☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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.)
77 West Wacker Drive, Suite 4600
Chicago,
Illinois
60601
(Address of principal executive offices)
(Zip Code)
(312) 634-8100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
ADM
NYSE
1.000% Notes due 2025
NYSE
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☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Accelerated Filer
☐
Emerging Growth Company
☐
Non-accelerated Filer
☐
Smaller Reporting Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
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 – 536,101,643 shares
(July 24, 2023)
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995 that is subject to risks and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking information. Risks and uncertainties that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022, as may be updated in our subsequent Quarterly Reports on Form 10-Q. To the extent permitted under applicable law, Archer-Daniels-Midland Company assumes no obligation to update any forward-looking statements as a result of new information or future events.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
(In millions, except per share amounts)
Revenues
$
25,190
$
27,284
$
49,262
$
50,934
Cost of products sold
23,307
25,184
45,299
46,937
Gross Profit
1,883
2,100
3,963
3,997
Selling, general, and administrative expenses
841
814
1,722
1,643
Asset impairment, exit, and restructuring costs
60
1
67
2
Equity in earnings of unconsolidated affiliates
(151)
(192)
(325)
(396)
Interest and investment income
(142)
(32)
(276)
(91)
Interest expense
180
73
327
165
Other (income) expense – net
(37)
(83)
(81)
(116)
Earnings Before Income Taxes
1,132
1,519
2,529
2,790
Income tax expense
204
279
429
486
Net Earnings Including Noncontrolling Interests
928
1,240
2,100
2,304
Less: Net earnings attributable to noncontrolling interests
1
4
3
14
Net Earnings Attributable to Controlling Interests
$
927
$
1,236
$
2,097
$
2,290
Average number of shares outstanding – basic
545
566
548
566
Average number of shares outstanding – diluted
546
568
549
568
Basic earnings per common share
$
1.70
$
2.18
$
3.83
$
4.05
Diluted earnings per common share
$
1.70
$
2.18
$
3.82
$
4.03
Dividends per common share
$
0.45
$
0.40
$
0.90
$
0.80
See notes to consolidated financial statements.
3
Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
(In millions)
Net earnings including noncontrolling interests
$
928
$
1,240
$
2,100
$
2,304
Other comprehensive income (loss):
Foreign currency translation adjustment
35
(7)
188
142
Tax effect
14
(84)
28
(115)
Net of tax amount
49
(91)
216
27
Pension and other postretirement benefit liabilities adjustment
(6)
—
(32)
37
Tax effect
4
(4)
(9)
(11)
Net of tax amount
(2)
(4)
(41)
26
Deferred gain (loss) on hedging activities
(37)
(80)
(141)
202
Tax effect
16
2
32
(45)
Net of tax amount
(21)
(78)
(109)
157
Unrealized gain (loss) on investments
4
(8)
8
(13)
Tax effect
(1)
1
(2)
1
Net of tax amount
3
(7)
6
(12)
Other comprehensive income (loss)
29
(180)
72
198
Comprehensive income (loss)
957
1,060
2,172
2,502
Less: Comprehensive income (loss) attributable to noncontrolling interests
—
—
(1)
5
Comprehensive income (loss) attributable to controlling interests
$
957
$
1,060
$
2,173
$
2,497
See notes to consolidated financial statements.
4
Archer-Daniels-Midland Company
Consolidated Balance Sheets
(In millions)
June 30, 2023
December 31, 2022
(Unaudited)
Assets
Current Assets
Cash and cash equivalents
$
1,426
$
1,037
Segregated cash and investments
8,167
9,010
Trade receivables - net
4,110
4,926
Inventories
11,902
14,771
Other current assets
5,081
5,666
Total Current Assets
30,686
35,410
Investments and Other Assets
Investments in affiliates
5,665
5,467
Goodwill and other intangible assets
6,542
6,544
Right of use assets
1,138
1,088
Other assets
1,341
1,332
Total Investments and Other Assets
14,686
14,431
Property, Plant, and Equipment
Land and land improvements
534
502
Buildings
5,712
5,639
Machinery and equipment
19,566
19,194
Construction in progress
1,544
1,440
27,356
26,775
Accumulated depreciation
(17,229)
(16,842)
Net Property, Plant, and Equipment
10,127
9,933
Total Assets
$
55,499
$
59,774
Liabilities, Temporary Equity, and Shareholders’ Equity
Total Liabilities, Temporary Equity, and Shareholders’ Equity
$
55,499
$
59,774
See notes to consolidated financial statements.
5
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Six Months Ended June 30,
2023
2022
Operating Activities
Net earnings including noncontrolling interests
$
2,100
$
2,304
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization
521
514
Asset impairment charges
46
4
Deferred income taxes
8
(15)
Equity in earnings of affiliates, net of dividends
(80)
(162)
Stock compensation expense
86
97
Deferred cash flow hedges
(141)
206
Gains on sales of assets and businesses/investment revaluation
(32)
(42)
Other – net
(18)
312
Changes in operating assets and liabilities, net of acquisitions and dispositions
Segregated investments
(1,392)
(1,753)
Trade receivables
846
(2,155)
Inventories
2,917
(349)
Other current assets
582
(1,593)
Trade payables
(2,762)
(710)
Payables to brokerage customers
(1,213)
2,520
Accrued expenses and other payables
(569)
147
Total Operating Activities
899
(675)
Investing Activities
Capital expenditures
(614)
(500)
Proceeds from sales of assets and businesses
17
12
Investments in affiliates
(6)
(58)
Cost method investments
(5)
(133)
Other – net
(3)
32
Total Investing Activities
(611)
(647)
Financing Activities
Long-term debt borrowings
500
751
Long-term debt payments
(662)
—
Net borrowings (payments) under lines of credit agreements
(371)
1,414
Share repurchases
(1,001)
(200)
Cash dividends
(494)
(453)
Other – net
(103)
(21)
Total Financing Activities
(2,131)
1,491
Effect of exchange rate on cash, cash equivalents, restricted cash, and restricted cash equivalents
(3)
—
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents
(1,846)
169
Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period
7,033
7,454
Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period
$
5,187
$
7,623
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets
Cash and cash equivalents
$
1,426
$
906
Restricted cash and restricted cash equivalents included in segregated cash and investments
3,761
6,717
Total cash, cash equivalents, restricted cash, and restricted cash equivalents
$
5,187
$
7,623
See notes to consolidated financial statements.
6
Archer-Daniels-Midland-Company
Consolidated Statements of Shareholders’ Equity
(Unaudited)
Common Stock
Reinvested Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Total Shareholders’ Equity
(In millions, except per share amounts)
Shares
Amount
Balance, March 31, 2023
545
$
3,106
$
24,217
$
(2,463)
$
36
$
24,896
Comprehensive income
Net earnings
927
1
Other comprehensive income (loss)
30
(1)
Total comprehensive income
957
Cash dividends paid - $0.45 per share
(246)
(246)
Share repurchases
(9)
(654)
(654)
Stock compensation expense
—
21
21
Stock option exercises net of taxes
—
1
1
Balance, June 30, 2023
536
$
3,128
$
24,244
$
(2,433)
$
36
$
24,975
Balance, December 31, 2022
547
$
3,147
$
23,646
$
(2,509)
$
33
$
24,317
Comprehensive income
Net earnings
2,097
3
Other comprehensive income (loss)
76
(4)
Total comprehensive income
2,172
Cash dividends paid - $0.90 per share
(494)
(494)
Share repurchases
(13)
(1,005)
(1,005)
Stock compensation expense
3
86
86
Stock option exercises net of taxes
(1)
(107)
(107)
Other
—
2
—
—
4
6
Balance, June 30, 2023
536
$
3,128
$
24,244
$
(2,433)
$
36
$
24,975
Balance, March 31, 2022
563
$
3,028
$
22,483
$
(1,789)
$
33
$
23,755
Comprehensive income
Net earnings
1,236
4
Other comprehensive income (loss)
(176)
(4)
Total comprehensive income
1,060
Cash dividends paid - $0.40 per share
(227)
(227)
Share repurchases
(2)
(200)
(200)
Stock compensation expense
—
28
28
Stock option exercises net of taxes
—
10
10
Balance, June 30, 2022
561
$
3,066
$
23,292
$
(1,965)
$
33
$
24,426
Balance, December 31, 2021
560
$
2,994
$
21,655
$
(2,172)
$
31
$
22,508
Comprehensive income
Net earnings
2,290
14
Other comprehensive income (loss)
207
(9)
Total comprehensive income
2,502
Cash dividends paid - $0.80 per share
(453)
(453)
Share repurchases
(2)
(200)
(200)
Stock compensation expense
3
97
97
Stock option exercises net of taxes
—
(26)
(26)
Other
—
1
—
—
(3)
(2)
Balance, June 30, 2022
561
$
3,066
$
23,292
$
(1,965)
$
33
$
24,426
See notes to consolidated financial statements.
7
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by GAAP for audited 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 six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022 for Archer-Daniels-Midland Company (the Company or ADM).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company consolidates all entities, including variable interest entities (VIEs), in which it has a controlling financial interest. For VIEs, the Company assesses whether it is the primary beneficiary as defined under the applicable accounting standard. Investments in affiliates, including VIEs through which the Company exercises significant influence but does not control the investee and is not the primary beneficiary of the investee’s activities, are carried at cost plus equity in undistributed earnings since acquisition and are adjusted, where appropriate, for basis differences between the investment balance and the underlying net assets of the investee. The Company’s portion of the results of certain affiliates and results of certain VIEs are included using the most recent available financial statements. In each case, the financial statements are within 93 days of the Company’s year end and are consistent from period to period.
Segregated Cash and Investments
The Company segregates certain cash, cash equivalents, and investment balances in accordance with regulatory requirements, commodity exchange requirements, and insurance arrangements. These balances represent deposits received from customers of the Company’s registered futures commission merchant and commodity brokerage services, cash margins and securities pledged to commodity exchange clearinghouses, and cash pledged as security under certain insurance arrangements. Segregated cash and investments also include restricted cash collateral for the various insurance programs of the Company’s captive insurance business. To the degree these segregated balances are comprised of cash and cash equivalents, they are considered restricted cash and cash equivalents on the consolidated statements of cash flows.
Receivables
The Company records receivables at net realizable value in trade receivables, other current assets, and other assets. These amounts included allowances for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances including any accrued interest receivables thereon. The Company estimates uncollectible accounts by pooling receivables according to type, region, credit risk rating, and age. Each pool is assigned an expected loss co-efficient to arrive at a general reserve based on historical write-offs adjusted, as needed, for regional, economic, and other forward-looking factors. The Company minimizes credit risk due to the large and diversified nature of its worldwide customer base. ADM manages its exposure to counter-party credit risk through credit analysis and approvals, credit limits, and monitoring procedures. Long-term receivables recorded in other assets were not material to the Company’s overall receivables portfolio.
8
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1. Basis of Presentation (Continued)
Changes to the allowance for estimated uncollectible accounts are as follows:
Three Months Ended June 30
2023
2022
Beginning, April 1
$
182
$
137
Current year provisions
9
22
Write-offs against allowance
(16)
(4)
Foreign exchange translation adjustment
—
(2)
Other
(1)
11
Ending, June 30
$
174
$
164
Six Months Ended June 30
2023
2022
Beginning, January 1
$
199
$
122
Current year provisions
13
44
Recoveries
1
1
Write-offs against allowance
(40)
(5)
Foreign exchange translation adjustment
1
(2)
Other
—
4
Ending, June 30
$
174
$
164
Write-offs against allowance in the current quarter primarily related to a customer in Brazil. Also included in write-offs against allowance in the six months ended June 30, 2023 was allowance on receivables that were subsequently sold.
Inventories
Certain merchandisable agricultural commodity inventories, which include inventories acquired under deferred pricing contracts, are stated at market value. In addition, the Company values certain inventories using the first-in, first-out (FIFO) method at the lower of cost or net realizable value.
The following table sets forth the Company’s inventories.
June 30, 2023
December 31, 2022
(In millions)
Raw materials and supplies
$
7,592
$
6,975
Finished goods
4,310
7,796
Total inventories
$
11,902
$
14,771
Included in raw materials and supplies are work in process inventories which were not material as of June 30, 2023 and December 31, 2022.
9
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1. Basis of Presentation (Continued)
Cost Method Investments
Cost method investments of $494 million and $488 million as of June 30, 2023 and December 31, 2022, respectively, were included in Other Assets in the Company’s consolidated balance sheets. Revaluation gains of $3 million and $37 million in the three and six months ended June 30, 2022, respectively, in connection with observable third-party transactions, were recorded in interest and investment income in the Company's consolidated statements of earnings. There were no revaluation gains in the three and six months ended June 30, 2023.
Operations in Ukraine and Russia
ADM employs approximately 640 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. The Company’s footprint in Russia is limited to operations related to the production and transport of essential food commodities and ingredients.
