UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
OR
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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) | 60601
| (Zip Code) |
| |
(312) 634-8100
|
(Registrant’s telephone number, including area 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 x☒ No ¨☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x☒ 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.
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| | | | | | | | | | | | | | | | |
Large accelerated filer x Accelerated Filer | ☒ | Accelerated filer oFiler | ☐ | Emerging Growth Company | ☐ |
Non-accelerated filer o Filer | ☐ | Smaller reporting company o |
Reporting Company | Emerging growth company o ☐ | | |
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. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒.
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 – 559,250,312549,334,227 shares
(October 30, 2017)24, 2022)
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, 2021, 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
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ITEM 1. | FINANCIAL STATEMENTS |
ITEM 1. FINANCIAL STATEMENTS Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In millions, except per share amounts) |
| | | | | | | |
Revenues | $ | 24,683 | | | $ | 20,340 | | | $ | 75,617 | | | $ | 62,159 | |
Cost of products sold | 22,872 | | | 19,014 | | | 69,809 | | | 57,822 | |
Gross Profit | 1,811 | | | 1,326 | | | 5,808 | | | 4,337 | |
| | | | | | | |
Selling, general, and administrative expenses | 818 | | | 720 | | | 2,461 | | | 2,208 | |
Asset impairment, exit, and restructuring costs | 28 | | | 2 | | | 30 | | | 84 | |
Equity in earnings of unconsolidated affiliates | (210) | | | (110) | | | (606) | | | (398) | |
Interest and investment income | (85) | | | (20) | | | (176) | | | (83) | |
Interest expense | 97 | | | 61 | | | 262 | | | 188 | |
Other (income) expense – net | (67) | | | 20 | | | (183) | | | 36 | |
Earnings Before Income Taxes | 1,230 | | | 653 | | | 4,020 | | | 2,302 | |
| | | | | | | |
Income tax expense | 193 | | | 120 | | | 679 | | | 364 | |
Net Earnings Including Noncontrolling Interests | 1,037 | | | 533 | | | 3,341 | | | 1,938 | |
| | | | | | | |
Less: Net earnings attributable to noncontrolling interests | 6 | | | 7 | | | 20 | | | 11 | |
| | | | | | | |
Net Earnings Attributable to Controlling Interests | $ | 1,031 | | | $ | 526 | | | $ | 3,321 | | | $ | 1,927 | |
| | | | | | | |
Average number of shares outstanding – basic | 561 | | | 564 | | | 565 | | | 564 | |
| | | | | | | |
Average number of shares outstanding – diluted | 563 | | | 566 | | | 566 | | | 566 | |
| | | | | | | |
Basic earnings per common share | $ | 1.84 | | | $ | 0.93 | | | $ | 5.88 | | | $ | 3.42 | |
| | | | | | | |
Diluted earnings per common share | $ | 1.83 | | | $ | 0.93 | | | $ | 5.87 | | | $ | 3.41 | |
| | | | | | | |
Dividends per common share | $ | 0.40 | | | $ | 0.37 | | | $ | 1.20 | | | $ | 1.11 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In millions, except per share amounts) |
| | | | | | | |
Revenues | $ | 14,827 |
| | $ | 15,832 |
| | $ | 44,758 |
| | $ | 45,845 |
|
Cost of products sold | 14,015 |
| | 14,742 |
| | 42,191 |
| | 43,237 |
|
Gross Profit | 812 |
| | 1,090 |
| | 2,567 |
| | 2,608 |
|
| | | | | | | |
Selling, general, and administrative expenses | 478 |
| | 546 |
| | 1,530 |
| | 1,525 |
|
Asset impairment, exit, and restructuring costs | 107 |
| | 11 |
| | 140 |
| | 36 |
|
Interest expense | 79 |
| | 78 |
| | 246 |
| | 213 |
|
Equity in (earnings) losses of unconsolidated affiliates | (46 | ) | | 2 |
| | (327 | ) | | (153 | ) |
Interest income | (27 | ) | | (23 | ) | | (75 | ) | | (68 | ) |
Other (income) expense – net | (4 | ) | | (4 | ) | | (13 | ) | | (138 | ) |
Earnings Before Income Taxes | 225 |
| | 480 |
| | 1,066 |
| | 1,193 |
|
| | | | | | | |
Income taxes | 30 |
| | 136 |
| | 256 |
| | 331 |
|
Net Earnings Including Noncontrolling Interests | 195 |
| | 344 |
| | 810 |
| | 862 |
|
| | | | | | | |
Less: Net earnings attributable to noncontrolling interests | 3 |
| | 3 |
| | 3 |
| | 7 |
|
| | | | | | | |
Net Earnings Attributable to Controlling Interests | $ | 192 |
| | $ | 341 |
| | $ | 807 |
| | $ | 855 |
|
| | | | | | | |
Average number of shares outstanding – basic | 566 |
| | 586 |
| | 571 |
| | 591 |
|
| | | | | | | |
