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 DecemberMarch 31, 20042005
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period __________ TOTo __________

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.)
  
4666 Faries Parkway Box 1470
Decatur, Illinois
(Address of principal executive offices)
 
62525
(Zip Code)
  
Registrant's telephone number, including area code: (217) 424-5200

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. YesxNoo.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YesxNoo.

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 - 655,953,709656,488,180 shares
(January 31,April 30, 2005)
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

Archer-Daniels-Midland Company and Subsidiaries

  
THREE MONTHS ENDED
  
DECEMBER 31,
   
2004
 
2003
 
  (In thousands, except
  per share amounts)
   
Net sales and other operating income 
$
9,063,526
 $9,188,504 
Cost of products sold  
8,394,818
  8,584,210 
Gross Profit  
668,708
  604,294 
        
Selling, general and administrative expenses  
269,741
  265,641 
Other expense (income) - net  
(55,395
)
 18,624 
Earnings Before Income Taxes  
454,362
  320,029 
        
Income taxes  
140,853
  99,208 
        
Net Earnings 
$
313,509
 $220,821 
        
        
Average number of shares outstanding  
654,985
  646,845 
        
Basic and diluted earnings per common share 
$
.48
 $.34 
        
Dividends per common share 
$
.075
 $.06 
  
THREE MONTHS ENDED
  
MARCH 31,
   
2005
  
2004
 
  (In thousands, except
  per share amounts)
      
Net sales and other operating income 
$
8,484,171
 $9,309,019 
Cost of products sold  
7,909,315
  8,722,000 
Gross Profit  
574,856
  587,019 
      
Selling, general and administrative expenses  
280,395
  251,701 
Other expense (income) - net  
(114,575
)
 (3,143)
Earnings Before Income Taxes  
409,036
  338,461 
      
Income taxes  
139,941
  111,692 
      
Net Earnings 
$
269,095
 $226,769 
        
      
Average number of shares outstanding - basic  
656,163
  648,565 
      
Average number of shares outstanding - diluted  
658,904
  650,962 
      
Basic earnings per common share 
$
.41
 $.35 
      
Diluted earnings per common share 
$
.41
 $.35 
      
Dividends per common share 
$
.085
 $.075 
 
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries

 
NINE MONTHS ENDED
 
SIX MONTHS ENDED
 
MARCH 31,
DECEMBER 31,
  
2005
  
2004
 
2004
2003
 (In thousands, except
(In thousands, except
per share amounts)
 per share amounts)
              
Net sales and other operating income 
$
18,035,937
 $17,156,406  
$
26,520,108
 $26,465,425 
Cost of products sold  
16,703,797
  16,098,358   
24,613,112
  24,820,358 
Gross Profit  
1,332,140
  1,058,048   
1,906,996
  1,645,067 
              
Selling, general and administrative expenses  
521,250
  497,437   
801,645
  749,138 
Other expense (income) - net  
(29,409
)
 22,928   
(143,984
)
 19,785 
Earnings Before Income Taxes  
840,299
  537,683   
1,249,335
  876,144 
              
Income taxes  
260,493
  166,681   
400,434
  278,373 
              
Net Earnings 
$
579,806
 $371,002  
$
848,901
 $597,771 
              
              
Average number of shares outstanding  
653,652
  645,992 
Average number of shares outstanding - basic  
654,476
  646,844 
              
Basic and diluted earnings per common share 
$
.89
 $.57 
Average number of shares outstanding - diluted  
656,365
  649,241 
       
Basic earnings per common share 
$
1.30
 $.92 
       
Diluted earnings per common share 
$
1.29
 $.92 
              
Dividends per common share 
$
.15
 $.12  
$
.235
 $.195 
 
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Archer-Daniels-Midland Company and Subsidiaries
 
  
(Unaudited)
     
(Unaudited)
 
 
 
 
  
DECEMBER 31,
 
JUNE 30,
 
 
 
MARCH 31,
 
 
JUNE 30,
 
  
2004
 
2004
 
 
 
2005
 
 
2004
 
 (In thousands)
 
(In thousands)
ASSETSASSETS       
Current Assets              
Cash and cash equivalents 
$
334,319
 $540,207  
$
661,883
 $540,207 
Segregated cash and investments  
914,316
  871,439   
1,001,259
  871,439 
Receivables  
4,199,284
  4,040,759   
3,991,153
  4,040,759 
Inventories  
4,202,664
  4,591,648   
3,966,730
  4,591,648 
Other assets  
433,410
  294,943   
423,571
  294,943 
Total Current Assets  
10,083,993
  10,338,996   
10,044,596
  10,338,996 
              
Investments and Other Assets              
Investments in and advances to affiliates  
1,981,633
  1,832,619   
1,893,932
  1,832,619 
Long-term marketable securities  
1,237,549
  1,161,388   
989,510
  1,161,388 
Goodwill  
343,987
  337,474   
344,622
  337,474 
Other assets  
455,766
  443,606   
460,277
  443,606 
  
4,018,935
  3,775,087   
3,688,341
  3,775,087 
              
Property, Plant and Equipment       
Property, Plant, and Equipment       
Land  
199,287
  190,136   
209,863
  190,136 
Buildings  
2,670,451
  2,568,472   
2,663,906
  2,568,472 
Machinery and equipment  
11,011,286
  10,658,282   
10,973,962
  10,658,282 
Construction in progress  
255,131
  263,332   
324,593
  263,332 
  
14,136,155
  13,680,222   
14,172,324
  13,680,222 
Allowances for depreciation  
(8,863,860
)
 (8,425,484)  
(8,923,464
)
 (8,425,484)
              
  
5,272,295
  5,254,738   
5,248,860
  5,254,738 
              
 
$
19,375,223
 $19,368,821  
$
18,981,797
 $19,368,821 
              
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Archer-Daniels-Midland Company and Subsidiaries
 
   
(Unaudited)
 
 
 
 
 
 
MARCH 31,
 
 
JUNE 30,
 
 
 
2005
 
 
2004
 
 
(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current Liabilities      
Short-term debt 
$
270,374
 $1,770,512 
Accounts payable  
3,651,851
  3,238,230 
Accrued expenses  
1,356,058
  1,580,700 
Current maturities of long-term debt  
182,595
  160,795 
Total Current Liabilities  
5,460,878
  6,750,237 
        
Long-Term Liabilities      
Long-term debt 
3,575,477
  3,739,875 
Deferred income taxes  
756,709
  653,834 
Other  
615,627
  526,659 
   
4,947,813
  4,920,368 
        
Shareholders' Equity      
Common stock  
5,492,809
  5,431,510 
Reinvested earnings  
2,878,684
  2,183,751 
Accumulated other comprehensive income  
201,613
  82,955 
        
   
8,573,106
  7,698,216 
        
  
$
18,981,797
 $19,368,821 
        
   
(Unaudited)
   
   
DECEMBER 31,
 
JUNE 30,
 
   
2004
 
2004
 
  (In thousands)
        
LIABILITIES AND SHAREHOLDERS’ EQUITY       
Current Liabilities       
Short-term debt 
$
732,678
 $1,770,512 
Accounts payable  
3,889,939
  3,238,230 
Accrued expenses  
1,091,829
  1,580,700 
Current maturities of long-term debt  
79,165
  160,795 
Total Current Liabilities  
5,793,611
  6,750,237 
        
Long-Term Liabilities       
Long-term debt  
3,695,432
  3,739,875 
Deferred income taxes  
762,515
  653,834 
Other  
592,969
  526,659 
   
5,050,916
  4,920,368 
        
Shareholders' Equity       
Common stock  
5,473,767
  5,431,510 
Reinvested earnings  
2,665,382
  2,183,751 
Accumulated other comprehensive income  
391,547
  82,955 
        
   
8,530,696
  7,698,216 
        
  
$
19,375,223
 $19,368,821 
        
        

See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
  
SIX MONTHS ENDED
DECEMBER 31,
2004
2003
(In thousands)
Operating Activities       
Net earnings 
$
579,806
 $371,002 
Adjustments to reconcile net earnings to net cash provided by
operating activities
  
   Depreciation  
337,086
  340,878 
   Asset abandonments  
1,896
  29,268 
   Deferred income taxes  
191,813
  69,560 
   Equity in (earnings) of affiliates, net of dividends  
(66,665
)
 (37,012)
   Stock contributed to employee benefit plans  
11,841
  11,726 
   Pension and postretirement payments in excess of accruals  
(23,309
)
 (50,392)
   Other - net  
(30,943
)
 (18,688)
   Changes in operating assets and liabilities  
        Segregated cash and investments  
(30,898
)
 (157,931)
        Receivables  
(197,418
)
 (626,607)
        Inventories  
511,247
  (1,361,758)
        Other assets  
(132,062
)
 (45,080)
        Accounts payable and accrued expenses  
190,488
  998,928 
            Total Operating Activities  
1,342,882
  (476,106)
Investing Activities       
   Purchases of property, plant, and equipment  
(284,286
)
 (250,697)
   Proceeds from sales of property, plant, and equipment  
22,173
  44,033 
   Net assets of businesses acquired  
(6,797
)
 (53,616)
   Investments in and advances to affiliates  
(89,531
)
 (53,423)
   Distributions from affiliates, excluding dividends  
82,825
  77,204 
   Purchases of marketable securities  
(1,229,719
)
 (638,682)
   Proceeds from sales of marketable securities  
1,236,874
  375,047 
   Other - net  
18,818
  26,045 
            Total Investing Activities  
(249,643
)
 (474,089)
Financing Activities       
   Long-term debt borrowings  
8,547
  2,646 
   Long-term debt payments  
(155,988
)
 (20,504)
   Net borrowings (payments) under lines of credit agreements  
(1,070,423
)
 811,612 
   Purchases of treasury stock  
(45
)
 (3,980)
   Cash dividends  
(98,175
)
 (77,799)
   Proceeds from exercises of stock options  
16,957
  10,386 
            Total Financing Activities  
(1,299,127
)
 722,361 
        
