interest in this joint venture.

The Company has a 50% interest in Edible Oils Limited, a joint venture between the Company and Princes Limited to procure, package, and sell edible oils in the United Kingdom.  The Company also formed a joint venture with Princes Limited in Poland to procure, package, and sell edible oils in Poland, Czech Republic, Slovakia, Hungary, and Austria.

The Company is a major supplier of agricultural commodity raw materials to Wilmar, Stratas Foods LLC, and Edible Oils Limited.

Corn Processing

The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, with its asset base primarily located in the central part of the United States.  The Corn Processing segment converts corn into sweeteners and starches, and bioproducts.  Its products include ingredients used in the food and beverage industry including sweeteners, starch, syrup, glucose, and dextrose.  Dextrose and starch are used by the Corn Processing segment as feedstocks for its bioproducts operations.  By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other specialty food and animal feed ingredients.  Ethyl alcohol is produced by the Company for industrial use as ethanol or as beverage grade.  Ethanol, in gasoline, increases octane and is used as an extender and oxygenate.  The Corn Processing segment also includes amino acids such as lysine and threonine that are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production.  Corn gluten feed and meal, as well as distillers’ grains, are produced for use as animal feed ingredients.  Corn germ, a by-product of the wet milling process, is further processed into vegetable oil and protein meal.  Other Corn Processing products include citric and lactic acids, lactates, sorbitol, xanthan gum, and glycols which are used in various food and industrial products.  The Corn Processing segment includes the activities of a propylene and ethylene glycol facility and the Company’s Brazilian sugarcane ethanol plant and related activities.

Almidones Mexicanos S.A., in which the Company has a 50% interest, operates a wet corn milling plant in Mexico.

Eaststarch C.V. (Netherlands), in which the Company has a 50% interest, owns interests in companies that operate wet corn milling plants in Bulgaria, Hungary, Slovakia, and Turkey.

Red Star Yeast Company, LLC produces and sells fresh and dry yeast in the United States and Canada.  The Company has a 40% ownership interest in this joint venture.

Agricultural Services

The Agricultural Services segment utilizes its extensive U.S. grain elevator, global transportation network, and port operations to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry.  Agricultural Services’ grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. Agricultural Services’ transportation network capabilities include barge, ocean-going vessel, truck, and rail freight services.

The Company has a 45% interest in Kalama Export Company LLC, a grain export elevator in Kalama, WA.

Alfred C. Toepfer International (Toepfer), in which the Company has an 80% interest, is a global merchandiser of agricultural commodities and processed products.  Toepfer consists of a headquarters in Hamburg, Germany and 36 sales offices worldwide.  Toepfer operates inland, river, and export facilities in Argentina, Hungary, Romania, Ukraine, and the United States.


5




Item 1.
BUSINESS (Continued)

The Agricultural Services segment also includes the activities related to the origination and processing of wheat into wheat flour, the processing and distribution of formula feeds and animal health and nutrition products, and the procurement, processing, and distribution of edible beans.

The Company has a 19.8% interest in GrainCorp Limited (GrainCorp), a publicly-listed company on the Australian Stock Exchange. GrainCorp is engaged in grain receival and handling, transportation, port operations, malt processing, flour processing, and grain marketing activities.

Prior to December 2012, the Company had a 23.2% interest in Gruma S.A.B. de C.V. (Gruma), the world’s largest producer and marketer of corn flour and tortillas.  Additionally, the Company had joint ventures in corn flour and wheat flour mills with and through Gruma.  In December 2012, the Company sold its 23.2% interest in Gruma and the Gruma-related joint ventures.

Other

Other includes the Company’s remaining operations, primarily its financial business units, related principally to futures commission merchant activities and captive insurance.

ADM Investor Services, Inc., a wholly owned subsidiary of the Company, is a registered futures commission merchant and a clearing member of all principal commodities exchanges in the U.S.  ADM Investor Services International, Ltd., a member of several commodity exchanges and clearing houses in Europe, ADMIS Hong Kong Limited, and ADMIS Singapore Pte. Limited, are wholly owned subsidiaries of the Company offering broker services in Europe and Asia.  ADMISI Commodities Private Limited, in which the Company owns a 51% interest, and ADMISI Forex India Private Limited, a wholly owned subsidiary of the Company, offer broker services in India. Monument Securities Limited is a wholly owned subsidiary of the Company offering broker services in the United Kingdom.

Captive insurance includes Agrinational Insurance Company (Agrinational) and ADM Crop Risk Services. Agrinational, a wholly owned subsidiary of the Company, provides insurance coverage for certain property, casualty, marine, credit, and other miscellaneous risks of the Company and participates in certain third-party reinsurance arrangements.  Agrinational retains an immaterial portion of the crop insurance risk after third-party reinsurance. ADM Crop Risk Services, a wholly owned subsidiary, is a managing general agent which sells and services crop insurance policies to farmers.  

Corporate

Compagnie Industrielle et Financiere des Produits Amylaces SA (Luxembourg) and affiliates (CIP), of which the Company has a 43.7% interest, is a joint venture which targets investments in food, feed ingredients and bioproducts businesses.

Methods of Distribution

The Company’s products are distributed mainly in bulk from processing plants or storage facilities directly to customers’ facilities.  The Company has developed a comprehensive transportation capability to efficiently move both commodities and processed products virtually anywhere in the world.  The Company owns or leases large numbers of the trucks, trailers, railroad tank and hopper cars, river barges, towboats, and ocean-going vessels used to transport the Company’s products to its customers.


6




Item 1.
BUSINESS (Continued)

Concentration of Revenues by Product

The following products account for 10% or more of revenues for the following periods:

 
% of Revenues
 
Years Ended December 31,
 
Six Months Ended
 December 31,
 
Years Ended June 30,
 
2013
 
2012
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
Soybeans
18%
 
20%
 
20%
 
17%
 
19%
 
21%
Corn
9%
 
11%
 
10%
 
12%
 
11%
 
12%
Soybean Meal
11%
 
11%
 
11%
 
8%
 
9%
 
9%

Status of New Products

The Company continues to expand the size and global reach of its business through the development of new products.  The Company does not expect any of its new products to have a significant impact on the Company’s revenues in 2014.

Source and Availability of Raw Materials

Substantially all of the Company’s raw materials are agricultural commodities.  In any single year, the availability and price of these commodities are subject to factors such as changes in weather conditions, plantings, government programs and policies, competition, changes in global demand, changes in standards of living, and global production of similar and competitive crops.  The Company’s raw materials are procured from thousands of growers, grain elevators, and wholesale merchants in North America, South America, Europe, Asia, Australia, and Africa, pursuant primarily to short-term (less than one year) agreements or on a spot basis.  The Company is not dependent upon any particular grower, elevator, or merchant as a source for its raw materials.

Patents, Trademarks, and Licenses

The Company owns patents, trademarks, and licenses but does not consider any segment of its business dependent upon any single or group of patents, trademarks or licenses.

Seasonality, Working Capital Needs, and Significant Customers

Since the Company is widely diversified in global agribusiness markets, there are no material seasonal fluctuations in overall global processing volumes and the sale and distribution of its products and services.  There is a degree of seasonality in the growing cycles, procurement, and transportation of the Company’s principal raw materials: oilseeds, corn, wheat, cocoa beans, sugarcane, and other grains.
 
The price of agricultural commodities, which may fluctuate significantly and change quickly, directly affects the Company’s working capital requirements.  Because the Company has a higher portion of its operations in the northern hemisphere, principally North America and Europe, relative to the southern hemisphere, primarily South America, inventory levels typically peak after the northern hemisphere fall harvest and are generally lower during the northern hemisphere summer months.  Working capital requirements have historically trended with inventory levels.  No material part of the Company’s business is dependent upon a single customer or very few customers.  The Company has seasonal financing arrangements with farmers in certain countries around the world.  Typically, advances on these financing arrangements occur during the planting season and are repaid at harvest.

Competition

The Company has significant competition in the markets in which it operates based principally on price, quality, and alternative products, some of which are made from different raw materials than those utilized by the Company.  Given the commodity-based nature of many of its businesses, the Company, on an ongoing basis, focuses on managing unit costs and improving efficiency through technology improvements, productivity enhancements, and regular evaluation of the Company’s asset portfolio.


7




Item 1.
BUSINESS (Continued)

Research and Development Expenditures

The Company’s research and development expenditures are focused on responding to demand from customers’ product development or formulation needs, improving processing efficiency, and developing food, feed, fuel, and industrial products from renewable agricultural crops.  Research and development expense during the years ended December 31, 2013 and 2012, the six months ended December 31, 2012 and 2011, and the years ended June 30, 2012 and 2011, net of reimbursements of government grants, was approximately $59 million, $55 million, $28 million, $29 million, $56 million, and $60 million, respectively.  The Company does not expect these research and development activities to have a significant effect on revenues in the next year.

