☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 – 533,381,255 shares
(October 23, 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 September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(In millions, except per share amounts)
Revenues
$
21,695
$
24,683
$
70,957
$
75,617
Cost of products sold
19,885
22,872
65,184
69,809
Gross Profit
1,810
1,811
5,773
5,808
Selling, general, and administrative expenses
815
818
2,537
2,461
Asset impairment, exit, and restructuring costs
79
28
146
30
Equity in earnings of unconsolidated affiliates
(83)
(210)
(408)
(606)
Interest and investment income
(152)
(85)
(428)
(176)
Interest expense
155
97
482
262
Other (income) expense – net
(35)
(67)
(116)
(183)
Earnings Before Income Taxes
1,031
1,230
3,560
4,020
Income tax expense
207
193
636
679
Net Earnings Including Noncontrolling Interests
824
1,037
2,924
3,341
Less: Net earnings attributable to noncontrolling interests
3
6
6
20
Net Earnings Attributable to Controlling Interests
$
821
$
1,031
$
2,918
$
3,321
Average number of shares outstanding – basic
540
561
545
565
Average number of shares outstanding – diluted
540
563
546
566
Basic earnings per common share
$
1.52
$
1.84
$
5.36
$
5.88
Diluted earnings per common share
$
1.52
$
1.83
$
5.35
$
5.87
Dividends per common share
$
0.45
$
0.40
$
1.35
$
1.20
See notes to consolidated financial statements.
3
Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(In millions)
Net earnings including noncontrolling interests
$
824
$
1,037
$
2,924
$
3,341
Other comprehensive income (loss):
Foreign currency translation adjustment
(245)
(221)
(57)
(79)
Tax effect
(36)
(74)
(8)
(189)
Net of tax amount
(281)
(295)
(65)
(268)
Pension and other postretirement benefit liabilities adjustment
—
8
(32)
45
Tax effect
(3)
(2)
(12)
(13)
Net of tax amount
(3)
6
(44)
32
Deferred gain (loss) on hedging activities
128
43
(13)
245
Tax effect
(28)
(5)
4
(50)
Net of tax amount
100
38
(9)
195
Unrealized gain (loss) on investments
5
—
13
(13)
Tax effect
—
1
(2)
2
Net of tax amount
5
1
11
(11)
Other comprehensive income (loss)
(179)
(250)
(107)
(52)
Comprehensive income (loss)
645
787
2,817
3,289
Less: Comprehensive income (loss) attributable to noncontrolling interests
2
3
1
8
Comprehensive income (loss) attributable to controlling interests
$
643
$
784
$
2,816
$
3,281
See notes to consolidated financial statements.
4
Archer-Daniels-Midland Company
Consolidated Balance Sheets
(In millions)
September 30, 2023
December 31, 2022
(Unaudited)
Assets
Current Assets
Cash and cash equivalents
$
1,498
$
1,037
Segregated cash and investments
7,739
9,010
Trade receivables - net
4,443
4,926
Inventories
11,224
14,771
Other current assets
5,618
5,666
Total Current Assets
30,522
35,410
Investments and Other Assets
Investments in affiliates
5,469
5,467
Goodwill and other intangible assets
6,392
6,544
Right of use assets
1,141
1,088
Other assets
1,351
1,332
Total Investments and Other Assets
14,353
14,431
Property, Plant, and Equipment
Land and land improvements
554
502
Buildings
5,680
5,639
Machinery and equipment
19,564
19,194
Construction in progress
1,721
1,440
27,519
26,775
Accumulated depreciation
(17,301)
(16,842)
Net Property, Plant, and Equipment
10,218
9,933
Total Assets
$
55,093
$
59,774
Liabilities, Temporary Equity, and Shareholders’ Equity
Total Liabilities, Temporary Equity, and Shareholders’ Equity
$
55,093
$
59,774
See notes to consolidated financial statements.
5
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Nine Months Ended September 30,
2023
2022
Operating Activities
Net earnings including noncontrolling interests
$
2,924
$
3,341
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization
782
774
Asset impairment charges
120
20
Deferred income taxes
17
(39)
Equity in earnings of affiliates, net of dividends
(64)
(279)
Stock compensation expense
98
123
Deferred cash flow hedges
(13)
245
Gains on sales of assets and businesses/investment revaluation
(33)
(77)
Other – net
(27)
549
Changes in operating assets and liabilities, net of acquisitions and dispositions
Segregated investments
(1,183)
(1,452)
Trade receivables
443
(1,613)
Inventories
3,501
590
Other current assets
126
(929)
Trade payables
(2,561)
305
Payables to brokerage customers
(1,580)
1,706
Accrued expenses and other payables
(659)
84
Total Operating Activities
1,891
3,348
Investing Activities
Capital expenditures
(1,055)
(841)
Net assets of businesses acquired
(11)
—
Proceeds from sales of assets and businesses
21
51
Investments in affiliates
(8)
(60)
Cost method investments
(5)
(134)
Other – net
(3)
36
Total Investing Activities
(1,061)
(948)
Financing Activities
Long-term debt borrowings
500
752
Long-term debt payments
(963)
(482)
Net borrowings (payments) under lines of credit agreements
(379)
(751)
Share repurchases
(1,118)
(1,200)
Cash dividends
(738)
(677)
Other – net
(102)
(6)
Total Financing Activities
(2,800)
(2,364)
Effect of exchange rate on cash, cash equivalents, restricted cash, and restricted cash equivalents
(22)
—
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents
(1,992)
36
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
$
5,041
$
7,490
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets
Cash and cash equivalents
$
1,498
$
1,099
Restricted cash and restricted cash equivalents included in segregated cash and investments
3,543
6,391
Total cash, cash equivalents, restricted cash, and restricted cash equivalents
$
5,041
$
7,490
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, June 30, 2023
536
$
3,128
$
24,244
$
(2,433)
$
36
$
24,975
Comprehensive income
Net earnings
821
3
Other comprehensive income (loss)
(178)
(1)
Total comprehensive income
645
Cash dividends paid - $0.45 per share
(244)
(244)
Share repurchases
(1)
(122)
(122)
Stock compensation expense
—
12
12
Stock option exercises net of taxes
—
(3)
(3)
Other
—
3
—
—
(1)
2
Balance, September 30, 2023
535
$
3,140
$
24,699
$
(2,611)
$
37
$
25,265
Balance, December 31, 2022
547
$
3,147
$
23,646
$
(2,509)
$
33
$
24,317
Comprehensive income
Net earnings
2,918
6
Other comprehensive income (loss)
(102)
(5)
Total comprehensive income
2,817
Cash dividends paid - $1.35 per share
(738)
(738)
Share repurchases
(14)
(1,127)
(1,127)
Stock compensation expense
3
98
98
Stock option exercises net of taxes
(1)
(110)
(110)
Other
—
5
—
—
3
8
Balance, September 30, 2023
535
$
3,140
$
24,699
$
(2,611)
$
37
$
25,265
Balance, June 30, 2022
561
$
3,066
$
23,292
$
(1,965)
$
33
$
24,426
Comprehensive income
Net earnings
1,031
6
Other comprehensive income (loss)
(247)
(3)
Total comprehensive income
787
Cash dividends paid - $0.40 per share
(224)
(224)
Share repurchases
(12)
(1,000)
(1,000)
Stock compensation expense
—
26
26
Stock option exercises net of taxes
—
17
17
Other
—
1
—
—
(4)
(3)
Balance, September 30, 2022
549
$
3,110
$
23,099
$
(2,212)
$
32
$
24,029
Balance, December 31, 2021
560
$
2,994
$
21,655
$
(2,172)
$
31
$
22,508
Comprehensive income
Net earnings
3,321
20
Other comprehensive income (loss)
(40)
(12)
Total comprehensive income
3,289
Cash dividends paid - $1.20 per share
(677)
(677)
Share repurchases
(14)
(1,200)
(1,200)
Stock compensation expense
3
123
123
Stock option exercises net of taxes
—
(9)
(9)
Other
—
2
—
—
(7)
(5)
Balance, September 30, 2022
549
$
3,110
$
23,099
$
(2,212)
$
32
$
24,029
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 nine months ended September 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 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 September 30
2023
2022
(In millions)
Beginning, July 1
$
174
$
164
Current year provisions (reversals)
(11)
29
Write-offs against allowance
(3)
(1)
Foreign exchange translation adjustment
(2)
(2)
Other
—
(11)
Ending, September 30
$
158
$
179
Nine Months Ended September 30
2023
2022
(In millions)
Beginning, January 1
$
199
$
122
Current year provisions
2
73
Recoveries
1
1
Write-offs against allowance
(43)
(6)
Foreign exchange translation adjustment
(1)
(4)
Other
—
(7)
Ending, September 30
$
158
$
179
Net reversals during the three months ended September 30, 2023 included reversals of prior year general provisions for economic factors related to the pandemic and a specific provision for a certain customer, partially offset by provisions for the current quarter. Write-offs against allowance in the nine months ended September 30, 2023 were related to a customer in Brazil and 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.
