10-Q 1 adm-2015331x10q.htm 10-Q ADM-2015.3.31-10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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
incorporation or organization)
(I. R. S. Employer
Identification No.)
 
 
77 West Wacker Drive, Suite 4600
Chicago, Illinois
(Address of principal executive offices)
 
60601
(Zip Code)
 
 
(312) 634-8100
(Registrant’s telephone number, including area code)
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 whether the registrant is a large accelerated filer, an accelerated filer, or 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.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, no par value – 620,373,436 shares
(April 30, 2015)






PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Archer-Daniels-Midland Company

Consolidated Statements of Earnings
(Unaudited)
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In millions, except per share amounts)
 
 
 
 
Revenues
$
17,506

 
$
20,696

Cost of products sold
16,404

 
20,021

Gross Profit
1,102

 
675

 
 
 
 
Selling, general, and administrative expenses
498

 
393

Interest expense
81

 
93

Equity in earnings of unconsolidated affiliates
(139
)
 
(132
)
Interest income
(18
)
 
(22
)
Other (income) expense – net
(10
)
 
(23
)
Earnings Before Income Taxes
690

 
366

 
 
 
 
Income taxes
197

 
98

Net Earnings Including Noncontrolling Interests
493

 
268

 
 
 
 
Less: Net earnings (losses) attributable to noncontrolling interests

 
1

 
 
 
 
Net Earnings Attributable to Controlling Interests
$
493

 
$
267

 
 
 
 
Average number of shares outstanding – basic
636

 
660

 
 
 
 
Average number of shares outstanding – diluted
639

 
663

 
 
 
 
Basic earnings per common share
$
0.78

 
$
0.40

 
 
 
 
Diluted earnings per common share
$
0.77

 
$
0.40

 
 
 
 
Dividends per common share
$
0.28

 
$
0.24


See notes to consolidated financial statements.




2




Archer-Daniels-Midland Company

Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
Net earnings including noncontrolling interests
$
493

 
$
268

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(702
)
 
(35
)
Tax effect
32

 
1

Net of tax amount
(670
)
 
(34
)
 
 
 
 
Pension and other postretirement benefit liabilities adjustment
42

 
6

Tax effect
(19
)
 
(2
)
Net of tax amount
23

 
4

 
 
 
 
Deferred gain (loss) on hedging activities
(56
)
 
(97
)
Tax effect
21

 
33

Net of tax amount
(35
)
 
(64
)
 
 
 
 
Unrealized gain (loss) on investments
43

 
(10
)
Tax effect

 
3

Net of tax amount
43

 
(7
)
Other comprehensive income (loss)
(639
)
 
(101
)
Comprehensive income (loss) including noncontrolling interests
(146
)
 
167

 
 
 
 
Less: Comprehensive income (loss) attributable to noncontrolling interests
(1
)
 
1

 
 
 
 
Comprehensive income (loss) attributable to controlling interests
$
(145
)
 
$
166


See notes to consolidated financial statements.





3




Archer-Daniels-Midland Company

Consolidated Balance Sheets
(In millions)
March 31, 2015
 
December 31, 2014
 
(Unaudited)
 
 
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
890

 
$
1,099

Short-term marketable securities
406

 
515

Segregated cash and investments
4,725

 
4,877

Trade receivables
2,036

 
2,704

Inventories
8,372

 
9,374

Current assets held for sale
1,318

 
1,403

Other current assets
6,149

 
6,056

Total Current Assets
23,896

 
26,028

 
 
 
 
Investments and Other Assets
 

 
 

Investments in and advances to affiliates
3,959

 
3,892

Long-term marketable securities
507

 
485

Goodwill and other intangible assets
3,124

 
3,283

Other assets
396

 
379

Total Investments and Other Assets
7,986

 
8,039

 
 
 
 
Property, Plant, and Equipment
 

 
 

Land
434

 
441

Buildings
4,637

 
4,668

Machinery and equipment
16,833

 
17,044

Construction in progress
886

 
819

 
22,790

 
22,972

Accumulated depreciation
(12,957
)
 
(13,012
)
Net Property, Plant, and Equipment
9,833

 
9,960

 
 
 
 
Total Assets
$
41,715

 
$
44,027

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

Current Liabilities
 

 
 

Short-term debt
$
848

 
$
108

Trade payables
3,142

 
4,326

Payables to brokerage customers
5,848

 
5,874

Accrued expenses and other payables
4,145

 
5,040

Current maturities of long-term debt
18

 
24

Current liabilities held for sale
234

 
230

Total Current Liabilities
14,235

 
15,602

 
 
 
 
Long-Term Liabilities
 

 
 

Long-term debt
5,575

 
5,558

Deferred income taxes
1,614

 
1,662

Other
1,534

 
1,575

Total Long-Term Liabilities
8,723

 
8,795

 
 
 
 
Shareholders’ Equity
 

 
 

Common stock
4,584

 
5,115

Reinvested earnings
16,019

 
15,701

Accumulated other comprehensive income (loss)
(1,879
)
 
(1,241
)
Noncontrolling interests
33

 
55

Total Shareholders’ Equity
18,757

 
19,630

Total Liabilities and Shareholders’ Equity
$
41,715

 
$
44,027

 
 
 
 
See notes to consolidated financial statements.

4




Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
Operating Activities
 
 
 
Net earnings including noncontrolling interests
$
493

 
$
268

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
 

 
 

Depreciation and amortization
216

 
219

Deferred income taxes
4

 
(66
)
Equity in earnings of affiliates, net of dividends
(67
)
 
(100
)
Stock compensation expense
26

 
20

Pension and postretirement accruals (contributions), net
(4
)
 
2

Deferred cash flow hedges
(56
)
 
(97
)
Other – net
(35
)
 
(18
)
Changes in operating assets and liabilities
 

 
 

Segregated cash and investments
131

 
(247
)
Trade receivables
550

 
433

Inventories
739

 
28

Other current assets
(184
)
 
189

Trade payables
(1,071
)
 
(851
)
Payables to brokerage customers
73

 
237

Accrued expenses and other payables
(770
)
 
(375
)
Total Operating Activities
45

 
(358
)
 
 
 
 
Investing Activities
 

 
 

Purchases of property, plant, and equipment
(244
)
 
(188
)
Proceeds from sales of property, plant, and equipment
6

 
6

Purchases of marketable securities
(246
)
 
(362
)
Proceeds from sales of marketable securities
346

 
321

Distributions from affiliates
1

 
78

Other – net
(124
)
 

Total Investing Activities
(261
)
 
(145
)
 
 
 
 
Financing Activities
 

 
 

Long-term debt borrowings
8

 
1

Long-term debt payments
(7
)
 
(1,154
)
Net borrowings (payments) under lines of credit agreements
742

 
(63
)
Purchases of treasury stock
(566
)
 
(175
)
Cash dividends
(177
)
 
(158
)
Other – net
7

 
14

Total Financing Activities
7

 
(1,535
)
 
 
 
 
Increase (decrease) in cash and cash equivalents
(209
)
 
(2,038
)
Cash and cash equivalents beginning of period
1,099

 
3,121

 
 
 
 
Cash and cash equivalents end of period
$
890

 
$
1,083

 
 
 
 
See notes to consolidated financial statements.

