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

(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. Yes x  No o.

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

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 - 656,488,180 shares

(April 30, 2005)

 

 

See notes to consolidated financial statements.

		NINE MONTHS ENDED
		MARCH 31,
			2005			2004
		(In thousands, except
		per share amounts)
Net sales and other operating income		$	26,520,108		$	26,465,425
Cost of products sold			24,613,112			24,820,358
Gross Profit			1,906,996			1,645,067
Selling, general and administrative expenses			801,645			749,138
Other expense (income) - net			(143,984	)		19,785
Earnings Before Income Taxes			1,249,335			876,144
Income taxes			400,434			278,373
Net Earnings		$	848,901		$	597,771
Average number of shares outstanding - basic			654,476			646,844
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		$	.235		$	.195

 

See notes to consolidated financial statements.

 

			(Unaudited)
			MARCH 31,			JUNE 30,
			2005			2004
		(In thousands)
ASSETS
Current Assets
Cash and cash equivalents		$	661,883		$	540,207
Segregated cash and investments			1,001,259			871,439
Receivables			3,991,153			4,040,759
Inventories			3,966,730			4,591,648
Other assets			423,571			294,943
Total Current Assets			10,044,596			10,338,996
Investments and Other Assets
Investments in and advances to affiliates			1,893,932			1,832,619
Long-term marketable securities			989,510			1,161,388
Goodwill			344,622			337,474
Other assets			460,277			443,606
			3,688,341			3,775,087
Property, Plant, and Equipment
Land			209,863			190,136
Buildings			2,663,906			2,568,472
Machinery and equipment			10,973,962			10,658,282
Construction in progress			324,593			263,332
			14,172,324			13,680,222
Allowances for depreciation			(8,923,464	)		(8,425,484	)
			5,248,860			5,254,738
		$	18,981,797		$	19,368,821

See notes to consolidated financial statements.

 

						(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

See notes to consolidated financial statements.

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 nine months ended March 31, 2005 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 included 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.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) Number 153 Exchanges 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.

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

 

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 nine months ended March 31, 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 nine months ended March 31, 2005, and is expected to be immaterial for the year ending June 30, 2005.

 

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

 

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 nine months ended March 31, 2005 and 2004, is as follows:

 

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 $424 million at March 31, 2005. Outstanding borrowings under these guarantees were $309 million at March 31, 2005.

 

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.

 

Note 8.  Segment Information (Continued)

 

		THREE MONTHS ENDED						NINE MONTHS ENDED
		MARCH 31,						MARCH 31,
			2005			2004			2005			2004
			(In thousands)						(In thousands)
Sales to external customers
Oilseeds Processing		$	2,620,693		$	2,907,903		$	8,614,395		$	8,796,193
Corn Processing			1,093,949			1,082,237			3,291,771			2,968,272
Agricultural Services			3,654,129			4,195,375			11,137,261			11,309,379
Other			1,115,400			1,123,504			3,476,681			3,391,581
Total		$	8,484,171		$	9,309,019		$	26,520,108		$	26,465,425
Intersegment sales
Oilseeds Processing		$	43,897		$	47,039		$	119,556		$	126,977
Corn Processing			75,354			78,762			214,202			233,266
Agricultural Services			269,531			559,501			828,825			1,899,056
Other			26,997			26,971			81,434			80,858
Total		$	415,779		$	712,273		$	1,244,017		$	2,340,157
Net sales
Oilseeds Processing		$	2,664,590		$	2,954,942		$	8,733,951		$	8,923,170
Corn Processing			1,169,303			1,160,999			3,505,973			3,201,538
Agricultural Services			3,923,660			4,754,876			11,966,086			13,208,435
Other			1,142,397			1,150,475			3,558,115			3,472,439
Intersegment elimination			(415,779	)		(712,273	)		(1,244,017	)		(2,340,157	)
Total		$	8,484,171		$	9,309,019		$	26,520,108		$	26,465,425
Segment operating profit
Oilseeds Processing		$	60,734		$	117,510		$	270,789		$	306,223
Corn Processing			177,873			231,491			412,954			510,895
Agricultural Services			54,644			55,827			193,779			205,011
Other			83,336			96,880			322,422			271,265
Total segment operating profit			376,587			501,708			1,199,944			1,293,394
Corporate			32,449			(163,247	)		49,391			(417,250	)
Earnings before income taxes		$	409,036		$	338,461		$	1,249,335		$	876,144

 

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.

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.

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 nine months are not necessarily indicative of the results that may be expected for the year ending June 30, 2005.

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 March 31, 2005, 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 Europe improved due to increased biodiesel and vegetable oil demand and the large European rapeseed crop.

Ethanol experienced good demand and increased selling prices. Improved global oilseed crop conditions have resulted in adequate 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 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 private equity fund investments.

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.

 

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