As a result of the ongoing conflict in Ukraine, the Company reviewed the valuation of its assets and concluded that as of June 30, 2023, receivables, net of allowances, are deemed collectible and market inventories are valued appropriately. The Company also evaluated the impact of Russia’s announcement of its purported annexation of four Ukrainian regions on the valuation of ADM’s assets in those regions and concluded that the assets are appropriately valued. As the conflict in Ukraine evolves, the Company will continue to review the valuation of these assets and make any required adjustments, which are not expected to be material to the Company’s consolidated financial statements.
Note 2. New Accounting Standards
Effective January 1, 2023, the Company adopted the amended guidance of Accounting Standards Codification (ASC) Topic 805, Business Combinations, which improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amended guidance requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers,(Topic 606). The Company’s adoption of this amended guidance did not have an impact on its consolidated financial statements.
Effective January 1, 2023, the Company adopted the amended guidance of ASC Subtopic 405-50, Liabilities - Supplier Finance Programs, which enhances the transparency of supplier finance programs. The amended guidance requires an entity (buyer) in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ADM has Supplier Payable Programs (“SPP”) with financial institutions which act as its paying agents for payables due to certain of its suppliers. The Company has neither an economic interest in a supplier’s participation in the SPP nor a direct financial relationship with the financial institutions, and has concluded that its obligations to the suppliers, including amounts due and scheduled payment terms, are not impacted by their participation in the SPP. Accordingly, amounts associated with the SPP continue to be classified in current liabilities in the Company’s consolidated balance sheet and in operating activities in its consolidated statement of cash flows. The supplier invoices that have been confirmed as valid under the program require payment in full generally within 90 days of the invoice date. As of June 30, 2023 and December 31, 2022, the Company’s outstanding payment obligations that suppliers had elected to sell to the financial institutions were $310 million and $196 million, respectively.
Through December 31, 2024, the Company has the option to adopt the amended guidance of ASC Topic 848, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company plans to adopt the expedients and exceptions provided by the amended guidance before the December 31, 2024 expiry date and does not expect the adoption of the amended guidance to have an impact on its consolidated financial statements.
10
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues
Revenue Recognition
The Company principally generates revenue from merchandising and transporting agricultural commodities, and manufacturing products for use in food, beverages, feed, energy, and industrial applications, and ingredients and solutions for human and animal nutrition. Revenue is measured based on the consideration specified in the contract with a customer. The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product or service to a customer. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The Company applies the practical expedient in paragraph 10-50-14 of Topic 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. For transportation service contracts, the Company recognizes revenue over time as the mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The Company recognized revenue from transportation service contracts of $200 million and $378 million for the three and six months ended June 30, 2023, respectively, and $209 million and $384 million for the three and six months ended June 30, 2022, respectively. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20).
Shipping and Handling Costs
Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in cost of products sold. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Taxes Collected from Customers and Remitted to Governmental Authorities
The Company does not include taxes assessed by governmental authorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in the measurement of transaction prices or as a component of revenues and cost of products sold.
Contract Liabilities
Contract liabilities relate to advance payments from customers for goods and services that the Company has yet to provide. Contract liabilities of $286 million and $694 million as of June 30, 2023 and December 31, 2022, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Revenues recognized from contract liabilities were $311 million and $673 million for the three and six months ended June 30, 2023, respectively, and $335 million and $581 million for the three and six months ended June 30, 2022, respectively.
11
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Disaggregation of Revenues
The following tables present revenue disaggregated by timing of recognition and major product lines for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, 2023
Topic 606 Revenue
Topic 815(1)
Total
(In millions)
Point in Time
Over Time
Total
Revenue
Revenues
Ag Services and Oilseeds
Ag Services
$
1,071
$
200
$
1,271
$
12,095
$
13,366
Crushing
32
—
32
3,448
3,480
Refined Products and Other
577
—
577
2,421
2,998
Total Ag Services and Oilseeds
1,680
200
1,880
17,964
19,844
Carbohydrate Solutions
Starches and Sweeteners
1,872
—
1,872
603
2,475
Vantage Corn Processors
906
—
906
—
906
Total Carbohydrate Solutions
2,778
—
2,778
603
3,381
Nutrition
Human Nutrition
966
—
966
—
966
Animal Nutrition
887
—
887
—
887
Total Nutrition
1,853
—
1,853
—
1,853
Other Business
112
—
112
—
112
Total Revenues
$
6,423
$
200
$
6,623
$
18,567
$
25,190
Six Months Ended June 30, 2023
Topic 606 Revenue
Topic 815(1)
Total
Point in Time
Over Time
Total
Revenue
Revenues
(In millions)
Ag Services and Oilseeds
Ag Services
$
2,088
$
378
$
2,466
$
22,595
$
25,061
Crushing
223
—
223
6,940
7,163
Refined Products and Other
1,203
—
1,203
4,996
6,199
Total Ag Services and Oilseeds
3,514
378
3,892
34,531
38,423
Carbohydrate Solutions
Starches and Sweeteners
3,956
—
3,956
1,256
5,212
Vantage Corn Processors
1,706
—
1,706
—
1,706
Total Carbohydrate Solutions
5,662
—
5,662
1,256
6,918
Nutrition
Human Nutrition
1,902
—
1,902
—
1,902
Animal Nutrition
1,804
—
1,804
—
1,804
Total Nutrition
3,706
—
3,706
—
3,706
Other Business
215
—
215
—
215
Total Revenues
$
13,097
$
378
$
13,475
$
35,787
$
49,262
12
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Three Months Ended June 30, 2022
Topic 606 Revenue
Topic 815(1)
Total
(In millions)
Point in Time
Over Time
Total
Revenue
Revenues
Ag Services and Oilseeds
Ag Services
$
1,013
$
209
$
1,222
$
13,111
$
14,333
Crushing
128
—
128
3,234
3,362
Refined Products and Other
744
—
744
2,990
3,734
Total Ag Services and Oilseeds
1,885
209
2,094
19,335
21,429
Carbohydrate Solutions
Starches and Sweeteners
1,889
—
1,889
630
2,519
Vantage Corn Processors
1,232
—
1,232
—
1,232
Total Carbohydrate Solutions
3,121
—
3,121
630
3,751
Nutrition
Human Nutrition
1,020
—
1,020
—
1,020
Animal Nutrition
983
—
983
—
983
Total Nutrition
2,003
—
2,003
—
2,003
Other Business
101
—
101
—
101
Total Revenues
$
7,110
$
209
$
7,319
$
19,965
$
27,284
Six Months Ended June 30, 2022
Topic 606 Revenue
Topic 815(1)
Total
Point in Time
Over Time
Total
Revenue
Revenues
(In millions)
Ag Services and Oilseeds
Ag Services
$
1,983
$
384
$
2,367
$
23,813
$
26,180
Crushing
253
—
253
6,331
6,584
Refined Products and Other
1,376
—
1,376
5,542
6,918
Total Ag Services and Oilseeds
3,612
384
3,996
35,686
39,682
Carbohydrate Solutions
Starches and Sweeteners
3,819
—
3,819
1,198
5,017
Vantage Corn Processors
2,100
—
2,100
—
2,100
Total Carbohydrate Solutions
5,919
—
5,919
1,198
7,117
Nutrition
Human Nutrition
1,978
—
1,978
—
1,978
Animal Nutrition
1,949
—
1,949
—
1,949
Total Nutrition
3,927
—
3,927
—
3,927
Other Business
208
—
208
—
208
Total Revenues
$
13,666
$
384
$
14,050
$
36,884
$
50,934
(1) Topic 815 revenue relates to the physical delivery or the settlement of the Company’s sales contracts that are accounted for as derivatives and are outside the scope of Topic 606.
13
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Ag Services and Oilseeds
The Ag Services and Oilseeds segment generates revenue from the sale of commodities, from service fees for the transportation of goods, from the sale of products manufactured in its global processing facilities, and from its structured trade finance activities. Revenue is measured based on the consideration specified in the contract. Revenue is recognized when a performance obligation is satisfied by transferring control over a product or providing service to a customer. For transportation service contracts, the Company recognizes revenue over time as the mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The amount of revenue recognized follows the contractually specified price, which may include freight or other contractually specified cost components. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20. The Company engages in various structured trade finance activities to leverage its global trade flows whereby the Company obtains letters of credit (LCs) to guarantee payments on both global purchases and sales of grain. LCs guaranteeing payment on grain sales are sold on a non-recourse basis with no continuing involvement. The Company earns returns from the difference in interest rates between the LCs that guarantee payment on the underlying purchases and sales of grain given the differing risk profiles of the underlying transactions. The net return related to structured trade finance activities is included in revenue and is not significant for the three and six months ended June 30, 2023 and 2022.
Carbohydrate Solutions
The Carbohydrate Solutions segment generates revenue from the sale of products manufactured at the Company’s global corn and wheat milling facilities around the world. Revenue is recognized when control over products is transferred to the customer. Products are shipped to customers from the Company’s various facilities and from its network of storage terminals. The amount of revenue recognized is based on the consideration specified in the contract, which could include freight and other costs depending on the specific shipping terms of each contract. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20.
Nutrition
The Nutrition segment sells ingredients and solutions including plant-based proteins, natural flavors, flavor systems, natural colors, emulsifiers, soluble fiber, polyols, hydrocolloids, probiotics, prebiotics, enzymes, botanical extracts, edible beans, formula feeds, animal health and nutrition products, pet food and treats, and other specialty food and feed ingredients. Revenue is recognized when control over products is transferred to the customer. The amount of revenue recognized follows the contracted price or the mutually agreed price of the product. Freight and shipping are recognized as a component of revenue at the same time control transfers to the customer.
Other Business
Other Business includes the Company’s futures commission business whose primary sources of revenue are commissions and brokerage income generated from executing orders and clearing futures contracts and options on futures contracts on behalf of its customers. Commissions and brokerage revenue are recognized on the date the transaction is executed. Other Business also includes the Company’s captive insurance business, which generates third party revenue through its proportionate share of premiums from third-party reinsurance pools. Reinsurance premiums are recognized on a straight-line basis over the period underlying the policy.
14
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements
The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.
Fair Value Measurements at June 30, 2023
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Total
(In millions)
Assets:
Inventories carried at market
$
—
$
3,631
$
2,859
$
6,490
Unrealized derivative gains:
Commodity contracts
—
728
886
1,614
Foreign currency contracts
—
211
—
211
Cash equivalents
471
—
—
471
Segregated investments
2,145
—
—
2,145
Total Assets
$
2,616
$
4,570
$
3,745
$
10,931
Liabilities:
Unrealized derivative losses:
Commodity contracts
$
—
$
631
$
791
$
1,422
Foreign currency contracts
—
204
—
204
Inventory-related payables
—
1,077
65
1,142
Total Liabilities
$
—
$
1,912
$
856
$
2,768
15
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
Fair Value Measurements at December 31, 2022
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Total
(In millions)
Assets:
Inventories carried at market
$
—
$
6,281
$
2,760
$
9,041
Unrealized derivative gains:
Commodity contracts
—
796
541
1,337
Foreign currency contracts
—
258
—
258
Interest rate contracts
—
109
—
109
Cash equivalents
405
—
—
405
Segregated investments
1,453
—
—
1,453
Total Assets
$
1,858
$
7,444
$
3,301
$
12,603
Liabilities:
Unrealized derivative losses:
Commodity contracts
$
—
$
665
$
603
$
1,268
Foreign currency contracts
—
275
—
275
Debt conversion option
—
—
6
6
Inventory-related payables
—
1,181
89
1,270
Total Liabilities
$
—
$
2,121
$
698
$
2,819
Estimated fair values for inventories and inventory-related payables carried at market are based on exchange-quoted prices, adjusted for differences in local markets and quality, referred to as basis. Market valuations for the Company’s inventories are adjusted for location and quality (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using the inputs from competitor and broker quotations or market transactions and are considered observable. Basis adjustments are impacted by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these basis adjustments. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the inventory is classified in Level 3. Changes in the fair value of inventories and inventory-related payables are recognized in the consolidated statements of earnings as a component of cost of products sold.
16
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and over-the-counter (OTC) instruments related primarily to agricultural commodities, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. Substantially all of the Company’s exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in these tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. Market valuations for the Company’s forward commodity purchase and sale contracts are adjusted for location (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using inputs from competitor and broker quotations or market transactions and are considered observable. Basis adjustments are impacted by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these basis adjustments. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, and other (income) expense - net, depending upon the purpose of the contract. The changes in the fair value of derivatives designated as effective cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.
The Company’s cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.
The Company’s segregated investments are comprised of U.S. Treasury securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.
The debt conversion option is the equity linked embedded derivative related to the exchangeable bonds. The fair value of the embedded derivative is included in long-term debt, with changes in fair value recognized as interest, and is valued with the assistance of a third-party pricing service (a level 3 measurement).
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2023.