5




Archer-Daniels-Midland-Company

Consolidated Statement of Shareholders’ Equity
(Unaudited)
 
Common Stock
 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2014
637

 
$
5,115

 
$
15,701

 
$
(1,241
)
 
$
55

 
$
19,630

Comprehensive income
 

 
 

 
 

 
 

 
 

 
 

Net earnings
 
 
 

 
493

 
 

 

 
 

   Other comprehensive
     income (loss)
 

 
 

 
 

 
(638
)
 
(1
)
 
 

      Total comprehensive
       income
 

 
 

 
 

 
 

 
 

 
(146
)
Cash dividends paid- $0.28 per share
 

 
 

 
(177
)
 
 

 
 

 
(177
)
Treasury stock purchases
(12
)
 
(566
)
 
 
 
 
 
 
 
(566
)
Stock compensation expense
 

 
26

 
 

 
 

 
 

 
26

Other

 
9

 
2

 

 
(21
)
 
(10
)
Balance March 31, 2015
625

 
$
4,584

 
$
16,019

 
$
(1,879
)
 
$
33

 
$
18,757


See notes to consolidated financial statements.

6




Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements
(Unaudited)
Note 1.
Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual report on Form 10-K for the year ended December 31, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.  The Company consolidates all entities, including variable interest entities (VIEs), in which it has a controlling financial interest. For VIEs, the Company assesses whether it is the primary beneficiary as defined under the applicable accounting standard. Investments in affiliates, including VIEs through which the Company exercises significant influence but does not control the investee and is not the primary beneficiary of the investee’s activities, are carried at cost plus equity in undistributed earnings since acquisition and are adjusted, where appropriate, for basis differences between the investment balance and the underlying net assets of the investee.  The Company’s portion of the results of certain affiliates and results of certain VIEs are included using the most recent available financial statements.  In each case, the financial statements are within 93 days of the Company’s year end and are consistent from period to period.

Reclassifications

Effective January 1, 2015, the Company formed a fourth reportable business segment, Wild Flavors and Specialty Ingredients. Results of Wild Flavors Gmbh (Wild Flavors) and Specialty Commodities, Inc. (SCI), which were acquired during the fourth quarter of fiscal 2014, are reported in this segment in addition to results of certain product lines previously reported in the Oilseeds Processing, Corn Processing, and Agricultural Services business segments. Throughout this quarterly report on Form 10-Q, prior period results of the product lines previously reported in the other reportable business segments have been reclassified to conform to the current period presentation.

Last-in, First-out (LIFO) Inventories

Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels.  Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventories at interim periods may vary significantly from management’s estimates of year-end inventory levels.

Note 2.
Pending Accounting Standards

Effective January 1, 2016, the Company will be required to adopt the amended guidance of Accounting Standards Codification (ASC) Topic 718, Compensation - Stock Compensation , which seeks to resolve the diversity in practice that exists when accounting for share-based payments. The amended guidance requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. The Company will be required to adopt the amended guidance either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company does not expect the adoption of this amended guidance to impact financial results.






7

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 2.
Pending Accounting Standards (Continued)


Effective January 1, 2016, the Company will be required to adopt the amended guidance of ASC Topic 810, Consolidation (Topic 810), which seeks to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amended guidance changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The changes include, among others, modification of the evaluation whether limited partnerships and similar legal entities are variable interest entities or voting interest entities and elimination of the presumption that a general partner should consolidate a limited partnership. The Company will be required to adopt Topic 810 either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application. The Company has not yet completed its assessment of the impact of the amended guidance on its consolidated financial statements but does not expect the adoption of this amended guidance to have a significant impact on financial results.

Effective January 1, 2016, the Company will be required to adopt the amended guidance of ASC Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, which eliminates the concept of extraordinary items from Generally Accepted Accounting Principles in the U.S. The amended guidance aligns more closely with International Accounting Standards 1, Presentation of Financial Statements, which prohibits the presentation and disclosure of extraordinary items. The Company does not expect the adoption of this amended guidance to impact financial results.

Effective January 1, 2016, the Company will be required to adopt the amended guidance of ASC Subtopic 835-30, Interest - Imputation of Interest, which addresses the balance sheet presentation requirements for debt issuance costs and debt discounts and premiums. The amended guidance aligns more closely with International Financial Reporting Standards which require that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. The Company does not expect the adoption of this amended guidance to a have a significant impact on financial results.

Effective January 1, 2017, the Company will be required to adopt the new guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Topic 606 requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company will be required to adopt Topic 606 either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application. If the Company elects the modified retrospective approach, it will be required to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes. The Company has not yet completed its assessment of the impact of the new guidance on its consolidated financial statements. On April 29, 2015, the Financial Accounting Standards Board issued a proposed Accounting Standards Update (FASB) to defer the effective date of Topic 606 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. If the FASB proceeds with the deferral of the effective date as proposed, this will mean the Company will be required to adopt the new guidance of ASC 606 effective January 1, 2018.

8


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements

The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2015 and December 31, 2014.
 