The Company is working with the U.S. Department of Energy’s National Energy Technology Laboratory and other key academic and corporate partners on projects to demonstrate carbon capture and sequestration as a viable option for reducing carbon dioxide emissions from manufacturing operations.  The first project, Illinois Basin Decatur Project led by Midwest Geological Sequestration Consortium started operations in the first quarter of fiscal year ended June 30, 2012.  The second project, the Illinois Industrial Carbon Capture & Sequestration commenced construction in the fourth quarter of fiscal year ended June 30, 2012. This facility is expected to be operational when the Environmental Protection Agency permits are finalized.

The Company is continuing to invest in research to develop a broad range of industrial chemicals with an objective to produce key chemical building blocks that serve as a platform for producing a variety of commodity chemicals.  The key chemical building blocks are derived from the Company’s starch and oilseed-based feedstocks.  Conversion technologies include utilizing expertise in both fermentation and catalysis.  The chemicals pipeline includes the development of chemicals and intermediates that are currently produced from petrochemical resources as well as new-to-the-market bio-based products. The Company’s current portfolio includes products that are in the early development phase and those that are close to pilot plant demonstration. In an effort to further advance the development of bio-based chemical technologies, the Company has partnered with the Center for Environmentally Beneficial Catalysis and has added research capabilities at the University of Kansas.
 
Environmental Compliance

During the year ended December 31, 2013, $85 million was spent specifically to improve equipment, facilities, and programs for pollution control and compliance with the requirements of various environmental agencies.

There have been no material effects upon the earnings and competitive position of the Company resulting from compliance with federal, state, and local laws or regulations enacted or adopted relating to the protection of the environment.

The Company’s business could be affected in the future by national and global regulation or taxation of greenhouse gas emissions. In the United States, the U.S. Environmental Protection Agency (EPA) has adopted regulations requiring the owners of certain facilities to measure and report their greenhouse gas emissions, and the U.S. EPA has begun a process to regulate these emissions under the Clean Air Act.  The U.S. EPA has also adopted rules regarding the construction and operation of new boilers that could greatly limit the construction of new coal-fired boilers.  California is also moving forward with various programs to reduce greenhouse gases.  Globally, a number of countries that are parties to the Kyoto Protocol have instituted or are considering climate change legislation and regulations. Most notable is the European Union Greenhouse Gas Emission Trading System. The Company has several facilities in Europe that participate in this system.  It is difficult at this time to estimate the likelihood of passage, or predict the potential impact, of any additional legislation. Potential consequences could include increased energy, transportation and raw material costs and may require the Company to make additional investments in its facilities and equipment.

Number of Employees

The number of full-time employees of the Company was approximately 31,100 at December 31, 2013 and 30,600 at December 31, 2012.  The net increase in the number of full-time employees is primarily related to the acquisition or start-up of new facilities and new requirements in Brazil that require the Company to classify a significant number of its seasonal workforce as full-time employees.

Financial Information About Foreign and U.S. Operations

Item 1A, “Risk Factors,” and Item 2, “Properties,” includes information relating to the Company’s foreign and U.S. operations.  Geographic financial information is set forth in Note 18 of “Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data”.

8




Item 1.
BUSINESS (Continued)

Available Information

The Company’s internet address is http://www.adm.com.  The Company makes available, free of charge, through its website, the Company’s annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Directors and Officers Forms 3, 4, and 5; and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the Securities and Exchange Commission (SEC).

In addition, the Company makes available, through its website, the Company’s Code of Conduct, Corporate Governance Guidelines, and the written charters of the Audit, Compensation/Succession, Nominating/Corporate Governance, and Executive Committees.

References to our website address in this report are provided as a convenience and do not constitute, or should not be viewed as, an incorporation by reference of the information contained on, or available through, the website.  Therefore, such information should not be considered part of this report.

The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains a website which contains reports, proxy and information statements, and other information regarding issuers that file information electronically with the SEC.  The SEC’s internet address is http://www.sec.gov.

Item 1A.
RISK FACTORS

The availability and prices of the agricultural commodities and agricultural commodity products the Company procures, transports, stores, processes, and merchandises can be affected by weather conditions, disease, government programs, competition, and various other factors beyond the Company’s control and could adversely affect the Company’s operating results.

The availability and prices of agricultural commodities are subject to wide fluctuations due to changes in weather conditions, crop disease, plantings, government programs and policies, competition, changes in global demand, changes in standards of living, and global production of similar and competitive crops.  Additionally, the Company depends globally on farmers to ensure an adequate supply of the agricultural commodities used by the Company in its operations is maintained. These factors have historically caused volatility in the availability and prices of agricultural commodities and, consequently, in the Company’s operating results and working capital requirements.  Reduced supply of agricultural commodities due to weather-related factors or other reasons could adversely affect the Company’s profitability by increasing the cost of raw materials and/or limiting the Company’s ability to procure, transport, store, process, and merchandise agricultural commodities in an efficient manner.  For example, a drought in North America in 2012 reduced the availability of corn and soybean inventories while prices increased.  High and volatile commodity prices can adversely affect the Company’s ability to meet its liquidity needs.

The Company has significant competition in the markets in which it operates.

The Company faces significant competition in each of its businesses and has numerous competitors.  The company competes for the acquisition of inputs such as agricultural commodities, workforce, and other materials and supplies.  Additionally, competitors offer similar products and services, as well as alternative products and services, to the Company’s customers.  The Company is dependent on being able to generate revenues in excess of cost of products sold in order to obtain margins, profits, and cash flows to meet or exceed its targeted financial performance measures and provide cash for operating, working capital, dividend, or capital expenditure needs.  Competition impacts the Company’s ability to generate and increase its gross profit as a result of the following factors.  Pricing of the Company’s products is partly dependent upon industry processing capacity, which is impacted by competitor actions to bring on-line idled capacity or to build new production capacity.  Many of the products bought and sold by the Company are global commodities or are derived from global commodities.  The markets for global commodities are highly price competitive and in many cases the commodities are subject to substitution.  To compete effectively, the Company focuses on improving efficiency in its production and distribution operations, developing and maintaining appropriate market share, and providing high levels of customer service.  Competition could increase the Company’s costs to purchase raw materials, lower selling prices of its products, or reduce the Company’s market share, which may result in lower and more inefficient operating rates and reduced gross profit.


9




Item 1A.
RISK FACTORS (Continued)

Fluctuations in energy prices could adversely affect the Company’s operating results.

The Company’s operating costs and the selling prices of certain finished products are sensitive to changes in energy prices.  The Company’s processing plants are powered principally by electricity, natural gas, and coal.  The Company’s transportation operations are dependent upon diesel fuel and other petroleum-based products.  Significant increases in the cost of these items, including any consequences of regulation or taxation of greenhouse gases, could adversely affect the Company’s production costs and operating results.

The Company has certain finished products, such as ethanol and biodiesel, which are closely related to, or may be substituted for, petroleum products.  Therefore, the selling prices of ethanol and biodiesel can be impacted by the selling prices of gasoline and diesel fuel.  A significant decrease in the price of gasoline or diesel fuel could result in a significant decrease in the selling price of the Company’s ethanol and biodiesel and could adversely affect the Company’s revenues and operating results.

The Company is subject to economic downturns, which could adversely affect the Company’s operating results.

The Company conducts its business and has substantial assets located in many countries and geographic areas. While approximately 55 percent of the Company’s processing plants and 64 percent of its procurement facilities are located in the United States, the Company also has significant operations in both developed areas (such as Western Europe, Canada, Brazil) and emerging market areas (such as Eastern Europe, Asia, portions of South and Central America, the Middle East, and Africa). One of the Company's strategies is to expand the global reach of its core model which may include expanding or developing its business in emerging market areas such as Asia, Eastern Europe, the Middle East, and Africa. Both developed and emerging market areas are subject to impacts of economic downturns, including decreased demand for the Company’s products, and reduced availability of credit, or declining credit quality of the Company’s suppliers, customers, and other counterparties.  In addition, emerging market areas could be subject to more volatile operating conditions including, but not limited to, logistics limitations or delays, labor-related challenges, limitations or regulations affecting trade flows, local currency concerns, and other economic and political instability.  Economic downturns and volatile market conditions could adversely affect the Company’s operating results and ability to execute its business strategies.

Government policies, mandates, and regulations, in general; government policies, mandates, and regulations specifically affecting the agricultural sector and related industries; and political instability and other risks of doing business globally could adversely affect the Company’s operating results.

Agricultural production and trade flows are subject to government policies, mandates, and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives, foreign exchange rates, and import and export restrictions on agricultural commodities and commodity products, including policies related to genetically modified organisms, renewable fuel, and low carbon fuel mandates, can influence the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume and types of imports and exports, the availability and competitiveness of feedstocks as raw materials, the viability and volume of production of certain of the Company’s products, and industry profitability.  For example, changes in government policies or regulations of ethanol and biodiesel, including but not limited to changes in the Renewable Fuel Standard program under the Energy Independence and Security Act of 2007 in the United States, can have a significant impact on the Company’s operating results.  International trade regulations can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Regulations of financial markets and instruments, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, create uncertainty and may lead to additional risks and costs, and could adversely affect the Company's agricultural commodity risk management practices as well as the Company's futures commission merchant business. Future government policies may adversely affect the supply of, demand for, and prices of the Company’s products; restrict the Company’s ability to do business in its existing and target markets; and adversely affect the Company’s revenues and operating results.