September 30, 2023
December 31, 2022
(In millions)
Raw materials and supplies
$
4,273
$
6,975
Finished goods
6,951
7,796
Total inventories
$
11,224
$
14,771
Included in raw materials and supplies are work in process inventories which were not material as of September 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 $493 million and $488 million as of September 30, 2023 and December 31, 2022, respectively, were included in Other Assets in the Company’s consolidated balance sheets. Revaluation gains of $37 million in the nine months ended September 30, 2022 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 nine months ended September 30, 2023 and in the three months ended September 30, 2022.
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 September 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 September 30, 2023 and December 31, 2022, the Company’s outstanding payment obligations that suppliers had elected to sell to the financial institutions were $313 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 $174 million and $552 million for the three and nine months ended September 30, 2023, respectively, and $227 million and $611 million for the three and nine months ended September 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 $411 million and $694 million as of September 30, 2023 and December 31, 2022, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Revenues recognized from the December 31, 2022 contract liabilities were $21 million and $694 million for the three and nine months ended September 30, 2023, 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 nine months ended September 30, 2023 and 2022.
Three Months Ended September 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
$
980
$
174
$
1,154
$
9,044
$
10,198
Crushing
118
—
118
3,234
3,352
Refined Products and Other
527
—
527
2,402
2,929
Total Ag Services and Oilseeds
1,625
174
1,799
14,680
16,479
Carbohydrate Solutions
Starches and Sweeteners
1,831
—
1,831
617
2,448
Vantage Corn Processors
877
—
877
—
877
Total Carbohydrate Solutions
2,708
—
2,708
617
3,325
Nutrition
Human Nutrition
900
—
900
—
900
Animal Nutrition
884
—
884
—
884
Total Nutrition
1,784
—
1,784
—
1,784
Other Business
107
—
107
—
107
Total Revenues
$
6,224
$
174
$
6,398
$
15,297
$
21,695
Nine Months Ended September 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
$
3,068
$
552
$
3,620
$
31,639
$
35,259
Crushing
341
—
341
10,174
10,515
Refined Products and Other
1,730
—
1,730
7,398
9,128
Total Ag Services and Oilseeds
5,139
552
5,691
49,211
54,902
Carbohydrate Solutions
Starches and Sweeteners
5,787
—
5,787
1,873
7,660
Vantage Corn Processors
2,583
—
2,583
—
2,583
Total Carbohydrate Solutions
8,370
—
8,370
1,873
10,243
Nutrition
Human Nutrition
2,802
—
2,802
—
2,802
Animal Nutrition
2,688
—
2,688
—
2,688
Total Nutrition
5,490
—
5,490
—
5,490
Other Business
322
—
322
—
322
Total Revenues
$
19,321
$
552
$
19,873
$
51,084
$
70,957
12
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Three Months Ended September 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
$
1,095
$
227
$
1,322
$
11,215
$
12,537
Crushing
202
—
202
3,018
3,220
Refined Products and Other
715
—
715
2,669
3,384
Total Ag Services and Oilseeds
2,012
227
2,239
16,902
19,141
Carbohydrate Solutions
Starches and Sweeteners
1,994
—
1,994
686
2,680
Vantage Corn Processors
901
—
901
—
901
Total Carbohydrate Solutions
2,895
—
2,895
686
3,581
Nutrition
Human Nutrition
906
—
906
—
906
Animal Nutrition
958
—
958
—
958
Total Nutrition
1,864
—
1,864
—
1,864
Other Business
97
—
97
—
97
Total Revenues
$
6,868
$
227
$
7,095
$
17,588
$
24,683
Nine Months Ended September 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
$
3,078
$
611
$
3,689
$
35,028
$
38,717
Crushing
455
—
455
9,349
9,804
Refined Products and Other
2,091
—
2,091
8,211
10,302
Total Ag Services and Oilseeds
5,624
611
6,235
52,588
58,823
Carbohydrate Solutions
Starches and Sweeteners
5,813
—
5,813
1,884
7,697
Vantage Corn Processors
3,001
—
3,001
—
3,001
Total Carbohydrate Solutions
8,814
—
8,814
1,884
10,698
Nutrition
Human Nutrition
2,884
—
2,884
—
2,884
Animal Nutrition
2,907
—
2,907
—
2,907
Total Nutrition
5,791
—
5,791
—
5,791
Other Business
305
—
305
—
305
Total Revenues
$
20,534
$
611
$
21,145
$
54,472
$
75,617
(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 nine months ended September 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 September 30, 2023 and December 31, 2022.
Fair Value Measurements at September 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
$
—
$
3,172
$
2,872
$
6,044
Unrealized derivative gains:
Commodity contracts
—
873
890
1,763
Foreign currency contracts
—
287
—
287
Cash equivalents
366
—
—
366
Segregated investments
1,969
—
—
1,969
Total Assets
$
2,335
$
4,332
$
3,762
$
10,429
Liabilities:
Unrealized derivative losses:
Commodity contracts
$
—
$
703
$
549
$
1,252
Foreign currency contracts
—
119
—
119
Inventory-related payables
—
1,070
87
1,157
Total Liabilities
$
—
$
1,892
$
636
$
2,528
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 was the equity linked embedded derivative related to the exchangeable bonds. The fair value of the embedded derivative was included in long-term debt, with changes in fair value recognized as interest, and was 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 September 30, 2023.
Level 3 Fair Value Asset Measurements at
September 30, 2023
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, June 30, 2023
$
2,859
$
886
$
3,745
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
135
330
465
Purchases
6,615
—
6,615
Sales
(6,539)
—
(6,539)
Settlements
—
(356)
(356)
Transfers into Level 3
336
49
385
Transfers out of Level 3
(534)
(19)
(553)
Ending balance, September 30, 2023
$
2,872
$
890
$
3,762
* Includes increase in unrealized gains of $438 million relating to Level 3 assets still held at September 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 September 30, 2023.
Level 3 Fair Value Liability Measurements at
September 30, 2023
Inventory- related Payables
Commodity Derivative Contracts Losses
Total
Liabilities
(In millions)
Balance, June 30, 2023
$
65
$
791
$
856
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
(3)
290
287
Purchases
29
—
29
Settlements
—
(529)
(529)
Transfers into Level 3
—
10
10
Transfers out of Level 3
(4)
(13)
(17)
Ending balance, September 30, 2023
$
87
$
549
$
636
* Includes increase in unrealized losses of $297 million relating to Level 3 liabilities still held at September 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 September 30, 2022.