 
Fair Value Measurements at March 31, 2015
 

Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 
Total
 
(In millions)
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Inventories carried at market
$

 
$
3,146

 
$
1,039

 
$
4,185

Unrealized derivative gains:
 
 
 
 
 
 
 
Commodity contracts

 
427

 
178

 
605

Foreign exchange contracts

 
211

 

 
211

Interest rate contracts

 
33

 

 
33

Cash equivalents
178

 

 

 
178

Marketable securities
779

 
84

 

 
863

Segregated investments
2,385

 

 

 
2,385

Deferred receivables consideration

 
614

 

 
614

Total Assets
$
3,342

 
$
4,515

 
$
1,217

 
$
9,074

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Unrealized derivative losses:
 
 
 
 
 
 
 
Commodity contracts
$

 
$
411

 
$
218

 
$
629

Foreign exchange contracts

 
288

 

 
288

Inventory-related payables

 
456

 
20

 
476

Total Liabilities
$

 
$
1,155

 
$
238

 
$
1,393




9

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements (Continued)

 
Fair Value Measurements at December 31, 2014
 
 
Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 
Total
 
(In millions)
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Inventories carried at market
$

 
$
3,208

 
$
1,491

 
$
4,699

Unrealized derivative gains:
 
 
 
 
 
 
 
Commodity contracts

 
487

 
203

 
690

Foreign exchange contracts

 
186

 

 
186

Interest rate contracts

 
21

 

 
21

Cash equivalents
491

 

 

 
491

Marketable securities
860

 
80

 

 
940

Segregated investments
2,158

 

 

 
2,158

Deferred receivables consideration

 
511

 

 
511

Total Assets
$
3,509

 
$
4,493

 
$
1,694

 
$
9,696

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Unrealized derivative losses:
 
 
 
 
 
 
 
Commodity contracts
$

 
$
564

 
$
212

 
$
776

Foreign exchange contracts

 
150

 

 
150

Inventory-related payables

 
612

 
40

 
652

Total Liabilities
$

 
$
1,326

 
$
252

 
$
1,578


Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets, broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) markets.  Market valuations for the Company’s inventories are adjusted for location and quality because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. When unobservable inputs have a significant impact on the measurement of fair value, the inventory is classified as Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.


10

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements (Continued)

Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and OTC instruments related primarily to agricultural commodities, energy, interest rates, and foreign currencies.  Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1.  The majority of the Company’s exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in the fair value tables.  Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets.  These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets.  When observable inputs are available for substantially the full term of the contract, it is classified in Level 2.  When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold.  Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, and other (income) expense – net. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.

The Company’s cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.

The Company’s marketable securities are comprised of equity investments, U.S. Treasury securities, corporate debt securities, and other debt securities.  Publicly traded equity investments, U.S. Treasury securities, and certain other debt securities are valued using quoted market prices and are classified in Level 1.  Corporate debt and certain other debt securities are valued using third-party pricing services and substantially all are classified in Level 2. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.

The Company’s segregated investments are comprised of U.S. Treasury securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.

The Company has deferred consideration under its accounts receivable securitization programs (the “Programs”) which represents notes receivable from the purchasers under the Programs (see Note 14). This amount is reflected in other current assets on the consolidated balance sheet (see Note 6). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs which have historically been insignificant.


11

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements (Continued)

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2015.

 
Level 3 Fair Value Asset Measurements at
 
March 31, 2015
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2014
$
1,491

 
$
203

 
$
1,694

Total increase (decrease) in unrealized gains included in cost of products sold*
(331
)
 
69

 
(262
)
Purchases
2,817

 

 
2,817

Sales
(2,803
)
 

 
(2,803
)
Settlements

 
(144
)
 
(144
)
Transfers into Level 3
103

 
55

 
158

Transfers out of Level 3
(238
)
 
(5
)
 
(243
)
Ending balance, March 31, 2015
$
1,039

 
$
178

 
$
1,217


* Includes increase in unrealized gains of $25 million relating to Level 3 assets still held at March 31, 2015.

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2015.

 
Level 3 Fair Value Liability Measurements at
 
March 31, 2015
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2014
$
40

 
$
212

 
$
252

Total increase (decrease) in unrealized losses included in cost of products sold*
(5
)
 
64

 
59

Purchases
6

 

 
6

Sales
(22
)
 

 
(22
)
Settlements

 
(135
)
 
(135
)
Transfers into Level 3
1

 
82

 
83

Transfers out of Level 3

 
(5
)
 
(5
)
Ending balance, March 31, 2015
$
20

 
$
218

 
$
238


* Includes increase in unrealized losses of $55 million relating to Level 3 liabilities still held at March 31, 2015.


12

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements (Continued)

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2014.

 
Level 3 Fair Value Asset Measurements at
 
March 31, 2014
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2013
$
1,812

 
$
279

 
$
2,091

Total increase (decrease) in unrealized gains included in cost of products sold*
(166
)
 
98

 
(68
)
Purchases
4,103

 

 
4,103

Sales
(3,894
)
 

 
(3,894
)
Settlements

 
(180
)
 
(180
)
Transfers into Level 3
127

 
62

 
189

Transfers out of Level 3
(111
)
 
(7
)
 
(118
)
Ending balance, March 31, 2014
$
1,871

 
$
252

 
$
2,123


* Includes increase in unrealized gains of $222 million relating to Level 3 assets still held at March 31, 2014.

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2014.

 
Level 3 Fair Value Liability Measurements at
 
March 31, 2014
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 
(In millions)
 
 
 
 
 
 
Balance, December 31, 2013
$
34

 
$
261

 
$
295

Total increase (decrease) in unrealized losses included in cost of products sold*
7

 
225

 
232

Purchases
4

 

 
4

Sales
(18
)
 

 
(18
)
Settlements

 
(212
)
 
(212
)
Transfers into Level 3

 
66

 
66

Transfers out of Level 3

 
(20
)
 
(20
)
Ending balance, March 31, 2014
$
27

 
$
320

 
$
347


* Includes increase in unrealized losses of $228 million relating to Level 3 liabilities still held at March 31, 2014.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

13

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.
Fair Value Measurements (Continued)

 
 
 
 
 
 
For all periods presented, the Company had no transfers between Level 1 and 2. Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.

In some cases, the price components that result in differences between the exchange-traded prices and the local prices are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as Basis. The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components.

The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of March 31, 2015 and December 31, 2014. The Company’s Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with Basis, the unobservable component as of March 31, 2015 is a weighted average 18.1% of the total price for assets and 40.1% of the total price for liabilities.



 
Weighted Average % of Total Price
 
March 31, 2015
 
December 31, 2014
Component Type
Assets
 
Liabilities
 
Assets
 
Liabilities
Inventories and Related Payables
 
 
 
 
 
 
 
Basis
18.1
%
 
40.1
%
 
23.4
%
 
43.4
%
Transportation cost
3.0
%
 
2.2
%
 
4.9
%
 
15.2
%
 
 
 
 
 
 
 
 
Commodity Derivative Contracts
 
 
 
 
 
 
 
Basis
22.4
%
 
20.8
%
 
13.5
%
 
13.6
%
Transportation cost
3.8
%
 
16.4
%
 
10.2
%
 
19.5
%

In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, the Company considers these price quotes as 100 percent unobservable and, therefore, the fair value of these items is reported in Level 3.