10




Item 1A.
RISK FACTORS (Continued)

The Company’s operating results could be affected by changes in other governmental policies, mandates, and regulations including monetary, fiscal and environmental policies, laws, regulations, acquisition approvals, and other activities of governments, agencies, and similar organizations.  These risks include but are not limited to changes in a country’s or region’s economic or political conditions, local labor conditions and regulations, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities, currency exchange fluctuations, burdensome taxes and tariffs, enforceability of legal agreements and judgments, adverse tax, administrative agency or judicial outcomes, and regulation or taxation of greenhouse gases.  International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities, and war, could limit the Company’s ability to transact business in these markets and could adversely affect the Company’s revenues and operating results.

The Company's strategy involves expanding the volume and diversity of crops it merchandises and processes, expanding the global reach of its core model, and expanding its value-added product portfolio. Government policies, including anti-trust and competition law, trade restrictions, food safety regulations, and other government regulations and mandates, can impact the Company's ability to execute this strategy successfully.

The Company is subject to industry-specific risks which could adversely affect the Company’s operating results.

The Company is subject to risks which include, but are not limited to, product quality or contamination; shifting consumer preferences; federal, state, and local food processing regulations; socially acceptable farming practices; environmental, health and safety regulations; and customer product liability claims.  The liability which could result from certain of these risks may not always be covered by, or could exceed liability insurance related to product liability and food safety matters maintained by the Company.  In addition, negative publicity caused by product liability and food safety matters may damage the Company’s reputation.  The occurrence of any of the matters described above could adversely affect the Company’s revenues and operating results.

Certain of the Company’s merchandised commodities and finished products are used as ingredients in livestock and poultry feed.  The Company is subject to risks associated with economic or other factors which may adversely affect the livestock and poultry businesses, including the outbreak of disease in livestock and poultry.  An outbreak of disease could adversely affect demand for the Company’s products used as ingredients in livestock and poultry feed.  A decrease in demand for ingredients in livestock and poultry feed could adversely affect the Company’s revenues and operating results.

The Company is subject to numerous laws, regulations, and mandates globally which could adversely affect the Company’s operating results and forward strategy.

The Company does business globally, connecting crops and markets in over 144 countries.  The Company is required to comply with the numerous and broad-reaching laws and regulations administered by United States federal, state and local, and foreign governmental authorities.  The Company must comply with other general business regulations such as accounting and income taxes, anti-corruption, anti-bribery, global trade, environmental, and handling of regulated substances.  The Company frequently faces challenges from U.S. and foreign tax authorities regarding the amount of taxes due.  These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.  In evaluating the exposure associated with various tax filing positions, the Company records reserves for estimates of potential additional tax owed by the Company.  As examples, the Company has received large tax assessments from tax authorities in Brazil and Argentina challenging income tax positions taken by subsidiaries of the Company covering various prior periods.  Any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject the Company to administrative penalties and injunctive relief, civil remedies including fines, injunctions, and recalls of its products, and damage to its reputation.

The production of the Company’s products requires the use of materials which can create emissions of certain regulated substances, including greenhouse gas emissions.  Although the Company has programs in place throughout the organization globally to guard against non-compliance, failure to comply with these regulations can have serious consequences, including civil and administrative penalties as well as a negative impact on the Company’s reputation, business, cash flows, and results of operations.

In addition, changes to regulations or implementation of additional regulations, for example the imposition of regulatory restrictions on greenhouse gases, may require the Company to modify existing processing facilities and/or processes which could significantly increase operating costs and adversely affect operating results.


11




Item 1A.
RISK FACTORS (Continued)

The Company is exposed to potential business disruption, including but not limited to disruption of transportation services, supply of non-commodity raw materials used in its processing operations, and other impacts resulting from acts of terrorism or war, natural disasters, severe weather conditions, and accidents which could adversely affect the Company’s operating results.

The Company’s operations rely on dependable and efficient transportation services.  A disruption in transportation services could result in difficulties supplying materials to the Company’s facilities and impair the Company’s ability to deliver products to its customers in a timely manner.  The Company relies on access to navigable rivers and waterways in order to fulfill its transportation obligations more effectively.  If access to these navigable waters is interrupted, the Company’s operating results could be adversely affected.  In addition, if certain non-agricultural commodity raw materials, such as water or certain chemicals used in the Company’s processing operations, are not available, the Company’s business could be disrupted.  Any major lack of available water for use in certain of the Company's processing operations could have a material adverse impact on operating results.  Certain factors which may impact the availability of non-agricultural commodity raw materials are out of the Company’s control including, but not limited to, disruptions resulting from weather, economic conditions, manufacturing delays or disruptions at suppliers, shortage of materials, and unavailable or poor supplier credit conditions.

The assets and operations of the Company could be subject to extensive property damage and business disruption from various events which include, but are not limited to, acts of terrorism or war, natural disasters and severe weather conditions, accidents, explosions, and fires. The potential effects of these conditions could adversely affect the Company’s revenues and operating results.

The Company’s business is capital-intensive in nature and the Company relies on cash generated from its operations and external financing to fund its growth and ongoing capital needs.  Limitations on access to external financing could adversely affect the Company’s operating results.

The Company requires significant capital, including access to credit markets from time to time, to operate its current business and fund its growth strategy.  The Company’s working capital requirements, including margin requirements on open positions on futures exchanges, are directly affected by the price of agricultural commodities, which may fluctuate significantly and change quickly.  The Company also requires substantial capital to maintain and upgrade its extensive network of storage facilities, processing plants, refineries, mills, ports, transportation assets and other facilities to keep pace with competitive developments, technological advances, regulations and changing safety standards in the industry.  Moreover, the expansion of the Company’s business and pursuit of acquisitions or other business opportunities may require significant amounts of capital.  Access to credit markets and pricing of the Company’s capital is dependent upon maintaining sufficient credit ratings from credit rating agencies.  Sufficient credit ratings allow the Company to access tier one commercial paper markets. If the Company is unable to maintain sufficiently high credit ratings, access to these commercial paper and other debt markets and costs of borrowings could be adversely affected.  If the Company is unable to generate sufficient cash flow or maintain access to adequate external financing, including as a result of significant disruptions in the global credit markets, it could restrict the Company’s current operations and its growth opportunities which could adversely affect the Company’s operating results.

The Company’s risk management strategies may not be effective.
 
The Company’s business is affected by fluctuations in agricultural commodity cash prices and derivative prices, transportation costs, energy prices, interest rates, and foreign currency exchange rates.  The Company has processes in place to monitor exposures to these risks and engages in strategies to manage these risks.  The Company’s monitoring efforts may not be successful at detecting a significant risk exposure.  If these controls and strategies are not successful in mitigating the Company’s exposure to these fluctuations, it could adversely affect the Company’s operating results.
 
The Company has limited control over and may not realize the expected benefits of its equity investments and joint ventures.
 
The Company has $3.3 billion invested in or advanced to joint ventures and investments over which the Company has limited control as to the governance and management activities of these investments.  Net sales to unconsolidated affiliates during the year ended December 31, 2013 was $6.9 billion.  The Company faces certain risks, including risks related to the financial strength of the investment partner; loss of revenues and cash flows to the investment partner and related gross profit; the inability to implement beneficial management strategies, including risk management and compliance monitoring, with respect to the investment’s activities; and the risk that the Company may not be able to resolve disputes with the investment partner.  The Company may encounter unanticipated operating issues or financial results related to these investments that may impact the Company’s revenues and operating results.

12




Item 1A.
RISK FACTORS (Continued)

The Company’s information technology (IT) systems, processes, and sites may suffer interruptions, security breaches, or failures which may affect the Company’s ability to conduct its business.
 
The Company’s operations rely on certain key IT systems, some of which are dependent on services provided by third parties, to provide critical data connectivity, information and services for internal and external users.  These interactions include, but are not limited to, ordering and managing materials from suppliers, risk management activities, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, complying with regulatory, legal or tax requirements, and other processes necessary to manage the business.  Increased IT security threats and more sophisticated computer crime, including advanced persistent threats, pose a potential risk to the security of the Company's IT systems, networks, and services, as well as the confidentiality, availability, and integrity of the Company's data. The Company has put in place security measures to protect itself against cyber-based attacks and disaster recovery plans for its critical systems.  However, if the Company’s IT systems are breached, damaged, or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, or cyber-based attacks, and the Company’s disaster recovery plans do not effectively mitigate on a timely basis, the Company may suffer interruptions in its ability to manage its operations, loss of valuable data, and damage to its reputation, which may adversely impact the Company’s revenues, operating results, and financial condition.
Item 1B.
UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments.