Level 3 Fair Value Asset Measurements at
September 30, 2022
Inventories Carried at Market
Commodity Derivative Contracts Gains
Total
Assets
(In millions)
Balance, June 30, 2022
$
3,245
$
880
$
4,125
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
315
345
660
Purchases
13,294
—
13,294
Sales
(13,931)
—
(13,931)
Settlements
—
(456)
(456)
Transfers into Level 3
384
49
433
Transfers out of Level 3
(221)
(116)
(337)
Ending balance, September 30, 2022
$
3,086
$
702
$
3,788
* Includes increase in unrealized gains of $481 million relating to Level 3 assets still held at September 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 September 30, 2022.
Level 3 Fair Value Liability Measurements at
September 30, 2022
Inventory- related Payables
Commodity Derivative Contracts Losses
Debt Conversion Option
Total
Liabilities
(In millions)
Balance, June 30, 2022
$
55
$
960
$
11
$
1,026
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*
3
391
(8)
386
Purchases
167
—
—
167
Sales
(5)
—
—
(5)
Settlements
—
(634)
—
(634)
Transfers into Level 3
—
57
—
57
Transfers out of Level 3
—
(65)
—
(65)
Ending balance, September 30, 2022
$
220
$
709
$
3
$
932
* Includes increase in unrealized losses of $394 million relating to Level 3 liabilities still held at September 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 nine months ended September 30, 2023.
Level 3 Fair Value Asset Measurements at
September 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*
499
1,282
1,781
Purchases
25,190
—
25,190
Sales
(25,439)
—
(25,439)
Settlements
(4)
(1,195)
(1,199)
Transfers into Level 3
1,488
339
1,827
Transfers out of Level 3
(1,622)
(77)
(1,699)
Ending balance, September 30, 2023
$
2,872
$
890
$
3,762
* Includes increase in unrealized gains of $1.8 billion relating to Level 3 assets still held at September 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 nine months ended September 30, 2023.
Level 3 Fair Value Liability Measurements at
September 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*
(1)
1,068
(6)
1,061
Purchases
36
—
—
36
Settlements
(34)
(1,236)
—
(1,270)
Transfers into Level 3
1
135
—
136
Transfers out of Level 3
(4)
(21)
—
(25)
Ending balance, September 30, 2023
$
87
$
549
$
—
$
636
* Includes increase in unrealized losses of $1.1 billion relating to Level 3 liabilities still held at September 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 nine months ended September 30, 2022.
Level 3 Fair Value Asset Measurements at
September 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*
746
1,297
2,043
Purchases
34,524
—
34,524
Sales
(35,239)
—
(35,239)
Settlements
—
(1,227)
(1,227)
Transfers into Level 3
933
365
1,298
Transfers out of Level 3
(882)
(193)
(1,075)
Ending balance, September 30, 2022
$
3,086
$
702
$
3,788
* Includes increase in unrealized gains of $2.2 billion relating to Level 3 assets still held at September 30, 2022.
20
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 nine months ended September 30, 2022.
Level 3 Fair Value Liability Measurements at
September 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*
(1)
2,060
(12)
2,047
Purchases
176
—
—
176
Sales
(61)
—
—
(61)
Settlements
—
(2,363)
—
(2,363)
Transfers into Level 3
—
379
—
379
Transfers out of Level 3
—
(182)
—
(182)
Ending balance, September 30, 2022
$
220
$
709
$
3
$
932
* Includes increase in unrealized losses of $2.1 billion relating to Level 3 liabilities still held at September 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.
21
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of September 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 September 30, 2023 is a weighted average 28.1% of the total price for assets and 47.3% of the total price for liabilities.
Weighted Average % of Total Price
September 30, 2023
December 31, 2022
Component Type
Assets
Liabilities
Assets
Liabilities
Inventories and Related Payables
Basis
28.1
%
47.3
%
19.4
%
15.2
%
Transportation cost
19.5
%
—
%
10.5
%
—
%
Commodity Derivative Contracts
Basis
36.6
%
30.4
%
22.7
%
26.5
%
Transportation cost
12.0
%
21.5
%
13.5
%
3.7
%
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 September 30, 2023 and December 31, 2022.
September 30, 2023
December 31, 2022
Assets
Liabilities
Assets
Liabilities
(In millions)
Foreign Currency Contracts
$
191
$
119
$
154
$
275
Commodity Contracts
1,747
1,252
1,337
1,248
Debt Conversion Option
—
—
—
6
Total
$
1,938
$
1,371
$
1,491
$
1,529
22
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
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 nine months ended September 30, 2023 and 2022.
Other (income) expense - net
Cost of
Interest
(In millions)
Revenues
products sold
expense
Three Months Ended September 30, 2023
Consolidated Statement of Earnings
$
21,695
$
19,885
$
(35)
$
155
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
1
$
(38)
$
96
$
—
Commodity Contracts
—
168
—
—
Total gain (loss) recognized in earnings
$
1
$
130
$
96
$
—
$
227
Three Months Ended September 30, 2022
Consolidated Statement of Earnings
$
24,683
$
22,872
$
(67)
$
97
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(5)
$
6
$
151
$
—
Commodity Contracts
—
134
—
—
Debt Conversion Option
—
—
—
8
Total gain (loss) recognized in earnings
$
(5)
$
140
$
151
$
8
$
294
Other (income) expense - net
Cost of
Interest
(In millions)
Revenues
products sold
expense
Nine Months Ended September 30, 2023
Consolidated Statement of Earnings
$
70,957
$
65,184
$
(116)
$
482
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(25)
$
210
$
123
$
—
Commodity Contracts
—
643
—
—
Debt Conversion Option
—
—
—
6
Total gain (loss) recognized in earnings
$
(25)
$
853
$
123
$
6
$
957
Nine Months Ended September 30, 2022
Consolidated Statement of Earnings
$
75,617
$
69,809
$
(183)
$
262
Pre-tax gains (losses) on:
Foreign Currency Contracts
$
(30)
$
354
$
414
$
—
Commodity Contracts
—
95
—
—
Debt Conversion Option
—
—
—
12
Total gain (loss) recognized in earnings
$
(30)
$
449
$
414
$
12
$
845
23
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
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.
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 September 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 34% of its monthly grind. At September 30, 2023, the Company had designated hedges representing between 5% and 31% 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 September 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 61% and 89% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. At September 30, 2023, the Company had designated hedges representing between 32% and 61% 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 70% and 85% of the anticipated monthly natural gas consumption at the designated facilities. At September 30, 2023, the Company had designated hedges representing between 37% and 56% of the anticipated monthly natural gas consumption over the next 12 months.
As of September 30, 2023 and December 31, 2022, the Company had after-tax gains of $14 million and after-tax losses of $17 million in AOCI, respectively, related to gains and losses from these programs. The Company expects to recognize $14 million of the September 30, 2023 after-tax gains in its consolidated statement of earnings during the next 12 months.
24
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Interest Rate Contracts
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 September 30, 2023 and December 31, 2022, and foreign exchange forwards with an aggregate notional amount of $2.7 billion and $2.5 billion as of September 30, 2023 and December 31, 2022, respectively.
As of September 30, 2023 and December 31, 2022, the Company had after-tax gains of $90 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 September 30, 2023 and December 31, 2022.
September 30, 2023
December 31, 2022
Assets
Liabilities
Assets
Liabilities
(In millions)
Commodity Contracts
$
16
$
—
$
—
$
20
Foreign Currency Contracts
96
—
104
$
—
Interest Rate Contracts
—
—
109
—
Total
$
112
$
—
$
213
$
20
25
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
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 nine months ended September 30, 2023 and 2022.