14


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.
Derivative Instruments and Hedging Activities

Derivatives Not Designated as Hedging Instruments

The majority of the Company’s derivative instruments have not been designated as hedging instruments. The Company uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies.  The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Derivatives, including exchange-traded contracts and physical purchase or sale contracts, are stated at market value and inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value.  Inventory is not a derivative and therefore fair values of and changes in fair values of inventories are not included in the tables below.
  
The following table sets forth the fair value of derivatives not designated as hedging instruments as of March 31, 2015 and December 31, 2014.

 
March 31, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(In millions)
 
(In millions)
 
 
 
 
 
 
 
 
FX Contracts
$
211

 
$
288

 
$
186

 
$
150

Commodity Contracts
605

 
629

 
690

 
776

Total
$
816

 
$
917

 
$
876

 
$
926


The following tables set forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three months ended March 31, 2015 and 2014.

 
Three months ended March 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
FX Contracts
 

 
 

Revenues
$
20

 
$
(6
)
Cost of products sold
(69
)
 
44

Other income (expense) – net
(23
)
 
(9
)
 
 
 
 
Commodity Contracts
 

 
 

Cost of products sold
$
238

 
$
(912
)
Total gain (loss) recognized in earnings
$
166

 
$
(883
)
 
 
 
 
Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately.


15

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.
Derivative Instruments and Hedging Activities (Continued)

Derivatives Designated as Cash Flow or Fair Value Hedging Strategies

As of March 31, 2015 and December 31, 2014, the Company has certain derivatives designated as cash flow and fair value hedges.

The Company uses interest rate swaps designated as fair value hedges to protect the fair value of fixed-rate debt due to changes in interest rates. The changes in the fair value of the interest rate swaps and the underlying fixed-rate debt are recorded in other (income) expense - net. The terms of the interest rate swaps match the terms of the underlying debt resulting in no ineffectiveness. At March 31, 2015, the Company has $33 million in other current assets representing the fair value of the interest rate swaps and a corresponding increase in the underlying debt for the same amount with no impact to earnings.
For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges.  Assuming normal market conditions, the changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item.  Once the hedged item is recognized in earnings, the gains/losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable.  As of March 31, 2015, the Company has $6 million of after-tax losses in AOCI related to gains and losses from commodity cash flow hedge transactions.  The Company expects to recognize all of these after-tax losses in its consolidated statement of earnings during the next 12 months.
The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month.  The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn.  The Company’s corn processing plants currently grind approximately 76 million bushels of corn per month.  During the past 12 months, the Company hedged between 17% and 71% of its monthly anticipated grind.  At March 31, 2015, the Company has designated hedges representing between 1% and 38% of its anticipated monthly grind of corn for the next 12 months.

The Company, from time to time, also uses futures, options, and swaps to fix the sales price of certain ethanol sales contracts.  The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol.  During the past 12 months, the Company hedged between 24 million and 121 million gallons of ethanol sales per month under these programs.  For the next 12 months, the Company has designated hedges representing between 0 million and 31 million gallons of ethanol sales per month.

The following table sets forth the fair value of derivatives designated as hedging instruments as of March 31, 2015 and December 31, 2014.

 
March 31, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(In millions)
 
(In millions)
Interest Contracts
$
33

 
$

 
$
21

 
$

Total
$
33

 
$

 
$
21

 
$














16

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.
Derivative Instruments and Hedging Activities (Continued)

The following tables set forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three months ended March 31, 2015 and 2014.
 
 
 
 
Three months ended
 
Consolidated Statement of
Earnings Locations
 
March 31,
 
 
2015
 
2014
 
 
 
(In millions)
Effective amounts recognized in earnings
 
 
 
 
 
FX Contracts
Other income/expense – net
 
$
17

 
$

Commodity Contracts
Cost of products sold
 

 
(4
)
 
Revenues
 
47

 
(27
)
Ineffective amount recognized in earnings
 
 
 
 
 
Commodity Contracts
Revenues
 
7

 
(23
)

Cost of products sold
 
(13
)
 
20

Total amount recognized in earnings
 
 
$
58

 
$
(34
)
 
 
 
 
 
 
Hedge ineffectiveness for commodity contracts results when the change in the price of the underlying commodity in a specific cash market differs from the change in the price of the derivative financial instrument used to establish the hedging relationship.  As an example, if the change in the price of a corn futures contract is strongly correlated to the change in cash price paid for corn, the gain or loss on the derivative instrument is deferred and recognized at the time the corn grind occurs.  If the change in price of the derivative does not strongly correlate to the change in the cash price of corn, in the same example, some portion or all of the derivative gains or losses may be required to be recognized in earnings prior to the corn grind occurring.

The following tables set forth the changes in AOCI related to derivatives gains (losses) for the three months ended March 31, 2015 and 2014.
 
Three months ended
 
March 31,
 
2015
 
2014
 
(In millions)
Balance at December 31, 2014 and 2013
$
47

 
$
5

Unrealized gains (losses)
8

 
(128
)
Losses (gains) reclassified to earnings
(64
)
 
31

Tax effect
21

 
33

Balance at March 31, 2015 and 2014
$
12

 
$
(59
)
 
 
 
 


17


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 5.
Marketable Securities

 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(In millions)
 
 
 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
United States government obligations
 
 
 
 
 
 
 
Maturity less than 1 year
$
311

 
$

 
$

 
$
311

Maturity 1 to 5 years
95

 

 

 
95

Corporate debt securities
 

 
 

 
 

 
 

Maturity 1 to 5 years
73

 
1

 

 
74

Other debt securities
 

 
 

 
 

 
 

Maturity less than 1 year
95

 

 

 
95

Maturity 1 to 5 years
3

 

 

 
3

Equity securities
 
 
 

 
 

 
 

Available-for-sale
307

 
32

 
(4
)
 
335

 
$
884

 
$
33

 
$
(4
)
 
$
913


 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(In millions)
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
United States government obligations
 
 
 
 
 
 
 
Maturity less than 1 year
$
385

 
$

 
$

 
$
385

Maturity 1 to 5 years
93

 

 

 
93

Corporate debt securities
 

 
 

 
 

 
 

Maturity 1 to 5 years
72

 

 

 
72

Other debt securities
 

 
 

 
 

 
 

Maturity less than 1 year
130

 

 

 
130

Maturity 1 to 5 years
3

 

 

 
3

Equity securities
 

 
 

 
 

 
 

Available-for-sale
328

 
1

 
(12
)
 
317

 
$
1,011

 
$
1

 
$
(12
)
 
$
1,000


Of the $4 million in unrealized losses at March 31, 2015, $1 million arose within the last 12 months and is related to the Company’s investment in one available-for-sale equity security with a fair value of $4 million.  The market value of the Company’s investment that has been in an unrealized loss position for 12 months or longer is $3 million and is related to one available-for-sale equity security. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment.  Based on that evaluation and the Company’s ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2015.