Item 2.
PROPERTIES

The Company owns or leases, under operating leases, the following processing plants and procurement facilities:

 
Processing Plants
 
Procurement Facilities
 
Owned
 
Leased
 
Total
 
Owned
 
Leased
 
Total
U.S.
149

 

 
149

 
286

 
21

 
307

International
114

 
9

 
123

 
133

 
36

 
169

 
263

 
9

 
272

 
419

 
57

 
476


The Company’s operations are such that most products are efficiently processed near the source of raw materials.  Consequently, the Company has many plants strategically located in agricultural commodity producing areas.  The annual volume of commodities processed will vary depending upon availability of raw materials and demand for finished products. The Company also owns approximately 200 warehouses and terminals primarily used as bulk storage facilities. Warehouses, terminals, corporate, and sales offices are not included in the tables above. Processing plants and procurement facilities owned or leased by unconsolidated joint ventures are also not included in the tables above.

To enhance the efficiency of transporting large quantities of raw materials and finished products between the Company’s procurement facilities and processing plants and also the final delivery of products to our customers around the world, the Company owns approximately 2,000 barges, 13,400 rail cars, 300 trucks, 1,300 trailers, and 8 ocean going vessels; and leases, under operating leases, approximately 500 barges, 14,000 railcars, 300 trucks, and 44 ocean going vessels.
 

13




Item 2.
PROPERTIES

 
Oilseeds Processing Plants
 
Owned
 
Leased
 
Crushing &
Origination
 
Refining,
Packaging,
Biodiesel, &
Other
 
Cocoa &
Other
 
Asia
 
Total
 
Cocoa &
Other
 
Asia
 
Total
North America
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S.*
23

 
27

 
14

 

 
64

 

 

 

Canada
3

 
4

 
1

 

 
8

 
1

 

 
1

Mexico
1

 

 

 

 
1

 

 

 

Total
27

 
31

 
15

 

 
73

 
1

 

 
1

Daily capacity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Metric tons (in 1,000's)
55

 
17

 
4

 

 
76

 

 

 

South America
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Argentina

 

 
1

 

 
1

 

 

 

Bolivia
1

 
2

 

 

 
3

 

 

 

Brazil
5

 
12

 
1

 

 
18

 

 

 

Paraguay
1

 
1

 

 

 
2

 

 

 

Peru

 
1

 

 

 
1

 

 

 

Total
7

 
16

 
2

 

 
25

 

 

 

Daily capacity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Metric tons (in 1,000's)
17

 
17

 

 

 
34

 

 

 

Europe
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Belgium

 

 
1

 

 
1

 

 

 

Czech Republic
1

 
1

 

 

 
2

 

 

 

France

 
1

 

 

 
1

 

 

 

Germany
4

 
12

 
2

 

 
18

 

 

 

Netherlands
1

 
3

 
2

 

 
6

 

 

 

Poland
2

 
5

 

 

 
7

 

 

 

Ukraine
1

 

 

 

 
1

 

 

 

U.K.
1

 
3

 

 

 
4

 
1

 

 
1

Total
10

 
25

 
5

 

 
40

 
1

 

 
1

Daily capacity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)
34

 
15

 
1

 

 
50

 

 

 

Asia
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

India

 

 

 
4

 
4

 

 
2

 
2

Singapore

 

 

 

 

 
1

 

 
1

Total

 

 

 
4

 
4

 
1

 
2

 
3

Daily capacity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 

 

 
2

 
2

 

 
2

 
2

Africa/Middle East
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ghana

 

 
1

 

 
1

 

 

 

Ivory Coast

 

 
1

 

 
1

 

 

 

South Africa

 

 
2

 

 
2

 

 

 

Total

 

 
4

 

 
4

 

 

 

Daily capacity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 

 

 

 

 

 

 

Grand Total
44

 
72

 
26

 
4

 
146

 
3

 
2

 
5

Total daily capacity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Metric tons (in 1,000's)
106

 
49

 
5

 
2

 
162

 

 
2

 
2

*The U.S. plants are located in Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, and Wisconsin.

14




Item 2.
PROPERTIES (Continued)

 
Oilseeds Processing Procurement Facilities
 
Owned
 
Leased
 
Crushing &
Origination
 
Cocoa &
Other
 
Total
 
Crushing &
Origination
 
Cocoa &
Other
 
Total
North America
 
 
 
 
 
 
 
 
 
 
 
U.S.*
9

 
70

 
79

 

 

 

Canada
5

 

 
5

 

 

 

Total
14

 
70

 
84

 

 

 

Storage capacity
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)
338

 
300

 
638

 

 

 

South America
 

 
 

 
 

 
 

 
 

 
 

Argentina

 
1

 
1

 

 

 

Bolivia
10

 

 
10

 
9

 

 
9

Brazil
34

 

 
34

 
3

 
1

 
4

Paraguay
28

 

 
28

 
7

 

 
7

Uruguay
1

 

 
1

 
6

 

 
6

Total
73

 
1

 
74

 
25

 
1

 
26

Storage capacity
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)
2,233

 
6

 
2,239

 
546

 
2

 
548

Europe
 

 
 

 
 

 
 

 
 

 
 

Netherlands
1

 

 
1

 

 

 

Poland
5

 

 
5

 

 

 

Slovakia
3

 

 
3

 

 

 

Total
9

 

 
9

 

 

 

Storage capacity
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)
355

 

 
355

 

 

 

Asia
 

 
 

 
 

 
 

 
 

 
 

Indonesia

 
1

 
1

 

 
2

 
2

Total

 
1

 
1

 

 
2

 
2

Storage capacity
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 
8

 
8

 

 
16

 
16

Africa/Middle East
 

 
 

 
 

 
 

 
 

 
 

Cameroon

 
1

 
1

 

 

 

Ivory Coast

 
4

 
4

 

 
2

 
2

Total

 
5

 
5

 

 
2

 
2

Storage capacity
 
 
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 
83

 
83

 

 
1

 
1

Grand Total
96

 
77

 
173

 
25

 
5

 
30

Total storage capacity
 

 
 

 
 

 
 

 
 

 
 

Metric tons (in 1,000's)
2,926

 
397

 
3,323

 
546

 
19

 
565

 
*The U.S. procurement facilities are located in Alabama, Florida, Georgia, Illinois, Michigan, Mississippi, North Carolina, Oklahoma, South Carolina, Texas, and Virginia.

 

15




Item 2.
PROPERTIES (Continued)

 
Corn Processing
 
Processing Plants
 
Procurement
Facilities
 
Owned
 
Owned
 
Wet Milling
 
Dry Milling
 
Other
 
Total
 
Wet Milling,
Dry Milling,
& Other
North America
 
 
 
 
 
 
 
 
 
Illinois
1

 
1

 
5

 
7

 

Iowa
2

 
1

 
2

 
5

 
1

Minnesota
1

 

 

 
1

 
5

Nebraska
1

 
1

 

 
2

 

North Carolina

 

 
1

 
1

 

Total
5

 
3

 
8

 
16

 
6

Daily/Storage capacity
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)
43

 
22

 
5

 
70

 
373

South America
 

 
 

 
 

 
 

 
 

Brazil

 

 
1

 
1

 

Total

 

 
1

 
1

 

Daily/Storage capacity
 
 
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 

 
4

 
4

 

Grand Total
5

 
3

 
9

 
17

 
6

Total daily/storage capacity
 

 
 

 
 

 
 

 
 

Metric tons (in 1,000's)
43

 
22

 
9

 
74

 
373


 

16




Item 2.
PROPERTIES (Continued)

 
Agricultural Services Processing Plants
 
Owned
 
Leased
 
Merchandising
& Handling
 
Milling &
Other
 
Total
 
Milling &
Other
North America
 
 
 
 
 
 
 
U.S.*
2

 
67

 
69

 

Barbados

 
1

 
1

 

Belize

 
2

 
2

 

Canada

 
12

 
12

 

Grenada

 
2

 
2

 

Jamaica

 
3

 
3

 

Puerto Rico

 
4

 
4

 

Trinidad & Tobago

 
1

 
1

 

Total
2

 
92

 
94

 

Daily capacity
 
 
 
 
 
 
 
Metric tons (in 1,000's)
2

 
33

 
35

 

Europe
 

 
 

 
 

 
 

U.K.

 
3

 
3

 
4

Total

 
3

 
3

 
4

Daily capacity
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 
1

 
1

 
1

Asia
 

 
 

 
 

 
 

China

 
3

 
3

 

Total

 
3

 
3

 

Daily capacity
 
 
 
 
 
 
 
Metric tons (in 1,000's)

 

 

 

Grand Total
2

 
98

 
100

 
4

Total daily capacity
 

 
 

 
 

 
 

Metric tons (in 1,000's)
2

 
34

 
36

 
1


*The U.S. plants are located in California, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.



17




Item 2.
PROPERTIES (Continued)

 
Agricultural Services Procurement Facilities
 
Merchandising & Handling
 
Owned
 
Leased
North America
 
 
 
U.S.*
201

 
21

Canada
1

 

Dominican Republic
1

 

Mexico
4

 

Total
207

 
21

Storage capacity
 
 
 
Metric tons (in 1,000's)
12,718

 
921

South America
 

 
 

Argentina
3

 

Total
3

 

Storage capacity
 

 
 

Metric tons (in 1,000's)
503

 

Europe
 

 
 

Germany
5

 

Hungary
2

 

Ireland
4

 

Romania
11

 
6

Ukraine
8

 

Total
30

 
6

Storage capacity
 
 
 
Metric tons (in 1,000's)
1,389

 
61

Grand Total
240

 
27

Total storage capacity
 

 
 

Metric tons (in 1,000's)
14,610

 
982

 
*The U.S. procurement facilities are located in Arkansas, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming.