Cost of products sold
(In millions)
Revenues
Three Months Ended September 30, 2023
Consolidated Statement of Earnings
$
21,695
$
19,885
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
—
$
(132)
Total gain (loss) recognized in earnings
$
—
$
(132)
$
(132)
Three Months Ended September 30, 2022
Consolidated Statement of Earnings
$
24,683
$
22,872
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
—
$
117
Interest Contracts
1
—
Total gain (loss) recognized in earnings
$
1
$
117
$
118
Cost of products sold
(In millions)
Revenues
Nine Months Ended September 30, 2023
Consolidated Statement of Earnings
$
70,957
$
65,184
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
—
$
(277)
Total gain (loss) recognized in earnings
$
—
$
(277)
$
(277)
Nine Months Ended September 30, 2022
Consolidated Statement of Earnings
$
75,617
$
69,809
Effective amounts recognized in earnings
Pre-tax gains (losses) on:
Commodity Contracts
$
—
$
365
Interest Contracts
1
—
Total gain (loss) recognized in earnings
$
1
$
365
$
366
26
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Other Net Investment Hedging Strategies
The Company has designated €0.7 billion and €1.3 billion of its outstanding long-term debt and commercial paper borrowings at September 30, 2023 and December 31, 2022, respectively, as hedges of its net investment in a foreign subsidiary. As of September 30, 2023 and December 31, 2022, the Company had after-tax gains of $240 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.
Note 6. Other Current Assets
The following table sets forth the items in other current assets:
September 30,
December 31,
2023
2022
(In millions)
Unrealized gains on derivative contracts
$
2,050
$
1,704
Margin deposits and grain accounts
675
723
Customer omnibus receivable
1,021
1,309
Financing receivables - net (1)
215
235
Insurance premiums receivable
39
54
Prepaid expenses
614
443
Biodiesel tax credit
271
68
Tax receivables
315
616
Non-trade receivables
352
361
Other current assets
66
153
$
5,618
$
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 September 30, 2023 and December 31, 2022. Interest earned on financing receivables of $4 million and $14 million for the three and nine months ended September 30, 2023, respectively, and $3 million and $11 million for the three and nine months ended September 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:
September 30,
December 31,
2023
2022
(In millions)
Unrealized losses on derivative contracts
$
1,371
$
1,543
Accrued compensation
387
475
Income tax payable
234
248
Other taxes payable
185
136
Insurance claims payable
78
223
Contract liability
411
694
Other accruals and payables
1,475
1,476
$
4,141
$
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.
In August 2023, the Company redeemed $300 million aggregate principal amount of zero coupon exchangeable bonds due 2023.
During the nine months ended September 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 September 30, 2023, the fair value of the Company’s long-term debt was below the carrying value by $0.7 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At September 30, 2023, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $13.5 billion, of which $11.7 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 $10 million of commercial paper outstanding at September 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 $1.3 billion unused capacity as of September 30, 2023.
28
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 9. Income Taxes
The Company’s effective tax rate was 20.1% and 17.9% for the three and nine months ended September 30, 2023, respectively, compared to 15.7% and 16.9% for the three and nine months ended September 30, 2022, respectively. The increase in the rate was primarily due to the change in the geographic mix of forecasted pretax earnings.
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.
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 September 30, 2023, these assessments totaled $3 million in tax and up to $13 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 September 30, 2023, this assessment was $86 million in tax and $32 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 September 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 nine months ended September 30, 2023 and the reclassifications out of AOCI for the three and nine months ended September 30, 2023 and 2022:
Three months ended September 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 June 30, 2023
$
(2,402)
$
39
$
(63)
$
(7)
$
(2,433)
Other comprehensive income (loss) before reclassifications
(393)
(4)
3
5
(389)
Gain (loss) on net investment hedges
149
—
—
—
149
Amounts reclassified from AOCI
—
132
(3)
—
129
Tax effect
(36)
(28)
(3)
—
(67)
Net of tax amount
(280)
100
(3)
5
(178)
Balance at September 30, 2023
$
(2,682)
$
139
$
(66)
$
(2)
$
(2,611)
Nine months ended September 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
(71)
(290)
6
13
(342)
Gain (loss) on net investment hedges
19
—
—
—
19
Amounts reclassified from AOCI
—
277
(38)
—
239
Tax effect
(8)
4
(12)
(2)
(18)
Net of tax amount
(60)
(9)
(44)
11
(102)
Balance at September 30, 2023
$
(2,682)
$
139
$
(66)
$
(2)
$
(2,611)
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 September 30,
Nine months ended September 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
$
—
$
(1)
$
—
$
(1)
Revenues
132
(117)
277
(365)
Cost of products sold
132
(118)
277
(366)
Total before tax
(29)
17
(55)
69
Tax
$
103
$
(101)
$
222
$
(297)
Net of tax
Pension liability adjustment
Amortization of defined benefit pension items:
Prior service loss (credit)
$
(4)
$
(10)
$
(21)
$
(114)
Other (income) expense-net
Actuarial losses
1
10
(17)
137
Other (income) expense-net
(3)
—
(38)
23
Total before tax
(3)
—
(12)
(8)
Tax
$
(6)
$
—
$
(50)
$
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
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
(In millions)
Gains on sales of assets
$
(1)
$
(35)
$
(33)
$
(40)
Other – net
(34)
(32)
(83)
(143)
Other (Income) Expense - Net
$
(35)
$
(67)
$
(116)
$
(183)
Gains on sales of assets in the three and nine months ended September 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 nine months ended September 30, 2023 included the non-service components of net pension benefit income of $4 million and $13 million, respectively, net foreign exchange gains, and net other income. Other - net in the three and nine months ended September 30, 2022 included the non-service components of net pension benefit income of $7 million and $19 million, respectively, net foreign exchange gains, and net other income. Also included in Other - net in the nine months ended September 30, 2022 was a $50 million payment from the USDA Biofuel Producer Recovery Program.
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.
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
Nine Months Ended
September 30,
September 30,
(In millions)
2023
2022
2023
2022
Gross revenues
Ag Services and Oilseeds
$
17,643
$
20,238
$
58,421
$
61,838
Carbohydrate Solutions
3,484
4,070
11,579
12,750
Nutrition
1,851
1,900
5,721
5,921
Other Business
107
97
322
305
Intersegment elimination
(1,390)
(1,622)
(5,086)
(5,197)
Total gross revenues
$
21,695
$
24,683
$
70,957
$
75,617
Intersegment sales
Ag Services and Oilseeds
$
1,164
$
1,097
$
3,519
$
3,015
Carbohydrate Solutions
159
489
1,336
2,052
Nutrition
67
36
231
130
Total intersegment sales
$
1,390
$
1,622
$
5,086
$
5,197
Revenues from external customers
Ag Services and Oilseeds
Ag Services
$
10,198
$
12,537
$
35,259
$
38,717
Crushing
3,352
3,220
10,515
9,804
Refined Products and Other
2,929
3,384
9,128
10,302
Total Ag Services and Oilseeds
16,479
19,141
54,902
58,823
Carbohydrate Solutions
Starches and Sweeteners
2,448
2,680
7,660
7,697
Vantage Corn Processors
877
901
2,583
3,001
Total Carbohydrate Solutions
3,325
3,581
10,243
10,698
Nutrition
Human Nutrition
900
906
2,802
2,884
Animal Nutrition
884
958
2,688
2,907
Total Nutrition
1,784
1,864
5,490
5,791
Other Business
107
97
322
305
Total revenues from external customers
$
21,695
$
24,683
$
70,957
$
75,617
33
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information (Continued)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In millions)
2023
2022
2023
2022
Segment operating profit
Ag Services and Oilseeds
$
848
$
1,075
$
3,112
$
3,202
Carbohydrate Solutions
460
309
1,036
1,099
Nutrition
138
177
468
605
Other Business
46
18
229
78
Specified Items:
Gain (loss) on sales of assets(1)
(2)
29
10
30
Impairment and restructuring charges and settlement contingencies(2)
(69)
(49)
(190)
(76)
Total segment operating profit
1,421
1,559
4,665
4,938
Corporate
(390)
(329)
(1,105)
(918)
Earnings before income taxes
$
1,031
$
1,230
$
3,560
$
4,020
(1) Consists of gains (losses) 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 and restructuring, partially offset by a contingency loss adjustment. Also included in the current year-to-date is a contingent loss provision related to import duties. Prior-year quarter and year-to-date charges were related to the impairment of certain assets, restructuring, and a contingency/settlement.