Decrease In Cash And Cash Equivalents  
(205,888
)
 (227,834)
Cash And Cash Equivalents Beginning Of Period  
540,207
  764,959 
        
Cash And Cash Equivalents End Of Period 
$
334,319
 $537,125 
  
NINE MONTHS ENDED 
 
 
MARCH 31, 
 
 
 
2005
  
2004
 
      (In thousdands) 
Operating Activities      
Net earnings 
$
848,901
 $597,771 
Adjustments to reconcile net earnings to net cash provided by     
(used in) operating activities     
Depreciation  
507,599
  513,293 
Asset abandonments  
1,896
  40,184 
Deferred income taxes  
173,845
  161,759 
Stock contributed to employee benefit plans  
17,581
  17,623 
(Gain) loss on marketable securities transactions  
(113,261
)
 (11,697)
Equity in (earnings) of affiliates, net of dividends  
(57,724
)
 (69,766)
Pension and postretirement payments in excess of accruals  
(4,241
)
 (32,671)
Other - net  
15,542
  (34,161)
Changes in operating assets and liabilities     
Segregated cash and investments  
(121,523
)
 (324,665)
Receivables  
(50,074
)
 (605,594)
Inventories  
762,976
  (1,985,485)
Other assets  
(95,891
)
 (26,367)
Accounts payable and accrued expenses  
158,126
  861,135 
Total Operating Activities  
2,043,752
  (898,641)
      
Investing Activities     
Purchases of property, plant and equipment  
(451,223
)
 (365,752)
Proceeds from sales of property, plant and equipment  
29,072
  48,840 
Net assets of businesses acquired  
(4,670
)
 (53,616)
Investments in and advances to affiliates  
(96,967
)
 (92,979)
Distributions from affiliates, excluding dividends  
125,357
  83,216 
Purchases of marketable securities  
(1,320,069
)
 (749,531)
Proceeds from sales of marketable securities  
1,595,263
  658,671 
Other - net  
18,567
  28,078 
Total Investing Activities  
(104,670
)
 (443,073)
      
Financing Activities     
Long-term debt borrowings  
8,547
  2,646 
Long-term debt payments  
(174,018
)
 (26,731)
Net borrowings (payments) under lines of credit agreements  
(1,520,661
)
 1,510,532 
Purchases of treasury stock  
(3,514
)
 (4,083)
Cash dividends  
(153,967
)
 (126,615)
Proceeds from exercises of stock options  
26,207
  26,021 
Total Financing Activities  
(1,817,406
)
 1,381,770 
      
Increase In Cash And Cash Equivalents  
121,676
  40,056 
Cash And Cash Equivalents Beginning Of Period  
540,207
  764,959 
      
Cash And Cash Equivalents End Of Period 
$
661,883
 $805,015 
        
See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
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, they 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 and sixnine months ended DecemberMarch 31, 20042005 are not necessarily indicative of the results that may be expected for the year ending June 30, 2005. For further information, refer to the consolidated financial statements and footnotes thereto incl udedincluded in the Company's annual report on Form 10-K for the year ended June 30, 2004.

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.

Reclassifications

Certain items in the prior period financial statements have been reclassified to conform to the current period’s presentation.

Note 2.  New Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) Number 153Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. SFAS Number 153 eliminates the exception to fair value accounting for exchanges of similar productive assets contained in Accounting Principles Board (APB) Opinion Number 29 and replaces it with a general exception for exchange transactions that do not have commercial substance. The exception in APB Opinion Number 29 required certain nonmonetary asset exchanges to be recorded on a carryover basis with no gain/loss recognition. Under SFAS Number 153, exchange transactions with commercial substance are required to be accounted for at fair value with gain/loss recognition on assets surrendered in exchange transactions. The Company will be required to adopt SFAS Number 153 on July 1, 2005, and believes the adoption of this standard will not have a material impact on the Company’s financial statements.

In December 2004, the Financial Accounting Standards Board issued SFAS Number 123 (revised 2004),Share-Based Payment,which is a revision of SFAS Number 123,Accounting for Stock-Based Compensation,and amends SFAS Number 95,Statement of Cash Flows.SFAS Number 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. Effective July 1, 2004, the Company adopted the fair value recognition provisions of SFAS Number 123. The adoption of SFAS Number 123(R) on July 1, 2005 will not have a material impact on the Company’s financial statements.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries


Note 3.  Comprehensive Income

The components of comprehensive income, net of related tax, are as follows:

  
THREE MONTHS ENDED
NINE MONTHS ENDED
 
 
MARCH 31,
MARCH 31,
 
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
(In thousands)(In thousands)
              
Net earnings 
$
269,095
 $226,769 
$
848,901
 $597,771 
              
Net change in unrealized gain             
(loss) on investments  
(68,771
)
 49,900  
(15,948
)
 92,358 
Deferred gain (loss) on hedging             
activities  
7,401
  69,560  
(59,467
)
 64,745 
Minimum pension             
liability adjustment  
(1,566
)
 32  
(4,020
)
 (77)
Foreign currency translation             
adjustment  
(126,998
)
 (43,367) 
198,093
  148,125 
              
Comprehensive Income 
$
79,161
 $302,894 
$
967,559
 $902,922 
              
 
The components of comprehensive income, net of related tax, are as follows: 
  
  
THREE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2004
2003
2004
2003
(In thousands)(In thousands)
              
Net earnings 
$
313,509
 $220,821 
$
579,806
 $371,002 
              
Net change in unrealized gain             
(loss) on investments  
39,284
  3,578  
52,823
  42,458 
Deferred gain (loss) on hedging             
activities  
39,897
  36,688  
(66,868
)
 (4,815)
Minimum pension             
liability adjustment  
(2,454
)
 (113) 
(2,454
)
 (109)
Foreign currency translation             
adjustment  
260,672
  157,962  
325,091
  191,492 
              
Comprehensive Income 
$
650,908
 $418,936 
$
888,398
 $600,028 
              
Note 4. Stock Compensation

Effective July 1, 2004, the Company adopted the fair value recognition provisions of SFAS Number 123,Accounting for Stock-Based Compensation, for stock-based employee compensation. Prior to July 1, 2004, the Company accounted for stock-based employee compensation under the recognition and measurement provisions of APB Opinion Number 25,Accounting for Stock Issued to Employees, and related Interpretations. Under the modified prospective method of adoption selected by the Company under the provisions of SFAS Number 148,Accounting for Stock-Based Compensation - Transition and Disclosure, stock-based employee compensation cost recognized for the quarter and sixnine months ended DecemberMarch 31, 2004,2005, is the same as that which would have been recognized had the fair value recognition provisions of SFAS Number 123 been applied to all options granted after July 1, 1995. The effect of adopting SFAS Number 123 for stock options was immaterial for the quarter and sixnine months ended DecemberMarch 31, 2004,2005, and is expected to be immaterial for the year endedending June 30, 2005.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
 
Note 4. Stock Compensation (Continued)

The following table illustrates the effect on net earnings and earnings per share as if the fair value method had been applied to all outstanding and unvested employee stock options and awards in each period.
 