Average number of shares outstanding – diluted | 569 |
| | 589 |
| | 574 |
| | 593 |
|
| | | | | | | |
Basic earnings per common share | $ | 0.34 |
| | $ | 0.58 |
| | $ | 1.41 |
| | $ | 1.45 |
|
| | | | | | | |
Diluted earnings per common share | $ | 0.34 |
| | $ | 0.58 |
| | $ | 1.41 |
| | $ | 1.44 |
|
| | | | | | | |
Dividends per common share | $ | 0.32 |
| | $ | 0.30 |
| | $ | 0.96 |
| | $ | 0.90 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In millions) |
| | | | | | | |
Net earnings including noncontrolling interests | $ | 1,037 | | | $ | 533 | | | $ | 3,341 | | | $ | 1,938 | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment | (221) | | | (24) | | | (79) | | | 305 | |
Tax effect | (74) | | | (30) | | | (189) | | | (78) | |
Net of tax amount | (295) | | | (54) | | | (268) | | | 227 | |
| | | | | | | |
Pension and other postretirement benefit liabilities adjustment | 8 | | | 13 | | | 45 | | | 102 | |
Tax effect | (2) | | | 5 | | | (13) | | | (22) | |
Net of tax amount | 6 | | | 18 | | | 32 | | | 80 | |
| | | | | | | |
Deferred gain (loss) on hedging activities | 43 | | | 75 | | | 245 | | | 258 | |
Tax effect | (5) | | | (1) | | | (50) | | | (41) | |
Net of tax amount | 38 | | | 74 | | | 195 | | | 217 | |
| | | | | | | |
Unrealized gain (loss) on investments | — | | | 6 | | | (13) | | | 4 | |
Tax effect | 1 | | | — | | | 2 | | | (1) | |
Net of tax amount | 1 | | | 6 | | | (11) | | | 3 | |
Other comprehensive income (loss) | (250) | | | 44 | | | (52) | | | 527 | |
Comprehensive income (loss) | 787 | | | 577 | | | 3,289 | | | 2,465 | |
| | | | | | | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | 3 | | | 6 | | | 8 | | | 10 | |
| | | | | | | |
Comprehensive income (loss) attributable to controlling interests | $ | 784 | | | $ | 571 | | | $ | 3,281 | | | $ | 2,455 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In millions) |
| | | | | | | |
Net earnings including noncontrolling interests | $ | 195 |
| | $ | 344 |
| | $ | 810 |
| | $ | 862 |
|
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment | 245 |
| | (41 | ) | | 628 |
| | (57 | ) |
Tax effect | (40 | ) | | 5 |
| | (4 | ) | | 18 |
|
Net of tax amount | 205 |
| | (36 | ) | | 624 |
| | (39 | ) |
| | | | | | | |
Pension and other postretirement benefit liabilities adjustment | 174 |
| | 11 |
| | 193 |
| | 27 |
|
Tax effect | (66 | ) | | (4 | ) | | (74 | ) | | (7 | ) |
Net of tax amount | 108 |
| | 7 |
| | 119 |
| | 20 |
|
| | | | | | | |
Deferred gain (loss) on hedging activities | (26 | ) | | 1 |
| | 12 |
| | (10 | ) |
Tax effect | 6 |
| | 3 |
| | 1 |
| | 3 |
|
Net of tax amount | (20 | ) | | 4 |
| | 13 |
| | (7 | ) |
| | | | | | | |
Unrealized gain (loss) on investments | 6 |
| | (28 | ) | | 1 |
| | (16 | ) |
Tax effect | — |
| | 1 |
| | — |
| | (2 | ) |
Net of tax amount | 6 |
| | (27 | ) | | 1 |
| | (18 | ) |
Other comprehensive income (loss) | 299 |
| | (52 | ) | | 757 |
| | (44 | ) |
Comprehensive income (loss) including noncontrolling interests | 494 |
| | 292 |
| | 1,567 |
| | 818 |
|
| | | | | | | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | 4 |
| | 3 |
| | 5 |
| | 7 |
|
| | | | | | | |
Comprehensive income (loss) attributable to controlling interests | $ | 490 |
| | $ | 289 |
| | $ | 1,562 |
| | $ | 811 |
|
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Balance Sheets |
| | | | | | | |
(In millions) | September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 518 |
| | $ | 619 |
|
Short-term marketable securities | 261 |
| | 296 |
|
Segregated cash and investments | 5,040 |
| | 5,011 |
|
Trade receivables | 1,911 |
| | 1,905 |
|
Inventories | 8,326 |
| | 8,831 |
|
Other current assets | 3,084 |
| | 4,383 |
|
Total Current Assets | 19,140 |
| | 21,045 |
|
| | | |
Investments and Other Assets | |
| | |
|
Investments in and advances to affiliates | 4,972 |
| | 4,497 |
|
Long-term marketable securities | 207 |
| | 187 |
|
Goodwill and other intangible assets | 3,939 |
| | 3,703 |
|
Other assets | 755 |
| | 579 |
|
Total Investments and Other Assets | 9,873 |
| | 8,966 |
|
| | | |
Property, Plant, and Equipment | |
| | |
|
Land | 467 |
| | 445 |
|
Buildings | 4,974 |
| | 4,679 |
|
Machinery and equipment | 17,858 |
| | 17,160 |
|
Construction in progress | 1,166 |
| | 1,213 |
|
| 24,465 |
| | 23,497 |
|
Accumulated depreciation | (14,509 | ) | | (13,739 | ) |
Net Property, Plant, and Equipment | 9,956 |