Note 13. Asset Impairment, Exit, and Restructuring Costs
Asset impairment, exit, and restructuring costs in the three and nine months ended September 30, 2023 consisted of impairments related to certain long-lived assets and intangibles of $74 million and $120 million, respectively, and restructuring charges of $3 million and $21 million, respectively, presented as specified items within segment operating profit, and restructuring charges in Corporate of $2 million and $5 million, respectively. Intangibles impairments in the three and nine months ended September 30, 2023 of $37 million and $62 million, respectively, was primarily related to discontinued animal nutrition trademarks in the Nutrition segment.
Asset impairment, exit, and restructuring costs in the three and nine months ended September 30, 2022 consisted of impairments related to certain long-lived assets of $16 million and $20 million, respectively, and restructuring charges of $12 million and $12 million, respectively, presented as specified items within segment operating profit, and a restructuring adjustment in Corporate of $2 million in the nine months ended September 30, 2022.
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 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 September 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 September 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 $1.7 billion and $2.6 billion, respectively. Total receivables sold were $41.2 billion and $42.9 billion for the nine months ended September 30, 2023 and 2022, respectively. Cash collections from customers on receivables sold were $40.7 billion and $42.1 billion for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, receivables pledged as collateral to the Purchasers was $1.3 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 $45 million for the three and nine months ended September 30, 2023, respectively, and $4 million and $12 million for the three and nine months ended September 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. In September 2023, a new alternative shipping corridor in the Black Sea took effect with Ukraine setting up temporary route from ports in Greater Odessa. 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 September 30, 2023, ADM’s assets in Ukraine consisted primarily of current assets that were less than 1% 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 1% 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 September 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 driven by geopolitical uncertainty, longer Brazilian export season, and low North American water levels. Crushing was impacted by renewable fuel demand, adequate crop supplies, and protein consumption around the globe. In Refined Products and Other, margins were driven by renewable fuel demand and biodiesel market volatility. In Carbohydrate Solutions, demand for starches and sweeteners remained solid with margins remaining steady across the entire portfolio. Ethanol’s extremely favorable price as an oxygenate relative to competing petroleum-based oxygenates supported demand. Discretionary blending was supported by the ethanol blend economics on the domestic front. The U.S. remained as the main supplier for ethanol exports as the world dynamics for sugar shifted Brazil to favor sugar production over ethanol. 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 the 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 September 30, 2023 Compared to Three Months Ended September 30, 2022
Net earnings attributable to controlling interests decreased $0.2 billion from $1.0 billion to $0.8 billion. Segment operating profit decreased $0.1 billion from $1.6 billion to $1.4 billion and included a net charge of $71 million consisting of asset impairment and restructuring charges and a contingency loss adjustment totaling $69 million and a loss on the sale of certain assets of $2 million. Included in segment operating profit in the prior-year quarter was a net charge of $20 million consisting of charges totaling $49 million related to the impairment of certain assets, restructuring, and a contingency/settlement, partially offset by gains on the sale of certain assets of $29 million. Adjusted segment operating profit (a non-GAAP measure) decreased $0.1 billion to $1.5 billion due primarily to lower results in Wilmar, Crushing, Ag Services, and Nutrition, partially offset by higher results in Carbohydrate Solutions, Refined Products and Other, and Other Business. Corporate results in the current quarter were a net charge of $390 million. Corporate results in the prior-year quarter were a net charge of $329 million and included a mark-to-market gain of $8 million on the conversion option of the exchangeable bonds issued in August 2020.
Income tax expense increased $14 million to $207 million. The effective tax rate for the quarter ended September 30, 2023 was 20.1% compared to 15.7% for the quarter ended September 30, 2022. The increase in the rate was primarily due to changes in the geographic mix of forecasted pretax earnings.
Analysis of Statements of Earnings
Processed volumes by product for the quarter are as follows (in metric tons):
Three Months Ended
September 30,
(In thousands)
2023
2022
Change
Oilseeds
8,648
7,688
960
Corn
4,507
4,381
126
Total
13,155
12,069
1,086
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 decreased crush rates in the prior-year quarter resulting from the decline in canola crop due to the drought condition in North America and a temporarily idled facility in Paraguay due to reduced crop. The overall increase in corn processed volumes was related to higher grind for fuel alcohol, partially offset by lower export volumes for amino acids and unplanned downtime from the recent Decatur, Illinois incident.
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
September 30,
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
10,198
$
12,537
$
(2,339)
Crushing
3,352
3,220
132
Refined Products and Other
2,929
3,384
(455)
Total Ag Services and Oilseeds
16,479
19,141
(2,662)
Carbohydrate Solutions
Starches and Sweeteners
2,448
2,680
(232)
Vantage Corn Processors
877
901
(24)
Total Carbohydrate Solutions
3,325
3,581
(256)
Nutrition
Human Nutrition
900
906
(6)
Animal Nutrition
884
958
(74)
Total Nutrition
1,784
1,864
(80)
Other Business
107
97
10
Total
$
21,695
$
24,683
$
(2,988)
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 $3.0 billion to $21.7 billion due to lower sales prices ($4.2 billion), partially offset by higher sales volumes ($1.2 billion). Lower sales prices of oils, corn, soybeans, biodiesel, farming materials, wheat, canola seed, and meal and lower sales volumes of corn and milled rice, were partially offset by higher sales volumes of biodiesel, meal, oils, soybeans, canola seed, and farming materials. Ag Services and Oilseeds revenues decreased 14% to $16.5 billion due to lower sales prices ($4.3 billion), partially offset by higher sales volumes ($1.6 billion). Carbohydrate Solutions revenues decreased 7% to $3.3 billion due to lower sales volumes ($0.2 billion). Nutrition revenues decreased 4% to $1.8 billion due to lower sales volumes ($0.2 billion), partially offset by higher sales prices ($0.1 billion).
Cost of products sold decreased $3.0 billion to $19.9 billion due principally to lower average commodity costs. Manufacturing expenses increased $19 million to $1.8 billion due principally to increases in salaries and benefit costs and commercial service fees, partially offset by decreases in maintenance expenses and operating supplies.
Foreign currency translation increased revenues and cost of products sold by $0.3 billion.
Gross profit was unchanged at $1.8 billion. Higher results in Carbohydrate Solutions ($139 million) and Refined Products and Other ($34 million) were offset by lower results in Ag Services ($71 million), Human Nutrition ($63 million), and Crushing ($55 million). These factors are explained in the segment operating profit discussion on page 43.
Selling, general, and administrative expenses decreased $3 million to $815 million due primarily to lower provisions for bad debt, partially offset by higher salaries and benefit costs.
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Asset impairment, exit, and restructuring costs increased $51 million to $79 million. Charges in the current quarter consisted of $74 million of impairments related to certain long-lived assets and intangibles and $3 million of restructuring, presented as specified items within segment operating profit, and restructuring of $2 million in Corporate. Intangibles impairments in the current quarter of $37 million was related to discontinued animal nutrition trademarks in the Nutrition segment. Charges in the prior-year quarter consisted of $16 million of impairments related to long-lived assets and $12 million of restructuring, presented as specified items within segment operating profit.
Equity in earnings of unconsolidated affiliates decreased $127 million to $83 million due primarily to lower earnings from the Company’s investments in Wilmar and Skyland Grain, LLC.
Interest and investment income increased $67 million to $152 million due primarily to higher interest income driven by higher interest rates.
Interest expense increased $58 million to $155 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. Interest expense in the prior-year quarter also included a mark-to-market gain adjustment of $8 million related to the conversion option of the exchangeable bonds issued in August 2020.
Other income-net decreased $32 million to $35 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, and 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, and net foreign exchange gains.