18


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.     Other Current Assets

The following table sets forth the items in other current assets:

 
March 31,
 
December 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
Unrealized gains on derivative contracts
$
849

 
$
897

Deferred receivables consideration
614

 
511

Customer omnibus receivable
1,630

 
1,532

Financing receivables - net (1)
457

 
402

Other current assets
2,599

 
2,714

 
$
6,149

 
$
6,056


(1) The Company provides financing to certain suppliers, primarily Brazilian farmers, to finance a portion of the suppliers’ production costs. The amounts are reported net of allowances of $11 million at March 31, 2015 and December 31, 2014. Interest earned on financing receivables of $7 million for the three months ended March 31, 2015, and $8 million for the three months ended March 31, 2014, is included in interest income in the consolidated statements of earnings.

Note 7.
Accrued Expenses and Other Payables

The following table sets forth the items in accrued expenses and other payables:

 
March 31,
 
December 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
Unrealized losses on derivative contracts
$
917

 
$
926

Accrued expenses and other payables
3,228

 
4,114

 
$
4,145

 
$
5,040



19


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 8.
Debt and Financing Arrangements

At March 31, 2015, the fair value of the Company’s long-term debt exceeded the carrying value by $1.4 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).

At March 31, 2015, the Company had lines of credit totaling $6.3 billion, of which $5.5 billion was unused.  Of the Company’s total lines of credit, $4.0 billion support a commercial paper borrowing facility, against which there was $0.7 billion of commercial paper outstanding at March 31, 2015.

The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to $1.5 billion in funding resulting from the sale of accounts receivable. As of March 31, 2015, the Company utilized $1.3 billion of its facility under the Programs (see Note 14 for more information on the Programs).

Note 9.
Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2015 was 28.6% compared to 26.8% for the three months ended March 31, 2014 due primarily to changes in the forecast of the geographic mix of pretax earnings.

The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due.  These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions.  Resolution of the related tax positions, through negotiation with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential additional tax owed by the Company in accordance with the applicable accounting standard.  However, the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.

The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), has received three separate tax assessments from the Brazilian Federal Revenue Service (BFRS) challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006, and 2007. As of March 31, 2015, these assessments, updated for estimated penalties, interest, and variation in currency exchange rates, totaled approximately $415 million. ADM do Brasil’s tax return for 2005 was also audited and no assessment was received. The statutes of limitation for 2005 and 2008 have expired. If the BFRS were to challenge commodity hedging deductions in tax years after 2008, the Company estimates it could receive additional tax assessments of approximately $48 million (based on currency exchange rates as of March 31, 2015).

ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS.

ADM do Brasil filed an administrative appeal for each of the assessments. The appeal panel found in favor of the BFRS on these assessments and ADM do Brasil filed a second level administrative appeal. The second administrative appeal panel continues to conduct customary procedural activities, including ongoing dialogue with the BFRS auditor. The Company is anticipating that this process could take up to six months to complete. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, the Company intends to file appeals in the Brazilian federal courts. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties.

The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2008.


20

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 9.     Income Taxes (Continued)

The Company’s subsidiaries in Argentina have received tax assessments challenging transfer prices used to price grain exports totaling $93 million (inclusive of interest and adjusted for variation in currency exchange rates) for the tax years 2004 through 2007. The Argentine tax authorities have been conducting a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. While the Company believes that it has complied with all Argentine tax laws, it cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2007, and estimates that these potential assessments would be approximately $329 million (as of March 31, 2015 and subject to variation in currency exchange rates).  The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2007. The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments.
  
In accordance with the accounting requirements for uncertain tax positions, the Company has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits. The Company has not recorded an uncertain tax liability for these assessments partly because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in financial impacts of up to the entire amount of these assessments.

Note 10.     Accumulated Other Comprehensive Income (AOCI)

The following tables set forth the changes in AOCI by component for the three months ended March 31, 2015 and the reclassifications out of AOCI for the three months ended March 31, 2015 and 2014:
 
Three months ended March 31, 2015
 
Foreign Currency Translation Adjustment
 
Deferred Gain (Loss) on Hedging Activities
 
Pension Liability Adjustment
 
Unrealized Gain (Loss) on Investments
 
Total
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(654
)
 
$
47

 
$
(630
)
 
$
(4
)
 
$
(1,241
)
Other comprehensive income (loss) before reclassifications
(701
)
 
8

 
17

 
43

 
(633
)
Amounts reclassified from AOCI

 
(64
)
 
25

 

 
(39
)
Tax effect
32

 
21

 
(19
)
 

 
34

Net current period other comprehensive income
(669
)
 
(35
)
 
23

 
43

 
(638
)
Balance at March 31, 2015
$
(1,323
)
 
$
12

 
$
(607
)
 
$
39

 
$
(1,879
)

The current period change in foreign currency translation adjustment is primarily due to U.S. dollar appreciation, mainly impacting the Euro-denominated equity of the Company’s foreign subsidiaries.