| | 9,758 |
|
Total Assets | $ | 38,969 |
| | $ | 39,769 |
|
| | | |
Liabilities, Temporary Equity, and Shareholders’ Equity | |
| | |
|
Current Liabilities | |
| | |
|
Short-term debt | $ | 728 |
| | $ | 154 |
|
Trade payables | 3,449 |
| | 3,606 |
|
Payables to brokerage customers | 5,135 |
| | 5,158 |
|
Accrued expenses and other payables | 2,548 |
| | 3,982 |
|
Current maturities of long-term debt | 13 |
| | 273 |
|
Total Current Liabilities | 11,873 |
| | 13,173 |
|
| | | |
Long-Term Liabilities | |
| | |
|
Long-term debt | 6,595 |
| | 6,504 |
|
Deferred income taxes | 1,754 |
| | 1,669 |
|
Other | 1,117 |
| | 1,218 |
|
Total Long-Term Liabilities | 9,466 |
| | 9,391 |
|
| | | |
Temporary Equity - Redeemable noncontrolling interest | 53 |
| | 24 |
|
| | | |
Shareholders’ Equity | |
| | |
|
Common stock | 2,390 |
| | 2,327 |
|
Reinvested earnings | 17,023 |
| | 17,444 |
|
Accumulated other comprehensive income (loss) | (1,843 | ) | | (2,598 | ) |
Noncontrolling interests | 7 |
| | 8 |
|
Total Shareholders’ Equity | 17,577 |
| | 17,181 |
|
Total Liabilities, Temporary Equity, and Shareholders’ Equity | $ | 38,969 |
| | $ | 39,769 |
|
| | | |
| | | | | | | | | | | |
(In millions) | September 30, 2022 | | December 31, 2021 |
| (Unaudited) | | |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,099 | | | $ | 943 | |
| | | |
Segregated cash and investments | 9,345 | | | 8,016 | |
Trade receivables - net | 4,679 | | | 3,311 | |
Inventories | 13,282 | | | 14,481 | |
| | | |
Other current assets | 6,164 | | | 5,158 | |
Total Current Assets | 34,569 | | | 31,909 | |
| | | |
Investments and Other Assets | | | |
Investments in affiliates | 5,429 | | | 5,285 | |
| | | |
Goodwill and other intangible assets | 6,364 | | | 6,747 | |
Right of use assets | 983 | | | 1,023 | |
Other assets | 1,354 | | | 1,369 | |
Total Investments and Other Assets | 14,130 | | | 14,424 | |
| | | |
Property, Plant, and Equipment | | | |
Land and land improvements | 500 | | | 554 | |
Buildings | 5,532 | | | 5,597 | |
Machinery and equipment | 18,941 | | | 19,112 | |
Construction in progress | 1,221 | | | 960 | |
| 26,194 | | | 26,223 | |
Accumulated depreciation | (16,589) | | | (16,420) | |
Net Property, Plant, and Equipment | 9,605 | | | 9,803 | |
| | | |
Total Assets | $ | 58,304 | | | $ | 56,136 | |
| | | |
Liabilities, Temporary Equity, and Shareholders’ Equity | | | |
Current Liabilities | | | |
Short-term debt | $ | 181 | | | $ | 958 | |
Trade payables | 6,543 | | | 6,388 | |
Payables to brokerage customers | 10,359 | | | 8,965 | |
Accrued expenses and other payables | 4,686 | | | 4,790 | |
Current lease liabilities | 279 | | | 277 | |
Current maturities of long-term debt | 888 | | | 570 | |
| | | |
Total Current Liabilities | 22,936 | | | 21,948 | |
| | | |
Long-Term Liabilities | | | |
Long-term debt | 7,671 | | | 8,011 | |
Deferred income taxes | 1,639 | | | 1,412 | |
Non-current lease liabilities | 723 | | | 765 | |
Other | 1,016 | | | 1,233 | |
Total Long-Term Liabilities | 11,049 | | | 11,421 | |
| | | |
Temporary Equity - Redeemable noncontrolling interest | 290 | | | 259 | |
| | | |
Shareholders’ Equity | | | |
Common stock | 3,110 | | | 2,994 | |
Reinvested earnings | 23,099 | | | 21,655 | |
Accumulated other comprehensive income (loss) | (2,212) | | | (2,172) | |
Noncontrolling interests | 32 | | | 31 | |
Total Shareholders’ Equity | 24,029 | | | 22,508 | |
Total Liabilities, Temporary Equity, and Shareholders’ Equity | $ | 58,304 | | | $ | 56,136 | |
| | | |
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
(In millions) | Nine Months Ended September 30, |
| 2022 | | 2021 |
| |
| | | |
Operating Activities | | | |
Net earnings including noncontrolling interests | $ | 3,341 | | | $ | 1,938 | |
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities | | | |
Depreciation and amortization | 774 | | | 739 | |
Asset impairment charges | 20 | | | 54 | |
Deferred income taxes | (39) | | | (95) | |
Equity in earnings of affiliates, net of dividends | (279) | | | (36) | |
Stock compensation expense | 123 | | | 135 | |
| | | |
Loss on debt extinguishment | — | | | 36 | |
Deferred cash flow hedges | 245 | | | 258 | |
Gains on sales of assets and businesses/investment revaluation | (77) | | | (95) | |
Other – net | 549 | | | 156 | |
Changes in operating assets and liabilities, net of acquisitions and dispositions | | | |