 
THREE MONTHS ENDED
NINE MONTHS ENDED
 
 
MARCH 31,
MARCH 31,
 
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
(In thousands, except per share data)
              
Net earnings, as reported 
$
269,095
 $226,769 
$
848,901
 $597,771 
Add: stock-based compensation             
expense reported in net earnings,             
net of related tax  
4,739
  1,357  
13,234
  3,366 
Deduct: stock-based compensation             
expense determined under fair             
value method, net of related tax  
(4,739
)
 (2,415) 
(13,234
)
 (6,723)
Pro forma net earnings 
$
269,095
 $225,711 
$
848,901
 $594,414 
              
Basic earnings per common share   
As reported 
$
.41
 $.35 
$
1.30
 $.92 
Pro forma 
$
.41
 $.35 
$
1.30
 $.92 
              
Diluted earnings per common share             
As reported 
$
.41
 $.35 
$
1.29
 $.92 
Pro forma 
$
.41
 $.35 
$
1.29
 $.92 
Note 5.Other Expense (Income) - Net

 
 
THREE MONTHS ENDED
NINE MONTHS ENDED
 
 
MARCH 31,
MARCH 31,
 
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
(In thousands)(In thousands)
 
             
Interest expense 
$
80,293
 $86,856 
$
241,903
 $259,849 
Investment income  
(36,300
)
 (35,775) 
(91,756
)
 (89,524)
Net (gain) loss on marketable
  securities transactions
  
(113,820
)
 
(10,677
)
 
(113,261
)
 
(11,697
)
Equity in (earnings) losses
  of affiliates
  
(36,611
)
 
(44,804
)
 
(173,409
)
 
(141,453
)
Other  
(8,137
)
 1,257  
(7,461
)
 2,610 
  
$
(114,575
)
$(3,143)
$
(143,984
)
$19,785 
              

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
 
Note 4. Stock Compensation (Continued)
  
THREE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2004
2003
2004
2003
(In thousands, except per share data)
              
Net earnings, as reported 
$
313,509
 $220,821 
$
579,806
 $371,002 
Add: stock-based compensation             
expense reported in             
net earnings, net of related tax  
5,100
  1,295  
8,495
  2,009 
Deduct: stock-based             
compensation expense             
determined under fair             
value method, net of related tax  
(5,100
)
 (2,376) 
(8,495
)
 (4,308)
Pro forma net earnings 
$
313,509
 $219,740 
$
579,806
 $368,703 
              
Basic and diluted earnings per common share   
As reported 
$
.48
 $.34 
$
.89
 $.57 
Pro forma 
$
.48
 $.34 
$
.89
 $.57 
              
Note 5. Other Expense (Income) - net
  
THREE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2004
2003
2004
2003
(In thousands)(In thousands)
              
Interest expense 
$
82,561
 $89,949 
$
161,610
 $172,993 
Investment income  
(24,621
)
 (25,448) 
(55,456
)
 (53,749)
Net (gain) loss on marketable             
securities transactions  
566
  72  
559
  (1,020)
Equity in (earnings) losses             
of affiliates  
(115,905
)
 (53,355) 
(136,798
)
 (96,649)
Other - net  
2,004
  7,406  
676
  1,353 
  
$
(55,395
)
$18,624 
$
(29,409
)
$22,928 


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
Note 6.Retirement Plan Expense

The Company provides substantially all domestic employees and employees at certain international subsidiaries with pension benefits. The Company also provides substantially all domestic salaried employees with postretirement health care and life insurance benefits. Retirement plan expense for these pension and postretirement benefits for the quarter and sixnine months ended DecemberMarch 31, 20042005 and 2003,2004, is as follows:
 
  
Pension Benefits
Postretirement Benefits
 
 
THREE MONTHS ENDED
THREE MONTHS ENDED
 
 
MARCH 31,
MARCH 31,
   
2005
 
 
2004
  
2005
  
2004
 
  (In thousands)(In thousands)
              
Service cost (benefits earned during the period) 
$
13,361
 $11,534 
$
1,616
 $1,530 
Interest cost  
19,297
  15,502  
1,925
  1,928 
Expected return on plan assets  
(17,067
)
 (13,060) 
­
  - 
Actuarial loss (gain)  
8,143
  4,943  
22
  15 
Net amortization  
1,140
  916  
(279
)
 (279)
Net periodic defined benefit plan expense 
$
24,874
 $19,835 
$
3,284
 $3,194 
              
              
  
NINE MONTHS ENDED
NINE MONTHS ENDED
 
 
MARCH 31,
MARCH 31,
 
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
 
 
(In thousands)(In thousands)
              
Service cost (benefits earned during the period) 
$
40,084
 $35,227 
$
4,849
 $4,591 
Interest cost  
57,891
  46,506  
5,775
  5,784 
Expected return on plan assets  
(51,199
)
 (39,181) 
-
  - 
Actuarial loss (gain)  
24,427
  14,830  
67
  46 
Net amortization  
3,419
  2,749  
(837
)
 (837)
Net periodic defined benefit plan expense 
$
74,622
 $60,131 
$
9,854
 $9,584 
  
Pension Benefits
Post Retirement Benefits
THREE MONTHS ENDED
THREE MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2004
2003
2004
2003
 
  (In thousands)(In thousands)
              
Service cost (benefits earned during the period) 
$
13,361
 $12,188 
$
1,617
 $1,530 
Interest cost  
19,297
  17,533  
1,925
  1,928 
Expected return on plan assets  
(17,066
)
 (14,487) 
-
  - 
Actuarial loss  
8,143
  5,966  
22
  15 
Net amortization  
1,139
  930  
(279
)
 (279)
Net periodic defined benefit plan expense 
$
24,874
 $22,130 
$
3,285
 $3,194 
              
              
  
SIX MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
2004
2003
2004
2003
(In thousands)(In thousands)
              
Service cost (benefits earned during the period) 
$
26,723
 $24,375 
$
3,233
 $3,060 
Interest cost  
38,594
  35,066  
3,850
  3,856 
Expected return on plan assets  
(34,132
)
 (28,974) 
-
  - 
Actuarial loss  
16,284
  11,932  
45
  30 
Net amortization  
2,279
  1,861  
(558
)
 (558)
Net periodic defined benefit plan expense 
$
49,748
 $44,260 
$
6,570
 $6,388 

Note 7. Guarantees

The Company has entered into debt guarantee agreements, primarily related to equity-method investees, which could obligate the Company to make future payments if the primary entity fails to perform its contractual obligation. The Company has not recorded a liability for these contingent obligations, as the Company believes the likelihood of any payments being made is remote. Should the Company be required to make any payments pursuant to these guarantees, the Company has, for a majority of these agreements, a security interest in the underlying assets of the primary entity. These debt guarantees totaled $425$424 million at DecemberMarch 31, 2004.2005. Outstanding borrowings under these guarantees were $291$309 million at DecemberMarch 31, 2004.2005.
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries

Note 8. Segment Information

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are aggregated and classified as Other.

The Oilseeds Processing segment includes activities related to processing oilseeds such as soybeans, cottonseed, sunflower seeds, canola, peanuts, and flaxseed into vegetable oils and meals principally for the food and feed industries. In addition, oilseeds may be resold into the marketplace as a raw material for other processors. Crude vegetable oil is sold "as is" or is further processed by refining, bleaching, and deodorizing into salad oils. Salad oils can be further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is sold for use in chemicals, paints, and other industrial products. Oilseed meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds.

The Corn Processing segment includes activities related to the production of sweeteners, starches, dextrose, and syrups for the food and beverage industry as well as activities related to the production, by fermentation, of bioproducts such as alcohol, amino acids, and other specialty food and feed ingredients.

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, and resells these commodities primarily as feed ingredients and as raw materials for the agricultural processing industry. Agricultural Services’ grain sourcing and transportation network provides reliable and efficient services to the Company’s agricultural processing operations. Also included in Agricultural Services are the activities of A.C. Toepfer International, a global merchandiser of agricultural commodities and processed products.

Other includes the Company’s remaining operations, consisting principally of food and feed ingredient businesses and financial activities. Food and feed ingredient businesses include Wheat Processing with activities related to the production of wheat flour; Cocoa Processing with activities related to the production of chocolate and cocoa products; the production of natural health and nutrition products; and the production of other specialty food and feed ingredients. Financial activities include banking, captive insurance, private equity fund investments, and futures commission merchant activities.

Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses, including an interest charge related to working capital usage. Also included in operating profit are the related equity in earnings (losses) of affiliates based on the equity method of accounting. General corporate expenses, investment income, unallocated interest expense, marketable securities transactions, and FIFO to LIFO inventory adjustments have been excluded from segment operations and classified as Corporate.

For detailed information regarding the Company’s reportable segments, see Note 13 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended June 30, 2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Archer-Daniels-Midland Company and Subsidiaries
 
Note 8.Segment Information (Continued)
 
 
THREE MONTHS ENDED
SIX MONTHS ENDED
DECEMBER 31,
DECEMBER 31,
 
THREE MONTHS ENDED
NINE MONTHS ENDED
2004
2003
2004
2003
 
MARCH 31,
MARCH 31,
(In thousands)
 
 
2005
 
 
2004
 
 
2005
 
 
2004
 
                   (In thousands)     (In thousands) 
Sales to external customers                          
Oilseeds Processing 
$
2,718,115
 $3,175,426 
$
5,993,702
 $5,888,290  
$
2,620,693
 $2,907,903 
$
8,614,395
 $8,796,193 
Corn Processing  
1,128,387
  1,037,095  
2,197,822
  1,886,035   
1,093,949
  1,082,237  
3,291,771
  2,968,272 
Agricultural Services  
4,018,655
  3,799,589  
7,483,132
  7,114,004   
3,654,129
  4,195,375  
11,137,261
  11,309,379 
Other  
1,198,369
  1,176,394  
2,361,281
  2,268,077   
1,115,400
  1,123,504  
3,476,681
  3,391,581 
Total 
$
9,063,526
 $9,188,504 
$
18,035,937
 $17,156,406  
$
8,484,171
 $9,309,019 
$
26,520,108
 $26,465,425 
                          