21

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 10.     Accumulated Other Comprehensive Income (AOCI) (Continued)

 
 
Amount reclassified from AOCI
 
 
 
Three months ended
 
 
Details about AOCI components
 
March 31,
2015
 
March 31,
2014
 
Affected line item in the consolidated statement of earnings
 
 
(In millions)
 
Deferred loss (gain) on hedging activities
 
 
 
 
 
 
 
 
$

 
$
4

 
Cost of products sold
 
 
(17
)
 

 
Other income/expense
 
 
(47
)
 
27

 
Revenues
 
 
(64
)
 
31

 
Total before tax
 
 
24

 
(11
)
 
Tax
 
 
$
(40
)
 
$
20

 
Net of tax
 
 
 
 
 
 
 
Pension liability adjustment
 
 
 
 
 
 
Amortization of defined benefit pension items:
 
 
 
 
 
 
Prior service credit
 
$
(2
)
 
$
(4
)
 
 
Actuarial losses
 
27

 
9

 
 
 
 
25

 
5

 
Total before tax
 
 
(17
)
 
(2
)
 
Tax
 
 
$
8

 
$
3

 
Net of tax
 
 
 
 
 
 
 

Note 11.
Other (Income) Expense - Net

The following tables set forth the items in other (income) expense:
 
Three Months Ended
 
March 31,
 
2015
 
2014
 
(In millions)
 
 
 
 
Gains on sales of assets
$
(3
)
 
$
(23
)
Other – net
(7
)
 

Other (Income) Expense - Net
$
(10
)
 
$
(23
)

Gains on sales of assets for the quarter ended March 31, 2015 and 2014 include gains on disposals of individually insignificant assets. Other - net for the quarter ended March 31, 2015 includes foreign exchange gains partially offset by amortization of other intangibles.


22


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.     Segment Information

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are organized, managed and classified into four reportable business segments: Agricultural Services, Corn Processing, Oilseeds Processing, and Wild Flavors and Specialty Ingredients. 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.

Effective January 1, 2015, the Company formed a fourth reportable business segment, Wild Flavors and Specialty Ingredients. Results of Wild Flavors and SCI, which were acquired during the fourth quarter of fiscal 2014, are reported in this segment in addition to results of certain product lines previously reported in the Agricultural Services, Corn Processing, and Oilseeds Processing business segments. Prior period results of the product lines previously reported in the other reportable business segments have been reclassified to conform to the current period presentation.

The Agricultural Services segment utilizes its extensive global 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 Agricultural Services segment also includes the activities related to the processing of wheat into wheat flour. The Agricultural Services segment includes international merchandising and handling activities managed by the Company’s global trade desk in Switzerland. The Agricultural Services segment also includes the Company’s 32.2% share of the results of its Pacificor (formerly Kalama Export Company LLC) joint venture and returns associated with the Company’s 19.8% investment in GrainCorp.

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, 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 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. The Corn Processing segment also includes activities related to the processing and distribution of formula feeds and animal health and nutrition products. Other Corn Processing products include citric and lactic acids, lactates, and glycols, all of which are used in various food and industrial products. The Corn Processing segment also 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.















23

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.
Segment Information (Continued)

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 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. 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 International Limited (Wilmar) and its share of results for its Stratas Foods LLC and Edible Oils Limited joint ventures. In March 2015, the Company acquired additional shares in Wilmar increasing its ownership interest from 17.3% to 18.1%. Prior to December 2014, the Oilseeds Processing segment operated fertilizer blending facilities in South America. In December 2014, the Company completed the sale of its fertilizer blending business.

The Company’s Wild Flavors and Specialty Ingredients segment includes the activities of Wild Flavors and SCI which were acquired during the fourth quarter of fiscal 2014. The Wild Flavors and Specialty Ingredients segment engages in the manufacturing, sales, and distribution of specialty products including proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, sorbitol, xanthan gum, natural health and nutrition products, and other specialty food and feed ingredients. The Wild Flavors and Specialty Ingredients segment also includes the activities related to the procurement, processing, and distribution of edible beans.

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

Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in segment operating profit is equity in earnings of affiliates based on the equity method of accounting. Certain Corporate items are not allocated to the Company’s reportable business segments. Corporate results principally include the impact of LIFO-related adjustments, unallocated corporate expenses, interest cost net of investment income, and the Company’s share of the results of an equity investment.



















24

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.
Segment Information (Continued)

 
Three Months Ended
 
March 31,
(In millions)
2015
 
2014
Gross revenues
 
 
 
Agricultural Services
$
9,078

 
$
10,815

Corn Processing
2,488

 
2,996

Oilseeds Processing
6,896

 
8,252

Wild Flavors and Specialty Ingredients
607

 
259

Other
159

 
146

Intersegment elimination
(1,722
)
 
(1,772
)
Total gross revenues
$
17,506

 
$
20,696

 
 
 
 
Intersegment sales
 

 
 

Agricultural Services
$
1,033

 
$
1,104

Corn Processing
22

 
12

Oilseeds Processing
603

 
597

Wild Flavors and Specialty Ingredients
1

 
2

Other
63

 
57

Total intersegment sales
$
1,722

 
$
1,772

 
 
 
 
Revenues from external customers
 

 
 

Agricultural Services
 
 
 
Merchandising and Handling
$
7,027

 
$
8,752

Milling and Other
964

 
914

Transportation
54

 
45

Total Agricultural Services
8,045

 
9,711

Corn Processing
 
 
 
Sweeteners and Starches
875

 
938

Bioproducts
1,591

 
2,046

Total Corn Processing
2,466

 
2,984

Oilseeds Processing
 
 
 
Crushing and Origination
3,775

 
4,546

Refining, Packaging, Biodiesel, and Other
1,684

 
2,116

Cocoa and Other
757

 
827

Asia
77

 
166

Total Oilseeds Processing
6,293

 
7,655

 
 
 
 
Wild Flavors and Specialty Ingredients
606

 
257

Total Wild Flavors and Specialty Ingredients
606

 
257

 
 
 
 
Other - Financial
96

 
89

Total Other
96

 
89

Total revenues from external customers
$
17,506

 
$
20,696

 
 
 
 

25

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.
Segment Information (Continued)

 
Three Months Ended
 
March 31,
(In millions)
2015
 
2014
Segment operating profit
 

 
 

Agricultural Services
$
194

 
$
142

Corn Processing
113

 
186

Oilseeds Processing
469

 
297

Wild Flavors and Specialty Ingredients
68

 
58

Other
11

 
8

Total segment operating profit
855

 
691

Corporate
(165
)
 
(325
)
Earnings before income taxes
$
690

 
$
366

 
 
 
 
 
March 31,
 
December 31,
(In millions)
2015
 
2014
Identifiable Assets
 
 
 
Agricultural Services
$
8,279

 
$
10,250

Corn Processing
6,188

 
6,384

Oilseeds Processing
13,033

 
12,712

Wild Flavors and Specialty Ingredients
3,137

 
3,468

Other
7,706

 
7,910

Corporate
3,372

 
3,303

Total identifiable assets
$
41,715

 
$
44,027

 
 