Segregated investments | (1,452) | | | 594 | |
Trade receivables | (1,613) | | | (1,060) | |
Inventories | 590 | | | 405 | |
| | | |
Other current assets | (929) | | | 1,187 | |
Trade payables | 305 | | | 170 | |
Payables to brokerage customers | 1,706 | | | 2,236 | |
Accrued expenses and other payables | 84 | | | (769) | |
Total Operating Activities | 3,348 | | | 5,853 | |
| | | |
Investing Activities | | | |
Capital expenditures | (841) | | | (714) | |
Net assets of businesses acquired | — | | | (501) | |
Proceeds from sales of assets and businesses | 51 | | | 73 | |
| | | |
| | | |
Investments in affiliates | (60) | | | (7) | |
| | | |
| | | |
| | | |
Other – net | (98) | | | (138) | |
Total Investing Activities | (948) | | | (1,287) | |
| | | |
Financing Activities | | | |
Long-term debt borrowings | 752 | | | 1,330 | |
Long-term debt payments | (482) | | | (533) | |
Net borrowings (payments) under lines of credit agreements | (751) | | | (1,726) | |
| | | |
Share repurchases | (1,200) | | | — | |
Cash dividends | (677) | | | (626) | |
| | | |
Other – net | (6) | | | 1 | |
Total Financing Activities | (2,364) | | | (1,554) | |
| | | |
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | 36 | | | 3,012 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period | 7,454 | | | 4,646 | |
| | | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period | $ | 7,490 | | | $ | 7,658 | |
| | | |
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets | | | |
| | | |
Cash and cash equivalents | $ | 1,099 | | | $ | 1,083 | |
Restricted cash and restricted cash equivalents included in segregated cash and investments | 6,391 | | | 6,575 | |
Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 7,490 | | | $ | 7,658 | |
| | | |
| | | |
| | | |
|
| | | | | | | |
(In millions) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating Activities | | | |
Net earnings including noncontrolling interests | $ | 810 |
| | $ | 862 |
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities | |
| | |
|
Depreciation and amortization | 684 |
| | 678 |
|
Asset impairment charges | 81 |
| | 28 |
|
Deferred income taxes | (27 | ) | | 36 |
|
Equity in earnings of affiliates, net of dividends | (131 | ) | | 25 |
|
Stock compensation expense | 63 |
| | 58 |
|
Deferred cash flow hedges | 12 |
| | (10 | ) |
Gains on sales of assets and businesses/revaluation | (66 | ) | | (117 | ) |
Other – net | 174 |
| | 1 |
|
Changes in operating assets and liabilities | |
| | |
|
Segregated investments | 268 |
| | 46 |
|
Trade receivables | 106 |
| | (463 | ) |
Inventories | 703 |
| | 1,053 |
|
Other current assets | 1,317 |
| | (415 | ) |
Trade payables | (259 | ) | | (554 | ) |
Payables to brokerage customers | (94 | ) | | 355 |
|
Accrued expenses and other payables | (1,486 | ) | | (287 | ) |
Total Operating Activities | 2,155 |
| | 1,296 |
|
| | | |
Investing Activities | |
| | |
|
Purchases of property, plant, and equipment | (696 | ) | | (621 | ) |
Proceeds from sales of business and assets | 172 |
| | 104 |
|
Net assets of businesses acquired | (187 | ) | | (136 | ) |
Purchases of marketable securities | (499 | ) | | (1,127 | ) |
Proceeds from sales of marketable securities | 572 |
| | 1,162 |
|
Investments in and advances to affiliates | (281 | ) | | (628 | ) |
Other – net | (14 | ) | | 15 |
|
Total Investing Activities | (933 | ) | | (1,231 | ) |
| | | |
Financing Activities | |
| | |
|
Long-term debt borrowings | 509 |
| | 1,036 |
|
Long-term debt payments | (840 | ) | | (9 | ) |
Net borrowings (payments) under lines of credit agreements | 558 |
| | 107 |
|
Share repurchases | (676 | ) | | (754 | ) |
Cash dividends | (544 | ) | | (528 | ) |
Other – net | 4 |
| | 14 |
|
Total Financing Activities | (989 | ) | | (134 | ) |
| | | |
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | 233 |
| | (69 | ) |
Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period | 1,561 |
| | 1,796 |
|
Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period | $ | 1,794 |
| | $ | 1,727 |
|
| | | |
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets | | | |
| | | |
Cash and cash equivalents | $ | 518 |
| | $ | 701 |
|
Restricted cash and restricted cash equivalents included in segregated cash and investments | 1,276 |
| | 1,026 |
|
Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 1,794 |
| | $ | 1,727 |
|
| | | |
See notes to consolidated financial statements.