Level 3 Fair Value Asset Measurements at
June 30, 2023
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, March 31, 2023
$
3,503
$
649
$
4,152
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
362
475
837
Purchases
9,910
—
9,910
Sales
(10,646)
—
(10,646)
Settlements
(4)
(457)
(461)
Transfers into Level 3
547
240
787
Transfers out of Level 3
(813)
(21)
(834)
Ending balance, June 30, 2023
$
2,859
$
886
$
3,745
* Includes increase in unrealized gains of $780 million relating to Level 3 assets still held at June 30, 2023.
17
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2023.
Level 3 Fair Value Liability Measurements at
June 30, 2023
Inventory- related Payables
Commodity Derivative Contracts Losses
Debt Conversion Option
Total
Liabilities
(In millions)
Balance, March 31, 2023
$
57
$
455
$
1
$
513
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*
4
535
(1)
538
Purchases
5
—
—
5
Sales
—
—
—
—
Settlements
(3)
(283)
—
(286)
Transfers into Level 3
2
86
—
88
Transfers out of Level 3
—
(2)
—
(2)
Ending balance, June 30, 2023
$
65
$
791
$
—
$
856
* Includes increase in unrealized losses of $545 million relating to Level 3 liabilities still held at June 30, 2023.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2022.
Level 3 Fair Value Asset Measurements at
June 30, 2022
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, March 31, 2022
$
3,959
$
828
$
4,787
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
(216)
319
103
Purchases
11,678
—
11,678
Sales
(11,993)
—
(11,993)
Settlements
—
(495)
(495)
Transfers into Level 3
222
293
515
Transfers out of Level 3
(405)
(65)
(470)
Ending balance, June 30, 2022
$
3,245
$
880
$
4,125
* Includes increase in unrealized gains of $253 million relating to Level 3 assets still held at June 30, 2022.
18
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2022.
Level 3 Fair Value Liability Measurements at
June 30, 2022
Inventory- related Payables
Commodity Derivative Contracts Losses
Debt Conversion Option
Total
Liabilities
(In millions)
Balance, March 31, 2022
$
53
$
1,856
$
30
$
1,939
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*
(2)
293
(19)
272
Purchases
7
—
—
7
Sales
(3)
—
—
(3)
Settlements
—
(1,251)
—
(1,251)
Transfers into Level 3
—
161
—
161
Transfers out of Level 3
—
(99)
—
(99)
Ending balance, June 30, 2022
$
55
$
960
$
11
$
1,026
* Includes increase in unrealized losses of $294 million relating to Level 3 liabilities still held at June 30, 2022.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2023.
Level 3 Fair Value Asset Measurements at
June 30, 2023
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, December 31, 2022
$
2,760
$
541
$
3,301
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
364
952
1,316
Purchases
18,575
—
18,575
Sales
(18,900)
—
(18,900)
Settlements
(4)
(839)
(843)
Transfers into Level 3
1,152
290
1,442
Transfers out of Level 3
(1,088)
(58)
(1,146)
Ending balance, June 30, 2023
$
2,859
$
886
$
3,745
* Includes increase in unrealized gains of $1.4 billion relating to Level 3 assets still held at June 30, 2023.
19
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2023.
Level 3 Fair Value Liability Measurements at
June 30, 2023
Inventory- related Payables
Commodity Derivative Contracts Losses
Debt Conversion Option
Total
Liabilities
(In millions)
Balance, December 31, 2022
$
89
$
603
$
6
$
698
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*
2
778
(6)
774
Purchase
7
—
—
7
Sales
—
—
—
—
Settlements
(34)
(707)
—
(741)
Transfers into Level 3
1
125
—
126
Transfers out of Level 3
—
(8)
—
(8)
Ending balance, June 30, 2023
$
65
$
791
$
—
$
856
* Includes increase in unrealized losses of $0.8 billion relating to Level 3 liabilities still held at June 30, 2023.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2022.
Level 3 Fair Value Asset Measurements at
June 30, 2022
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, December 31, 2021
$
3,004
$
460
$
3,464
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
431
952
1,383
Purchases
21,230
—
21,230
Sales
(21,308)
—
(21,308)
Settlements
—
(771)
(771)
Transfers into Level 3
549
316
865
Transfers out of Level 3
(661)
(77)
(738)
Ending balance, June 30, 2022
$
3,245
$
880
$
4,125
* Includes increase in unrealized gains of $1.7 billion relating to Level 3 assets still held at June 30, 2022.
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2022.
20
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
Level 3 Fair Value Liability Measurements at
June 30, 2022
Inventory- related Payables
Commodity Derivative Contracts Losses
Debt Conversion Option
Total
Liabilities
(In millions)
Balance, December 31, 2021
$
106
$
815
$
15
$
936
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*
(4)
1,669
(4)
1,661
Purchases
9
—
—
9
Sales
(56)
—
—
(56)
Settlements
—
(1,729)
—
(1,729)
Transfers into Level 3
—
322
—
322
Transfers out of Level 3
—
(117)
—
(117)
Ending balance, June 30, 2022
$
55
$
960
$
11
$
1,026
* Includes increase in unrealized losses of $1.7 billion relating to Level 3 liabilities still held at June 30, 2022.
Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.
In some cases, the price components that result in differences between exchange-traded prices and local prices for inventories and commodity purchase and sale contracts are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as basis. The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components.
The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of June 30, 2023 and December 31, 2022. The Company’s Level 3 measurements may include basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with basis, the unobservable component as of June 30, 2023 is a weighted average 21.7% of the total price for assets and 21.5% of the total price for liabilities.
Weighted Average % of Total Price
June 30, 2023
December 31, 2022
Component Type
Assets
Liabilities
Assets
Liabilities
Inventories and Related Payables
Basis
21.7
%
21.5
%
19.4
%
15.2
%
Transportation cost
14.1
%
—
%
10.5
%
—
%
Commodity Derivative Contracts
Basis
26.1
%
21.6
%
22.7
%
26.5
%
Transportation cost
6.4
%
2.4
%
13.5
%
3.7
%
21
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3.
Note 5. Derivative Instruments and Hedging Activities
Derivatives Not Designated as Hedging Instruments
The majority of the Company’s derivative instruments have not been designated as hedging instruments. The Company uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural product inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Derivatives, including exchange-traded contracts and forward commodity purchase or sale contracts, and inventories of certain merchandisable agricultural products, which include amounts acquired under deferred pricing contracts, are stated at fair value or market value. Inventory is not a derivative and therefore fair values of and changes in fair values of inventories are not included in the tables below.
The following table sets forth the fair value of derivatives not designated as hedging instruments as of June 30, 2023 and December 31, 2022.
June 30, 2023
December 31, 2022
Assets
Liabilities
Assets
Liabilities
(In millions)
Foreign Currency Contracts
$
167
$
85
$
154
$
275
Commodity Contracts
1,612
1,422
1,337
1,248
Debt Conversion Option
—
—
—
6
Total
$
1,779
$
1,507
$
1,491
$
1,529
The following tables set forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2023 and 2022.
22
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Other (income) expense - net
Cost of
Interest
(In millions)
Revenues
products sold
expense
Three Months Ended June 30, 2023
Consolidated Statement of Earnings
$
25,190
$
23,307
$
(37)
$
180
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(15)
$
153
$
43
$
—
Commodity Contracts
—
35
—
—
Debt Conversion Option
—
—
—
1
Total gain (loss) recognized in earnings
$
(15)
$
188
$
43
$
1
$
217
Three Months Ended June 30, 2022
Consolidated Statement of Earnings
$
27,284
$
25,184
$
(83)
$
73
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
13
$
(95)
$
240
$
—
Commodity Contracts
—
1,062
—
—
Debt Conversion Option
—
—
—
19
Total gain (loss) recognized in earnings
$
13
$
967
$
240
$
19
$
1,239
Other (income) expense - net
Cost of
Interest
(In millions)
Revenues
products sold
expense
Six Months Ended June 30, 2023
Consolidated Statement of Earnings
$
49,262
$
45,299
$
(81)
$
327
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(26)
$
248
$
27
$
—
Commodity Contracts
—
475
—
—
Debt Conversion Option
—
—
—
6
Total gain (loss) recognized in earnings
$
(26)
$
723
$
27
$
6
$
730
Six Months Ended June 30, 2022
Consolidated Statement of Earnings
$
50,934
$
46,937
$
(116)
$
165
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(25)
$
348
$
263
$
—
Commodity Contracts
—
(39)
—
—
Debt Conversion Option
—
—
—
4
Total gain (loss) recognized in earnings
$
(25)
$
309
$
263
$
4
$
551
Changes in the market value of inventories of certain merchandisable agricultural commodities, inventory-related payables, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately as a component of cost of products sold.
23
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, and other (income) expense - net depending on the purpose of the contract.
Derivatives Designated as Cash Flow and Net Investment Hedging Strategies
The Company had certain derivatives designated as cash flow and net investment hedges as of June 30, 2023 and December 31, 2022.
For derivative instruments that are designated and qualify as highly-effective cash flow hedges (i.e., hedging the exposure to variability in expected future cash flow that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of AOCI and as an operating activity in the statement of cash flows, and is reclassified into earnings in the same line item affected by the hedged transaction in the same period or periods during which the hedged transaction affects earnings. Hedge components excluded from the assessment of effectiveness and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.
Commodity Contracts
For each of the hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains and losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable.
The Company uses futures or options contracts to hedge the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants normally grind approximately 65 million bushels of corn per month. During the past 12 months, the Company hedged between 17% and 33% of its monthly grind. At June 30, 2023, the Company had designated hedges representing between 1% and 34% of its anticipated monthly grind of corn for the next 12 months.
The Company, from time to time, also uses futures, options, and swaps to hedge the sales price of certain ethanol sales contracts. The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol. During the past 12 months and as of June 30, 2023, the Company had no hedges related to ethanol sales under these programs.
The Company uses futures and options contracts to hedge the purchase price of the anticipated volumes of soybeans to be purchased and processed in a future month for certain of its U.S. soybean crush facilities, subject to certain program limits. The Company also uses futures or options contracts to hedge the sales prices of anticipated soybean meal and soybean oil sales proportionate to the soybean crushing process at these facilities, subject to certain program limits. During the past 12 months, the Company hedged between 92% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. At June 30, 2023, the Company had designated hedges representing between 0% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities over the next 12 months.
The Company uses futures and OTC swaps to hedge the purchase price of anticipated volumes of natural gas consumption in a future month for certain of its facilities in North America and Europe, subject to certain program limits. During the past 12 months, the Company hedged between 71% and 91% of the anticipated monthly natural gas consumption at the designated facilities. At June 30, 2023, the Company had designated hedges representing between 37% and 78% of the anticipated monthly natural gas consumption over the next 12 months.
As of June 30, 2023 and December 31, 2022, the Company had after-tax losses of $91 million and $17 million in AOCI, respectively, related to gains and losses from these programs. The Company expects to recognize $91 million of the June 30, 2023 after-tax losses in its consolidated statement of earnings during the next 12 months.
Interest Rate Contracts
24
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
The Company used swap locks designated as cash flow hedges to hedge the changes in the forecasted interest payments due to changes in the benchmark rate leading up to future bond issuance dates. The terms of the swap locks matched the terms of the forecasted interest payments. The deferred gains and losses will be recognized in interest expense over the period in which the related interest payments will be paid. The Company executed swap locks maturing on various dates with an aggregate notional amount of $400 million as of December 31, 2022. During the quarter ended March 31, 2023, the Company unwound the swap locks in anticipation of the April 3, 2023 debt issuance.
Foreign Currency Contracts
The Company uses cross-currency swaps and foreign exchange forwards designated as net investment hedges to protect the Company’s investment in a foreign subsidiary against changes in foreign currency exchange rates. The Company executed USD-fixed to Euro-fixed cross-currency swaps with an aggregate notional amount of $0.8 billion as of June 30, 2023 and December 31, 2022, and foreign exchange forwards with an aggregate notional amount of $3.2 billion and $2.5 billion as of June 30, 2023 and December 31, 2022, respectively.
As of June 30, 2023 and December 31, 2022, the Company had after-tax gains of $16 million and $79 million in AOCI, respectively, related to foreign exchange gains and losses from net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.
The following table sets forth the fair value of derivatives designated as hedging instruments as of June 30, 2023 and December 31, 2022.
June 30, 2023
December 31, 2022
Assets
Liabilities
Assets
Liabilities
(In millions)
Commodity Contracts
$
2
$
—
$
—
$
20
Foreign Currency Contracts
44
119
104
$
—
Interest Rate Contracts
—
—
109
—
Total
$
46
$
119
$
213
$
20
The following table sets forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2023 and 2022.