Intersegment sales                          
Oilseeds Processing 
$
32,167
 $43,869 
$
75,659
 $79,938  
$
43,897
 $47,039 
$
119,556
 $126,977 
Corn Processing  
66,835
  76,001  
138,848
  154,504   
75,354
  78,762  
214,202
  233,266 
Agricultural Services  
282,463
  1,076,680  
559,294
  1,339,555   
269,531
  559,501  
828,825
  1,899,056 
Other  
26,950
  26,884  
54,437
  53,887   
26,997
  26,971  
81,434
  80,858 
Total 
$
408,415
 $1,223,434 
$
828,238
 $1,627,884  
$
415,779
 $712,273 
$
1,244,017
 $2,340,157 
                          
Net sales                          
Oilseeds Processing 
$
2,750,282
 $3,219,295 
$
6,069,361
 $5,968,228  
$
2,664,590
 $2,954,942 
$
8,733,951
 $8,923,170 
Corn Processing  
1,195,222
  1,113,096  
2,336,670
  2,040,539   
1,169,303
  1,160,999  
3,505,973
  3,201,538 
Agricultural Services  
4,301,118
  4,876,269  
8,042,426
  8,453,559   
3,923,660
  4,754,876  
11,966,086
  13,208,435 
Other  
1,225,319
  1,203,278  
2,415,718
  2,321,964   
1,142,397
  1,150,475  
3,558,115
  3,472,439 
Intersegment elimination  
(408,415
)
 (1,223,434) 
(828,238
)
 (1,627,884)  
(415,779
)
 (712,273) 
(1,244,017
)
 (2,340,157)
Total 
$
9,063,526
 $9,188,504 
$
18,035,937
 $17,156,406  
$
8,484,171
 $9,309,019 
$
26,520,108
 $26,465,425 
                          
Segment operating profit                          
Oilseeds Processing 
$
118,782
 $120,883 
$
210,055
 $188,713  
$
60,734
 $117,510 
$
270,789
 $306,223 
Corn Processing  
132,008
  172,107  
235,081
  279,404   
177,873
  231,491  
412,954
  510,895 
Agricultural Services  
87,863
  106,335  
139,135
  149,184   
54,644
  55,827  
193,779
  205,011 
Other  
146,032
  95,786  
239,086
  174,385   
83,336
  96,880  
322,422
  271,265 
Total segment operating profit  
484,685
  495,111  
823,357
  791,686   
376,587
  501,708  
1,199,944
  1,293,394 
Corporate  
(30,323
)
 (175,082) 
16,942
  (254,003)  
32,449
  (163,247) 
49,391
  (417,250)
Earnings before income taxes 
$
454,362
 $320,029 
$
840,299
 $537,683  
$
409,036
 $338,461 
$
1,249,335
 $876,144 
                          



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
COMPANY OVERVIEW

The Company is principally engaged in procuring, transporting, storing, processing and merchandising agricultural commodities and products. The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are aggregated and classified as Other.

The Oilseeds Processing segment includes activities related to processing oilseeds such as soybeans, cottonseed, sunflower seeds, canola, peanuts, and flaxseed into vegetable oils and meals principally for the food and feed industries. In addition, oilseeds may be resold into the marketplace as a raw material for other processors. Crude vegetable oil is sold "as is" or is further processed by refining, bleaching, and deodorizing into salad oils. Salad oils can be further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is sold for use in chemicals, paints, and other industrial products. Oilseed meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds.

The Corn Processing segment includes activities related to the production of syrups, starches, dextrose, and sweeteners for the food and beverage industry as well as activities related to the production, by fermentation, of bioproducts such as alcohol, amino acids, and other specialty food and feed ingredients.

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, and resells these commodities primarily as feed ingredients and as raw materials for the agricultural processing industry. Agricultural Services’ grain sourcing and transportation network provides reliable and efficient services to the Company’s agricultural processing operations. Also included in Agricultural Services are the activities of A.C. Toepfer International, a global merchandiser of agricultural commodities and processed products.

Other includes the Company’s remaining operations, consisting principally of food and feed ingredient businesses and financial activities. Food and feed ingredient businesses include Wheat Processing with activities related to the production of wheat flour; Cocoa Processing with activities related to the production of chocolate and cocoa products; the production of natural health and nutrition products; and the production of other specialty food and feed ingredients. Financial activities include banking, captive insurance, private equity fund investments, and futures commission merchant activities.

Operating Performance Indicators and Risk Factors

The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in the “Critical Accounting Policies” and “Market Risk Sensitive Instruments and Positions” sections of “Management’s Discussion of Operations and Financial Condition,” included in the Company’s annual report on Form 10-K for the year ended June 30, 2004.

The Company’s Oilseeds Processing, Agricultural Services, and Wheat Processing operations are principally agricultural commodity-based businesses where changes in segment selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore, agricultural commodity price changes have relatively equal impacts on both net sales and cost of products sold and minimal impact on the gross profit of underlying transactions. As a result, changes in net sales amounts of these business segments do not necessarily correspond to the changes in gross profit realized by these businesses.


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

The Company’s Corn Processing operations and certain other food and feed processing operations also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. In these operations, agricultural commodity price changes can result in significant fluctuations in cost of products sold and such price changes cannot necessarily be passed directly through to the selling price of the finished products. For products such as ethanol, selling prices bear no direct relationship to the raw material cost of the agricultural commodity from which it is produced, but are related to other market factors, such as gasoline prices, not associated directly with agricultural commodities.produced.

The Company conducts its business in many foreign countries. For many of the Company’s subsidiaries located outside the United States, the local currency is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. Fluctuations in the exchange rates of primarily the euro and British pound as compared to the U.S. dollar will result in corresponding fluctuations in the relative U.S. dollar value of the Company’s revenues and expenses. The impact of these currency exchange rate changes, where significant, is discussed below.

The Company measures the performance of its business segments using key operating statistics such as segment operating profit and return on fixed capital investment. The Company’s operating results can vary significantly due to changes in unpredictable factors such as weather conditions, plantings, government (domestic and foreign) farm programs and policies, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops. Due to these factors, the Company does not provide forward-looking information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additionally, the Company’s operating results for the current quarter and sixnine months are not necessarily indicative of the r esultsresults that may be expected for the year ending June 30, 2005.

THREE MONTHS ENDED DECEMBERMARCH 31, 20042005 COMPARED TO THREE MONTHS ENDED DECEMBERMARCH 31, 20032004

As an agricultural-based commodity business, the Company is subject to a variety of market factors which affect the Company’s operating results. During the quarter ended DecemberMarch 31, 2004,2005, oilseed crushing margins in North America were adversely affected by a limited near-term soybean supply resulting from strong export interest from China and reluctant sellers of soybeans due to significantly decreased soybean price levels. Oilseed crushing margins in South America continue to be poor as a result of industry overcapacity.China.  Oilseed crushing margins in Europe improved due to increased biodiesel and vegetable oil demand and the large European rapeseed crop.

Ethanol continues to experience strongexperienced good demand and increased selling prices due to higher gasoline prices. The improvedImproved global oilseed crop conditions have resulted in an abundance ofadequate protein supply levels available for feeding livestock, which has adversely impacted lysine selling prices and related margins. The record United States corn and soybean crop resulted in a decrease in prices for corn and soybeans, increased demand for rail and barge transportation and provided favorable operating conditions for domestic grain origination and trading activities. The improved crop conditions in North America and Europe has balanced the supply and demand levels for agricultural commodities, which has adversely affected global grain merchandising opportunities. Additionally, improved global equity markets favorably impacted hol ders of private equity funds.fund investments.
 

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

Net earnings for the quarter increased principally due to $114 million in realized securities gains from the sale of Tate & Lyle PLC shares and a $99 million charge in the prior year quarter related to LIFO inventory valuations. These increases were partially offset by decreased operating profits of Oilseeds Processing and Corn Processing. Oilseeds Processing operating profits were lower due to lower oilseed crushing results in North America, partially offset by improved crushing results in Europe. Corn Processing operating profits were lower due to decreased lysine average selling prices, lower ethanol sales volumes, and higher energy costs.

ANALYSIS OF STATEMENTS OF EARNINGS

Net sales and other operating income decreased 9% for the quarter to $8.5 billion principally due to lower average selling prices of commodity-based oilseeds finished products and merchandised agricultural commodities. These decreases were partially offset by increased sales volumes of merchandised agricultural commodities and currency exchange rate increases of $214 million.
Net sales and other operating income by segment for the quarter are as follows:

  
THREE MONTHS ENDED
 
 
 
 
 
MARCH 31,
 
 
 
 
 
 
2005
 
 
2004
 
 
Change
 
 
 
(In thousands)
Oilseeds Processing 
$
2,620,693
 $2,907,903 $(287,210)
Corn Processing          
Sweeteners and Starches  
450,111
  440,083  10,028 
Bioproducts  
643,838
  642,154  1,684 
Total Corn Processing  
1,093,949
  1,082,237  11,712 
           
Agricultural Services  
3,654,129
  4,195,375  (541,246)
Other          
Food and Feed Ingredients  
1,098,255
  1,104,654  (6,399)
Financial  
17,145
  18,850  (1,705)
Total Other  
1,115,400
  1,123,504  (8,104)
           
Total 
$
8,484,171
 $9,309,019 $(824,848)

Oilseeds Processing sales decreased 10% to $2.6 billion primarily due to decreased average selling prices of protein meal and South American soybean exports. The impact of the record United States soybean crop and abundant European rapeseed crop has resulted in decreased average selling prices for oilseeds and commodity-based oilseed finished products. Corn Processing sales increased slightly primarily due to increased sales of Sweeteners and Starches and, to a lesser extent, increased sales of Bioproducts. Sweeteners and Starches sales increased primarily due to increased sales volumes and, to a lesser extent, increased average selling prices. Agricultural Services sales decreased 13% to $3.7 billion principally due to lower average global commodity prices and lower sales volumes of corn in North America. These decreases were partially offset by increased sales volumes of soybeans in North America. Other sales decreased slightly primarily due to lower sales volumes of the Company’s animal feed products.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold decreased 9% to $7.9 billion for the quarter primarily due to lower prices of merchandised agricultural commodities. This decrease was partially offset by increased sales volumes of merchandised agricultural commodities, and currency exchange rate increases of $207 million. Manufacturing costs increased $107 million from prior year levels primarily due to increased energy and employee-related costs, including pensions. Last year’s cost of products sold includes a $12 million charge for abandonment and write-down of long-lived assets.