Archer-Daniels-Midland-Company
Consolidated StatementStatements of Shareholders’ Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Reinvested Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Shareholders’ Equity |
| Shares | | Amount | | | | |
| (In millions) |
| | | | | | | | | | | |
Balance, December 31, 2016 | 573 |
| | $ | 2,327 |
| | $ | 17,444 |
| | $ | (2,598 | ) | | $ | 8 |
| | $ | 17,181 |
|
Impact of ASU 2016-16 (see Note 2) | | | | | (7 | ) | | | | | | (7 | ) |
Balance, January 1, 2017 | 573 |
| | $ | 2,327 |
| | $ | 17,437 |
| | $ | (2,598 | ) | | $ | 8 |
| | $ | 17,174 |
|
Comprehensive income | |
| | |
| | |
| | |
| | |
| | |
|
Net earnings | | | |
| | 807 |
| | |
| | 3 |
| | |
|
Other comprehensive income (loss) | |
| | |
| | |
| | 755 |
| | 2 |
| | |
|
Total comprehensive income | |
| | |
| | |
| | |
| | |
| | 1,567 |
|
Cash dividends paid- $0.96 per share | |
| | |
| | (544 | ) | | |
| | |
| | (544 | ) |
Share repurchases | (16 | ) | | | | (676 | ) | | | | | | (676 | ) |
Stock compensation expense | 1 |
| | 63 |
| | |
| | |
| | |
| | 63 |
|
Other | 1 |
| | — |
| | (1 | ) | | — |
| | (6 | ) | | (7 | ) |
Balance, September 30, 2017 | 559 |
| | $ | 2,390 |
| | $ | 17,023 |
| | $ | (1,843 | ) | | $ | 7 |
| | $ | 17,577 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 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 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance, June 30, 2021 | 559 | | | $ | 2,941 | | | $ | 20,762 | | | $ | (2,121) | | | $ | 21 | | | $ | 21,603 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | |
Net earnings | | | | | 526 | | | | | 7 | | | |
Other comprehensive income (loss) | | | | | | | 45 | | | (1) | | | |
Total comprehensive income | | | | | | | | | | | 577 | |
Cash dividends paid - $0.37 per share | | | | | (209) | | | | | | | (209) | |
| | | | | | | | | | | |
Stock compensation expense | — | | | 21 | | | | | | | | | 21 | |
Stock option exercises net of taxes | — | | | 1 | | | | | | | | | 1 | |
Other | — | | | 1 | | | 2 | | | — | | | (6) | | | (3) | |
Balance, September 30, 2021 | 559 | | | $ | 2,964 | | | $ | 21,081 | | | $ | (2,076) | | | $ | 21 | | | $ | 21,990 | |
| | | | | | | | | | | |
Balance, December 31, 2020 | 556 | | | $ | 2,824 | | | $ | 19,780 | | | $ | (2,604) | | | $ | 22 | | | $ | 20,022 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | |
Net earnings | | | | | 1,927 | | | | | 11 | | | |
Other comprehensive income (loss) | | | | | | | 528 | | | (1) | | | |
Total comprehensive income | | | | | | | | | | | 2,465 | |
Cash dividends paid - $1.11 per share | | | | | (626) | | | | | | | (626) | |
| | | | | | | | | | | |
Stock compensation expense | 3 | | | 135 | | | | | | | | | 135 | |
| | | | | | | | | | | |
Other | — | | | 5 | | | — | | | — | | | (11) | | | (6) | |
Balance, September 30, 2021 | 559 | | | $ | 2,964 | | | $ | 21,081 | | | $ | (2,076) | | | $ | 21 | | | $ | 21,990 | |
| | | | | | | | | | | |
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements
(Unaudited)
| |
Note 1. | 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 generally accepted accounting principlesGAAP 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 quarter and nine months ended September 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2022. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162021 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.
Retirement Benefit Changes
On July 31, 2017, the Company announced that all participants in the Company’s U.S. salaried pension plan and the Supplemental Executive Retirement Plan (SERP) will begin accruing benefits under the cash balance formula effective January 1, 2022. Benefits for participants who were accruing under the final average pay formula will be frozen as of December 31, 2021, including pay and service through that date.
This change, along with other changes in participation associated with divestitures and restructuring, triggered a remeasurement of the salaried pension plan and the SERP resulting in decreases in the fiscal 2017 pension expense, accumulated other comprehensive loss, and underfunded status by $18 million, $182 million, and $164 million, respectively.
Concurrent with this change, the Company also changed the method used to estimate the service and interest cost components of the net periodic pension and postretirement benefit costs for its U.S. plans. The new method uses the spot rate yield curve approach to estimate the service and interest costs. Previously, those costs were determined using a single weighted-average discount rate applied to all future cash outflows. The change does not affect the measurement of the Company’s benefit obligations and was accounted for as a change in accounting estimate in accordance with the guidance of ASC Topic 250, Accounting Estimates and Error Corrections, thereby impacting the current and future quarters. The impact of this change on after-tax earnings and diluted earnings per share for the quarter ended September 30, 2017 was immaterial.