25
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Cost of products sold
(In millions)
Three Months Ended June 30, 2023
Consolidated Statement of Earnings
$
23,307
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
(41)
Total gain (loss) recognized in earnings
$
(41)
$
(41)
Three Months Ended June 30, 2022
Consolidated Statement of Earnings
$
25,184
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
150
Total gain (loss) recognized in earnings
$
150
$
150
Cost of products sold
(In millions)
Six Months Ended June 30, 2023
Consolidated Statement of Earnings
$
45,299
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
(145)
Total gain (loss) recognized in earnings
$
(145)
$
(145)
Six Months Ended June 30, 2022
Consolidated Statement of Earnings
$
46,937
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
248
Total gain (loss) recognized in earnings
$
248
$
248
Other Net Investment Hedging Strategies
The Company has designated €0.9 billion and €1.3 billion of its outstanding long-term debt and commercial paper borrowings at June 30, 2023 and December 31, 2022, respectively, as hedges of its net investment in a foreign subsidiary. As of June 30, 2023 and December 31, 2022, the Company had after-tax gains of $208 million and $228 million in AOCI, respectively, related to foreign exchange gains and losses from the net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested
26
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6. Other Current Assets
The following table sets forth the items in other current assets:
June 30,
December 31,
2023
2022
(In millions)
Unrealized gains on derivative contracts
$
1,825
$
1,704
Margin deposits and grain accounts
460
723
Customer omnibus receivable
1,068
1,309
Financing receivables - net (1)
161
235
Insurance premiums receivable
71
54
Prepaid expenses
349
443
Biodiesel tax credit
177
68
Tax receivables
544
616
Non-trade receivables
328
361
Other current assets
98
153
$
5,081
$
5,666
(1) The Company provides financing to certain suppliers, primarily Brazilian farmers, to finance a portion of the suppliers’ production costs. The amounts are reported net of allowances of $3 million at June 30, 2023 and December 31, 2022. Interest earned on financing receivables of $4 million and $10 million for the three and six months ended June 30, 2023, respectively, and $4 million and $8 million for the three and six months ended June 30, 2022, respectively, is included in interest and investment income in the consolidated statements of earnings.
27
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7. Accrued Expenses and Other Payables
The following table sets forth the items in accrued expenses and other payables:
June 30,
December 31,
2023
2022
(In millions)
Unrealized losses on derivative contracts
$
1,626
$
1,543
Accrued compensation
302
475
Income tax payable
268
248
Other taxes payable
178
136
Insurance claims payable
294
223
Contract liability
286
694
Other accruals and payables
1,315
1,476
$
4,269
$
4,795
Note 8. Debt and Financing Arrangements
On April 3, 2023, the Company issued $500 million aggregate principal amount of 4.500% Notes due August 15, 2033. Net proceeds before expenses were $493 million.
In June 2023, the Company redeemed €600 million aggregate principal amount of 1.750% Notes due 2023.
During the six months ended June 30, 2023, Archer Daniels Midland Singapore, Pte. Ltd., a wholly-owned subsidiary of the Company, increased its revolving credit facility from $500 million to $750 million. The facility is used to finance working capital requirements and for general corporate purposes.
At June 30, 2023, the fair value of the Company’s long-term debt was below the carrying value by $0.3 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At June 30, 2023, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $13.6 billion, of which $11.3 billion was unused. Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was no commercial paper outstanding at June 30, 2023.
The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to $3.0 billion in funding resulting from the sale of accounts receivable with $0.9 billion unused capacity as of June 30, 2023.
Note 9. Income Taxes
The Company’s effective tax rate was 18.0% and 17.0% for the three and six months ended June 30, 2023, respectively, compared to 18.4% and 17.4% for the three and six months ended June 30, 2022, respectively. The decrease in the rate was primarily due to the impact of discrete tax items.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“Inflation Act”), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” and a one percent excise tax on net repurchases of stock for tax years beginning after December 31, 2022. The Company’s adoption of the Inflation Act did not have a significant impact on the Company’s consolidated financial statements.
28
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 9. Income Taxes (Continued)
The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax jurisdictions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period.
The Company’s subsidiary in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011, 2014 and 2015. As of June 30, 2023, these assessments totaled $3 million in tax and up to $18 million in interest (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes it has complied with all Argentine tax laws. Currently the Company is under audit for fiscal years 2016 to 2017. While the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2015. The Company believes it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position is more likely than not to be sustained based upon its technical merits, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against any assessments.
In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization, which involved two of its subsidiary companies in the Netherlands. As of June 30, 2023, this assessment was $88 million in tax and $33 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the court issued an unfavorable ruling and in October 2020, assigned a third party expert to establish a valuation. During the second quarter of 2021, the third party expert issued a final valuation. On September 30, 2022, the court issued a ruling consistent with the valuation report, and the Dutch tax authorities have filed an appeal. During the quarter ended March 31, 2023, ADM filed a cross-appeal. As of June 30, 2023, the Company has accrued its best estimate of what it believes will be the likely outcome of the litigation.
29
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10. Accumulated Other Comprehensive Income
The following tables set forth the changes in AOCI by component for the three and six months ended June 30, 2023 and the reclassifications out of AOCI for the three and six months ended June 30, 2023 and 2022:
Three months ended June 30, 2023
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Hedging Activities
Pension Liability Adjustment
Unrealized Gain (Loss) on Investments
Total
(In millions)
Balance at March 31, 2023
$
(2,452)
$
60
$
(61)
$
(10)
$
(2,463)
Other comprehensive income (loss) before reclassifications
88
(78)
(2)
4
12
Gain (loss) on net investment hedges
(52)
—
—
—
(52)
Amounts reclassified from AOCI
—
41
(4)
—
37
Tax effect
14
16
4
(1)
33
Net of tax amount
50
(21)
(2)
3
30
Balance at June 30, 2023
$
(2,402)
$
39
$
(63)
$
(7)
$
(2,433)
Six months ended June 30, 2023
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Hedging Activities
Pension Liability Adjustment
Unrealized Gain (Loss) on Investments
Total
(In millions)
Balance at December 31, 2022
$
(2,622)
$
148
$
(22)
$
(13)
$
(2,509)
Other comprehensive income (loss) before reclassifications
322
(286)
3
8
47
Gain (loss) on net investment hedges
(130)
—
—
—
(130)
Amounts reclassified from AOCI
—
145
(35)
—
110
Tax effect
28
32
(9)
(2)
49
Net of tax amount
220
(109)
(41)
6
76
Balance at June 30, 2023
$
(2,402)
$
39
$
(63)
$
(7)
$
(2,433)
30
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10. Accumulated Other Comprehensive Income (Continued)
Amount reclassified from AOCI
Three months ended June 30,
Six months ended June 30,
Affected line item in the consolidated statements of earnings
Details about AOCI components
2023
2022
2023
2022
(In millions)
Deferred loss (gain) on hedging activities
$
41
$
(150)
145
(248)
Cost of products sold
41
(150)
145
(248)
Total before tax
(8)
33
(26)
52
Tax
$
33
$
(117)
$
119
$
(196)
Net of tax
Pension liability adjustment
Amortization of defined benefit pension items:
Prior service loss (credit)
$
(6)
$
(112)
$
(17)
$
(104)
Other (income) expense-net
Actuarial losses
2
104
(18)
127
Other (income) expense-net
(4)
(8)
(35)
23
Total before tax
3
(2)
(9)
(8)
Tax
$
(1)
$
(10)
$
(44)
$
15
Net of tax
The Company’s accounting policy is to release the income tax effects from AOCI when the individual units of account are sold, terminated, or extinguished.
Note 11. Other (Income) Expense - Net
The following table sets forth the items in other (income) expense:
Three Months Ended
Six Months Ended
June 30,
June 30,
2023
2022
2023
2022
(In millions)
Gains on sales of assets
$
(21)
$
(5)
$
(32)
$
(5)
Other – net
(16)
(78)
(49)
(111)
Other (Income) Expense - Net
$
(37)
$
(83)
$
(81)
$
(116)
Gains on sales of assets in the three and six months ended June 30, 2023 and 2022 consisted of gains on sales of certain assets and disposals of individually insignificant assets in the ordinary course of business.
Other - net in the three and six months ended June 30, 2023 included the non-service components of net pension benefit income of $5 million and $9 million, respectively, net foreign exchange gains, and net other income. Other - net in the three and six months ended June 30, 2022 included the non-service components of net pension benefit income of $6 million and $12 million, respectively, a $50 million payment from the USDA Biofuel Producer Recovery Program, net foreign exchange gains, and net other expense.
31
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information
The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard, and are classified as Other Business.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in operating profit for each segment is equity in earnings of affiliates based on the equity method of accounting. Specified items included in total segment operating profit and certain corporate items are not allocated to the Company’s individual business segments because operating performance of each business segment is evaluated by management exclusive of these items. Corporate results principally include unallocated corporate expenses, interest cost net of interest income, and revaluation gains and losses on cost method investments and the share of the results of equity investments in early-stage start-up companies that ADM Ventures has investments in.
For more information about the Company’s business segments, refer to Note 17 of “Notes to Consolidated Financial Statements” included in Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
32
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information (Continued)
Three Months Ended
Six Months Ended
June 30,
June 30,
(In millions)
2023
2022
2023
2022
Gross revenues
Ag Services and Oilseeds
$
20,864
$
22,468
$
40,778
$
41,600
Carbohydrate Solutions
3,829
4,500
8,095
8,680
Nutrition
1,926
2,055
3,870
4,021
Other Business
112
101
215
208
Intersegment elimination
(1,541)
(1,840)
(3,696)
(3,575)
Total gross revenues
$
25,190
$
27,284
$
49,262
$
50,934
Intersegment sales
Ag Services and Oilseeds
$
1,020
$
1,039
$
2,355
$
1,918
Carbohydrate Solutions
448
749
1,177
1,563
Nutrition
73
52
164
94
Total intersegment sales
$
1,541
$
1,840
$
3,696
$
3,575
Revenues from external customers
Ag Services and Oilseeds
Ag Services
$
13,366
$
14,333
$
25,061
$
26,180
Crushing
3,480
3,362
7,163
6,584
Refined Products and Other
2,998
3,734
6,199
6,918
Total Ag Services and Oilseeds
19,844
21,429
38,423
39,682
Carbohydrate Solutions
Starches and Sweeteners
2,475
2,519
5,212
5,017
Vantage Corn Processors
906
1,232
1,706
2,100
Total Carbohydrate Solutions
3,381
3,751
6,918
7,117
Nutrition
Human Nutrition
966
1,020
1,902
1,978
Animal Nutrition
887
983
1,804
1,949
Total Nutrition
1,853
2,003
3,706
3,927
Other Business
112
101
215
208
Total revenues from external customers
$
25,190
$
27,284
$
49,262
$
50,934
33
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information (Continued)
Three Months Ended
Six Months Ended
June 30,
June 30,
(In millions)
2023
2022
2023
2022
Segment operating profit
Ag Services and Oilseeds
$
1,054
$
1,119
$
2,264
$
2,127
Carbohydrate Solutions
303
473
576
790
Nutrition
185
239
330
428
Other Business
86
18
183
60
Specified Items:
Gains on sales of assets(1)
11
—
12
1
Impairment and restructuring charges and contingency provisions(2)
(114)
(9)
(121)
(27)
Total segment operating profit
1,525
1,840
3,244
3,379
Corporate
(393)
(321)
(715)
(589)
Earnings before income taxes
$
1,132
$
1,519
$
2,529
$
2,790
(1) Consists of gains related to the sale of certain assets in all periods presented.
(2) Current quarter and year-to-date charges were related to the impairment of certain long-lived assets and intangibles, restructuring, and a contingent loss provision related to import duties. Prior-year quarter and year-to-date charges were related to the impairment of certain Ukraine assets. Prior year-to-date charges was partially offset by an insurance settlement.
Note 13. Asset Impairment, Exit, and Restructuring Costs
Asset impairment, exit, and restructuring costs in the three and six months ended June 30, 2023 consisted of $43 million and $46 million of impairments related to certain long-lived assets and intangibles, respectively, and $17 million and $21 million of restructuring charges, respectively.
Asset impairment, exit, and restructuring costs in the three and six months ended June 30, 2022 consisted of immaterial charges.
Note 14. Sale of Accounts Receivable
The Company has an accounts receivable securitization program (the “First Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “First Purchasers”). Under the First Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables transfers certain of the purchased accounts receivable to each of the First Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Receivables receives a cash payment of up to $1.9 billion, as amended, for the accounts receivable transferred. The First Program terminates on May 17, 2024, unless extended.
The Company also has an accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (ADM Ireland Receivables). ADM Ireland Receivables transfers certain of the purchased accounts receivable to each of the Second Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Ireland Receivables receives a cash payment of up to $1.1 billion (€1.0 billion) for the accounts receivables transferred. The Second Program terminates on February 20, 2024, unless extended.
34
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14. Sale of Accounts Receivable (Continued)
Under the First and Second Programs (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the First Purchasers and Second Purchasers (collectively, the “Purchasers”) and other consideration, as applicable, to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables. The Company accounts for these transfers as sales. The Company acts as a servicer for the transferred receivables. At June 30, 2023 and December 31, 2022, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions, and its cost of servicing the receivables sold.
