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Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Stock Compensation
The Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share-Based Payment (SFAS 123 (R)), using the modified prospective transition method.
Under the modified prospective transition method, compensation expense includes: (a) compensation expense for
all share-based payments granted prior to, but not yet vested as of July 1, 2005, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123; and (b) compensation expense for all sharebased
payments granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123(R). The Company recognizes expense for its share-based compensation based on
the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using
the Black-Scholes option valuation model which requires the input of highly subjective assumptions. Measured
compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related sharebased
compensation award.
Research and Development
Costs associated with research and development are expensed as incurred. Such costs incurred were $49 million,
$45 million, and $45 million for the years ended June 30, 2008, 2007, and 2006, respectively.
Per Share Data
Basic earnings per common share are determined by dividing net earnings by the weighted average number of
common shares outstanding. In computing diluted earnings per share, the weighted average number of common
shares outstanding is increased by common stock options outstanding with exercise prices lower than the average
market prices of common shares. During 2008, 2007, and 2006, diluted average shares outstanding included
incremental shares related to outstanding common stock options of 2 million, 5 million, and 2 million, respectively.
New Accounting Standards
During July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing the minimum requirements a tax position must meet before being recognized in the financial
statements. In addition, FIN 48 prohibits the use of SFAS No. 5, Accounting for Contingencies, in evaluating the
recognition and measurement of uncertain tax positions. The Company adopted FIN 48 on July 1, 2007, and the
adoption did not have a material effect on the Company’s financial statements. See Note 11 for further
information.
During September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
establishes a framework for measuring fair value within generally accepted accounting principles, clarifies the
definition of fair value within that framework, and expands disclosures about the use of fair value measurements.
SFAS 157 does not require any new fair value measurements in generally accepted accounting principles. The
Company will adopt SFAS 157 for items that are recognized or disclosed at fair value in the financial statements on
a recurring basis (at least annually) effective as of July 1, 2008. The Company has not completed its evaluation of
the impact of adopting SFAS 157 on the Company’s financial statements. The adoption of SFAS 157 may require
modification of the Company’s fair value measurements and will require expanded disclosures in the notes to the
Company’s consolidated financial statements.
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