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
September 30,
Segment Operating Profit (Loss)
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
226
$
292
$
(66)
Crushing
250
346
(96)
Refined Products and Other
337
295
42
Wilmar
35
142
(107)
Total Ag Services and Oilseeds
848
1,075
(227)
Carbohydrate Solutions
Starches and Sweeteners
395
327
68
Vantage Corn Processors
65
(18)
83
Total Carbohydrate Solutions
460
309
151
Nutrition
Human Nutrition
118
146
(28)
Animal Nutrition
20
31
(11)
Total Nutrition
138
177
(39)
Other Business
46
18
28
Specified Items:
Gain (loss) on sales of assets and businesses
(2)
29
(31)
Impairment, restructuring, and settlement charges, net of a contingency adjustment
(69)
(49)
(20)
Total Specified Items
(71)
(20)
(51)
Total Segment Operating Profit
$
1,421
$
1,559
$
(138)
Adjusted Segment Operating Profit(1)
$
1,492
$
1,579
$
(87)
Segment Operating Profit
$
1,421
$
1,559
$
(138)
Corporate
(390)
(329)
(61)
Earnings Before Income Taxes
$
1,031
$
1,230
$
(199)
(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 21%. Ag Services results were lower than the strong third quarter of 2022. South American origination results were higher year-over-year, as the business delivered significantly higher volumes and margins on strong export demand. Results for North America origination were lower year-over-year, driven by shift of exports to South America. Effective risk management and higher volumes and margins in global trade led to strong results, however, lower year-over-year. The current quarter also included a $48 million insurance settlement related to damages from Hurricane Ida. Crushing results were lower than the prior-year’s record third quarter. Global soy crush margins remained robust, but lower than the strong levels of the prior-year quarter. In EMEA, the business continued to optimize its flex capacity to higher margin softseeds, in-line with market opportunities. Positive mark-to-market timing effects contributed to the current quarter’s results, however, lower than the net positive impacts from the prior-year quarter. Refined Products and Other results were higher than the prior-year quarter. EMEA results were higher year-over-year as strong export demand for biodiesel and domestic demand for food oil supported higher margins. Additionally, net positive mark-to-market timing effects that are expected to reverse as contracts execute in future periods contributed to the current quarter’s results. Equity earnings from Wilmar were significantly lower versus the third quarter of 2022.
Carbohydrate Solutions operating profit increased 49%. Starches and Sweeteners results, including ethanol production from the wet mills, were higher year-over-year on a steady demand environment. North America starches and sweeteners delivered higher margins on similar volumes versus the prior-year quarter and capitalized on a strong ethanol backdrop. The global wheat milling business posted higher margins on similar volumes, supported by steady customer demand. Vantage Corn Processors results were significantly higher year-over-year as the business executed on a robust demand and margin environment for ethanol.
Nutrition operating profit decreased 22%. Human Nutrition results were lower than the third quarter of 2022. Flavors results were substantially higher than the prior-year quarter, driven by pricing actions in EMEA and strong win rates pipeline in North America. Specialty Ingredients results were lower year-over-year due to continued lower market demand for plant-based proteins in meat alternatives, inventory adjustments, and unplanned downtime resulting from the recent Decatur, Illinois incident. In Health and Wellness, a favorable impact related to a revised commercial agreement as well as stronger probiotics sales, led to higher results versus the prior-year quarter. Animal Nutrition results were lower compared to the same quarter last year due to lower contributions from amino acids and persistent demand fulfillment challenges in pet solutions, partially offset by cost management optimization actions and improving volumes.
Other Business operating profit increased $28 million. Higher net interest income drove improved earnings in ADM Investor Services. Captive insurance results were lower on higher claim settlements, partially offset by premiums from new programs.
Corporate results for the quarter are as follows:
Three Months Ended
September 30,
2023
2022
Change
(In millions)
Interest expense-net
$
(98)
$
(76)
$
(22)
Unallocated corporate costs
(298)
(251)
(47)
Expenses related to acquisitions
(3)
—
(3)
Gain on debt conversion option
—
8
(8)
Restructuring charges
(2)
—
(2)
Other income
11
(10)
21
Total Corporate
$
(390)
$
(329)
$
(61)
Corporate results were a net charge of $390 million in the current quarter compared to a net charge of $329 million in the prior-
43
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
year quarter. Interest expense-net increased $22 million due primarily to increased short-term rates on the Company’s commercial paper borrowing programs. Unallocated corporate costs increased $47 million due primarily to higher information technology costs. Gain on debt conversion option in the prior-year quarter 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 quarter included foreign exchange gains and the non-service components of net pension benefit income of $4 million, partially offset by railroad maintenance expenses of $26 million. Other expense in the prior-year quarter included railroad maintenance expenses of $32 million, partially offset by the non-service components of net pension benefit income of $7 million and foreign exchange gains.
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 September 30, 2023 and 2022.
Three months ended September 30,
2023
2022
In millions
Per share
In millions
Per share
Average number of shares outstanding - diluted
540
563
Net earnings and reported EPS (fully diluted)
$
821
$
1.52
$
1,031
$
1.83
Adjustments:
Loss (gain) on sales of assets and businesses - net of tax of $0 million in 2023 and $7 million in 2022 (1)
2
—
(22)
(0.04)
Gain on debt conversion option - net of tax of $0 (1)
—
—
(8)
(0.01)
Impairment, restructuring, and settlement charges, net of a contingency adjustment - net of tax of $17 million in 2023 and $9 million in 2022 (1)
54
0.10
40
0.07
Expenses related to acquisitions - net of tax of $0 million (1)
3
0.01
—
—
Certain discrete tax adjustments
—
—
7
0.01
Total adjustments
59
0.11
17
0.03
Adjusted net earnings and adjusted EPS
$
880
$
1.63
$
1,048
$
1.86
(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 September 30, 2023 and 2022.
Three months ended
September 30,
(In millions)
2023
2022
Change
Earnings before income taxes
$
1,031
$
1,230
$
(199)
Interest expense
97
97
—
Depreciation and amortization
261
260
1
(Gain) loss on sales of assets and businesses
2
(29)
31
Expenses related to acquisitions
3
—
3
Railroad maintenance expenses
26
32
(6)
Impairment, restructuring, and settlement charges, net of a contingency adjustment
71
49
22
Adjusted EBITDA
$
1,491
$
1,639
$
(148)
Three months ended
September 30,
(In millions)
2023
2022
Change
Ag Services and Oilseeds
$
937
$
1,166
$
(229)
Carbohydrate Solutions
538
391
147
Nutrition
205
242
(37)
Other Business
44
35
9
Corporate
(233)
(195)
(38)
Adjusted EBITDA
$
1,491
$
1,639
$
(148)
45
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Market Factors Influencing Operations or Results in the Nine Months Ended September 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 driven by geopolitical uncertainty, 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 and 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 the 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.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Net earnings attributable to controlling interests decreased $0.4 billion to $2.9 billion. Segment operating profit decreased $0.3 billion to $4.7 billion and included a net charge of $180 million consisting of asset impairment and restructuring charges and contingency provisions totaling $190 million and a gain on the sale of certain assets of $10 million. Included in segment operating profit in the prior period was a net charge of $46 million consisting of charges totaling $76 million related to the impairment of certain assets, restructuring, and a contingency/settlement, partially offset by gains on the sale of certain assets of $30 million. Adjusted segment operating profit (a non-GAAP measure) decreased $0.1 billion to $4.8 billion due primarily to lower results in Crushing, Wilmar, Nutrition, Carbohydrate Solutions, and Ag Services, partially offset by higher results in Refined Products and Other and Other Business. Corporate results in the current period were a net charge of $1.1 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 $0.9 billion and included a mark-to-market gain of $12 million on the conversion option of the exchangeable bonds issued in August 2020.
Income taxes of $636 million decreased $43 million. The Company’s effective tax rate for the nine months ended September 30, 2023 was 17.9% compared to 16.9% for the nine months ended September 30, 2022. The increase in the rate was primarily due to changes in the geographic mix of forecasted pretax earnings.