As of June 30, 2023 and December 31, 2022, the fair value of trade receivables transferred to the Purchasers under the Programs and derecognized from the Company’s consolidated balance sheets was $2.1 billion and $2.6 billion, respectively. Total receivables sold were $28.8 billion and $29.3 billion for the six months ended June 30, 2023 and 2022, respectively. Cash collections from customers on receivables sold were $28.4 billion and $28.2 billion for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, receivables pledged as collateral to the Purchasers was $0.8 billion and $0.6 billion, respectively.
Transfers of receivables under the Programs resulted in an expense for the loss on sale of $11 million and $34 million for the three and six months ended June 30, 2023, respectively, and $3 million and $8 million for the three and six months ended June 30, 2022, respectively, which is classified as selling, general, and administrative expenses in the consolidated statements of earnings.
All cash flows under the Programs are classified as operating activities because the cash received from the Purchasers upon both the sale and collection of the receivables is not subject to significant interest rate risk given the short-term nature of the Company’s trade receivables.
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements.
ADM is an indispensable global agricultural supply chain manager and processor; a premier human and animal nutrition provider; a trailblazer in groundbreaking solutions to support healthier living; an industry-leading innovator in replacing petroleum-based products; and a company concerned about sustainability. The Company is one of the world’s leading producers of ingredients for sustainable nutrition. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in over 190 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, industrial, and energy uses. The Company also engages in the manufacturing, sale, and distribution of a wide array of ingredients and solutions including plant-based proteins, natural flavors, flavor systems, natural colors, emulsifiers, soluble fiber, polyols, hydrocolloids, probiotics, prebiotics, enzymes, botanical extracts, and other specialty food and feed ingredients. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for its shareholders, principally from margins earned on these activities.
The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 12 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements”.
ADM’s recent significant portfolio actions and announcements include:
•the opening in February 2023 of a new production facility in Valencia, Spain to help meet rising global demand for probiotics, postbiotics, and other products that support health and well-being;
•the announcement in March 2023 of the signing of a joint venture agreement with Marel, a leading provider of advanced food processing solutions, to build an innovation center in the heart of the Netherlands food valley at the Wageningen Campus, subject to regulatory approvals;
•the announcement in May 2023 of a Strategic Development Agreement with Air Protein, a pioneer in air-based nutritional protein that requires no agriculture or farmland, decoupling protein production from traditional supply chain risks, to collaborate on research and development to further advance new and novel proteins for nutrition;
•the announcement in May 2023 of an agreement to acquire D.C.A. Finance B.V., a commodity derivative brokerage service provider, subject to required regulatory approvals;
•the announcement in June 2023 of the opening of a new Customer Creation and Innovation Center in Manchester, England, serving as a United Kingdom (UK) hub for food innovation and building upon ADM’s strong presence in the UK; and
•the launch in July 2023 of a growth initiative of its re:generations™ regenerative agriculture program that will drive expansion to cover 2 million acres across 18 U.S. states and Canada in 2023, and 4 million acres globally by 2025.
Sustainability is a key driver in ADM’s expanding portfolio of environmentally responsible, plant-derived products. Consumers today increasingly expect their food and drink to come from sustainable ingredients, produced by companies that share their values, and ADM is continually finding new ways to meet those needs through its portfolio actions.
The Company’s strategic transformation is focused on three strategic pillars: Productivity, Innovation, and Culture.
The Productivity pillar includes (1) partnering across various global teams including procurement, supply chain, operations, and commercial to optimize costs and improve production volumes across the enterprise; (2) continued roll out of the 1ADM business transformation program and implementation of improved standardized business processes; and (3) increased use of technology, data analytics, and automation at production facilities, in offices, and with customers to improve efficiencies and customer service.
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Innovation pillar includes expansions and investments in (1) improving the customer experience by leveraging producer relationships and enhancing the use of state-of-the-art digital technology; (2) sustainability-driven innovation, which encompasses the full range of products, solutions, capabilities, and commitments to serve customers’ needs; and (3) growth initiatives, including organic growth with additional capacity to meet growing market demand and strategic objectives.
The Culture pillar focuses on building capabilities and enabling collaboration, teamwork, and agility from process standardization and digitalization and ADM’s diversity, equity, and inclusion initiatives, which bring new perspectives and expertise to the Company’s decision-making.
ADM will support the three pillars with investments in technology, which include expanding digital capabilities and investing further in research and development. All of these efforts will continue to be strengthened by the Company’s ongoing commitment to its Readiness initiative as described in Part I Item 4 “Controls and Procedures” on page 55.
Environmental and Social Responsibility
The Company’s policy to protect forests, biodiversity, and communities includes provisions that promote conservation of water resources and biodiversity in agricultural landscapes, promote solutions to reduce climate change and greenhouse gas emissions, and support agriculture as a means to advance sustainable development by reducing poverty and increasing food security. Additionally, the policy confirms ADM’s commitment to protect human rights defenders, whistleblowers, complainants, and community spokespersons; ADM’s aspiration to cooperate with all parties necessary to enable access to fair and just remediation; and the Company’s non-compliance protocol for suppliers. In 2022, the Company achieved full traceability of its direct and indirect sourcing throughout its soy supply chains in Brazil, Paraguay, and Argentina. ADM aims to eliminate deforestation from all of the Company’s supply chains by 2025.
The Company’s environmental goals, collectively called “Strive 35” – an ambitious plan to, by 2035, reduce absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 25 percent from a 2019 baseline, reduce absolute Scope 3 emissions by 25 percent, reduce energy intensity by 15 percent, reduce water intensity by 10 percent, and achieve a 90 percent landfill diversion rate – are part of an aggressive plan to continue to reduce the Company’s environmental footprint.
Operating Performance Indicators
The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Part I Item 1A, “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The Company’s Ag Services and Oilseeds operations are principally agricultural commodity-based businesses where changes in
selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Therefore, changes in revenues of these businesses do not necessarily correspond to changes in margins or gross profit. Thus, gross margins per volume or metric ton are more meaningful than gross margins as percentage of revenues.
The Company’s Carbohydrate Solutions operations and Nutrition businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily correlate to changes in cost of products sold. Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margins rates are more meaningful as a performance indicator in these businesses.
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has consolidated subsidiaries in more than 70 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except for certain significant subsidiaries in Switzerland where Euro is the functional currency, and Brazil and Argentina where U.S. dollar 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. For the majority of the Company’s business activities in Brazil and Argentina, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require remeasurement to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar. Effective April 1, 2022, the Company changed the functional currency of its Turkish entities to the U.S. dollar which did not and is not expected to have a material impact on the Company’s consolidated financial statements.
The Company measures its performance using key financial metrics including net earnings, adjusted earnings per share (EPS), gross margins, constant currency revenue and operating profit, segment operating profit, adjusted segment operating profit, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, return on invested capital, economic value added, and operating cash flows before working capital. Some of these metrics are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. For more information, see “Non-GAAP Financial Measures” on pages 44 to 45 and 51 to 52. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, trade policies, changes in global demand, general global economic conditions, changes in standards of living, global production of similar and competitive crops, and geopolitical developments. Due to the unpredictable nature of these and other factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Operations in Ukraine and Russia
ADM employs approximately 640 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. The Company’s footprint in Russia is limited to operations related to the production and transport of essential food commodities and ingredients.
While the Company’s Ukraine and Russian operations have historically represented less than 0.2% of consolidated revenues, the direct and indirect impacts of the ongoing military action could negatively affect ADM’s future operating results. The conflict in Ukraine has created disruptions in global supply chains and has created dislocations of key agricultural commodities. The indirect impact of these dislocations on the Company’s operating results will be a function of a number of variables including supply and demand responses from the rest of the world as well as the length of the conflict and the condition of the agricultural industry and export infrastructure after the conflict ends. The Black Sea Grain Initiative, an agreement that allowed Ukraine to export grain and other food products, expired on July 17, 2023. For more information, refer to Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
As of June 30, 2023, ADM’s assets in Ukraine consisted primarily of current assets that were less than 0.4% of the Company’s total current assets and an immaterial amount of non-current assets. Of the total current assets in Ukraine, the majority related to inventories that represented less than 0.3% of ADM’s total inventories.
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Market Factors Influencing Operations or Results in the Three Months Ended June 30, 2023
The Company is subject to a variety of market factors which affect the Company's operating results. In Ag Services and Oilseeds, supply has been impacted by market dislocations such as the Russian-Ukraine war, a record world soybean production, and extreme drought conditions in Argentina. Inflationary pressures and declining natural gas prices impacted the entire value chain. Crushing was impacted by sustainable biofuel demand and protein consumption around the globe. In Refined Products and Other, margins were driven by strong oil demand, elevated oil values that were supported by biofuels demand driven by favorable blend economics due to historically low distillate levels. Mediocre growth in mandated renewable volume obligations for 2023 to 2025 drove further market volatility. In Carbohydrate Solutions, demand for starches and sweeteners remained solid with margins remaining steady across the entire portfolio. Industry ethanol inventories were restrained as production slowed due to seasonal maintenance at processing plants and strong domestic demand heading into the summer driving season. Solid export demand for ethanol supported the improved balance between supply and demand. In Nutrition, demand was softer in a few food and beverage product categories. Human Nutrition was impacted by inflation which drove lower demand especially in higher priced product categories in the food, beverage, and dietary supplement segment and impacted volumes in flavors, flavor systems, emulsifiers, bioactives, and alternative proteins. In Animal Nutrition, amino acids margins were pressured due to competition returning to market and production cost inflation. Results were also adversely affected by weak demand in other product lines due to decreased market for feed, particularly in North America and Europe, Middle East, and Africa (EMEA), and animal disease impacts on farms, and some premix and additives customers cutting products out of formulation due to increased ingredient, freight, and energy costs. Increased competition in Latin America also contributed to the weak demand in that region.
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Net earnings attributable to controlling interests decreased $0.3 billion from $1.2 billion to $0.9 billion. Segment operating profit decreased $0.3 billion from $1.8 billion to $1.5 billion and included a net charge of $103 million consisting of asset impairment and restructuring charges of $114 million and a gain on the sale of certain assets of $11 million. Included in segment operating profit in the prior-year quarter was a net charge of $9 million consisting of asset impairment charges. Adjusted segment operating profit (a non-GAAP measure) decreased $0.2 billion to $1.6 billion due primarily to lower results in Crushing, Wilmar, Ag Services, Carbohydrate Solutions, and Animal Nutrition, partially offset by higher results in Refined Products and Other and Other Business. Corporate results in the current quarter were a net charge of $393 million and included a mark-to-market gain of $1 million on the conversion option of the exchangeable bonds issued in August 2020. Corporate results in the prior-year quarter were a net charge of $321 million and included a mark-to-market gain of $19 million on the conversion option of the exchangeable bonds issued in August 2020.
Income tax expense decreased $75 million to $204 million. The effective tax rate for the quarter ended June 30, 2023 was 18.0% compared to 18.4% for the quarter ended June 30, 2022. The decrease in the rate was primarily due to the impact of discrete tax items.
Analysis of Statements of Earnings
Processed volumes by product for the quarter are as follows (in metric tons):
Three Months Ended
June 30,
(In thousands)
2023
2022
Change
Oilseeds
8,783
8,208
575
Corn
4,448
4,776
(328)
Total
13,231
12,984
247
The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to the current margin environment and seasonal local supply and demand conditions. The overall increase in oilseeds processed volumes was primarily related to improved crush rates in the current quarter compared to lower crush rates in the prior-year quarter resulting from unplanned downtime due to logistics and staffing issues. The overall decrease in corn processed volumes was related to unplanned downtime at a corn germ plant, lower export volumes in North America, and reduced grind in EMEA due to weaker demand.
39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Revenues by segment for the quarter are as follows:
Three Months Ended
June 30,
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
13,366
$
14,333
$
(967)
Crushing
3,480
3,362
118
Refined Products and Other
2,998
3,734
(736)
Total Ag Services and Oilseeds
19,844
21,429
(1,585)
Carbohydrate Solutions
Starches and Sweeteners
2,475
2,519
(44)
Vantage Corn Processors
906
1,232
(326)
Total Carbohydrate Solutions
3,381
3,751
(370)
Nutrition
Human Nutrition
966
1,020
(54)
Animal Nutrition
887
983
(96)
Total Nutrition
1,853
2,003
(150)
Other Business
112
101
11
Total
$
25,190
$
27,284
$
(2,094)
Revenues and cost of products sold in a commodity merchandising and processing business are significantly correlated to the underlying commodity prices and volumes. During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins because both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from market price changes, which generally result in an insignificant impact to gross profit.