Item 3.
LEGAL PROCEEDINGS

The Company is routinely involved in a number of actual or threatened legal actions, including those involving alleged personal injuries, employment law, product liability, intellectual property, environmental issues, alleged tax liability, and class actions. The Company also routinely receives inquiries from regulators and other government authorities relating to various aspects of our business. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. In some actions, claimants seek damages, as well as other relief, including injunctive relief, that could require significant expenditures or result in lost revenues. In accordance with applicable accounting standards, the Company records a liability in its consolidated financial statements for material loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a material loss contingency is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, disgorgement, or punitive damages; or could result in a change in business practice.


18




Item 3.
LEGAL PROCEEDINGS (Continued)


Beginning in 2008, the Company engaged outside counsel and other advisers to conduct a comprehensive review, under the U.S. Foreign Corrupt Practices Act ("FCPA") and other U.S. and foreign laws, of certain transactions conducted by the Company and its affiliates and joint ventures.  The Company voluntarily disclosed this matter to the U.S. Department of Justice ("DOJ"), the U.S. Securities and Exchange Commission ("SEC"), and certain foreign regulators in March 2009, and since then the Company has provided periodic updates to these agencies.  On December 20, 2013, the Company reached a comprehensive settlement with the DOJ and the SEC to resolve these matters. Under the settlement, the Company entered into a non-prosecution agreement with the DOJ and a consent decree with the SEC and agreed with these agencies to monetary relief totaling approximately $54 million, the amount for which the Company established a reserve and included in its selling, general, and administrative expenses for the year ended December 31, 2013. The $54 million in monetary relief includes $36 million in disgorgement and prejudgment interest paid by the Company to the SEC, and a $18 million fine paid by Alfred C. Toepfer International Ukraine Ltd. (“ACTI Ukraine”), a majority owned subsidiary of the Company, to the DOJ. As part of the comprehensive settlement, ACTI Ukraine also entered a guilty plea to one count of conspiracy to violate the anti-bribery provisions of the FCPA in the U.S. District Court for the Central District of Illinois. Alfred C. Toepfer International G.m.b.H. has also agreed to pay a fine of $1 million to German authorities in connection with this matter which is included in the Company's selling, general, and administrative expenses for the year ended December 31, 2013.
On April 22, 2011, certain manufacturers and distributors of sugar cane and beet sugar products filed suit in the U.S. District Court for the Central District of California against the Company, other manufacturers and marketers of high-fructose corn syrup (HFCS), and the Corn Refiners Association, alleging that the defendants falsely claimed that HFCS is "natural" and nutritionally equivalent to sugar. The defendants have filed counterclaims against the plaintiffs. The court denied the parties’ motions to dismiss, and the parties are engaged in pretrial discovery.

Item 4.
MINE SAFETY DISCLOSURES

None.

19



PART II

Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Market Prices and Dividends

The Company’s common stock is listed and traded on the New York Stock Exchange and the Frankfurt Stock Exchange. The following table sets forth, for the periods indicated, the high and low market prices of the common stock as reported on the New York Stock Exchange and common stock cash dividends declared per share.

 
 
 
 
 
Cash
 
Market Price
 
Dividends
 
High
 
Low
 
Per Share
Fiscal Year 2013-Quarter Ended
 
 
 
 
 
December 31
$
43.99

 
$
36.01

 
$
0.190

September 30
38.81

 
34.11

 
0.190

June 30
35.04

 
31.50

 
0.190

March 31
33.77

 
27.90

 
0.190

Transition Period 2012-Quarter Ended
 
 
 
 
 
December 31
$
29.23

 
$
24.38

 
$
0.175

September 30
29.57

 
25.02

 
0.175

Fiscal Year 2012-Quarter Ended
 

 
 

 
 

June 30
$
33.98

 
$
28.55

 
$
0.175

March 31
32.36

 
28.11

 
0.175

December 31
30.55

 
23.69

 
0.175

September 30
32.41

 
24.42

 
0.160


The number of registered shareholders of the Company’s common stock at December 31, 2013, was 12,493.  In December 2013, the Company announced an increase in its quarterly dividend rate from $0.19 to $0.24 per share. The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements, and financial condition.

Issuer Purchases of Equity Securities

Period
 
Total Number
of Shares Purchased (1)
 
Average
Price Paid per Share
 
Total Number of
Shares Purchased as
Part of Publicly Announced Program (2)
 
Number of Shares
Remaining to be
Purchased Under the Program (2)
October 1, 2013 to
October 31, 2013
 
244,971

 
$
36.822

 
244,971

 
65,577,937

November 1, 2013 to
November 30, 2013
 
143

 
40.612

 
143

 
65,577,794

December 1, 2013 to
December 31, 2013
 
256

 
41.043

 
256

 
65,577,538

Total
 
245,370

 
$
36.828

 
245,370

 
65,577,538


(1)  Total shares purchased represent those shares purchased in the open market as part of the Company’s publicly announced share repurchase program described below and shares received as payment for the exercise price of stock option exercises.  During the three-month period ended December 31, 2013, there were no shares received as payment for the exercise price of stock option exercises.  
 
(2)  On November 5, 2009, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing January 1, 2010 and ending December 31, 2014.

20



Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)


Performance Graph

The graph below compares the Company’s common stock with those of the S&P 500 Index and the S&P Consumer Staples Index.  The graph assumes an initial investment of $100 on June 30, 2008 and assumes all dividends have been reinvested through December 31, 2013.



COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN
Among Archer Daniels Midland Company (ADM), the S&P 500 Index, and the S&P Consumer Staples


Copyright© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

21




Item 6.
SELECTED FINANCIAL DATA

Selected Financial Data
(In millions, except ratio and per share data)

 
Year Ended
 
Six Months Ended
 
Fiscal Years Ended
 
December 31
 
December 31
 
June 30
 
2013
 
2012
 
2012
 
2011
 
2012
 
2011
 
2010
 
2009
 
 
 
(Unaudited)
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Revenues
$
89,804

 
$
90,559

 
$
46,729

 
$
45,208

 
$
89,038

 
$
80,676

 
$
61,682

 
$
69,207

Depreciation
827

 
798

 
396

 
391

 
793

 
827

 
857

 
730

Net earnings attributable to controlling interests
1,342

 
1,375

 
692

 
540

 
1,223

 
2,036

 
1,930

 
1,684

Basic earnings per common share
2.03

 
2.08

 
1.05

 
0.81

 
1.84

 
3.17

 
3.00

 
2.62

Diluted earnings per common share
2.02

 
2.08

 
1.05

 
0.81

 
1.84

 
3.13

 
3.00

 
2.62

Cash dividends
501

 
461

 
230

 
224

 
455

 
395

 
372

 
347

Per common share
0.76

 
0.70

 
0.35

 
0.335

 
0.685

 
0.62

 
0.58

 
0.54

Working capital
$
12,872

 
$
12,769

 
$
12,769

 
$
12,395

 
$
12,328

 
$
14,286

 
$
9,561

 
$
10,523

Current ratio
1.8

 
1.8

 
1.8

 
1.8

 
1.8

 
2.1

 
2.1

 
2.2

Inventories
11,441

 
13,836

 
13,836

 
12,415

 
12,192

 
12,055

 
7,871

 
7,782

Net property, plant, and equipment
10,137

 
10,123

 
10,123

 
9,601

 
9,812

 
9,500

 
8,712

 
7,950

Gross additions to property, plant, and equipment
947

 
1,302

 
641

 
1,058

 
1,719

 
1,512

 
1,788

 
2,059

Total assets
43,752

 
45,136

 
45,136

 
41,701

 
41,771

 
42,352

 
31,808

 
31,582

Long-term debt, excluding current maturities
5,347

 
6,456

 
6,456

 
6,762

 
6,535

 
8,266

 
6,830

 
7,592

Shareholders’ equity
20,194

 
19,131

 
19,131

 
18,165

 
18,169

 
18,838

 
14,631

 
13,653

Per common share
30.64

 
29.03

 
29.03

 
27.44

 
27.57

 
27.87

 
22.89

 
21.27

Weighted average shares outstanding-basic
661

 
660

 
660

 
669

 
665

 
642

 
643

 
643

Weighted average shares outstanding-diluted
663

 
662

 
661

 
670

 
666

 
654

 
644

 
644


Significant items affecting the comparability of the financial data shown above are as follows:

Net earnings attributable to controlling interests for the year ended December 31, 2013 include other-than-temporary impairment charges of $155 million ($155 million after tax, equal to $0.23 per share) on the Company's GrainCorp investment, asset impairment charges of $51 million ($51 million after tax, equal to $0.08 per share) related to the Company's Brazilian sugar milling business, and other impairment charges principally for certain property, plant and equipment assets totaling $53 million ($34 million after tax, equal to $0.05 per share) as discussed in Note 19 in Item 8, Financial Statements and Supplementary Data (Item 8), realized losses on Australian dollar currency hedges of $40 million ($25 million after tax, equal to $0.04 per share) related to the proposed GrainCorp acquisition, valuation allowance on certain deferred tax assets of $82 million (equal to $0.12 per share), income tax benefit recognized in the current period of $55 million (equal to $0.08 per share) related to biodiesel blending credits earned in the prior periods, charges of $54 million ($37 million after tax, equal to $0.06 per share) related to the FCPA matter as discussed in Note 21 in Item 8, and other charges of $18 million ($12 million after tax, equal to 0.02 per share).