Selling, general, and administrative expenses increased $29 million to $280 million for the quarter principally due to increased litigation settlement costs, auditing fees, and employee-related costs, including pensions.

Other expense (income) improved $111 million to income of $115 million for the quarter due primarily to $114 million of gains realized from the sale of Tate & Lyle PLC shares.

Operating profit by segment for the quarter is as follows:

  
THREE MONTHS ENDED
 
 
 
 
 
MARCH 31,
 
 
 
 
 
 
2005
 
 
2004
 
 
Change
 
 
 
(In thousands)
Oilseeds Processing 
$
60,734
 $117,510 $(56,776)
Corn Processing          
Sweeteners and Starches  
79,817
  91,542  (11,725)
Bioproducts  
98,056
  139,949  (41,893)
            Total Corn Processing   177,873  231,491  (53,618) 
           
Agricultural Services  
54,644
  55,827  (1,183)
Other          
Food and Feed Ingredients  
43,544
  70,031  (26,487)
Financial  
39,792
  26,849  12,943 
            Total Other                  83,336   96,880   (13,544)
           
Total Segment Operating Profit  
376,587
  501,708  (125,121)
Corporate  
32,449
  (163,247) 195,696 
Earnings Before Income Taxes 
$
409,036
 $338,461 $70,575 
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Oilseeds Processing operating profit decreased $57 million to $61 million for the quarter due principally to lower operating results of the Company’s North American and Asian operations. Oilseed crush margins in North America decreased due to a near-term tight soybean supply in the United States which resulted in higher soybean price levels. Operating results in Asia decreased primarily due to lower capacity utilization resulting from decreased demand. These decreases were partially offset by improved operating results in Europe due to improved crop conditions and good biodiesel demand.

Corn Processing operating profits decreased 23% to $178 million for the quarter primarily due to lower lysine average selling prices, lower ethanol sales volumes, and higher energy costs. These decreases were partially offset by lower net corn costs and increased ethanol average selling prices. Sweeteners and Starches operating profits last year included a $15 million gain from an insurance related lawsuit pertaining to the flood of 1993. Excluding this gain, Sweeteners and Starches operating profits increased slightly due to lower net corn costs and improved selling prices, partially offset by higher energy costs. Bioproducts operating profits decreased $42 million for the quarter primarily due to lower lysine average selling prices, lower ethanol sales volumes, and higher energy costs. Lysine average selling prices are impacted by the relationship between the price of protein meal and the price of corn, and are lower this quarter due to increased protein supply levels resulting from the improved oilseed crop conditions in North America and Europe. Ethanol sales volumes declined as last year’s volume increases to meet new market introductions in the northeastern United States were not repeated in the current quarter. These decreases were partially offset by lower net corn costs and higher average ethanol selling prices. Last year’s Bioproducts operating profits include a $6 million charge for abandonment and write-down of long-lived assets.

Agricultural Services operating profits decreased slightly for the quarter due to lower global grain merchandising results partially offset by improved North American origination and transportation results. Global grain merchandising results decreased principally due to improved crop conditions in Europe, which resulted in decreased European demand for imported agricultural commodities and agricultural commodity products. The record United States corn crop and soybean crop provided the Company with the opportunity for solid storage, transportation, origination and marketing profits.

Other operating profits decreased 14% to $83 million for the quarter. Other - Food and Feed Ingredient operating profits decreased $26 million for the quarter principally due to lower sales volumes of Vitamin E products and increased marketing costs related to the introduction of Enova Oil by the Company’s ADM Kao joint venture. In addition, reduced operating results of the Company’s Cocoa Processing operations contributed to the decline. Other - Financial results increased $13 million for the quarter due principally to improved valuations of the Company’s private equity fund investments.

Corporate improved $196 million to income of $32 million for the quarter primarily due to $114 million of realized securities gains from the sale of Tate & Lyle PLC shares. In addition, the prior year quarter includes a $99 million charge related to LIFO inventory valuations.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Income taxes increased for the quarter due principally to higher pretax earnings and, to a lesser extent, an increase in the Company’s effective tax rate. The Company’s effective tax rate for the quarter was 34.2% as compared to 33.0% for the comparable period of a year ago. The increase in the Company’s effective tax rate is principally due to changes in the jurisdictional mix of pretax earnings and the fixed benefits of the Company’s tax planning initiatives.

NINE MONTHS ENDED MARCH 31, 2005 COMPARED TO NINE MONTHS ENDED MARCH 31, 2004

As an agricultural-based commodity business, the Company is subject to a variety of market factors which affect the Company’s operating results. During the nine months ended March 31, 2005, oilseed crushing margins in Europe improved due to increased biodiesel and vegetable oil demand and the large European rapeseed crop. Oilseed crushing margins in North America were adversely affected by a limited near-term soybean supply resulting from strong export interest from China. Oilseed crushing margins in South America continue to be weak as a result of industry overcapacity.

Ethanol experienced good demand and increased selling prices due to higher gasoline prices. The improved global oilseed crop conditions have resulted in an abundance of protein supply available for feeding livestock, which has adversely impacted lysine selling prices and related margins. The record United States corn and soybean crop resulted in, increased demand for rail and barge transportation and provided favorable operating conditions for domestic grain origination and trading activities. The improved crop conditions in North America and Europe has balanced the supply and demand levels for agricultural commodities, which has adversely affected global grain merchandising opportunities.

Net earnings for the nine months increased principally due to a $45 million gain representing the Company’s equity share of the gain reported by the Company’s unconsolidated affiliate, Compagnie Industrielle et Financiere des Produits Amylaces SA ("CIP"), upon the sale of its interest in Tate and& Lyle plcPLC (the “CIP Gain”), and a $19$135 million creditof income in the current quarteryear as compared to a $53$160 million charge in the prior year quarter from the effect of declining commodity pricesprice changes on LIFO inventory valuations.valuations, and $114 million of realized securities gains from the sale of Tate & Lyle PLC shares. These increases were partially offset by decreased operating profits of Corn Processing and Agricultural Services. Corn Processing operating profits declined principally as a result of increased net corn and energy costs, while Agricultural Servicesresults. Corn Processing operating results declined as a result of higher net corn costs, higher energy costs, and lower global gr ain merchandising results.lysine average selling prices. Last year’s nine months included a $41 million charge for abandonment and write-down of long-lived assets, which was partially offset by a $21 million gain from an insurance related lawsuit pertaining to the flood of 1993.

ANALYSIS OF STATEMENTS OF EARNINGS

Net sales and other operating income increased slightly for the nine months to $26.5 billion principally due to currency exchange rate increases of $769 million, higher sales volumes of merchandised agricultural commodities, and increased average selling prices of ethanol. These increases were partially offset by lower average selling prices of merchandised agricultural commodities.
 