Analysis of Statements of Earnings
Processed volumes by product for the nine months ended September 30, 2023 and 2022 are as follows (in metric tons):
Nine Months Ended
September 30,
(In thousands)
2023
2022
Change
Oilseeds
26,058
24,387
1,671
Corn
13,349
13,969
(620)
Total
39,407
38,356
1,051
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 decreased crush rates in the prior period resulting from the decline in global demand for rapeseed and the decline in canola crop due to the drought condition in North America and a temporarily idled facility in Paraguay due to reduced crop. The overall decrease in corn processed volumes was related to unplanned downtime from the recent Decatur, Illinois incident and due to the earthquake in Turkey and fire at the Cedar Rapids, Iowa dry mill.
Revenues by segment for the nine months ended September 30, 2023 and 2022 are as follows:
Nine Months Ended
September 30,
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
35,259
$
38,717
$
(3,458)
Crushing
10,515
9,804
711
Refined Products and Other
9,128
10,302
(1,174)
Total Ag Services and Oilseeds
54,902
58,823
(3,921)
Carbohydrate Solutions
Starches and Sweeteners
7,660
7,697
(37)
Vantage Corn Processors
2,583
3,001
(418)
Total Carbohydrate Solutions
10,243
10,698
(455)
Nutrition
Human Nutrition
2,802
2,884
(82)
Animal Nutrition
2,688
2,907
(219)
Total Nutrition
5,490
5,791
(301)
Other Business
322
305
17
Total
$
70,957
$
75,617
$
(4,660)
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 $4.7 billion to $71.0 billion due to lower sales prices ($6.8 billion), partially offset by higher sales volumes ($2.1 billion). Lower sales prices of oils, soybeans, biodiesel, farming materials, and corn and lower sales volumes of corn, were partially offset by higher sales volumes of soybeans and biodiesel. Ag Services and Oilseeds revenues decreased 7% to $54.9 billion due to lower sales prices ($6.8 billion), partially offset by higher sales volumes ($2.9 billion). Carbohydrate Solutions revenues decreased 4% to $10.2 billion due to lower sales volumes ($0.1 billion) and lower sales prices ($0.4 billion). Nutrition revenues decreased 5% to $5.5 billion due to lower sales volumes ($0.7 billion), partially offset by higher sales prices ($0.4 billion).
Cost of products sold decreased $4.6 billion to $65.2 billion due principally to lower average commodity costs partially offset by higher manufacturing expenses. Manufacturing expenses increased $0.4 billion to $5.5 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 $74 million and $47 million, respectively.
Gross profit decreased $0.0 billion or 1% to $5.8 billion due principally to lower results in Crushing ($287 million) and Nutrition ($151 million), partially offset by higher results in Refined Products and Other ($364 million), Vantage Corn Processors ($19 million), and Ag Services ($18 million). These factors are explained in the segment operating profit discussion on page 50.
Selling, general, and administrative expenses increased $0.1 billion to $2.5 billion due primarily to higher salaries and benefit costs, increased expenses for contracted outside labor, and higher professional and financing fees, partially offset by decreased provisions for bad debt.
Asset impairment, exit, and restructuring costs increased $116 million to $146 million. Charges in the current period consisted of $120 million of impairments related to certain long-lived assets and intangibles and $21 million of restructuring, presented as specified items within segment operating profit, and $5 million of restructuring in Corporate. Intangibles impairments in the current period of $62 million was primarily related to discontinued animal nutrition trademarks in the Nutrition segment. Charges in the prior period consisted of $20 million of impairments related to certain long-lived assets and $12 million of restructuring, presented as specified items within segment operating profit, and a $2 million restructuring adjustment in Corporate.
Equity in earnings of unconsolidated affiliates decreased $198 million to $408 million due primarily to lower earnings from the Company’s investments in Wilmar, Skyland Grain, LLC, and Almidones Mexicanos S.A., partially offset by higher earnings from ADM’s investment in Olenex Sarl.
Interest and investment income increased $252 million to $428 million due primarily to higher interest income, partially offset by revaluation gains of $37 million in the prior period.
Interest expense increased $220 million to $482 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 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 $12 million mark-to-market gain adjustment in the prior period.
Other income-net decreased $67 million to $116 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, and net foreign exchange gains. 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, net foreign exchange gains, and net other income.
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 nine months ended September 30, 2023 and 2022 are as follows:
Nine Months Ended
September 30,
Segment Operating Profit (Loss)
2023
2022
Change
(In millions)
Ag Services and Oilseeds
Ag Services
$
954
$
957
$
(3)
Crushing
900
1,242
(342)
Refined Products and Other
1,026
623
403
Wilmar
232
380
(148)
Total Ag Services and Oilseeds
3,112
3,202
(90)
Carbohydrate Solutions
Starches and Sweeteners
987
1,036
(49)
Vantage Corn Processors
49
63
(14)
Total Carbohydrate Solutions
1,036
1,099
(63)
Nutrition
Human Nutrition
440
470
(30)
Animal Nutrition
28
135
(107)
Total Nutrition
468
605
(137)
Other Business
229
78
151
Specified Items:
Gains on sales of assets and businesses
10
30
(20)
Impairment, restructuring, and settlement charges and contingency provisions
(190)
(76)
(114)
Total Specified Items
(180)
(46)
(134)
Total Segment Operating Profit
$
4,665
$
4,938
$
(273)
Adjusted Segment Operating Profit(1)
$
4,845
$
4,984
$
(139)
Segment Operating Profit
$
4,665
$
4,938
$
(273)
Corporate
(1,105)
(918)
(187)
Earnings Before Income Taxes
$
3,560
$
4,020
$
(460)
(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 decreased 3%. Ag Services results were in-line with 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 lower year-over-year driven by shift of exports to South America. Execution in destination marketing as well as effective risk management continued to deliver strong Global Trade results, though lower than the prior period. Current period results also included a $48 million insurance settlement related to damages from Hurricane Ida. 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. 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, net positive mark-to-market timing effects that are 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 6%. 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 the absence of the prior period’s $50 million payment from the USDA Biofuel Producer Recovery Program, partially offset by higher operating results as the business executed on a robust demand and margin environment for ethanol.
Nutrition operating profit decreased 23%. Human Nutrition results were lower than 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 driven by pricing actions in EMEA and strong win rates in North America. Specialty Ingredients results were lower year-over-year due to continued lower market demand for plant-based proteins in meat alternatives, inventory adjustments, and unplanned downtime resulting from the recent Decatur, Illinois incident. Health and Wellness results were in-line with the prior period. 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 $151 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 nine months ended September 30, 2023 and 2022 are as follows:
Nine Months Ended
September 30,
2023
2022
Change
(In millions)
Interest expense-net
$
(326)
$
(239)
(87)
Unallocated corporate costs
(808)
(727)
(81)
Loss on sale of assets
—
(3)
3
Expenses related to acquisitions
(6)
(2)
(4)
Gain on debt conversion option
6
12
(6)
Restructuring (charges) adjustment
(5)
2
(7)
Other income
34
39
(5)
Total Corporate
$
(1,105)
$
(918)
$
(187)
50
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate results were a net charge of $1.1 billion in the current period compared to a net charge of $0.9 billion in the prior period. Interest expense-net increased $87 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 $81 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 $13 million and foreign exchange gains, partially offset by railroad maintenance expenses of $28 million. Other income in the prior period included the non-service components of net pension benefit income of $19 million, an investment revaluation gain of $37 million, and foreign exchange gains, partially offset by railroad maintenance expenses of $41 million.
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 nine months ended September 30, 2023 and 2022.