22




Item 6.
SELECTED FINANCIAL DATA (Continued)

Net earnings attributable to controlling interests for the year ended December 31, 2012 include an asset impairment charge of $146 million ($107 million after tax, equal to $0.16 per share) related to the Company’s investments associated with Gruma, exit costs and asset impairment charges of $85 million ($52 million after tax, equal to $0.08 per share) related primarily to the global workforce reduction program and exit of the Walhalla, ND ethanol facility, a gain of $62 million ($49 million after tax, equal to $0.07 per share) related to the Company’s interest in GrainCorp, a gain of $39 million ($24 million after tax, $0.04 per share) related to the sale of certain of the Company’s exchange membership interests, and charges of $68 million ($44 million after tax, $0.07 per share) related to pension settlements.

Net earnings attributable to controlling interests for the six months ended December 31, 2012 include an asset impairment charge of $146 million ($107 million after tax, equal to $0.16 per share) related to the Company’s investments associated with Gruma, a gain of $62 million ($49 million after tax, equal to $0.07 per share) related to the Company’s interest in GrainCorp, a gain of $39 million ($24 million after tax, $0.04 per share) related to the sale of certain of the Company’s exchange membership interests, and charges of $68 million ($44 million after tax, $0.07 per share) related to pension settlements.

Net earnings attributable to controlling interests for the six months ended December 31, 2011 include exit costs and asset impairment charges of $352 million ($222 million after tax, equal to $0.33 per share) related primarily to the writedown of the Company’s Clinton, IA bioplastics facility.

Net earnings attributable to controlling interests for the year ended June 30, 2012 include exit costs and asset impairment charges of $437 million ($274 million after tax, equal to $0.41 per share) related primarily to the bioplastics facility and global workforce reduction program.
 
Net earnings attributable to controlling interests for the year ended June 30, 2011 include a gain of $71 million ($44 million after tax, equal to $0.07 per share) related to the acquisition of the remaining interest in Golden Peanut, start up costs for the Company’s significant new greenfield plants of $94 million ($59 million after tax, equal to $0.09 per share), charges on early extinguishment of debt of $15 million ($9 million after tax, equal to $0.01 per share), gains on interest rate swaps of $30 million ($19 million after tax, equal to $0.03 per share) and a gain of $78 million ($49 million after tax, equal to $0.07 per share) related to the sale of bank securities held by the Company’s equity investee, Gruma.  During the second quarter of fiscal year 2011, the Company updated its estimates for service lives of certain of its machinery and equipment assets.  The effect of this change in accounting estimate on pre-tax earnings for the year ended June 30, 2011 was an increase of $133 million ($83 million after tax, equal to $0.13 per share).  Basic and diluted weighted average shares outstanding for 2011 include 44 million shares issued on June 1, 2011 related to the Equity Unit conversion.  Diluted weighted average shares outstanding for 2011 include 44 million shares assumed issued on January 1, 2011 as required using the “if-converted” method of calculating diluted earnings per share for the quarter ended March 31, 2011.  See Note 11 in Item 8 for earnings per share calculation.

Net earnings attributable to controlling interests for the year ended June 30, 2010 include a charge of $75 million ($47 million after tax, equal to $0.07 per share) related to loss on extinguishment of debt resulting from the repurchase of $500 million in aggregate principal amount of the Company’s outstanding debentures, and start up costs for the Company’s significant new greenfield plants of $110 million ($68 million after tax, equal to $0.11 per share).

Net earnings attributable to controlling interests for the year ended June 30, 2009 include a non-cash charge of $275 million ($171 million after tax, equal to $0.27 per share) related to currency derivative losses of the Company’s equity investee, Gruma, and a $158 million income tax charge (equal to $0.24 per share) related to the reorganization of the holding company structure in which the Company holds a portion of its equity investment in Wilmar.


23



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

This MD&A should be read in conjunction with the accompanying consolidated financial statements.

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products.  The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in more than 144 countries.  The Company also processes corn, oilseeds, wheat and cocoa into products for food, animal feed, chemical and energy uses.  The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for our shareholders, principally from margins earned on these activities.

The Company’s operations are organized, managed and classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard, and are classified as Other.

The Oilseeds Processing segment includes global activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals.  Oilseeds products produced and marketed by the Company include ingredients for the food, feed, energy, and industrial products industries.  Crude vegetable oils produced by the segment’s crushing activities are sold “as is” or are further processed by refining, blending, bleaching, and deodorizing into salad oils.  Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oils are used to produce biodiesel or are sold to other manufacturers for use in chemicals, paints, and other industrial products.  Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds.  In Europe and South America, the Oilseeds Processing segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets.  These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds.  The Oilseeds Processing segment produces natural health and nutrition products and other specialty food and feed ingredients.  The Oilseeds Processing segment is a major supplier of peanuts and peanut-derived ingredients to both the U.S. and export markets.  In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets.  In South America, the Oilseeds Processing segment operates fertilizer blending facilities.  The Oilseeds Processing segment also includes activities related to the procurement, transportation and processing of cocoa beans into cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds in North America, South America, Europe, Asia, and Africa for the food processing industry.   The Oilseeds Processing segment also includes the Company’s share of the results of its equity investment in Wilmar and its share of results for its Stratas Foods LLC and Edible Oils Limited joint ventures.

The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, with its asset base primarily located in the central part of the United States.  The Corn Processing segment converts corn into sweeteners and starches, and bioproducts.  Its products include ingredients used in the food and beverage industry including sweeteners, starch, syrup, glucose, and dextrose.  Dextrose and starch are used by the Corn Processing segment as feedstocks for its bioproducts operations.  By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other specialty food and animal feed ingredients.  Ethyl alcohol is produced by the Company for industrial use as ethanol or as beverage grade.  Ethanol, in gasoline, increases octane and is used as an extender and oxygenate.  Bioproducts also include amino acids such as lysine and threonine that are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production.  Corn gluten feed and meal, as well as distillers’ grains, are produced for use as animal feed ingredients.  Corn germ, a by-product of the wet milling process, is further processed into vegetable oil and protein meal.  Other Corn Processing products include citric and lactic acids, lactates, sorbitol, xanthan gum, and glycols which are used in various food and industrial products.  The Corn Processing segment includes the activities of a propylene and ethylene glycol facility and the Company’s Brazilian sugarcane ethanol plant and related operations.  This segment also includes the Company’s share of the results of its equity investments in Almidones Mexicanos S.A., Eaststarch C.V., and Red Star Yeast Company LLC.





24



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Agricultural Services segment utilizes its extensive U.S. grain elevator, global transportation network, and port operations to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry.  The Agricultural Services’ grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. Agricultural Services’ transportation network capabilities include barge, ocean-going vessel, truck, and rail freight services.  Agricultural Services segment also includes the activities related to the processing of wheat into wheat flour, the processing and distribution of formula feeds, animal health and nutrition products, and the procurement, processing, and distribution of edible beans.  The Agricultural Services segment includes the activities of Alfred C. Toepfer International, an 80% owned global merchant of agricultural commodities and processed products.  The Agricultural Services segment also includes the Company’s share of the results of its Kalama Export Company LLC joint venture and returns associated with the Company's investment in GrainCorp. Prior to December 2012, the Company had a 23.2% interest in Gruma S.A.B. de C.V. (Gruma), the world’s largest producer and marketer of corn flour and tortillas.  Additionally, the Company had joint ventures in corn flour and wheat flour mills with and through Gruma.  In December 2012, the Company sold its 23.2% interest in Gruma and the Gruma-related joint ventures.

Other includes the Company’s remaining operations, primarily its financial business units, related principally to futures commission merchant and insurance activities. 
 
Corporate results principally include the impact of LIFO-related inventory adjustments, unallocated corporate expenses, and interest cost net of investment income.  Corporate results also include the after-tax elimination of income attributable to mandatorily redeemable interests in Toepfer except during the calendar year 2012 when the put options related to these interests expired and the results were included in noncontrolling interest.

ADM Cocoa Strategic Review

On June 20, 2013, the Company announced that it was engaged in exploratory discussions with various parties about the potential sale of its cocoa business. As of December 31 and as of the date of this report, no definitive sale agreement had been reached and it remains uncertain if these discussions will result in a transaction to sell all or part of the cocoa business. The Company considered whether all or part of the cocoa business should be classified as held for sale as of December 31, 2013, and determined that the requirements under the applicable authoritative accounting literature for held for sale accounting treatment were not met.