Analysis of Statements of Earnings
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Net sales and other operating income decreased 1%by segment for the quarter to $9.1 billion principally due to lower sales volumes and lower average selling prices of merchandised agricultural commodities and commodity-based oilseeds finished products. These decreases were offset by currency exchange rate increases of $318 million and increased average selling prices of ethanol.
Net sales and other operating income for the quarternine months are as follows:

 
THREE MONTHS ENDED
   
NINE MONTHS ENDED
 
 
 
 
DECEMBER 31,
  
 
MARCH 31,
 
 
 
 
2004
 
2003
 
Change
 
 
2005
 
 
2004
 
 
Change
 
 (In thousands)
 
(In thousands)
Oilseeds Processing 
$ 2,718,115
 $ 3,175,426 $ (457,311) 
$
8,614,395
 $8,796,193 $(181,798)
Corn Processing                
Sweeteners and Starches 
452,825
 409,898 42,927  
1,412,269
  1,275,056  137,213 
Bioproducts 
675,562
 627,197 48,365  
1,879,502
  1,693,216  186,286 
Total Corn Processing
 
1,128,387
 
 
1,037,095
 
 
91,292
 
Total corn Processing  
3,291,771
  2,968,272  323,499 
          
Agricultural Services 
4,018,655
 3,799,589 219,066  
11,137,261
  11,309,379  (172,118)
Other                
Food and Feed Ingredients 
1,180,363
 1,160,158 20,205  
3,424,093
  3,338,548  85,545 
Financial 
18,006
 16,236 1,770  
52,588
  53,033  (445)
Total Other
 
1,198,369
 
 
1,176,394
 
 
21,975
 
  
3,476,681
  3,391,581  85,100 
          
Total 
$ 9,063,526
 $ 9,188,504 $ (124,978) 
$
26,520,108
 $26,465,425 $54,683 

Oilseeds Processing sales decreased 14%2% to $2.7$8.6 billion for the nine months primarily due to decreased sales volumes of oilseed exports and oilseed finished products. The impact of the record United States soybean cropvegetable oil, and abundant European rapeseed crop has resulted in decreasedlower average selling prices for oilseed exports andof protein meal. These decreases were partially offset by higher average selling prices of vegetable oil. Corn Processing sales increased 9%11% to $1.1$3.3 billion for the nine months primarily due to increased Bioproducts sales and, to a lesser extent, increased sales of Sweeteners and Starches. Bioproducts sales increased primarily due to increased average selling prices of ethanol, which was partially offset by lower ethanol sales volumes and lower average selling prices of lysine. The increase in ethanol selling prices was primarily due to higher gasoline prices. Ethanol sales volumes declined as last year’s volume increases to meet new market introductions in the northeastern United States were not repeated in the current quarter.year. Sweeteners and Starches sales increased primarily due to increasedhigher average selling prices.prices and, to a lesser extent, increased sales volumes. Agricultural Services sales increased 6%decreased 2% to $4.0$11.1 billion for the nine months principally due to lower average commodity prices in North America, decreased sales volumes of global grain merchandising activities, and decreased sales volumes of wheat and corn in North America. These decreases were partially offset by increased sales volumes of soybeans in North America, partially offset by decreased average soybean commodity prices. In addition, this increase was partially offset by decreased sales volumes and average commodity prices for corn and wheat in North America. Other sales increased 2%3% to $1.2$3.4 billion for the nine months primarily due to increased average selling prices of wheat flour products.

Cost of products sold decreased 1% to $24.6 billion for the nine months primarily due to lower average commodity prices of merchandised agricultural commodities, partially offset by higher sales volumes of merchandised agricultural commodities and currency exchange rate increases of $735 million. Manufacturing costs increased $214 million from prior year levels primarily due to increased energy and personnel-related costs. Last year’s manufacturing costs included a $41 million charge for abandonment and write-down of long-lived assets.

Selling, general, and administrative expenses increased $53 million to $802 million for the nine months principally due to increased employee-related costs, including pensions, and auditing fees, which were partially offset by reduced legal expenses and provisions for doubtful accounts.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold decreased 2% to $8.4 billion for the quarter primarily due to lower sales volumes and lower prices of merchandised agricultural commodities. This decrease was partially offset by currency exchange rate increases, which increased cost of products sold by $299 million for the quarter. Manufacturing costs increased $28 million from prior year levels primarily due to increased energy costs.
Selling, general, and administrative expenses increased $4 million to $270 million for the quarter principally due to increased employee-related costs, including pensions, partially offset by reduced legal expenses and allowance for doubtful account provisions.
 
Other expense (income) decreased $74improved $164 million to income of $55$144 million for the quarternine months due primarily to $114 million of realized securities gains from the sale of Tate & Lyle PLC shares and a $63$32 million increase in equity in earnings of unconsolidated affiliates. The increase in equity in earnings of unconsolidated affiliates is primarily due to the CIP Gain and improved valuations ofGain. Interest expense for the Company’s private equity fund investments.nine months decreased $18 million primarily due to lower average borrowing levels.

Operating profit by segment for the quarternine months is as follows:

 
THREE MONTHS ENDED
   
NINE MONTHS ENDED
 
 
 
 
DECEMBER 31,
  
 
MARCH 31,
 
 
 
 
2004
 
2003
 
Change
 
 
2005
 
 
2004
 
 
Change
 
 (In thousands)
 
(In thousands)
Oilseeds Processing 
$ 118,782
 $ 120,883 $ (2,101) 
$
270,789
 $306,223 $(35,434)
Corn Processing                
Sweeteners and Starches 
44,758
 75,812 (31,054)  
179,455
  256,214  (76,759)
Bioproducts 
87,250
 96,295 (9,045)  
233,499
  254,681  (21,182)
Total Corn Processing
 
132,008
 
 
172,107
 
 
(40,099)
 
  412,954  510,895  (97,941) 
          
Agricultural Services 
87,863
 106,335 (18,472)  
193,779
  205,011  (11,232)
Other                
Food and Feed Ingredients 
70,808
 72,569 (1,761)  
203,591
  202,598  993 
Financial 
75,224
 23,217 52,007  
118,831
  68,667  50,164 
Total Other
 
146,032
 
 
95,786
 
 
50,246
 
   322,422   271,265   51,157 
          
Total Segment Operating Profit 
484,685
 495,111 (10,426)  
1,199,944
  1,293,394  (93,450)
Corporate 
(30,323)
 (175,082) 144,759  
49,391
  (417,250) 466,641 
Earnings Before Income Taxes 
$ 454,362
 $ 320,029 $ 134,333 
$
1,249,335
 $876,144 $373,191 

Oilseeds Processing operating profitprofits decreased slightly12% to $119$271 million for the quarternine months due principallyprimarily to lower oilseed crush margins inoperating results of the Company’s North American, South American, and South America partially offset by improved oilseed crush margins in Europe and Asia. The decreasedAsian operations. Oilseed crush margins in North America are primarilydecreased due to a near-term tight soybean supply in the United States which resulted in higher soybean price levels. Operating results in Asia decreased primarily due to lower capacity utilization resulting from decreased demand. Industry overcapacity in South America continues to have an adverse affect on oilseed crushing margins. InThese decreases were partially offset by improved operating results in Europe an abundant rapeseeddue to improved crop conditions and increased demand forgood biodiesel led to a better operating environment.demand.

Corn Processing operating profits decreased 23%19% to $132$413 million for the quarternine months as higher net corn andcosts, higher energy costs, negatively impacted Sweeteners and Starches operating results and lower lysine average selling prices negatively impacted Bioproducts operating results. Sweeteners and Starches operating profits decreased for the nine months due to higher net corn and energy costs which more than offset increased average selling prices.costs. Last year’s Sweeteners and Starches operating profits include a $15 million gain from an insurance related lawsuit pertaining to the flood of 1993. Bioproducts operating profits also decreased $21 million for the quarter primarilynine months principally due to lower lysine operating results as a result of lower average selling prices. The demand for lysine is driven by the relationship between the price of protein meal and the price of corn. Lysine average selling prices are lower due to increased protein supply levels resulting from the improved oilseed crop conditions in North America and Europe. This decrease was p artiallypartially offset by improved ethanol operating results due to higher averageethanol selling prices. Ethanol selling prices remained strong due to relatively high gasoline prices and more than offset the effect of lower ethanol sales volumes and higher net corn and energy costs. Ethanol sales volumes declined as lastLast year’s volume increases to meet new market introductions in the northeastern United States were not repeated in the current quarter.Bioproducts operating profits include a $16 million charge for abandonment and write-down of long-lived assets.
 
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Agricultural Services operating profits decreased 17%5% to $88$194 million for the quarter principally due to lower global grain merchandising results partially offset by improvements in North American origination and transportation operating results. Global grain merchandising results decreased principally due to improved crop conditions in Europe, which resulted in decreased demand in Europe for imported agricultural commodities and agricultural commodity products. The record United States corn crop and soybean crop provided the Company with the opportunity for solid storage, transportation, origination and marketing profits. Last year’s results include a $5 million charge for abandonment and write-down of long-lived assets.
Other operating profits increased 52% to $146 million for the quarter. Other - Financial operating profits increased $52 million for the quarter primarily due to improved valuations of the Company’s private equity fund investments and improved results of the Company’s captive insurance operations. Last year’s captive insurance results included a loss incurred from a fire at a Company-owned cocoa warehouse. Other - Food and Feed Ingredient operating profits decreased slightly to $71 million for the quarter. Last year’s results include a $10 million charge for abandonment and write-down of long-lived assets.
Corporate expense decreased $145 million to $30 million for the quarter primarily due to the CIP Gain, a $19 million credit in the current year quarter as compared to a $53 million charge in the prior year quarter from the effect of declining commodity prices on LIFO inventory valuations, and last year’s $14 million charge for abandonment and write-down of long-lived assets.
Income taxes increased due principally to higher pretax earnings partially offset by the effect of the CIP Gain. No tax has been provided on the CIP Gain as CIP is a corporate joint venture of the Company, and intends to permanently reinvest the proceeds from the sale. The Company’s effective tax rate for the quarter, excluding the effect of the CIP Gain, was 33.5% compared to 31.0% for the comparable period of a year ago.
SIX MONTHS ENDED DECEMBER 31, 2004 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2003
As an agricultural-based commodity business, the Company is subject to a variety of market factors which affect the Company’s operating results. During the six months ended December 31, 2004, oilseed crushing margins in Europe improved due to increased biodiesel and vegetable oil demand and the large European rapeseed crop. Oilseed crushing margins in North America were adversely affected by a limited near-term soybean supply resulting from strong export interest from China and reluctant sellers of soybeans due to significantly decreased soybean price levels. Oilseed crushing margins in South America continue to be poor as a result of industry overcapacity.
Ethanol continues to experience strong demand and increased selling prices due to higher gasoline prices. The improved global oilseed crop conditions have resulted in an abundance of protein supply levels available for feeding livestock, which has adversely impacted lysine selling prices and related margins. The record United States corn and soybean crop resulted in a decrease in prices for corn and soybeans, increased demand for rail and barge transportation, and provided favorable operating conditions for domestic grain origination and trading activities. The improved crop conditions in North America and Europe has balanced the supply and demand levels for agricultural commodities, which has adversely affected global grain merchandising opport unities.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net earnings for the six months increased principally due to improved Oilseeds Processing, Bioproducts and Cocoa Processing operating results, the CIP Gain, and a $135 million credit in the current year as compared to a $61 million charge in the prior year from the effect of declining commodity prices on LIFO inventory valuations. These increases were partially offset by decreased Sweeteners and Starches and Agricultural Services operating results. Sweeteners and Starches operating results were negatively impacted by higher net corn and energy costs. Agricultural Services operating results declined due to lower global grain merchandising results.
Analysis of Statements of Earnings
Net sales and other operating income increased 5% for the six months to $18.0 billion principally due to currency exchange rate increases of $555 million, higher sales volumes of merchandised agricultural commodities, and increased average selling prices of ethanol and corn sweeteners. These increases were partially offset by lower average selling prices of merchandised agricultural commodities.
Net sales and other operating income for the six months are as follows:
  