Reclassifications
The Company classified $17 million and $49 million of fees from its U.S. futures commission brokerage business in cost of products sold in the quarter and nine months ended September 30, 2017, respectively. Prior period amounts of $15 million and $50 million in the quarter and nine months ended September 30, 2016, respectively, have been reclassified from selling, general, and administrative expenses in the consolidated statement of earnings to conform to the current presentation.
In the quarter ended June 30, 2017, the Company began presenting certain specified items separately from the individual business segments, as further described in Note 14.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 1. | Basis of Presentation (Continued) |
In line with the futures brokerage industry practice, the Company has correctly classified $1.2 billion of segregated cash and cash equivalents as restricted cash and cash equivalents in the statement of cash flows effective September 30, 2017. Prior period amounts have been restated to conform to the current presentation which resulted in an increase of $145 million in total cash provided by operating activities for the nine months ended September 30, 2016 and an increase of $938 million in the ending balance of cash, cash equivalents, restricted cash, and restricted cash equivalents as of September 30, 2016.
Segregated Cash and Investments
The Company segregates certain cash, cash equivalent,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 statementconsolidated statements of cash flows.
Last-in, First-out (LIFO) InventoriesReceivables
Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels. Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventoriesThe Company records receivables at interim periods may vary significantly from management’s estimates of year-end inventory levels.
| |
Note 2. | New Accounting Standards |
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 330, Inventory, which simplifies the measurement of inventory. The amended guidance requires an entity to measure its cost-based inventory at the lower of cost or net realizable value where net realizable value isin trade receivables, other current assets, and other assets. These amounts included allowances for estimated uncollectible accounts totaling $179 million and $122 million at September 30, 2022 and December 31, 2021, respectively, to reflect any loss anticipated on the estimatedaccounts receivable balances including any accrued interest receivables thereon. Long-term receivables recorded in other assets were not material to the Company’s overall receivables portfolio.
The Company recorded bad debt expense in selling, pricegeneral, and administrative expenses of $29 million and $73 million in the ordinary course of business, less reasonably predictable costs of completion, disposal,three and transportation.
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 323, Investments - Equity Methodnine months ended September 30, 2022, respectively, and Joint Ventures, which simplifies the transition to the equity method of accounting. The amended guidance eliminates the requirement of an investor to adjust the investment, results of operations,$1 million and retained earnings retroactively when an investment qualifies for equity method accounting as a result of an increase$9 million in the levelthree and nine months ended September 30, 2021, respectively.
Cost Method Investments
Cost method investments of ownership interest or degree$465 million and $297 million as of influence. The amendments require the investor add the cost of acquiring the additional interestSeptember 30, 2022 and December 31, 2021, respectively, were included in Other Assets in the investee to the current basisCompany’s consolidated balance sheets. Revaluation gains of the investors’ previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The adoption of this amended guidance did not have an impact on the Company’s financial results.
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 810, Consolidation, which affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. The amended guidance changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests$37 million in the entity held through related parties that are under common control with the reporting entity. The Company was required to adopt the amended guidance using a retrospective transition approach to all periods presented. The adoption of this amended guidance did not resultnine months ended September 30, 2022, and $9 million and $49 million in the deconsolidation or consolidationthree and nine months ended September 30, 2021, respectively, in connection with observable third-party transactions, were recorded in investment income in the Company's consolidated statements of any of its variable interest entities.earnings. There were no revaluation gains recorded in the three months ended September 30, 2022.
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 740, Income Taxes, which requires entities to recognize the income tax consequences of an intra-entity transfer, other than inventory, when the transfer occurs. Under the previous accounting rules, entities were prohibited from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amended guidance does not change the accounting for the pre-tax effects of an intra-entity asset transfer or for an intra-entity transfer of inventory. The Company adopted the amended guidance on a modified retrospective approach basis through a $7 million cumulative effect adjustment to retained earnings as of January 1, 2017.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1. Basis of Presentation (Continued)
Operations in Ukraine and Russia
ADM employs approximately 650 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. Most of the facilities have been temporarily idled since February 24, 2022, some of which were brought back online during the quarter ended September 30, 2022, due in part to the opening of the Black Sea grain export corridor. The Company’s footprint in Russia is limited and operations have been scaled down to those 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 recorded immaterial charges in the three and nine months ended September 30, 2022 related to receivables and inventories. As of September 30, 2022, ADM concluded that 1) receivables, net of allowances, are deemed collectible; and 2) market inventories are valued appropriately. The temporarily idled property, plant, and equipment, which is immaterial, are not considered impaired. The Company also evaluated the impact of Russia’s recent 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 3. | Note 2. Pending Accounting Standards |
Through December 31, 2022, the Company has the option to adopt the amended guidance of Accounting Standards Codification (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, 2022, except for hedging relationships existing as of December 31, 2022, 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, 2022 expiry date and does not expect the adoption of the amended guidance to have an impact on its consolidated financial statements.