Nine months ended September 30,
2023
2022
In millions
Per share
In millions
Per share
Average number of shares outstanding - diluted
546
566
Net earnings and reported EPS (fully diluted)
$
2,918
$
5.35
$
3,321
$
5.87
Adjustments:
Gains on sales of assets and businesses - net of tax of $3 million in 2023 and $7 million in 2022 (1)
(7)
(0.02)
(20)
(0.04)
Impairment and restructuring charges and settlement contingencies - net of tax of $43 million in 2023 and $14 million in 2022 (1)
152
0.28
60
0.10
Expenses related to acquisitions - net of tax of $1 million in 2023 and 2022 (1)
5
0.01
1
—
Gain on debt conversion option - net of tax of $0 (1)
(6)
(0.01)
(12)
(0.02)
Certain discrete tax adjustments
3
0.01
2
—
Total adjustments
147
0.27
31
0.04
Adjusted net earnings and adjusted EPS
$
3,065
$
5.62
$
3,352
$
5.91
(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 nine months ended September 30, 2023 and 2022.
Nine months ended
September 30,
(In millions)
2023
2022
Change
Earnings before income taxes
$
3,560
$
4,020
$
(460)
Interest expense
321
262
59
Depreciation and amortization
782
774
8
Gains on sales of assets and businesses
(10)
(27)
17
Expenses related to acquisitions
6
2
4
Railroad maintenance expenses
28
41
(13)
Impairment and restructuring charges and settlement contingencies
195
74
121
Adjusted EBITDA
$
4,882
$
5,146
$
(264)
Nine months ended
September 30,
(In millions)
2023
2022
Change
Ag Services and Oilseeds
$
3,380
$
3,469
$
(89)
Carbohydrate Solutions
1,271
1,337
(66)
Nutrition
668
800
(132)
Other Business
225
103
122
Corporate
(662)
(563)
(99)
Adjusted EBITDA
$
4,882
$
5,146
$
(264)
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 $1.9 billion for the nine months ended September 30, 2023 compared to $3.3 billion for the same period last year. Working capital changes decreased cash by $1.9 billion for the nine months ended September 30, 2023 compared to a decrease of $1.3 billion for the same period last year. Segregated investments increased $1.2 billion driven by higher interest rates. Trade receivables decreased $0.4 billion due to lower revenues. Inventories decreased $3.5 billion due to lower inventory volumes and prices. Trade payables decreased $2.6 billion primarily due to lower payables related to grain and other inventory purchases. Brokerage payables decreased approximately $1.6 billion due to decreased trading activity in the Company’s futures commission and brokerage business. Accrued expenses and other payables decreased $0.7 billion primarily due to decreases in contract liability and unrealized losses on derivative contracts.
Cash used in investing activities was $1.1 billion for the nine months ended September 30, 2023 compared to $0.9 billion for the same period last year. Capital expenditures for the nine months ended September 30, 2023 were $1.1 billion compared to $0.8 billion for the same period last year. There were $5 million additional cost method investments for the nine months ended September 30, 2023 compared to $0.1 billion for the same period last year.
Cash used in financing activities was $2.8 billion for the nine months ended September 30, 2023 compared to $2.4 billion for the same period last year. Long-term debt borrowings for the nine months ended September 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 $1.0 billion for the nine months ended September 30, 2023 which consisted of the €600 million aggregate principal amount of 1.750% Notes due 2023 and the $300 million aggregate amount of zero coupon exchangeable bonds due 2023, compared to $0.5 billion for the same period last year which consisted of the €0.5 billion aggregate principal amount of fixed-to-floating rate senior notes due 2022 issued in a private placement on March 25, 2021. Net borrowings on short-term credit agreements for the nine months ended September 30, 2023 were $0.4 billion compared to $0.8 billion for the same period last year. Share repurchases for the nine months ended September 30, 2023 were $1.1 billion compared to $1.2 billion for the same period last year. Dividends were $0.7 billion for the nine months ended September 30, 2023 and the same period last year.
At September 30, 2023, the Company had $1.5 billion of cash and cash equivalents and a current ratio, defined as current assets divided by current liabilities, of 1.7 to 1. Included in working capital was $6.0 billion of readily marketable commodity inventories. At September 30, 2023, the Company’s capital resources included shareholders’ equity of $25.3 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $13.5 billion, of which $11.7 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 September 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 21% and 25% at September 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 $10 million of commercial paper outstanding at September 30, 2023.
53
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As of September 30, 2023, the Company had $1.5 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 $7.1 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 September 30, 2023, the Company had $1.3 billion unused capacity of its facility under the Programs.
As of September 30, 2023, the Company has total available liquidity of $13.2 billion comprised of cash and cash equivalents and unused lines of credit with a well-diversified group of primarily investment-grade institutions.
For the nine months ended September 30, 2023, the Company spent approximately $1.1 billion in capital expenditures, $0.7 billion in dividends, and $1.1 billion in share repurchases. The Company has a stock repurchase program. Under the program, the Company has 73.2 million shares remaining as of September 30, 2023 that may be repurchased until December 31, 2024.
In 2023, the Company expects total capital expenditures of approximately $1.5 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 September 30, 2023 and December 31, 2022 were $16.5 billion and $15.8 billion, respectively. The increase is primarily related to obligations for energy commitments, partially offset by obligations to purchase lower quantities of agricultural commodity inventories. As of September 30, 2023, the Company expects to make payments related to purchase obligations of $15.7 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended September 30, 2023.
Off Balance Sheet Arrangements
There were no material changes in the Company’s off balance sheet arrangements during the quarter ended September 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 September 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 September 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:
Nine months ended
Year ended
September 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
(139)
(14)
44
4
Average position
210
21
388
39
The change in fair value of the average position was due to the decrease in prices of certain commodities.
ITEM 4. CONTROLS AND PROCEDURES
As of September 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 September 30, 2023, the Company deployed the ERP system to 18 legal entities. The Company has appropriately considered this change 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, the implementation of the new ERP system in these instances has not materially affected its internal control over financial reporting.
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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. The court denied ADM’s motion to dismiss on September 26, 2023. 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.
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ITEM 1A. RISK FACTORS
The information presented below updates, and should be read in conjunction with, the risk factors in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Except as presented below, there were no other significant changes in the Company’s risk factors during the quarter ended September 30, 2023.
The Company is subject to numerous laws, regulations, and mandates globally which could adversely affect the Company’s operating results and forward strategy.
The Company does business globally, connecting crops and markets in over 190 countries, and is required to comply with laws and regulations administered by the United States federal government as well as state, local, and non-U.S. governmental authorities in numerous areas including: accounting and income taxes, anti-corruption, anti-bribery, global trade, trade sanctions, privacy and security, environmental, product safety, and handling and production of regulated substances. The Company frequently faces challenges from U.S. and foreign tax authorities regarding the amount of taxes due including questions regarding the timing, amount of deductions, the allocation of income among various tax jurisdictions. Legislatures and taxing authorities in many jurisdictions in which ADM operates may enact changes to their tax rules. For example, the Organization for Economic Cooperation and Development (the “OECD”), the European Union, and other countries (including countries in which the Company operates) have committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the OECD’s Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024. ADM will continually monitor potential and enacted tax changes, including the implementation of Pillar Two legislation, in the countries in which the Company operates. The impact of these potential new rules, as well as any other changes in domestic and international tax rules and regulations, could have a material effect on ADM’s effective tax rate. Any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject the Company to administrative, civil, and criminal remedies, including fines, penalties, disgorgement, injunctions, and recalls of its products, and damage to its reputation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
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)
July 1, 2023 to
July 31, 2023
162,835
$
104.621
119,050
74,643,409
August 1, 2023 to
August 31, 2023
312
84.960
—
74,643,409
September 1, 2023 to
September 30, 2023
1,407,219
78.521
1,394,055
73,249,354
Total
1,570,366
$
81.229
1,513,105
73,249,354
(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 September 30, 2023, there were 57,261 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.
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ITEM 5. OTHER INFORMATION
None of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated any contract, instruction, or written plan for the purchase or sale of ADM’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended September 30, 2023.
Inline XBRL file set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” and for the information under Part II, Item 5, “Other Information” 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.
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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/ R. B. Jones
R. B. Jones
Senior Vice President, General Counsel, and Secretary
