Archer-Daniels-Midland Co quarterly report, Q2 FY2011

ADM Form 10-Q Summary: Fiscal 2012 Second Quarter

Reporting period: Three and six months ended December 31, 2011, compared with the corresponding periods in 2010. ADM procures, transports, stores, processes, and merchandises agricultural commodities through Oilseeds Processing, Corn Processing, Agricultural Services, and Other operations.

Key Financial Metrics

Metric	Three months ended Dec. 31, 2011	Three months ended Dec. 31, 2010	Six months ended Dec. 31, 2011	Six months ended Dec. 31, 2010
Net sales and other operating income	$23.3 billion	$20.9 billion	$45.2 billion	$37.7 billion
Gross profit	$813 million	$1.234 billion	$1.847 billion	$2.042 billion
Earnings before income taxes	$121 million	$998 million	$781 million	$1.460 billion
Net earnings attributable to controlling interests	$80 million	$732 million	$540 million	$1.077 billion
Diluted earnings per share	$0.12	$1.14	$0.81	$1.68
Dividends per share	$0.175	$0.150	$0.335	$0.300

Quarterly gross margin declined to approximately 3.5% from 5.9%; six-month gross margin declined to approximately 4.1% from 5.4%.
Quarterly net margin declined to approximately 0.3% from 3.5%; six-month net margin declined to approximately 1.2% from 2.9%.
Six-month operating cash flow was $3.041 billion, compared with cash used of $4.083 billion in the prior-year period.
Six-month investing cash outflow was $934 million, including $852 million of capital expenditures and $206 million for acquired businesses.
Six-month financing cash outflow was $1.858 billion, including $1.076 billion of net repayments under credit lines, $427 million of treasury-stock purchases, and $224 million of dividends.
Cash and cash equivalents totaled $864 million at December 31, 2011, compared with $615 million at June 30, 2011. Cash, cash equivalents, and short-term marketable securities totaled approximately $1.5 billion.

Liquidity, Debt, and Balance Sheet

Current assets were $27.224 billion and current liabilities were $14.829 billion, producing a current ratio of approximately 1.8 to 1.
Short-term debt was $834 million, current maturities of long-term debt were $1.602 billion, and long-term debt was $6.762 billion at December 31, 2011.
ADM had $7.0 billion of credit lines, of which $6.2 billion was unused. Commercial paper outstanding was $130 million against a $4.6 billion supported facility.
A $1.0 billion, 364-day accounts receivable securitization facility was available, with no borrowings outstanding.
Long-term debt represented 27% of total capital, compared with 30% at June 30, 2011.
The company had $1.4 billion of floating-rate notes due August 13, 2012 and $1.15 billion of convertible senior notes due 2014.

Material Changes Versus Prior Comparable Period

Quarterly sales increased 11% and six-month sales increased 20%, primarily because of higher commodity selling prices and, for the year-to-date period, approximately $0.5 billion of foreign-currency effects.
Quarterly net earnings attributable to controlling interests fell $652 million, or approximately 89%, to $80 million. Six-month earnings fell $537 million, or approximately 50%, to $540 million.
Segment operating profit declined to $309 million from $1.362 billion in the quarter and to $1.008 billion from $2.127 billion for six months.
Oilseeds Processing operating profit declined 22% for the quarter and 25% for six months, primarily because of weak global oilseed crushing margins.
Corn Processing reported a quarterly operating loss of $133 million versus $399 million of profit and six-month operating profit of $46 million versus $740 million. Results included $339 million of bioplastics impairment and exit costs; excluding those charges, profitability still declined due to higher net corn costs and weaker margins.
Agricultural Services operating profit declined to $158 million from $426 million in the quarter and to $402 million from $558 million for six months, reflecting weaker international merchandising and lower U.S. grain exports.
Other segment operating profit declined to $31 million from $212 million in the quarter, including $127 million of unrealized mark-to-market losses on cocoa commitments.
Corporate results improved primarily because LIFO effects shifted from a $254 million quarterly charge to a $59 million charge and from a $377 million six-month charge to a $67 million credit.

Guidance, Outlook, Risks, and Unusual Items

ADM does not provide forward-looking information in its MD&A because results are highly sensitive to commodity prices, weather, crop yields, government policies, global demand, energy costs, currency movements, and global economic conditions.
The company recorded $352 million of asset impairment charges and exit costs related primarily to the Clinton, Iowa bioplastics facility. This included $320 million of property, plant, and equipment impairment, $32 million of exit and other asset charges, and a $13 million other-than-temporary impairment of a Metabolix investment.
ADM announced the termination of its commercial alliance with Metabolix and the dissolution of the Telles joint venture; Mirel bioplastic production was expected to end in February 2012.
In January 2012, ADM announced plans to eliminate approximately 1,000 positions, or 3% of its global workforce. It expects annual pretax savings of more than $100 million, a $50 million to $75 million pretax charge in fiscal third quarter 2012, initial benefits in fiscal fourth quarter 2012, and full benefits by the end of fiscal third quarter 2013.
ADM remains subject to Brazilian tax assessments totaling $564 million, plus potential additional claims estimated at approximately $97 million for later years, relating to the deductibility of commodity-hedging losses. The company has not recorded a liability for the assessed amounts and intends to appeal.
The company continues an internal review of potential anti-corruption and Foreign Corrupt Practices Act issues involving certain transactions. Management does not expect a material impact, but governmental penalties, fines, or disgorgement remain possible.
Commodity and derivative exposures are material. At December 31, 2011, derivative assets were $2.423 billion and derivative liabilities were $2.547 billion; a hypothetical 10% adverse commodity-price movement implied average market risk of approximately $28 million during the six months.
Purchase obligations totaled $15.3 billion, including $14.2 billion expected to be paid within 12 months, principally for agricultural commodities.

Facts Investors Should Verify

Whether the Clinton bioplastics impairment and subsequent restructuring charges are fully reflected in forward earnings expectations.
The outcome and timing of ADM do Brasil’s tax appeals and any related interest, penalties, or future assessments.
Whether oilseed crushing margins, ethanol margins, cocoa mark-to-market results, and Agricultural Services merchandising volumes recover.
The maturity and refinancing plan for the $1.4 billion of floating-rate notes due August 2012.
The sustainability of the sharply improved operating cash flow, given commodity-price-driven working-capital volatility.
The effect of currency movements, weather, crop availability, energy costs, and global demand on segment margins.
Implementation costs and realized savings from the workforce reduction and other cost-reduction initiatives.