 
 

26


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 13.     Assets and Liabilities Held for Sale

On September 2, 2014, the Company announced the sale of its global chocolate business to Cargill, Inc. for $440 million, subject to regulatory approval and customary conditions. On December 15, 2014, the Company also announced that it has reached an agreement to sell its global cocoa business to Olam International Limited for $1.3 billion, subject to customary conditions. Both transactions are expected to close in 2015. Assets and liabilities subject to the purchase and sale agreements have been classified as held for sale in the Company's consolidated balance sheet at March 31, 2015 and December 31, 2014. The global chocolate and cocoa businesses do not comprise a major component of the Company's operations and therefore do not meet the criteria to be classified as discontinued operations at March 31, 2015 and December 31, 2014 under the amended guidance of ASC Topics 205 and 360 which the Company early adopted on October 1, 2014. Assets and liabilities classified as held for sale are required to be recorded at the lower of carrying value or fair value less any costs to sell. As of March 31, 2015 and December 31, 2014. the carrying value of the cocoa and chocolate assets were less than fair value less costs to sell, and accordingly, no adjustment to the asset value was necessary. The continuing results of the global chocolate and cocoa businesses, any adjustment to the asset value, and the final gain or loss on disposal will be reported in the Oilseeds Processing segment.

The major classes of assets and liabilities held for sale were as follows:

 
March 31,
2015
December 31,
2014
 
(In millions)
Trade receivables
$
85

$
94

Inventories
713

742

Other current assets
62

83

Goodwill
58

63

Other intangible assets
25

28

Net property, plant, and equipment
360

374

Other assets
15

19

Current assets held for sale
$
1,318

$
1,403

Trade payables
$
131

$
114

Accrued expenses and other payables
96

110

Other liabilities
7

6

Current liabilities held for sale
$
234

$
230


Note 14.     Sale of Accounts Receivable

Since March 2012, the Company has had an accounts receivable securitization program (the “Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Purchasers”). Under the Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables in turn transfers such purchased accounts receivable in their entirety to the Purchasers pursuant to a receivables purchase agreement. In exchange for the transfer of the accounts receivable, ADM Receivables receives a cash payment of up to $1.2 billion and an additional amount upon the collection of the accounts receivable (deferred consideration). The Program terminates on June 26, 2015, unless extended.









27

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 14.     Sale of Accounts Receivable (Continued)

In March 2014, the Company entered into a second accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (“ADM Ireland Receivables”). ADM Ireland Receivables in turn transfers such purchased accounts receivable in their entirety to the Second Purchasers pursuant to a receivables purchase agreement. In exchange for the transfer of the accounts receivable, ADM Ireland Receivables receives a cash payment of up to $0.3 billion and an additional amount upon the collection of the accounts receivable (deferred consideration). The Second Program terminates on March 18, 2016, unless extended.

Under the Program and Second Program (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the Purchasers and Second Purchasers and other consideration to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables.

The Company accounts for these transfers as sales. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred consideration. At March 31, 2015 and December 31, 2014, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.

As of March 31, 2015 and December 31, 2014, the fair value of trade receivables transferred to the Purchasers and Second Purchasers under the Programs and derecognized from the Company’s consolidated balance sheet was $1.9 billion, and $2.1 billion, respectively. In exchange for the transfer as of March 31, 2015 and December 31, 2014, the Company received cash of $1.3 billion and $1.6 billion, respectively, and recorded a receivable for deferred consideration included in other current assets of $0.6 billion and $0.5 billion, respectively. Cash collections from customers on receivables sold were $11.2 billion and $10.6 billion for the three months ended March 31, 2015 and 2014, respectively. Of this amount, $11.0 billion and $10.6 billion pertain to cash collections on the deferred consideration for the three months ended March 31, 2015 and 2014, respectively. Deferred consideration is paid to the Company in cash on behalf of the Purchasers and Second Purchasers as receivables are collected; however, as these are revolving facilities, cash collected from the Company’s customers is reinvested by the Purchasers and Second Purchasers daily in new receivable purchases under the Programs.

The Company’s risk of loss following the transfer of accounts receivable under the Programs is limited to the deferred consideration outstanding. The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received and is principally based on observable inputs (a Level 2 measurement under the applicable accounting standards) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs which have historically been insignificant.

Transfers of receivables under the Programs resulted in an expense for the loss on sale of $1 million during the three months ended March 31, 2015 and 2014 classified as selling, general, and administrative expenses in the consolidated statements of earnings.
  
The Company reflects all cash flows related to the Programs as operating activities in its consolidated statement of cash flows for the three months ended March 31, 2015 and 2014 because the cash received from the Purchasers and Second Purchasers upon both the sale and collection of the receivables is not subject to significantly different risks given the short-term nature of the Company’s trade receivables.
  
Note 15.     Subsequent Events

On April 21, 2015, the Company signed an agreement with Tate and Lyle to purchase several assets of Eaststarch C.V. (Eaststarch), a joint venture in which the Company has a 50% interest. Under the terms of the agreement, the Company will take full ownership of corn wet mills in Bulgaria and Turkey, and will own a 50% stake in a wet mill in Hungary. Tate and Lyle will receive a cash consideration of €240 million, subject to customary closing adjustments, including for net cash and working capital, and take full ownership of the Eaststarch facility in Slovakia. The transaction is subject to regulatory approval in some jurisdictions and is expected to close within the year.


28

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.     Subsequent Events (Continued)


On May 5, 2015, the Company announced further portfolio actions: the construction of a new feed-premix plant in the city of Zhangzhou, in southern China and a new feed plant in Glencoe, Minnesota; an agreement to purchase the remaining ownership interest in two joint ventures, North Star Shipping and Minmetal, which operate in the Romanian Port of Constanta on the Black Sea; and the sale of the Company's lactic acid business.


29


ITEM 2.
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 unaudited 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 140 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 its shareholders, principally from margins earned on these activities.

The Company’s operations are organized, managed and classified into four reportable business segments: Agricultural Services, Corn Processing, Oilseeds Processing, and Wild Flavors and Specialty Ingredients. 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.

Effective January 1, 2015, the Company formed a fourth reportable business segment, Wild Flavors and Specialty Ingredients. Results of Wild Flavors and SCI, which were acquired during the fourth quarter of fiscal 2014, are reported in this segment in addition to results of certain product lines previously reported in the Agricultural Services, Corn Processing, and Oilseeds Processing business segments. Prior period results of the product lines previously reported in the other reportable business segments have been reclassified to conform to the current period presentation.