Revenues decreased $2.1 billion to $25.2 billion due to lower sales prices ($3.2 billion), partially offset by higher sales volumes ($1.1 billion). Lower sales prices of soybeans, oils, biodiesel, and corn and lower sales volumes of alcohol, cotton, wheat, and corn were partially offset by higher sales volumes of soybeans and farming materials. Ag Services and Oilseeds revenues decreased 7% to $19.8 billion due to lower sales prices ($3.5 billion), partially offset by higher sales volumes ($1.9 billion). Carbohydrate Solutions revenues decreased 10% to $3.4 billion due to lower sales volumes ($0.5 billion), partially offset by higher sales prices ($0.1 billion). Nutrition revenues decreased 7% to $1.9 billion due to lower sales volumes ($0.3 billion), partially offset by higher sales prices ($0.2 million).
Cost of products sold decreased $1.9 billion to $23.3 billion due principally to lower average commodity costs partially offset by higher manufacturing expenses. Manufacturing expenses increased $0.1 billion to $1.8 billion due principally to increases in maintenance expenses, salaries and benefit costs, commercial service fees, energy costs, and lease expense.
Foreign currency translation increased revenues and cost of products sold by $11 million and $13 million, respectively.
Gross profit decreased $0.2 billion or 10%, to $1.9 billion due principally to lower results in Crushing ($245 million), Carbohydrate Solutions ($104 million), Ag Services ($46 million), and Animal Nutrition ($38 million), partially offset by higher results in Refined Products and Other ($221 million). These factors are explained in the segment operating profit discussion on page 43.
Selling, general, and administrative expenses increased $27 million to $841 million due primarily to higher salaries and benefit costs and higher professional and financing fees, partially offset by decreased provisions for bad debt.
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Asset impairment, exit, and restructuring costs increased $59 million to $60 million. Charges in the current quarter consisted of $43 million of impairments related to certain long-lived assets and intangibles and $17 million of restructuring. Charges in the prior-year quarter were not material.
Equity in earnings of unconsolidated affiliates decreased $41 million to $151 million due primarily to lower earnings from the Company’s investments in Wilmar and Stratas Foods LLC.
Interest and investment income increased $110 million to $142 million due primarily to higher interest income driven by higher interest rates.
Interest expense increased $107 million to $180 million due primarily to increased short-term rates on customer deposit balances in ADM Investor Services and on the Company’s commercial paper borrowing programs and increased interest expense from the new debt issued in the current quarter. Interest expense in the current quarter also included a $1 million mark-to-market gain adjustment related to the conversion option of the exchangeable bonds issued in August 2020, compared to a $19 million mark-to-market gain adjustment in the prior-year quarter.
Other income-net decreased $46 million to $37 million. Income in the current quarter included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, net foreign exchange gains, and net other income. Income in the prior-year quarter included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, a $50 million payment from USDA Biofuel Producer Recovery Program, and net foreign exchange gains, partially offset by net other expense.
41
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Segment operating profit (loss), adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the quarter are as follows:
Three Months Ended
June 30,
Segment Operating Profit (Loss)
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
380
$
407
$
(27)
Crushing
224
468
(244)
Refined Products and Other
362
130
232
Wilmar
88
114
(26)
Total Ag Services and Oilseeds
1,054
1,119
(65)
Carbohydrate Solutions
Starches and Sweeteners
285
393
(108)
Vantage Corn Processors
18
80
(62)
Total Carbohydrate Solutions
303
473
(170)
Nutrition
Human Nutrition
184
183
1
Animal Nutrition
1
56
(55)
Total Nutrition
185
239
(54)
Other Business
86
18
68
Specified Items:
Gains on sales of assets and businesses
11
—
11
Asset impairment, restructuring, and settlement charges
(114)
(9)
(105)
Total Specified Items
(103)
(9)
(94)
Total Segment Operating Profit
$
1,525
$
1,840
$
(315)
Adjusted Segment Operating Profit(1)
$
1,628
$
1,849
$
(221)
Segment Operating Profit
$
1,525
$
1,840
$
(315)
Corporate
(393)
(321)
(72)
Earnings Before Income Taxes
$
1,132
$
1,519
$
(387)
(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
42
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Ag Services and Oilseeds operating profit decreased 6%. Ag Services results were slightly lower than the strong second quarter of 2022. South American origination results were higher year-over-year, as the business delivered record volumes and higher margins on strong export demand, leveraging strategic investments in port capacity to capitalize on the record Brazilian soybean crop. Results for North America origination were slightly lower year-over-year, driven by lower export demand due to strong South America supplies. Execution in destination marketing as well as effective risk management continued to deliver strong Global Trade results, though lower than the prior year’s record quarter. Crushing results were much lower than the record results from the prior-year quarter. Global soy crush margins remained strong, but lower year-over-year in all regions due to softer demand for both meal and oil, and a tight U.S. soybean carryout. This was partially offset by strong softseed margins and higher volumes, supported by a strong Canadian canola crop and utilization of flex capacity in EMEA. Additionally, negative mark-to-market timing effects that are expected to reverse as contracts execute in future periods, affected the results in the current quarter. Refined Products and Other results were significantly higher than the prior-year quarter, achieving a record second quarter. North America results were higher, driven by strong food oil demand and improved biodiesel volumes. In EMEA, strong export demand for biodiesel and domestic food oil demand supported stronger margins. Additionally, positive mark-to-market timing effects that expected to reverse as contracts execute in future periods, contributed to the results in the current quarter. Equity earnings from Wilmar were lower versus the second quarter of 2022.
Carbohydrate Solutions operating profit decreased 36%. Starches and Sweeteners, including ethanol production from the wet mills, capitalized on a solid demand environment during the quarter. North America starches and sweeteners delivered volumes and margins similar to the prior year quarter and ethanol margins were solid as industry stocks moderated, though lower relative to the prior-year quarter. Results were negatively impacted due to unplanned downtime at one of the corn germ plants. In EMEA, the business effectively managed margins to deliver improved results. The global wheat milling business posted higher margins, supported by steady customer demand. Vantage Corn Processors results were lower due to lower year-over-year ethanol margins and absence of the prior-year quarter’s $50 million payment from the USDA Biofuel Producer Recovery Program.
Nutrition operating profit decreased 23%. Human Nutrition results were in-line with the second quarter of 2022, as the business effectively managed a challenging demand environment. Flavors results were significantly higher than the prior-year quarter due to improved mix and pricing in EMEA as well as improving demand in North America. Specialty Ingredients results were lower year-over-year due to softer demand for plant-based proteins, particularly in the meat alternatives category in North America and Europe, partially offset by strong performance in texturants. Health and Wellness results were similar versus the prior-year quarter as lower demand for fibers offset lower selling, general, and administrative expenses. Animal Nutrition results were much lower compared to the prior-year quarter due to significantly lower contribution from amino acids, pockets of softer global feed demand affecting volumes, and continued demand fulfillment challenges and inventory losses in pet solutions.
Other Business operating profit increased $68 million. Higher net interest income drove improved earnings in ADM Investor Services. Captive insurance results improved on premiums from new programs partially offset by increased claim settlements.
Corporate results for the quarter are as follows:
Three Months Ended
June 30,
2023
2022
Change
(In millions)
Interest expense-net
$
(125)
$
(87)
$
(38)
Unallocated corporate costs
(262)
(267)
5
Expenses related to acquisitions
(3)
—
(3)
Gain on debt conversion option
1
19
(18)
Restructuring (charges) adjustment
(3)
1
(4)
Other expense
(1)
13
(14)
Total Corporate
$
(393)
$
(321)
$
(72)
43
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate results were a net charge of $393 million in the current quarter compared to a net charge of $321 million in the prior-year quarter. Interest expense-net increased $38 million due primarily to increased short-term rates on the Company’s commercial paper borrowing programs and increased interest expense from the new debt issued in the current quarter. Unallocated corporate costs decreased $5 million as lower health insurance costs were partially offset by higher information technology costs. Gain on debt conversion option was related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Other expense in the current quarter included foreign exchange losses and railroad maintenance expenses, partially offset by the non-service components of net pension benefit income of $5 million. Other income in the prior-year quarter included the non-service components of net pension benefit income of $6 million, an investment revaluation gain of $3 million, and foreign exchange gains, partially offset by railroad maintenance expenses.
Non-GAAP Financial Measures
The Company uses adjusted EPS, adjusted EBITDA, and adjusted segment operating profit, non-GAAP financial measures as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before interest on borrowings, taxes, depreciation, and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense on borrowings and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.
Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.
The table below provides a reconciliation of diluted EPS to adjusted EPS for the three months ended June 30, 2023 and 2022.
Three months ended June 30,
2023
2022
In millions
Per share
In millions
Per share
Average number of shares outstanding - diluted
546
568
Net earnings and reported EPS (fully diluted)
$
927
$
1.70
$
1,236
$
2.18
Adjustments:
Gain on sales of assets and businesses - net of tax of $3 million (1)
(8)
(0.02)
—
—
Gain on debt conversion option - net of tax of $0 (1)
(1)
—
(19)
(0.04)
Impairment and restructuring charges and contingency provisions - net of tax of $24 million in 2023 and $2 million in 2022 (1)
93
0.17
6
0.01
Expenses related to acquisitions - net of tax of $1 million in 2022 (1)
2
—
—
—
Certain discrete tax adjustments
21
0.04
(1)
—
Total adjustments
107
0.19
(14)
(0.03)
Adjusted net earnings and adjusted EPS
$
1,034
$
1.89
$
1,222
$
2.15
(1) Tax effected using the U.S. and other applicable tax rates.
44
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the three months ended June 30, 2023 and 2022.
Three months ended
June 30,
(In millions)
2023
2022
Change
Earnings before income taxes
$
1,132
$
1,519
$
(387)
Interest expense
124
73
51
Depreciation and amortization
262
257
5
Gains on sales of assets and businesses
(11)
—
(11)
Expenses related to acquisitions
3
—
3
Railroad maintenance expenses
2
9
(7)
Impairment and restructuring charges and contingency provisions
117
8
109
Adjusted EBITDA
$
1,629
$
1,866
$
(237)
Three months ended
June 30,
(In millions)
2023
2022
Change
Ag Services and Oilseeds
$
1,143
$
1,207
$
(64)
Carbohydrate Solutions
381
550
(169)
Nutrition
253
304
(51)
Other Business
84
24
60
Corporate
(232)
(219)
(13)
Adjusted EBITDA
$
1,629
$
1,866
$
(237)
45
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Market Factors Influencing Operations or Results in the Six Months Ended June 30, 2023
The Company is subject to a variety of market factors which affect the Company's operating results. In Ag Services and Oilseeds, supply has been impacted by market dislocations such as the Russian-Ukraine war, a record world soybean production, and extreme drought conditions in Argentina. Inflationary pressures impacted the entire value chain. Crushing was impacted by sustainable biofuel demand and protein consumption around the globe. In Refined Products and Other, margins were driven by strong oil demand, elevated oil values that were supported by biofuels demand driven by favorable blend economics due to historically low distillate levels. In Carbohydrate Solutions, demand for starches and sweeteners remained solid with margins remaining steady across the entire portfolio. Industry ethanol inventories were restrained as production slowed due to seasonal maintenance at processing plants and strong domestic demand heading into the summer driving season. Solid export demand for ethanol supported the improved balance between supply and demand. In Nutrition, demand was softer in a few food and beverage product categories. Human Nutrition was impacted by inflation which drove lower demand especially in higher priced product categories in the food, beverage, and dietary supplement segment and impacted volumes in flavors, flavor systems, emulsifiers, bioactives, and alternative proteins. In Animal Nutrition, amino acids margins were pressured due to competition returning to market and production cost inflation. Results were also adversely affected by weak demand in other product lines due to decreased market for feed, particularly in North America and EMEA, and animal disease impacts on farms, and some premix and additives customers cutting products out of formulation due to increased ingredient, freight, and energy costs. Increased competition in Latin America also contributed to the weak demand in that region.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Net earnings attributable to controlling interests decreased $0.2 billion to $2.1 billion. Segment operating profit decreased $0.1 billion to $3.2 billion and included a net charge of $109 million consisting of asset impairment and restructuring charges of $121 million and a gain on the sale of certain assets of $12 million. Included in segment operating profit in the prior period was a net charge of $26 million consisting of asset impairment, restructuring, and settlement charges of $27 million and a gain on sale of assets of $1 million. Adjusted segment operating profit (a non-GAAP measure) decreased $52 million to $3.4 billion due primarily to lower results in Crushing, Wilmar, Carbohydrate Solutions, and Nutrition, partially offset by higher results in Refined Products and Other, Ag Services, and Other Business. Corporate results in the current period were a net charge of $0.7 billion and included a mark-to-market gain of $6 million on the conversion option of the exchangeable bonds issued in August 2020. Corporate results in the prior period were a net charge of $0.6 billion and included a mark-to-market gain of $4 million on the conversion option of the exchangeable bonds issued in August 2020.
Income taxes of $429 million decreased $57 million. The Company’s effective tax rate for the six months ended June 30, 2023 was 17.0% compared to 17.4% for the six months ended June 30, 2022. The decrease in the rate was primarily due to the impact of discrete tax items.