SIX MONTHS ENDED
  
  
DECEMBER 31,
  
  
2004
 
2003
 
Change
  (In thousands)
Oilseeds Processing 
$ 5,993,702
 $ 5,888,290 $ 105,412
Corn Processing      
Sweeteners and Starches 
962,158
 834,973 127,185
Bioproducts 
1,235,664
 1,051,062 184,602
Total Corn Processing
 
 
2,197,822
 
 
1,886,035
 
 
311,787
 
Agricultural Services 
7,483,132
 7,114,004 369,128
Other      
Food and Feed Ingredients 
2,325,838
 2,233,894 91,944
Financial 
35,443
 34,183 1,260
Total Other
 
 
2,361,281
 
 
2,268,077
 
 
93,204
 
Total 
$ 18,035,937
 $ 17,156,406 $ 879,531
Oilseeds Processing sales increased 2% to $6.0 billion for the six months primarily due to higher average selling prices of vegetable oil and currency exchange rate increases. These increases were partially offset by decreased sales volumes of oilseed exports and oilseed finished products. Corn Processing sales increased 17% to $2.2 billion for the six months primarily due to increased Bioproducts sales and, to a lesser extent, increased sales of Sweeteners and Starches. Bioproducts sales increased primarily due to increased average selling prices of ethanol partially offset by lower ethanol sales volumes and lower average selling prices of lysine. The increase in ethanol selling prices was primarily due to higher gasoline prices, while sales volumes declined as last year’s volume increases to meet new market intro ductions in the northeastern United States were not repeated in the current year. Sweeteners and Starches sales increased primarily due to increased average selling prices. Agricultural Services sales increased 5% to $7.5 billion for the six months principally due to increased sales volumes of corn and soybeans in North America, partially offset by decreased sales volumes of wheat in North America and decreased sales volumes of global grain merchandising activities. Other sales increased 4% to $2.4 billion for the six months primarily due to increased average selling prices of wheat flour products.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold increased 4% to $16.7 billion for the six months primarily due to higher sales volumes of merchandised agricultural commodities, partially offset by lower average commodity prices of merchandised agricultural commodities. Manufacturing costs increased $100 million from prior year levels primarily due to increased energy and personnel-related costs. Last year’s manufacturing costs included a $29 million charge for abandonment and write-down of long-lived assets. In addition, cost of products sold increased $528 million due to currency exchange rate increases.
Selling, general, and administrative expenses increased $24 million to $521 million for the six months principally due to increased employee-related costs, including pensions, partially offset by reduced legal expenses and allowance for doubtful account provisions.
Other expense (income) decreased $52 million to income of $29 million for the six months due primarily to a $40 million increase in equity in earnings of unconsolidated affiliates. The increase in equity in earnings of unconsolidated affiliates is primarily due to the CIP Gain.
Operating profit for the six months is as follows:
  
SIX MONTHS ENDED
  
  
DECEMBER 31,
  
  
2004
 
2003
 
Change
  (In thousands)
Oilseeds Processing 
$ 210,055
 $ 188,713 $ 21,342
Corn Processing      
Sweeteners and Starches 
99,638
 164,672 (65,034)
Bioproducts 
135,443
 114,732 20,711
Total Corn Processing
 
 
235,081
 
 
279,404
 
 
(44,323)
 
Agricultural Services 
139,135
 149,184 (10,049)
Other      
Food and Feed Ingredients 
160,047
 132,567 27,480
Financial 
79,039
 41,818 37,221
Total Other
 
 
239,086
 
 
174,385
 
 
64,701
 
Total Segment Operating Profit 
823,357
 791,686 31,671
Corporate 
16,942
 (254,003) 270,945
Earnings Before Income Taxes 
$ 840,299
 $ 537,683 $ 302,616
Oilseeds Processing operating profit increased 11% to $210 million for the six months due primarily to improved oilseed crush margins in Europe, partially offset by lower oilseed crush margins in North America and South America. In Europe, an abundant rapeseed crop and increased demand for biodiesel improved operating results. The decreased crush margins in North America are primarily due to a near-term tight soybean supply in the United States which resulted in higher soybean price levels. Industry overcapacity in South America continues to have an adverse affect on oilseed crushing margins.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corn Processing operating profits decreased 16% to $235 million for the six months as higher net corn and energy costs negatively impacted Sweeteners and Starches operating results. Sweeteners and Starches operating profits decreased due to higher net corn and energy costs which more than offset increased average selling prices. Bioproducts operating profits increased for the six months primarily due to higher ethanol average selling prices. Ethanol selling prices remained strong due to relatively high gasoline prices and more than offset the effect of lower ethanol sales volumes and higher net corn and energy costs. Ethanol sales volumes declined as last year’s volume increases to meet new market introductions in the northeastern United States were not repeated in the current year. Increased ethanol operating resu lts were partially offset by lower lysine operating results due to lower average selling prices. The demand for lysine is driven by the relationship between the price of protein meal and the price of corn. Lysine average selling prices are lower due to increased protein supply levels resulting from the improved oilseed crop conditions in North America and Europe.
Agricultural Services operating profits decreased 7% to $139 million for the sixnine months principally due to lower global grain merchandising results partially offset by improvements in North American origination and transportation operating results. Global grain merchandising results decreased principally due to improved crop conditions in Europe and North America, which resulted in lower European demand for imported agricultural commodities and agricultural commodity products. The record United States corn crop and soybean crop provided the Company with the opportunity for solid storage, transportation, origination and marketing profits. Last year’s results include a $5 million charge for abandonment and write-down of long-lived assets.

Other operating profits increased 37%19% to $239$322 million for the sixnine months. Other - Food and Feed Ingredient operating profits increased $27 million principally duefor the nine months were comparable to improvements in Cocoa Processing and earnings of the Gruma corn flour venture. Cocoa operations improved primarily due to continued strong demand from the chocolate and baking industries for cocoa butter. Last year’s results include a $10 million charge for abandonment and write-down of long-lived assets.prior year, while Other - Financial operating profits increased $37$50 million principallyfor the nine months primarily due to improved valuations of the Company’s private equity fund investments and improved results of the Company’s captive insurance operations. Last year’s captive insurance results included a loss incurred from a fire at a Company-owned cocoa finished products warehouse.

Corporate improved $271$467 million to income of $17$49 million for the sixnine months primarily due to the CIP Gain, a $135 million creditof income in the current year as compared to a $61$160 million charge in the prior year from the effect of declining commodity pricesprice changes on LIFO inventory valuations, $114 million of realized securities gains from the sale of Tate & Lyle PLC shares, and last year’s $14 million charge for abandonment and write-down of long-lived assets.

Income taxes increased due principally to higher pretax earnings and, to a lesser extent, an increase in the Company’s effective tax rate. These increases were partially offset by the effect of the CIP Gain. No tax has been provided on the CIP Gain as CIP is a corporate joint venture of the Company, and intends to permanently reinvest the proceeds from the sale. The Company’s effective tax rate for the sixnine months, excluding the effect of the CIP Gain, was 32.5%33.3% compared to 31.0%31.8% for the prior year. The increase in the Company’s effective tax rate is principally due to changes in the  jurisdictional mix of pretax earnings and the fixed benefits of the Company’s tax planning initiatives.