Effective January 1, 2018,2023, the Company will be required to adopt the amended guidance of ASC Subtopic 825-10, Financial Instruments - OverallTopic 805, Business Combinations, which is intended to improveimproves comparability for both the recognition and measurement of financial instruments.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 equity investments, except those accounted for under the equity method of accounting or those that resultcontract assets and contract liabilities acquired in consolidation of the investee, at fair valuea business combination in accordance with changes in fair value recognized in net income and simplify the impairment assessment of equity investments without readily determinable fair values by using a qualitative assessment to identify impairment.ASC Topic 606, Revenue from Contracts with Customers,(Topic 606). Early adoption is permitted. The Company does not expect the adoption of this amended guidance to have a significant impact on the Company’sits consolidated financial results.statements.
Effective January 1, 2018, the Company will be required to adopt the new guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which will supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Topic 606 requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company will adopt Topic 606 on a modified retrospective basis and will be required to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes. The adoption of this new guidance will require expanded disclosures in the Company’s consolidated financial statements including separate quantitative disclosure of revenues within the scope of Topic 606 and revenues excluded from the scope of Topic 606. Many of the Company’s sales contracts are considered derivatives under ASC Topic 815, Derivatives and Hedging, and are therefore excluded from the scope of Topic 606. The Company has established a cross-functional implementation team consisting of representatives from all of its business segments. The Company utilized surveys to validate all of its current revenue recognition streams and identify areas of its business where potential differences could result from applying the requirements of the new standard. The Company also conducted workshops and performed contract reviews to gather more information about the nature, magnitude, and frequency of the underlying transactions that drove the survey responses. Based on the surveys, workshops, and contract reviews, the Company identified potential accounting changes in the areas of control transfer, voyage charter revenue, bill and hold arrangements, and variable consideration. In the fourth quarter of 2017, the Company will complete the final phase of its revenue recognition implementation plan which includes quantification of the areas of accounting change, assessment of the financial impact of the new guidance on its consolidated financial statements, and finalization of its revenue recognition accounting policy and position papers.
Effective January 1, 2018,2023, the Company will be required to adopt the amended guidance of ASC Topic 805, Business CombinationsSubtopic 405-50, Liabilities - Supplier Finance Programs,which clarifiesenhances the definitiontransparency of a business.supplier finance programs. The amended guidance is intendedrequires an entity (buyer) in a supplier finance program to help companiesdisclose 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 other organizations evaluate whether transactions should be accounted for as acquisitions (disposals) of assets or businesses and provides a more robust framework to use in determining when a set of assets and activities is a business.potential magnitude. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. No disclosures are required at adoption. The Company plans to adopt the amended guidance on October 1, 2017.
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Topic 715, Compensation - Retirement Benefits, which requires that an employer report the service cost component in the same line or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.permitted. The adoption of this amended guidance will require expanded disclosures and the reclassification of the other components of net benefit cost from cost of products sold and selling, general, and administrative expenses to other (income) expense - net in the Company’s consolidated statements of earnings but will not impact financial results.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 3. | Pending Accounting Standards (Continued) |
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Topic 718, Compensation - Stock Compensation (Topic 718), which provides clarity and reduces diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of the terms and conditions of a share-based payment. The amendments include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. Early adoptionprovide disclosures about its supplier finance programs, if material, but is permitted, including in any interim period for which financial statements have not yet been issued. The Company plans to adopt the amended guidance on October 1, 2017 and does not expect the adoption of this amended guidanceexpected to have a significantan impact on the Company’s financial results.
Effective January 1, 2019, the Company will be required to adopt the new guidance of ASC Topic 842, Leases (Topic 842), which will supersede ASC Topic 840, Leases. Topic 842 requires lessees to recognize assets and liabilities for all leases with lease terms of more than 12 months. The Company expects to adopt Topic 842 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The adoption of this new guidance will require expanded disclosures in the Company’sits consolidated financial statements. The Company has established a cross-functional implementation team consisting of representatives from accounting, legal, procurement, and operations. The Company utilized surveys to centrally gather more information about its existing leases and lease processes and to gather lease contracts. To ensure completeness of the population of lease contracts, the results of the survey were cross-referenced against other available lease information (i.e., year-end disclosures and general ledger). The Company is also working with a vendor to implement a lease management system which will assist in delivering the required accounting changes and disclosures. The next phase of the implementation plan is the abstraction of the relevant lease contract data points which is expected to be completed in the first quarter of 2018. The impact of the new standard will be a significant increase to right of use assets and lease liabilities on the Company’s consolidated balance sheet, primarily as a result of operating leases currently not recognized on the balance sheet. The Company has not yet completed its assessment of the impact of the new guidance on its consolidated statement of earnings.