Analysis of Statements of Earnings
Processed volumes by product for the six months ended June 30, 2023 and 2022 are as follows (in metric tons):
Six Months Ended
June 30,
(In thousands)
2023
2022
Change
Oilseeds
17,410
16,699
711
Corn
8,842
9,588
(746)
Total
26,252
26,287
(35)
46
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to the current margin environment and seasonal local supply and demand conditions. The overall increase in oilseeds processed volumes was primarily related to improved crush rates in the current period compared to lower crush rates in the prior period resulting from unplanned downtime due to logistics and staffing issues. The overall decrease in corn processed volumes was related to unplanned downtime at a corn germ plant, lower export volumes in North America, and reduced grind in EMEA due to weaker demand.
Revenues by segment for the six months ended June 30, 2023 and 2022 are as follows:
Six Months Ended
June 30,
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
25,061
$
26,180
$
(1,119)
Crushing
7,163
6,584
579
Refined Products and Other
6,199
6,918
(719)
Total Ag Services and Oilseeds
38,423
39,682
(1,259)
Carbohydrate Solutions
Starches and Sweeteners
5,212
5,017
195
Vantage Corn Processors
1,706
2,100
(394)
Total Carbohydrate Solutions
6,918
7,117
(199)
Nutrition
Human Nutrition
1,902
1,978
(76)
Animal Nutrition
1,804
1,949
(145)
Total Nutrition
3,706
3,927
(221)
Other Business
215
208
7
Total
$
49,262
$
50,934
$
(1,672)
Revenues and cost of products sold in a commodity merchandising and processing business are significantly correlated to the underlying commodity prices and volumes. During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins because both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from commodity price changes, which generally result in an insignificant impact to gross profit.
Revenues decreased $1.7 billion to $49.3 billion due to lower sales prices ($2.7 billion), partially offset by higher sales volumes ($1.0 billion). Lower sales prices of soybeans, oils, and biodiesel and lower sales volumes of corn, wheat, and alcohol were partially offset by higher sales prices of meal and higher sales volumes of soybeans, and biodiesel. Ag Services and Oilseeds revenues decreased 3% to $38.4 billion due to lower sales prices ($3.1 billion), partially offset by higher sales volumes ($1.8 billion). Carbohydrate Solutions revenues decreased 3% to $6.9 billion due to lower sales volumes ($0.3 billion), partially offset by lower sales prices ($0.1 billion). Nutrition revenues decreased 6% to $3.7 billion due to lower sales volumes ($0.5 billion), partially offset by higher sales prices ($0.3 billion).
Cost of products sold decreased $1.6 billion to $45.3 billion due principally to lower average commodity costs partially offset by higher manufacturing expenses. Manufacturing expenses increased $0.4 billion to $3.8 billion due principally to increases in energy costs, maintenance expenses, salaries and benefit costs, commercial service fees, and lease expense.
47
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Foreign currency translation decreased revenues and cost of products sold by $0.3 billion.
Gross profit decreased $34 million or 1% to $4.0 billion due principally to lower results in Crushing ($232 million), Carbohydrate Solutions ($125 million), and Nutrition ($92 million), partially offset by higher results in Refined Products and Other ($330 million) and Ag Services ($89 million). These factors are explained in the segment operating profit discussion on page 50.
Selling, general, and administrative expenses increased $0.1 billion to $1.7 billion due primarily to higher salaries and benefit costs and higher professional and financing fees, partially offset by decreased provisions for bad debt.
Asset impairment, exit, and restructuring costs increased $65 million to $67 million. Charges in the current period consisted of $46 million of impairments related to certain long-lived assets and intangibles and $21 million of restructuring. Charges in the prior period were not material.
Equity in earnings of unconsolidated affiliates decreased $71 million to $325 million due primarily to lower earnings from the Company’s investments in Wilmar and Almidones Mexicanos S.A.
Interest and investment income increased $185 million to $276 million due primarily to higher interest income, partially offset by revaluation gains of $36 million in the prior period.
Interest expense increased $162 million to $327 million due primarily to increased short-term rates on the Company’s commercial paper borrowing programs and increased interest expense from new debt issuances. Interest expense in the current period also included a $6 million mark-to-market gain adjustment related to the conversion option of the exchangeable bonds issued in August 2020 compared to a $4 million mark-to-market gain adjustment in the prior period.
Other income-net decreased $35 million to $81 million. Income in the current period included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, net foreign exchange gains, and net other income. Income in the prior period included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, a $50 million payment from USDA Biofuel Producer Recovery Program, and net foreign exchange gains, partially offset by net other expense.
48
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Segment operating profit, adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the six months ended June 30, 2023 and 2022 are as follows:
Six Months Ended
June 30,
Segment Operating Profit (Loss)
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
728
$
665
$
63
Crushing
650
896
(246)
Refined Products and Other
689
328
361
Wilmar
197
238
(41)
Total Ag Services and Oilseeds
2,264
2,127
137
Carbohydrate Solutions
Starches and Sweeteners
592
709
(117)
Vantage Corn Processors
(16)
81
(97)
Total Carbohydrate Solutions
576
790
(214)
Nutrition
Human Nutrition
322
324
(2)
Animal Nutrition
8
104
(96)
Total Nutrition
330
428
(98)
Other Business
183
60
123
Specified Items:
Gains (losses) on sales of assets and businesses
12
1
11
Asset impairment, restructuring, and settlement charges
(121)
(27)
(94)
Total Specified Items
(109)
(26)
(83)
Total Segment Operating Profit
$
3,244
$
3,379
$
(135)
Adjusted Segment Operating Profit(1)
$
3,353
$
3,405
$
(52)
Segment Operating Profit
$
3,244
$
3,379
$
(135)
Corporate
(715)
(589)
(126)
Earnings Before Income Taxes
$
2,529
$
2,790
$
(261)
(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
49
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Ag Services and Oilseeds operating profit increased 6%. Ag Services results were higher than the prior period. In South American origination, effective risk management and higher export demand due to the record Brazilian soybean crop drove significantly higher year-over-year results. Results for North America origination were slightly higher, driven by stronger soybean exports. Execution in destination marketing as well as effective risk management continued to deliver strong Global Trade results, though lower than the prior period. Crushing results were lower than the prior period. Global soy crush margins remained strong, but lower year-over-year in all regions due to softer demand for both meal and oil, and a tight U.S. soybean carryout. This was partially offset by strong softseed margins and higher volumes, supported by a strong Canadian canola crop and utilization of flex capacity in EMEA. Additionally, negative mark-to-market timing effects that are expected to reverse as contracts in future periods, affected the results in the current period. Refined Products and Other results were significantly higher than the prior period. North America results were higher, driven by strong food oil demand and improved biodiesel volumes. In EMEA, strong export demand for biodiesel and domestic food oil demand supported stronger margins. Additionally, positive mark-to-market timing effects that expected to reverse as contracts execute in future periods, contributed to the results in the current quarter. Equity earnings from Wilmar were lower versus the prior period.
Carbohydrate Solutions operating profit decreased 27%. Starches and Sweeteners, including ethanol production from the wet mills, capitalized on a solid demand environment during the period. North America starches and sweeteners delivered volumes and margins similar to the prior period and ethanol margins were solid as industry stocks moderated, though lower relative to the prior period. Results were negatively impacted due to unplanned downtime at one of the corn germ plants. In EMEA, the business effectively managed margins to deliver improved results. The global wheat milling business posted higher margins driven by solid customer demand. Vantage Corn Processors results were lower due to lower year-over-year ethanol margins and absence of the prior period’s $50 million payment from the USDA Biofuel Producer Recovery Program.
Nutrition operating profit decreased 23%. Human Nutrition results were in-line with the prior period, as the business continued to manage demand fulfillment challenges and destocking in certain categories. Flavors results were higher than the prior period due to improved mix and pricing in EMEA as well as improving demand in North America. Specialty Ingredients results were lower year-over-year due to softer demand for plant-based proteins, particularly in the meat alternatives category in North America and Europe, partially offset by strong performance in texturants. Health and Wellness results were lower year-over-year due to lower demand for fibers. Animal Nutrition results were significantly lower compared to the prior period due to lower contribution from amino acids, pockets of softer global feed demand affecting volumes, and continued demand fulfillment challenges and inventory losses in pet solutions.
Other Business operating profit increased $123 million. Higher net interest income drove improved earnings in ADM Investor Services. Captive insurance results improved on premiums from new programs partially offset by increased claim settlements.
Corporate results for the six months ended June 30, 2023 and 2022 are as follows:
Six Months Ended
June 30,
2023
2022
Change
(In millions)
Interest expense-net
$
(228)
$
(163)
(65)
Unallocated corporate costs
(510)
(476)
(34)
Loss on sale of assets
—
(3)
3
Expenses related to acquisitions
(3)
(2)
(1)
Gain on debt conversion option
6
4
2
Restructuring (charges) adjustment
(3)
2
(5)
Other income
23
49
(26)
Total Corporate
$
(715)
$
(589)
$
(126)
50
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate results were a net charge of $0.7 billion in the current period compared to a net charge of $0.6 billion in the prior period. Interest expense-net increased $65 million due primarily to increased short-term rates on the Company’s commercial paper borrowing programs and increased interest expense from new debt issuances. Unallocated corporate costs increased $34 million due primarily to higher financing, information technology, and centers of excellence costs, partially offset by lower incentive compensation accruals. Gain on debt conversion option was related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Other income in the current period included the non-service components of net pension benefit income of $9 million and foreign exchange gains, partially offset by railroad maintenance expenses. Other income in the prior period included the non-service components of net pension benefit income of $12 million, an investment revaluation gain of $36 million, and foreign exchange gains, partially offset by railroad maintenance expenses.
Non-GAAP Financial Measures
The Company uses adjusted EPS, adjusted EBITDA, and adjusted segment operating profit, non-GAAP financial measures as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before interest on borrowings, taxes, depreciation, and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense on borrowings and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.
Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.
The table below provides a reconciliation of diluted EPS to adjusted EPS for the six months ended June 30, 2023 and 2022.
Six months ended June 30,
2023
2022
In millions
Per share
In millions
Per share
Average number of shares outstanding - diluted
549
568
Net earnings and reported EPS (fully diluted)
$
2,097
$
3.82
$
2,290
$
4.03
Adjustments:
Gains (losses) on sales of assets and businesses - net of tax of $3 million in 2023 and $0 million in 2022 (1)
(9)
(0.02)
2
—
Impairment and restructuring charges and contingency provisions - net of tax of $26 million in 2023 and $5 million in 2022 (1)
98
0.18
20
0.04
Expenses related to acquisitions - net of tax of $1 million in 2023 and 2022 (1)
2
—
1
—
Gain on debt conversion option - net of tax of $0 (1)
(6)
(0.01)
(4)
(0.01)
Certain discrete tax adjustments
3
0.01
(5)
(0.01)
Total adjustments
88
0.16
14
0.02
Adjusted net earnings and adjusted EPS
$
2,185
$
3.98
$
2,304
$
4.05
(1) Tax effected using the U.S. and other applicable tax rates.
51
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the six months ended June 30, 2023 and 2022.
Six months ended
June 30,
(In millions)
2023
2022
Change
Earnings before income taxes
$
2,529
$
2,790
$
(261)
Interest expense
224
165
59
Depreciation and amortization
521
514
7
(Gains) losses on sales of assets and businesses
(12)
2
(14)
Expenses related to acquisitions
3
2
1
Railroad maintenance expenses
2
9
(7)
Impairment and restructuring charges and contingency provisions
124
25
99
Adjusted EBITDA
$
3,391
$
3,507
$
(116)
Six months ended
June 30,
(In millions)
2023
2022
Change
Ag Services and Oilseeds
$
2,443
$
2,303
$
140
Carbohydrate Solutions
733
946
(213)
Nutrition
463
558
(95)
Other Business
181
68
113
Corporate
(429)
(368)
(61)
Adjusted EBITDA
$
3,391
$
3,507
$
(116)
52
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of a capital-intensive agricultural commodity-based business. The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of ADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance ADM’s operations, capital expenditures, and advancement of its growth strategy is cash generated by operations and lines of credit, including a commercial paper borrowing facility and accounts receivable securitization programs. In addition, the Company believes it has access to funds from public and private equity and debt capital markets in both U.S. and international markets.
Cash provided by operating activities was $0.9 billion for the six months ended June 30, 2023 compared to a use of $0.7 billion for the same period last year. Working capital changes decreased cash by $1.6 billion for the six months ended June 30, 2023 compared to a decrease of $3.9 billion for the same period last year. Segregated investments increased approximately $1.4 billion driven by higher interest rates. Trade receivables decreased $0.8 billion due to lower revenues. Inventories decreased approximately $2.9 billion due to lower inventory volumes, partially offset by higher inventory prices. Other current assets decreased $0.6 billion primarily due to decreases in margin deposits and grain accounts, customer omnibus receivable, and prepaid expenses. Trade payables decreased $2.8 billion due to lower payables related to grain purchases. Brokerage payables decreased approximately $1.2 billion due to decreased trading activity in the Company’s futures commission and brokerage business. Accrued expenses and other payables decreased $0.6 billion primarily due to decreases in contract liability, and compensation accruals.