Operating Performance Indicators

The Company’s oilseeds processing and agricultural services operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials.  Therefore, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold.  Thus, changes in revenues of these businesses do not necessarily correspond to the changes in margins or gross profit.

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.  However, in these operations, agricultural commodity market price changes do not necessarily equal changes in cost of products sold. Thus, changes in revenues of these businesses may correspond to changes in margins or gross profit.

The Company has consolidated subsidiaries in 74 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.  For the majority of the Company’s business activities in Brazil, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require conversion to the functional currency.  Fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar can result in corresponding fluctuations in the U.S. dollar value of revenues and expenses reported by the Company.






25



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Company measures its performance using key financial metrics including net earnings, segment operating profit, return on invested capital, EBITDA, economic value added, and cost per metric ton.  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, general global economic conditions, 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.”

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012 (Unaudited)

During 2012, the Company’s fiscal year was changed to begin on January 1 and end on December 31 of each year, starting on January 1, 2013. Previously, the Company's fiscal year was the twelve months ended on June 30. As a result of the change in fiscal year, the required transition period of July 1, 2012 to December 31, 2012 was audited and included in a transition period Form 10-K report.  For purposes of preparing this year's management's discussion and analysis, the Company's management believes the calendar year 2012 is the most directly comparable period to calendar year 2013 results. The calendar year ended December 31, 2012 data is unaudited and has been compiled from the Company's quarterly reports for the quarters' ended March 31, 2012, June 30, 2012, September 30, 2012, and December 31, 2012.

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company's operating results. Demand for global protein meal and vegetable oil remained strong and steady. U.S. biodiesel demand saw a modest recovery and, along with the 2013 reinstatement of the blenders' credit, led to improved margins. Steady corn sweetener demand continued to create tight U.S. sweetener industry capacity. Ethanol margins improved amid volatile industry conditions. Following a below-average 2012 harvest in North America, corn, soybean, and certain soft seed supplies were tight, lowering North American export opportunities and driving up nearby prices for agricultural commodities. The large 2012/2013 harvest in South America replenished the global supply chain for agricultural commodities but was slow to reach global markets due to logistical challenges. A large 2013 fall harvest in North America resulted in a significant decline in crop prices late in 2013. Cocoa margins were weak for much of 2013 due primarily to excess cocoa pressing capacity and strong competition, although conditions improved later in the year.

Net earnings attributable to controlling interests of $1.3 billion, decreased $33 million. Earnings before income taxes increased by $43 million while income tax expense increased by $81 million. Segment operating profit of $2.7 billion in 2013, declined $60 million. In 2013, segment operating profit included a $155 million write-down related to the Company's GrainCorp investment, a $51 million impairment of certain long-lived assets at its Brazilian sugar mill, and approximately $27 million of other long-lived asset impairment charges principally in the Corn Processing segment. In 2012, segment operating profit included a $62 million gain related to the settlement of total return swap instruments related to the Company's interest in GrainCorp and a $146 million impairment charge related to the Company's disposal of its equity interest in Gruma and the Gruma-related joint ventures. Excluding these items, segment operating profit improved approximately 3% in 2013. Corporate costs of $0.7 billion in 2013 declined by $103 million. In 2013, LIFO inventory reserves declined resulting in pretax LIFO credits to earnings of $225 million compared to LIFO credits of $3 million in 2012. Equity earnings from the Company's investment in CIP decreased by $89 million in 2013 primarily due to mark-to-market affects of underlying investments. In 2013, corporate costs included a $54 million charge related to the settlement of the FCPA matter, $40 million of foreign currency losses related to the Company's planned acquisition of GrainCorp, $21 million of costs related to strategic projects, and $32 million of costs primarily related to asset write-downs and allocations of costs between corporate and the operating segments. In 2012, corporate costs included $71 million of exit costs related primarily to the workforce reduction and $68 million related to pension settlements. Excluding LIFO and these other items, corporate costs increased $22 million, which is primarily due to higher employee benefit-related expenses and costs for IT projects. Partially offsetting the increase were lower interest expense and minority interest income in 2013.

The Company's effective tax rate for 2013 was 33.1% compared to 29.7% for 2012. The 2013 rate was negatively impacted by valuation allowances on deferred tax assets and a shift in the geographic mix of earnings, partially offset by favorable discrete income tax benefits related to amounts received from the U.S. government in the form of biodiesel credits. Excluding these factors, the effective tax rate for 2013 was about 30%.







26



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Analysis of Statements of Earnings

Revenues by segment for the years ended December 31, 2013 and 2012 are as follows:

(In millions)
2013
 
2012
 
Change
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Oilseeds Processing
 
 
 
 
 
Crushing and Origination
$
20,522

 
$
20,651

 
$
(129
)
Refining, Packaging, Biodiesel, and Other
10,375

 
10,666

 
(291
)
Cocoa and Other
3,281

 
3,509

 
(228
)
Asia
705

 
604

 
101

Total Oilseeds Processing
34,883

 
35,430

 
(547
)
 
 
 
 
 
 
Corn Processing
 

 
 

 
 

Sweeteners and Starches
4,717

 
4,882

 
(165
)
Bioproducts
8,422

 
6,948

 
1,474

Total Corn Processing
13,139

 
11,830

 
1,309

 
 
 
 
 
 
Agricultural Services
 

 
 

 
 

Merchandising and Handling
36,968

 
38,729

 
(1,761
)
Milling and Other
4,284

 
4,182

 
102

Transportation
228

 
248

 
(20
)
Total Agricultural Services
41,480

 
43,159

 
(1,679
)
 
 
 
 
 
 
Other
 

 
 

 
 

Financial
302

 
140

 
162

Total Other
302

 
140

 
162

Total
$
89,804

 
$
90,559

 
$
(755
)

Revenues in 2013 decreased 1% to $89.8 billion, primarily due to lower average selling prices, related to a decrease in underlying commodity costs, partially offset by an approximate $0.8 billion favorable variance from foreign exchange translation. Oilseeds Processing sales decreased 2% to $34.9 billion due principally to lower sales volumes of merchandised soybeans and lower average selling prices of biodiesel and cocoa products. These decreases were partially offset by higher average selling prices of merchandised soybeans. Corn Processing sales increased 11% to $13.1 billion due principally to higher ethanol sales volumes, including merchandised volumes. Agricultural Services sales decreased 4% to $41.5 billion due principally to lower U.S. sales volumes caused in part by drought-related decreased crop availability and lower average selling prices of corn and soybeans.

Cost of products sold also decreased 1% to $85.9 billion due principally to lower average commodity costs partially offset by an approximate $0.8 billion increase from foreign exchange translation. Included in 2013 cost of products sold is a credit of $225 million from the effect of decreasing agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $3 million in 2012. Manufacturing expenses increased $0.2 billion mostly due to higher employee and employee-related costs, higher utilities costs due principally to higher natural gas prices, and higher maintenance costs in part due to enhanced preventative maintenance practices.





27



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Selling, general, and administrative expenses increased $94 million to $1.8 billion. In 2013, selling, general, and administrative expenses include a $54 million charge to settle the FCPA matter and $21 million of costs related to strategic merger and acquisition projects. In 2012, selling, general, and administrative expenses include $68 million of pension settlement charges. Excluding these items, selling, general, and administrative expense increased $87 million principally due to higher bad debt expense, higher employee benefit-related expenses partly due to share-based compensation expenses, and other IT project-related expenses.

Asset impairment, exit, and restructuring costs of $259 million was comprised of other-than-temporary impairment charges of $155 million on the Company's GrainCorp investment, asset impairment charges of $51 million related to the Company's Brazilian sugar milling business, and other impairment charges principally for certain property, plant, and equipment assets totaling $53 million. The 2012 charges of $243 million are comprised of the $146 million charge related to the impairment of the Company's equity method investment in Gruma and the Gruma-related joint ventures, charges of $71 million for severance and benefits related to the global workforce reduction, $14 million of charges for facility exit and other related costs primarily for the Walhalla, ND corn plant shutdown, and $12 million related to the other-than-temporary impairment charge for one of the Company's marketable security investments.
  
Interest expense decreased $32 million, or 7%, to $413 million primarily due to lower average outstanding long-term debt balances during 2013.

Equity in earnings of unconsolidated affiliates decreased $65 million, or 14%, to $411 million primarily due to an $89 million decrease in equity earnings from the Company's investment in CIP due to mark-to-market effects of underlying investments, partially offset by higher equity earnings from the Company's investment in Wilmar. In addition, the Company sold its investment in Gruma and Gruma-related joint ventures in December 2012; and accordingly, the current period excludes equity earnings from these investments compared to $42 million of Gruma-related earnings in 2012.

