German - ADM

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS (Continued)Undistributed earnings of the Company’s foreign subsidiaries and affiliated corporate joint ventures accounted foron the equity method are considered to be permanently reinvested, and accordingly, no provision for U.S. incometaxes has been provided thereon. If the Company were to receive distributions from any of these foreignsubsidiaries or affiliates or determine the undistributed earnings of these foreign subsidiaries or affiliates to not bepermanently reinvested, the Company could be subject to U.S. tax liabilities which have not been provided for inthe consolidated financial statements.Asset Abandonments and Write-DownsThe Company is principally engaged in the business of procuring, transporting, storing, processing, andmerchandising agricultural commodities and products. This business is global in nature and is highly capitalintensive.Both the availability of the Company’s raw materials and the demand for the Company’s finishedproducts are driven by unpredictable factors such as weather, plantings, government (domestic and foreign) farmprograms and policies, changes in population growth, changes in standards of living, and production of similar andcompetitive crops. These aforementioned unpredictable factors, therefore, may cause a shift in the supply/demanddynamics for the Company’s raw materials and finished products. Any such shift will cause management toevaluate the efficiency and profitability of the Company’s fixed asset base in terms of geographic location, size,and age of its factories. The Company, from time to time, will also invest in equipment and technology related tonew, value-added products produced from agricultural commodities and products. These new products are notalways successful from either a commercial production or marketing perspective. Management evaluates theCompany’s property, plant, and equipment for impairment whenever indicators of impairment exist. Assets areabandoned after consideration of the ability to utilize the assets for their intended purpose or to employ the assets inalternative uses or sell the assets to recover the carrying value. If management used different estimates andassumptions in its evaluation of this fixed asset base, then the Company could recognize different amounts ofexpense over future periods.Valuation of Marketable Securities and Investments in AffiliatesThe Company classifies the majority of its marketable securities as available-for-sale and carries these securities atfair value. Investments in affiliates are carried at cost plus equity in undistributed earnings. For publicly tradedsecurities, the fair value of the Company’s investments is readily available based on quoted market prices. Fornon-publicly traded securities, management’s assessment of fair value is based on valuation methodologiesincluding discounted cash flows and estimates of sales proceeds. In the event of a decline in fair value of aninvestment below carrying value, management may be required to determine if the decline in fair value is otherthan temporary. In evaluating the nature of a decline in the fair value of an investment, management considers themarket conditions, trends of earnings, discounted cash flows, trading volumes, and other key measures of theinvestment as well as the Company’s ability and intent to hold the investment. When such a decline in value isdeemed to be other than temporary, an impairment loss is recognized in the current period operating results to theextent of the decline. See Notes 3 and 5 to the Company’s consolidated financial statements for informationregarding the Company’s marketable securities and investments in affiliates. If management used differentestimates and assumptions in its evaluation of these marketable securities, then the Company could recognizedifferent amounts of expense over future periods.34