Cash used in investing activities was $0.6 billion for the six months ended June 30, 2023 compared to $0.6 billion for the same period last year. Capital expenditures for the six months ended June 30, 2023 were $0.6 billion compared to $0.5 billion for the same period last year. There were $5 million additional cost method investments for the six months ended June 30, 2023 compared to $0.1 billion for the same period last year.
Cash used in financing activities was $2.1 billion for the six months ended June 30, 2023 compared to cash provided of $1.5 billion for the same period last year. Long-term debt borrowings for the six months ended June 30, 2023 were $0.5 billion which consisted of the $500 million aggregate principle amount of 4.500% Notes due 2033 compared to long-term debt borrowings for the same period last year of $0.8 billion which consisted of the $750 million aggregate principal amount of 2.900% Notes due 2032. Proceeds from the borrowings in the current period were used for general corporate purposes. Proceeds from the borrowings in the prior period were used to finance investments and expenditures in eligible green projects that contribute to environmental objectives and/or eligible social projects that aim to address or mitigate a specific social issue and/or seek to achieve positive social outcomes. Long-term debt payments were $0.7 billion for the six months ended June 30, 2023 which consisted of the €600 million aggregate principal amount of 1.750% Notes due 2023 compared to an immaterial amount for the same period last year. Net borrowings on short-term credit agreements for the six months ended June 30, 2023 were $0.4 billion compared to $1.4 billion for the same period last year. Share repurchases for the six months ended June 30, 2023 were $1.0 billion compared to $0.2 billion for the same period last year. Dividends for the six months ended June 30, 2023 of $0.5 billion were comparable for the same period last year.
At June 30, 2023, the Company had $1.4 billion of cash and cash equivalents and a current ratio, defined as current assets divided by current liabilities, of 1.6 to 1. Included in working capital was $6.5 billion of readily marketable commodity inventories. At June 30, 2023, the Company’s capital resources included shareholders’ equity of $25.0 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $13.6 billion, of which $11.3 billion was unused. The Company’s ratio of long-term debt to total capital (the sum of the Company’s long-term debt and shareholders’ equity) was 25% and 24% at June 30, 2023 and December 31, 2022, respectively. The Company uses this ratio as a measure of the Company’s long-term indebtedness and an indicator of financial flexibility. The Company’s ratio of net debt (the sum of short-term debt, current maturities of long-term debt, and long-term debt less the sum of cash and cash equivalents and short-term marketable securities) to capital (the sum of net debt and shareholders’ equity) was 22% and 25% at June 30, 2023 and December 31, 2022, respectively. Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was no commercial paper outstanding at June 30, 2023.
53
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As of June 30, 2023, the Company had $1.4 billion of cash and cash equivalents, $0.8 billion of which was cash held by foreign subsidiaries whose undistributed earnings are considered indefinitely reinvested. Based on the Company’s historical ability to generate sufficient cash flows from its U.S. operations and unused and available U.S. credit capacity of $6.6 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.
The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs provide the Company with up to $3.0 billion in funding against accounts receivable transferred into the Programs and expands the Company’s access to liquidity through efficient use of its balance sheet assets (see Note 14 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures on the Programs). As of June 30, 2023, the Company had $0.9 billion unused capacity of its facility under the Programs.
As of June 30, 2023, the Company has total available liquidity of $12.7 billion comprised of cash and cash equivalents and unused lines of credit with a well-diversified group of primarily investment-grade institutions.
For the six months ended June 30, 2023, the Company spent approximately $0.6 billion in capital expenditures, $0.5 billion in dividends, and $1.0 billion in share repurchases. The Company has a stock repurchase program. Under the program, the Company has 74.8 million shares remaining as of June 30, 2023 that may be repurchased until December 31, 2024.
In 2023, the Company expects total capital expenditures of approximately $1.3 billion and additional cash outlays of approximately $1.0 billion in dividends and $2.0 billion in opportunistic share repurchases, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year.
Contractual Obligations and Commercial Commitments
The Company’s purchase obligations as of June 30, 2023 and December 31, 2022 were $14.2 billion and $15.8 billion, respectively. The decrease is primarily related to obligations to purchase lower quantities of agricultural commodity inventories. As of June 30, 2023, the Company expects to make payments related to purchase obligations of $13.2 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended June 30, 2023.
Off Balance Sheet Arrangements
In May 2023, the Company amended its First Program with certain commercial and conduit purchasers and committed purchasers and increased its facility from $1.8 billion to $1.9 billion. The First Program terminates on May 17, 2024, unless extended. There were no other material changes in the Company’s off balance sheet arrangements during the quarter ended June 30, 2023.
Critical Accounting Policies and Estimates
There were no material changes in the Company’s critical accounting policies and estimates during the quarter ended June 30, 2023. For a description of the Company’s critical accounting policies, estimates, and assumptions used in the preparation of the Company’s financial statements, see Part II, Item 7 and Note 1 of “Notes to Consolidated Financial Statements” included in Part II, Item 8, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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 market prices as they relate to the Company’s net commodity position, foreign currency exchange rates, and interest rates. Significant changes in market risk sensitive instruments and positions for the quarter ended June 30, 2023 are described below. There were no material changes during the period in the Company’s potential loss arising from changes in foreign currency exchange rates and interest rates.
For detailed information regarding the Company’s market risk sensitive instruments and positions, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
54
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Commodities
The availability and prices of agricultural commodities are subject to wide fluctuations due to factors such as changes in weather conditions, crop disease, plantings, government programs and policies, competition, changes in global demand, changes in customer preferences and standards of living, and global production of similar and competitive crops.
The fair value of the Company’s commodity position is a summation of the fair values calculated for each commodity by valuing all of the commodity positions at quoted market prices for the period, where available, or utilizing a close proxy. The Company has established metrics to monitor the amount of market risk exposure, which consist of volumetric limits and value-at-risk (VaR) limits. VaR measures the potential loss, at a 95% confidence level, that could be incurred over a one-year period. Volumetric limits are monitored daily and VaR calculations and sensitivity analysis are monitored weekly.
In addition to measuring the hypothetical loss resulting from an adverse two standard deviation move in market prices (assuming no correlations) over a one-year period using VaR, sensitivity analysis is performed measuring the potential loss in fair value resulting from a hypothetical 10% adverse change in market prices. The highest, lowest, and average weekly position together with the market risk from a hypothetical 10% adverse price change is as follows:
Six months ended
Year ended
June 30, 2023
December 31, 2022
Long/(Short) (In millions)
Fair Value
Market Risk
Fair Value
Market Risk
Highest position
$
498
$
50
$
986
$
99
Lowest position
49
5
44
4
Average position
278
28
388
39
The change in fair value of the average position was due to the decrease in prices of certain commodities and, to a lesser extent, the overall decrease in average quantities.
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2023, 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 (i) recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. 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.
During 2018, the Company launched an initiative called Readiness to drive new efficiencies and improve the customer experience in the Company’s existing businesses through a combination of data analytics, process simplification and standardization, and behavioral and cultural change, building upon its earlier 1ADM and operational excellence programs. As part of this transformation, the Company is implementing a new enterprise resource planning (ERP) system on a worldwide basis, which is expected to occur in phases over the next several years. During the quarter ended June 30, 2023, there were no deployments of the ERP system. The Company continues to consider these changes in its design of and testing for effectiveness of internal controls over financial reporting and concluded, as part of the evaluation described in the above paragraph, that the implementation of the new ERP system in these circumstances has not materially affected its internal control over financial reporting.
55
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is routinely involved in a number of actual or threatened legal actions, including those involving alleged personal injuries, employment law, product liability, intellectual property, environmental issues, alleged tax liability (see Note 9 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for information on income tax matters), and class actions. The Company also routinely receives inquiries from regulators and other government authorities relating to various aspects of our business, and at any given time, the Company has matters at various stages of resolution. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. In some actions, claimants seek damages, as well as other relief including injunctive relief, that could require significant expenditures or result in lost revenues. In accordance with applicable accounting standards, the Company records a liability in its consolidated financial statements for material loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a material loss contingency is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, disgorgement, or punitive damages; or could result in a change in business practice.
On September 4, 2019, AOT Holding AG (“AOT”) filed a putative class action under the U.S. Commodities Exchange Act in federal district court in Urbana, Illinois, alleging that the Company sought to manipulate the benchmark price used to price and settle ethanol derivatives traded on futures exchanges. On March 16, 2021, AOT filed an amended complaint adding a second named plaintiff Maize Capital Group, LLC (“Maize”). AOT and Maize allege that members of the putative class collectively suffered damages calculated to be between approximately $500 million to over $2.0 billion as a result of the Company’s alleged actions. On July 14, 2020, Green Plains Inc. and its related entities (“GP”) filed a putative class action lawsuit, alleging substantially the same operative facts, in federal court in Nebraska, seeking to represent sellers of ethanol. On July 23, 2020, Midwest Renewable Energy, LLC (“MRE”) filed a putative class action in federal court in Illinois alleging substantially the same operative facts and asserting claims under the Sherman Act. On November 11, 2020, United Wisconsin Grain Producers LLC (“UWGP”) and five other ethanol producers filed a lawsuit in federal court in Illinois alleging substantially the same facts and asserting claims under the Sherman Act and Illinois, Iowa, and Wisconsin law. The court granted ADM’s motion to dismiss the MRE and UWGP complaints without prejudice on August 9, 2021 and September 28, 2021, respectively. On August 16, 2021, the court granted ADM’s motion to dismiss the GP complaint, dismissing one claim with prejudice and declining jurisdiction over the remaining state law claim. MRE filed an amended complaint on August 30, 2021, which ADM moved to dismiss on September 27, 2021. UWGP filed an amended complaint on October 19, 2021, which the court dismissed on July 12, 2022. UWGP has appealed the dismissal to the United States Court of Appeals for the Seventh Circuit. On October 26, 2021, GP filed a new complaint in Nebraska federal district court, alleging substantially the same facts and asserting a claim for tortious interference with contractual relations. On March 18, 2022, the Nebraska federal district court granted ADM’s motion to transfer the GP case back to the Central District of Illinois for further proceedings. ADM moved to dismiss the complaint on May 20, 2022 and on December 30, 2022, the court dismissed GP’s complaint with prejudice. GP has appealed the dismissal. The Company denies liability, and is vigorously defending itself in these actions. As these actions are in pretrial proceedings, the Company is unable at this time to predict the final outcome with any reasonable degree of certainty, but believes the outcome will not have a material adverse effect on its financial condition, results of operations, or cash flows.
The Company is not currently a party to any legal proceeding or environmental claim that it believes would have a material adverse effect on its financial position, results of operations, or liquidity.
56
ITEM 1A. RISK FACTORS
There were no significant changes in the Company’s risk factors during the quarter ended June 30, 2023. For further information about the Company’s risk factors, refer to Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of a Publicly Announced Program(2)
Number of Shares Remaining to be Purchased Under the Program(2)
April 1, 2023 to
April 30, 2023
1,109,021
$
78.331
1,109,021
82,337,873
May 1, 2023 to
May 31, 2023
4,018,934
75.349
4,018,934
78,318,939
June 1, 2023 to
June 30, 2023
3,557,170
73.387
3,556,480
74,762,459
Total
8,685,125
$
74.926
8,684,435
74,762,459
(1)Total shares purchased represent those shares purchased in the open market as part of the Company’s publicly announced share repurchase program described below, shares received as payment for the exercise price of stock option exercises, and shares received as payment for the withholding taxes on vested restricted stock awards. During the three-month period ended June 30, 2023, there were 690 shares received as payments for the withholding taxes on vested restricted stock awards and for the exercise price of stock option exercises.
(2)On August 7, 2019, the Company’s Board of Directors approved the extension of the stock repurchase program through December 31, 2024 and the repurchase of up to an additional 100,000,000 shares under the extended program.
ITEM 5. OTHER INFORMATION
On June 9, 2023, Jennifer L. Weber, the Company’s Senior Vice President, Chief People Officer and Chief Diversity Officer, entered into a pre-arranged trading plan that is intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act. This plan provides for the sale of up to 11,111 shares of the Company’s common stock in the aggregate, and terminates on the earlier of the close of market on February 9, 2024 or the date all shares are sold thereunder. There were no other Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements adopted, modified or terminated by the Company’s directors and executive officers during the quarter ended June 30, 2023.
Inline XBRL file set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
(104)
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL file set.
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ARCHER-DANIELS-MIDLAND COMPANY
/s/ V. Luthar
V. Luthar
Senior Vice President and Chief Financial Officer
/s/ D. C. Findlay
D. C. Findlay
Senior Vice President, General Counsel, and Secretary