Other income of $53 million decreased $73 million. In 2013, the Company earned $49 million related to the sale of property, plant, and equipment assets and marketable securities. Additionally in 2013, the Company recognized income for the minority interest holder's portion of losses incurred at its less than wholly owned subsidiary, Toepfer. Partially offsetting these gains were losses of $40 million incurred on Australian dollar currency hedges related to the GrainCorp transaction. In 2012, the Company recognized a $62 million gain related to the settlement of total return swap instruments related to its investment in GrainCorp. Additionally in 2012, the Company earned $91 million related to the sale of property, plant, and equipment assets and marketable securities.


28



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating profit by segment and earnings before income taxes for the year ended December 31, 2013 and 2012 are as follows:

(In millions)
2013
 
2012
 
Change
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Oilseeds Processing
 
 
 
 
 
Crushing and Origination
$
835

 
$
931

 
$
(96
)
Refining, Packaging, Biodiesel, and Other
454

 
241

 
213

Cocoa and Other
(33
)
 
276

 
(309
)
Asia
217

 
172

 
45

Total Oilseeds Processing
1,473

 
1,620

 
(147
)
 
 
 
 
 
 
Corn Processing
 

 
 

 
 

Sweeteners and Starches
492

 
421

 
71

Bioproducts
322

 
(143
)
 
465

Total Corn Processing
814

 
278

 
536

 
 
 
 
 
 
Agricultural Services
 

 
 

 
 

Merchandising and Handling
33

 
477

 
(444
)
Milling and Other
270

 
191

 
79

Transportation
77

 
111

 
(34
)
Total Agricultural Services
380

 
779

 
(399
)
 
 
 
 
 
 
Other
 

 
 

 
 

Financial
41

 
91

 
(50
)
Total Other
41

 
91

 
(50
)
Total Segment Operating Profit
2,708

 
2,768

 
(60
)
Corporate
(684
)
 
(787
)
 
103

Earnings Before Income Taxes
$
2,024

 
$
1,981

 
$
43


Corporate results are as follows:

(In millions)
2013
 
2012
 
Change
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
LIFO credit (charge)
$
225

 
$
3

 
$
222

Interest expense - net
(408
)
 
(445
)
 
37

Unallocated corporate costs
(331
)
 
(274
)
 
(57
)
Other charges
(147
)
 
(144
)
 
(3
)
Minority interest and other
(23
)
 
73

 
(96
)
Total Corporate
$
(684
)
 
$
(787
)
 
$
103



29



Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Oilseeds Processing operating profit decreased $147 million to $1.5 billion. Crushing and Origination operating profit decreased $96 million to $835 million as weaker soft seed results were partially offset by improved soybean crushing results. Soft seed crushing results in North America declined due primarily to low seed availability which affected seed basis and production capacity utilization. Soybean crushing results improved in each region even though the Company processed lower volumes due primarily to the tight global crop supplies prior to the 2013 harvests. Improved European rape seed results were due to generally better crop availability in 2013. Refining, Packaging, Biodiesel, and Other results improved $213 million to $454 million as U.S. and European biodiesel margins improved significantly. In 2013, U.S. biodiesel volumes and margins were enhanced as blenders were incentivized to take advantage of tax credits prior to their expiration at the end of December. Cocoa and Other results decreased $309 million to a loss of $33 million due principally to weaker cocoa press margins and an unfavorable variance in net unrealized mark-to-market gains and losses of approximately $86 million. These mark to market gains and losses represent fair value changes related to certain cocoa forward purchase and sales commitments accounted for as derivatives. Cocoa press margins were negatively impacted by excess industry processing capacity and strong competition. Peanut results declined primarily due to lower margins. Asia results improved $45 million to $217 million, principally reflecting the Company's share of the results from its equity investee, Wilmar.

Corn Processing operating profit increased $536 million to $814 million primarily due to significant improvement in ethanol margins, lower net corn costs, and strong sweetener demand. The Company recognized net losses from timing effects related to corn hedge ineffectiveness of $15 million in 2013 compared to net losses of $9 million in 2012. In addition, in 2013 the Company recognized $51 million in asset impairment charges related to its Brazilian sugar milling business and $20 million of asset impairment charges related to other long-lived assets. In the prior year, Bioproducts results included a $10 million charge principally due to impairment costs upon closure of the 30 million gallon per year ethanol dry mill in Walhalla, N.D. Excluding timing effects from corn hedges and asset impairment charges, Sweeteners and Starches operating profit increased $90 million. Solid demand for corn sweeteners translated to tight corn sweetener industry capacity. Excluding timing effects from corn hedges, impairment charges on the Brazilian sugar milling business, and other asset impairments, Bioproducts profit in the current year improved $513 million. Overall industry ethanol margins were profitable but volatile in 2013 compared to negative margins in 2012 due principally to supply and demand imbalances.

Agricultural Services operating profit decreased $399 million to $380 million. In 2013, Agricultural Services incurred a $155 million asset impairment charge related to the other than temporary impairment of its GrainCorp investment and recognized an insurance gain of approximately $30 million, which is offset by the insurance expense recognized in Other. In 2012, Agricultural Services recorded a $62 million gain related to the total return swaps used to build an investment interest in GrainCorp, $42 million of equity earnings in Gruma, and incurred an asset impairment charge of $146 million related to the disposal of Gruma. Excluding these items Merchandising and Handling operating profit decreased by $257 million due principally to lower 2012 drought-related U.S. origination and export volumes, slower farmer selling of the recent 2013 harvested corn, fewer wheat merchandising opportunities, and lower execution margins in international merchandising. Excluding the 2012 Gruma asset impairment charge and equity earnings, Milling and Other operating profit declined $25 million to $270 million on solid but weaker margins. Earnings from transportation operations declined $34 million to $77 million as lower U.S. exports reduced barge freight utilization.

Other financial operating profit decreased $50 million to $41 million mainly due to an approximate $30 million expense which offsets the insurance-related gain reported in the Agricultural Services segment and the absence of prior year gains from the sale of member exchange interests by the Company's futures commission brokerage business.

Corporate was a loss of $684 million in 2013 compared to a loss of $787 million in 2012. The effects of changing commodity prices on LIFO inventory valuations resulted in a credit of $225 million in 2013 compared to a credit of $3 million in 2012. Equity earnings from the Company's investment in CIP decreased by $89 million in 2013 primarily due to mark-to-market effects of underlying investments. In 2013, corporate costs included a $54 million charge related to the settlement of the FCPA matter, $40 million of foreign currency losses related to the Company's planned acquisition of GrainCorp, $21 million of costs related to strategic merger and acquisition projects, and $32 million of costs primarily related to asset write-downs and reallocations of costs from the operating segments to corporate. In 2012, corporate costs included $71 million of exit costs related primarily to the workforce reduction and $68 million related to pension settlements. Excluding LIFO and these other items, corporate costs increased $22 million mostly due to higher unallocated corporate costs. Unallocated corporate costs increased due primarily to higher employee benefit-related expenses, in part due to a higher Company stock price, and higher costs for IT projects. Interest-net declined $37 million primarily due to lower outstanding debt balances. In 2013, income attributable to minority shareholders of mandatorily redeemable interests of $35 million was included in minority interest and other.
  


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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Six Months Ended December 31, 2012 Compared to Six Months Ended December 31, 2011 (Unaudited)

Net earnings attributable to controlling interests increased $152 million to $692 million.  Asset impairment, exit, and restructuring costs in the 2012 period decreased $115 million after tax ($206 million pretax).  The 2012 period results also include gains of $49 million after tax related to the Company’s interest in GrainCorp and a gain of $24 million after tax related to the sale of certain of the Company’s exchange membership interests, partially offset by charges of $44 million after tax related to pension settlements.

Income taxes increased $66 million due to higher earnings before income taxes.  The effective income tax rate of 30.4% in 2012 compares to the rate of 30.3% in the prior period.

Segment operating profit in the 2012 period increased $243 million due to a $318 million improvement in operating results in the Oilseeds Processing segment, the absence of the prior period asset impairment charges of $339 million in the Corn Processing segment related primarily to the write-down of assets at its Clinton, IA bioplastics facility, and higher results of the Company’s Financial operations of $76 million, in part due to a gain on sale of certain of the Company’s exchange membership interests and favorable captive insurance loss reserve adjustments.  Partially offsetting these improvements were lower results in the 2012 period in Corn Processing’s bioproducts business of $408 million, excluding the Clinton, IA asset impairment charge discussed above, and the 2012 period loss of $146 million in the Agricultural Services segment related to the disposal of Gruma.

Corporate expenses were $27 million higher in the 2012 period, due primarily to $68 million of pension settlement charges, partially offset by higher returns on the Company's equity method investment in CIP.

Analysis of Statements of Earnings

Revenues by segment for the six months ended December 31, 2012 and 2011 are as follows:

 
Six Months Ended
December 31,
 
 
(In millions)
2012
 
2011
 
Change
 
(Unaudited)
Oilseeds Processing
 
 
 
 
 
Crushing and Origination
$
10,784

 
$
8,927

 
$
1,857

Refining, Packaging, Biodiesel and Other
5,256

 
6,218

 
(962
)
Cocoa and Other
1,746

 
1,952

 
(206
)
Asia
266

 
240