German - ADM

Archer Daniels Midland CompanyNotes to Consolidated Financial Statements (Continued)Note 1.Summary of Significant Accounting Policies (Continued)Stock CompensationEffective 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. Under the modifiedprospective method of adoption selected by the Company under the provisions of SFAS Number 148, Accountingfor Stock-Based Compensation - Transition and Disclosure, stock-based employee compensation expenserecognized during 2005 was the same as the expense which would have been recognized had the fair valuerecognition provisions of SFAS Number 123 been applied to all options granted after July 1, 1995. EffectiveJuly 1, 2005, the Company adopted the fair value recognition provisions of SFAS Number 123(R), Share-BasedPayment, 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 notyet vested as of, July 1, 2005 based on the grant date fair value estimated in accordance with the original provisionsof SFAS Number 123; and (b) compensation expense for all share-based payments granted subsequent toJuly 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS Number123(R). Results of prior periods have not been restated.Per Share DataBasic earnings per common share are determined by dividing net earnings by the weighted average number ofcommon shares outstanding. In computing diluted earnings per share, the weighted average number of commonshares outstanding is increased by common stock options outstanding with exercise prices lower than the averagemarket prices of common shares. During 2007, 2006, and 2005, diluted average shares outstanding includedincremental shares related to outstanding common stock options of 5 million, 2 million, and 2 million, respectively.New Accounting StandardsDuring July 2006, the FASB issued Interpretation Number 48, Accounting for Uncertainty in Income Taxes (FIN48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum requirements a tax position mustmeet before being recognized in the financial statements. In addition, FIN 48 prohibits the use of SFAS Number 5,Accounting for Contingencies, in evaluating the recognition and measurement of uncertain tax positions. TheCompany is required to adopt FIN 48 on July 1, 2007, and the adoption is not expected to have a material effect onthe Company’s financial statements.During September 2006, the FASB issued SFAS Number 157, Fair Value Measurements. SFAS Number 157establishes a framework for measuring fair value within generally accepted accounting principles, clarifies thedefinition of fair value within that framework, and expands disclosures about the use of fair value measurements.SFAS Number 157 does not require any new fair value measurements in generally accepted accounting principles.However, the definition of fair value in SFAS Number 157 may affect assumptions used by companies indetermining fair value. The Company will be required to adopt SFAS Number 157 on July 1, 2008. The Companyhas not completed its evaluation, but currently believes the impact will not require material modification of theCompany’s fair value measurements and will be substantially limited to expanded disclosures in the notes to theCompany’s consolidated financial statements.During September 2006, the FASB issued SFAS Number 158, Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans. SFAS Number 158 requires an employer to recognize the overfunded orunderfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liabilityin its balance sheet and to recognize changes in the funded status of a defined benefit postretirement plan incomprehensive income in the year in which the changes occur. SFAS Number 158 also requires companies tomeasure the funded status of defined benefit postretirement plans as of the end of the fiscal year instead of a date upto three months prior to the end of the fiscal year. At June 30, 2007, the Company recorded the funded status of its45