LIQUIDITY AND CAPITAL RESOURCES

At DecemberMarch 31, 2004,2005, the Company continued to show substantial liquidity with working capital of $4.3$4.6 billion and a current ratio, defined as current assets divided by current liabilities, of 1.7.1.8. Working capital increased $702 million$1.0 billion during the sixnine months even after the $400 million payment in July 2004 related to the fructose litigation settlement that had been accrued in fiscal 2004. In addition, as inventory levels declined $389$625 million, due principally to lower commodity price levels, short-term debt was reduced by $1.0$1.5 billion. Capital resources remained strong as reflected in the Company’s net worth of $8.5$8.6 billion. The Company’s ratio of long-term debt to total capital (the sum of the Company’s long-term debt and shareholders’ equity) at DecemberMarch 31, 2004,2005 was 30.2%29.4% a decline from 32.7% at June 30, 2004. This ratio is a measure of the Company’s long-term liquidity and is an indicator of financial flexibility.

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

Contractual Obligations and Commercial Commitments

There were no material changes in the Company’s contractual obligations and commercial commitments during the sixnine months ended DecemberMarch 31, 2004.2005.

Critical Accounting Policies

There were no material changes in the Company’s critical accounting policies during the sixnine months ended DecemberMarch 31, 2004.
2005.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in: commodity prices as it relatesthey relate to the Company’s net commodity position; marketable equity security prices; market prices of limited partnerships’ investments; foreign currency exchange rates; and interest rates. Significant changes in market risk sensitive instruments and positions for the sixnine months ended DecemberMarch 31, 20042005 are described below. There were no material changes during the sixnine months in the Company’s potential loss arising from changes in market prices of limited partnerships’ investments, marketable equity securities, foreign currency exchange rates, and interest rates.

For detailed information regarding the Company’s market risk sensitive instruments and positions, see the “Market Risk Sensitive Instruments and Positions” section of “Management’s Discussion of Operations and Financial Condition” in the Company’s annual report on Form 10-K for the year ended June 30, 2004.

Commodities

The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand resulting from population growth and changes in standards of living, and global production of similar and competitive crops. A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its daily net commodity position. The Company’s daily net commodity position consists of inventories, related purchase and sale contracts, and exchange-traded futures contracts, including those contracts used to hedge portions of production requirements. The fair value of such daily net commodity position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10 percent adverse change in such prices. Actual results may differ.
  
December 31, 2004
June 30, 2004
Fair Value
Market Risk
Fair Value
Market Risk
(In millions)
Highest long position 
$
226
 
$
23
 $754 $75 
Highest short position  
348
  
35
  506  51 
Average position long (short)  
(106
)
 
(11
)
 31  3 

 
MARCH 31, 2005
JUNE 30, 2004
 
 
 
Fair Value
 
 
Market Risk
 
 
Fair Value
 
 
Market Risk
 
 
 
(in millions)
Highest long position 
$
226
 
$
23
 $754 $75 
Highest short position  
944
  
94
  506  51 
Average position long (short)  
(262)
 
 
(26)
 
   31    3 

The decrease in fair value of the average position was principally the result of a decrease in the daily net commodity position.

ITEM 4.CONTROLS AND PROCEDURES
 
As of DecemberMarch 31, 2004,2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within th ethe time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal controls over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
ITEM 1.LEGAL PROCEEDINGS

ENVIRONMENTAL MATTERS

The United States Environmental Protection Agency (“USEPA”) issued a Finding of Violation on March 3, 2005, regarding alleged violations of the National Emission Standards for Hazardous Air Pollutants for Pharmaceutical Production relating to the operation of the Company’s Vitamin E Plant in Decatur, Illinois. The alleged violations relate to compliance demonstrations for equipment testing and monitoring, recordkeeping and reporting, but do not allege any violations of applicable air emissions limitations. The Company met with representatives of USEPA on April 12, 2005, to discuss the allegations, and it is likely that USEPA will seek a civil penalty in excess of $100,000. The Company intends to work cooperatively with USEPA to ensure that all applicable requirements are met. In management’s opinion, the civil penalty imposed will not have a material adverse effect on the Company’s financial condition or results of operations.

The Company is involved in approximately 25 administrative and judicial proceedings in which it has been identified as a potentially responsible party (“PRP”) under the federal Superfund law and its state analogs for the study and clean-up of sites contaminated by material discharged into the environment. In all of these matters, there are numerous PRPs. Due to various factors such as the required level of remediation and participation in the clean-up effort by others, the Company’s future clean-up costs at these sites cannot be reasonably estimated. In management’s opinion, these proceedings will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
 
  
Total Number of
Number of Shares
Total Number
Average
Shares Purchased as
Remaining that May be
of Shares
Price Paid
Part of Publicly
Purchased Under the
Period
Purchased (1)
per Share
Announced Program (2)
Program (2)
              
October 1, 2004 to             
October 31, 2004  18,360 $17.07  363  20,903,131 
              
November 1, 2004 to             
November 30, 2004  68,686  19.76  527  20,902,604 
              
December 1, 2004 to             
December 31, 2004  10,552  21.69  629  20,901,975 
              
Total  97,598 $19.46  1,519  20,901,975 
 
 
 
 
 
 
 
 
 
Total Number of
 
Number of Shares
 
 
Total Number
 
 
Average
 
 
Shares Purchased as
 
Remaining that May be
 
 
 
of Shares
 
 
Price Paid
 
 
Part of Publicly
 
Purchased Under the
Period
 
 
Purchased (1)
 
 
per Share
 
 
Announced Program (2)
 
Program (2)
 
             
January 1, 2005 to             
January 31, 2005  13,352 $23.81  250  99,999,750 
              
February 1, 2005 to             
February 28, 2005  220,252  23.46  149,350  99,850,400 
              
March 1, 2005 to             
March 31, 2005  25,968  24.52  445  99,849,955 
              
Total  259,572 $23.59  150,045  99,849,955 

(1)
Total shares purchased represents those shares purchased as part of the Company’s publicly announced share repurchase program described below and shares received as payment of the exercise price for stock option exercises.
(2)
(2)On October 19, 1995, the Company’s Board of Directors adopted a stock repurchase program authorizing the Company to repurchase up to 25,000,000 shares of the Company’s common stock which was due to expire on October 19, 1997. On April 17, 1997, July 30, 1999, August 2, 2001, and August 8, 2002, the Company’s Board of Directors extended the stock repurchase program and increased the number of shares authorized for repurchase under the program by 20,000,000, 20,000,000, 20,000,000, and 15,000,000 shares, respectively. As of December 31, 2004, total stock purchased under this stock repurchase program was 79,098,025. The stock repurchase program expired on December 31, 2004. On November 4, 2004, the Company’s Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing J anuaryJanuary 1, 2005 and ending December 31, 2009.

ITEM 6.
EXHIBITS


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders was held on November 4, 2004. Proxies for the Annual Meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to the Board of Director nominees as listed in the proxy statement and all of such nominees were elected as follows:

 
       Nominee               
Shares Cast For
     Shares Withheld
 G. A. Andreas536,243,67217,202,723
 A. L. Boeckmann544,508,505 8,937,890
 M. H. Carter532,748,52020,697,875
 R. S. Joslin526,274,30827,172,087
 P. J. Moore535,226,55218,219,843
 M. B. Mulroney532,700,50420,745,891
 T. F. O’Neill544,325,632  9,120,763
 O. G. Webb535,837,30217,609,093
 K. R. Westbrook533,062,74520,383,650
The adoption of an Amendment to the Archer-Daniels-Midland Company 2002 Incentive Compensation Plan was ratified as follows:
ForAgainstAbstain
508,134,79838,635,9036,675,694
The adoption of the ADM International Limited Savings-Related Share Option Scheme was ratified as follows:
ForAgainstAbstain
427,839,85839,328,0316,664,797
The Stockholder’s Proposal No. 1 (Report on Impacts of Genetically Engineered Food) was defeated as follows:
ForAgainstAbstain
33,687,522400,797,05439,348,110




ITEM 6. EXHIBITS 
a)    Exhibits
 
(3)(i)Composite Certificate of Incorporation, as amended, filed on November 13, 2001 as exhibit 3(i) to Form 10-Q for the quarter ended September 30, 2001 (File No. 1-44), is incorporated herein by reference.

(ii)Bylaws, as amended and restated, filed on May 12, 2000 as Exhibit 3(ii) to Form 10-Q for the quarter ended March 31, 2000 (File No. 1-44), are incorporated herein by reference.
(10.1)  Management Compensation Arrangement
 
(10.2)  Form of Stock Option Agreement
(10.3)  Form of Restricted Stock Agreement 
 (31.1)Certification of Chief Executive Officer pursuant to Rule 13a - 14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 (31.2)Certification of Chief Financial Officer pursuant to Rule 13a - 14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 (32.1)Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 (32.2)Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ARCHER-DANIELS-MIDLAND COMPANY
/s/ D. J. Schmalz
D. J. Schmalz
Senior Vice President
and Chief Financial Officer
/s/ D. J. Smith
D. J. Smith
Executive Vice President, Secretary and
General Counsel
Dated:        February 7, 2005


ARCHER-DANIELS-MIDLAND COMPANY
/s/ D. J. Schmalz
D. J. Schmalz
Senior Vice President
and Chief Financial Officer
/s/ D. J. Smith
D. J. Smith
Executive Vice President, Secretary and
General Counsel

Dated: May 6, 2005