The Agricultural Services segment utilizes its extensive global 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 Agricultural Services segment also includes the activities related to the processing of wheat into wheat flour. The Agricultural Services segment includes international merchandising and handling activities managed by the Company’s global trade desk in Switzerland. The Agricultural Services segment also includes the Company’s 32.2% share of the results of its Pacificor (formerly Kalama Export Company LLC) joint venture and returns associated with the Company’s 19.8% investment in GrainCorp.

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, 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 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. The Corn Processing segment also includes activities related to the processing and distribution of formula feeds and animal health and nutrition products. Other Corn Processing products include citric and lactic acids, lactates, and glycols, all of which are used in various food and industrial products. The Corn Processing segment also 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.








30



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

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 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. 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 International Limited (Wilmar) and its share of results for its Stratas Foods LLC and Edible Oils Limited joint ventures. In March 2015, the Company acquired additional shares in Wilmar increasing its ownership interest from 17.3% to 18.1%. Prior to December 2014, the Oilseeds Processing segment operated fertilizer blending facilities in South America. In December 2014, the Company completed the sale of its fertilizer blending business.

The Company’s Wild Flavors and Specialty Ingredients segment includes the activities of Wild Flavors Gmbh (Wild Flavors) and Specialty Commodities, Inc. (SCI) which were acquired during the fourth quarter of fiscal 2014. The Wild Flavors and Specialty Ingredients segment engages in the manufacturing, sales, and distribution of specialty products including proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, sorbitol, xanthan gum, natural health and nutrition products, and other specialty food and feed ingredients. The Wild Flavors and Specialty Ingredients segment also includes the activities related to the procurement, processing, and distribution of edible beans.

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

Corporate results principally include the impact of LIFO-related inventory adjustments, unallocated corporate expenses, interest cost net of investment income, and the Company’s share of the results of an equity investment.

Significant Ongoing Portfolio Management Actions

The Company’s recently announced additional significant actions in its portfolio management include:

announcing the sale of its global chocolate business to Cargill, Inc. for $440 million on September 2, 2014;
announcing the sale of its global cocoa business to Olam International Limited for $1.3 billion on December 15, 2014;
signing an agreement with Glencore plc to sell a 50 percent stake in its export terminal in Barcarena, in the northern Brazilian state of Pará on February 3, 2015;
announcing the acquisition of AOR N.V. on March 30, 2015;
signing an agreement with Tate and Lyle to purchase several assets of Eaststarch C.V. for €240 million on April 21, 2015;
announcing the construction of a new feed-premix plant in the city of Zhangzhou, in southern China and a new feed plant in Glencoe, Minnesota on May 5, 2015;
signing an agreement to purchase the remaining ownership interest in North Star Shipping and Minmetal on May 5, 2015; and
announcing the sale of the lactic acid business on May 5, 2015.

The construction of the new feed plant facilities is expected to be completed in 2016. The other transactions are expected to close in 2015, subject to completion of customary closing conditions, including regulatory approvals, which are in process. The chocolate and cocoa businesses have been classified as held for sale since December 31, 2014.




31



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Performance Indicators

The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Item 1A, “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

The Company’s agricultural services and oilseeds processing 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 Wild Flavors and Specialty Ingredients businesses 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 79 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. Changes in revenues and expenses reported by the Company caused by 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 are expected to be highly correlated.

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 undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

Net earnings attributable to controlling interests was $493 million in the first quarter of 2015 compared to $267 million in the first quarter of 2014. Segment operating profit increased $164 million to $855 million, primarily due to strong Oilseeds crushing results and continued improvement in international merchandising. Included in this quarter’s segment operating profit was approximately $30 million of mark-to-market losses related to hedge timing effects while segment operating profit in the prior year’s quarter included approximately $90 million of mark-to-market losses related to hedge timing effects. Corporate results were a charge of $165 million this quarter compared to $325 million in last year’s quarter. Corporate results this quarter include a credit of $2 million from the effect of decreasing agricultural commodity prices on LIFO inventory valuation reserves, compared to a charge of $159 million in the first quarter of 2014.

Income taxes increased $99 million due to higher earnings before income taxes and a higher effective tax rate. The Company’s effective tax rate for the quarter ended March 31, 2015 increased to 28.6% compared to 26.8% for the quarter ended March 31, 2014 due primarily to changes in the forecast of the geographic mix of pretax earnings.
  
Market Factors Influencing Operations or Results in the Three Months Ended March 31, 2015

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company's operating results. The Company demonstrated its ability to leverage the strengths of its diversified business model.  The Oilseeds Processing segment capitalized on favorable market conditions and delivered outstanding results, with strong performances in each region.  The Agricultural Services segment’s recently created global trade desk platform drove higher merchandised volumes.  The new Wild Flavors and Specialty Ingredients segment got off to a great start towards achieving the cost and revenue synergies that were identified last year. Together, these performances helped deliver a good quarter overall, even as lower industry ethanol margins limited earnings in Corn, and the strong dollar limited U.S. grain exports.


32



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Analysis of Statements of Earnings

Processed volumes by product for the quarter are as follows (in metric tons):
 
Three Months Ended
 
 
March 31,
 
 
(In thousands)
2015
 
2014
 
Change
Oilseeds
8,849

 
8,689

 
160

Corn
5,302

 
5,749

 
(447
)
Milling and cocoa
1,750

 
1,773

 
(23
)
   Total
15,901

 
16,211

 
(310
)

The Company continued to operate its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to current and seasonal local supply and demand conditions.

Revenues by segment for the quarter are as follows:
 
Three Months Ended
 
 
 
March 31,
 
 
 
2015
 
2014
 
Change
 
(In millions)
Agricultural Services
 
 
 
 
 
Merchandising and Handling
$
7,027

 
$
8,752

 
$
(1,725
)
Milling and Other
964

 
914

 
50

Transportation
54

 
45

 
9

Total Agricultural Services
8,045

 
9,711

 
(1,666
)
 
 
 
 
 
 
Corn Processing
 

 
 

 
 

Sweeteners and Starches
875

 
938

 
(63
)
Bioproducts
1,591

 
2,046

 
(455
)
Total Corn Processing
2,466

 
2,984

 
(518
)
 
 
 
 
 
 
Oilseeds Processing