Effective January 1, 2019, the Company will be required to adopt the amended guidance of ASC Topic 815, Derivatives and Hedging, which expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amended guidance also simplifies the application of hedge accounting guidance and eases the administrative burden of hedge documentation requirements and assessing hedge effectiveness. Early adoption is permitted in any interim period with the effect of adoption reflected as an adjustment to the opening balance of retained earnings as of the beginning of the fiscal year of adoption. The Company is considering adopting the amended guidance on January 1, 2018 but has not yet completed its assessment of the impact of this amended guidance on the Company’s financial results.
Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 326, Financial Instruments - Credit Losses, which is intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amended guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.
Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 350, Goodwill and Other, which simplifies the subsequent measurement of goodwill. The amended guidance removes the second step of the goodwill impairment test and requires the application of a one-step quantitative test where the amount of goodwill impairment is the excess of a reporting unit's carrying amount over its fair value, but not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company plans to adopt the amended guidance on October 1, 2017 and does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
During
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 $227 million and $611 million for the three and nine months ended September 30, 2017,2022, respectively, and $153 million and $408 million for the three and nine months ended September 30, 2021, respectively. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company acquired Crosswind Industries, Inc., Chamtor SA,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 51% controlling interestfulfillment activity and are included in Industries Centers,cost of products sold. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Taxes Collected from Customers and an 89% controlling interestRemitted 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 Biopolis SL. 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 $423 million and $581 million as of September 30, 2022 and December 31, 2021, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Contract liabilities recognized as revenues were $111 million and $581 million for the three and nine months ended September 30, 2022, respectively, and $128 million and $697 million for the three and nine months ended September 30, 2021, respectively.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Disaggregation of Revenues
The aggregate cash purchasefollowing tables present revenue disaggregated by timing of recognition and major product lines for the three and nine months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| Three 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 | $ | 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 | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
| | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Topic 606 Revenue | Topic 815(1) | Total |
| Point in Time | Over Time | Total | Revenue | Revenues |
| (In millions) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 616 | | $ | 153 | | $ | 769 | | $ | 9,130 | | $ | 9,899 | |
Crushing | 119 | | — | | 119 | | 2,723 | | 2,842 | |
Refined Products and Other | 657 | | — | | 657 | | 2,291 | | 2,948 | |
Total Ag Services and Oilseeds | 1,392 | | 153 | | 1,545 | | 14,144 | | 15,689 | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 1,516 | | — | | 1,516 | | 456 | | 1,972 | |
Vantage Corn Processors | 894 | | — | | 894 | | — | | 894 | |
Total Carbohydrate Solutions | 2,410 | | — | | 2,410 | | 456 | | 2,866 | |
Nutrition | | | | | |
Human Nutrition | 808 | | — | | 808 | | — | | 808 | |
Animal Nutrition | 889 | | — | | 889 | | — | | 889 | |
Total Nutrition | 1,697 | | — | | 1,697 | | — | | 1,697 | |
| | | | | |
Other Business | 88 | | — | | 88 | | — | | 88 | |
Total Revenues | $ | 5,587 | | $ | 153 | | $ | 5,740 | | $ | 14,600 | | $ | 20,340 | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Topic 606 Revenue | Topic 815(1) | Total |
| Point in Time | Over Time | Total | Revenue | Revenues |
| (In millions) |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 2,080 | | $ | 408 | | $ | 2,488 | | $ | 30,372 | | $ | 32,860 | |
Crushing | 335 | | — | | 335 | | 8,076 | | 8,411 | |
Refined Products and Other | 1,828 | | — | | 1,828 | | 5,868 | | 7,696 | |
Total Ag Services and Oilseeds | 4,243 | | 408 | | 4,651 | | 44,316 | | 48,967 | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 4,326 | | — | | 4,326 | | 1,237 | | 5,563 | |
Vantage Corn Processors | 2,346 | | — | | 2,346 | | — | | 2,346 | |
Total Carbohydrate Solutions | 6,672 | | — | | 6,672 | | 1,237 | | 7,909 | |
Nutrition | | | | | |
Human Nutrition | 2,410 | | — | | 2,410 | | — | | 2,410 | |
Animal Nutrition | 2,583 | | — | | 2,583 | | — | | 2,583 | |
Total Nutrition | 4,993 | | — | | 4,993 | | — | | 4,993 | |
| | | | | |
Other Business | 290 | | — | | 290 | | — | | 290 | |
Total Revenues | $ | 16,198 | | $ | 408 | | $ | 16,606 | | $ | 45,553 | | $ | 62,159 | |
| | | | | |
| | | | | |
(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.
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.
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.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
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 these acquisitionsthe product. Freight and shipping are recognized as a component of $187 million, netrevenue at the same time control transfers to the customer.
Other Business
Other Business includes the Company’s futures commission business whose primary sources of cash acquiredrevenue are commissions and brokerage income generated from executing orders and clearing futures contracts and options on futures contracts on behalf of $7 million, was preliminarily allocated as follows: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.
|
| | | |
| (In millions) |
Working capital | $ | 16 |
|
Property, plant, and equipment | 111 |
|
Goodwill | 34 |
|
Other intangible assets | 50 |
|
Other long-term assets | 6 |
|
Long-term liabilities | (19 | ) |
Noncontrolling interest | (11 | ) |
Aggregate cash purchase price, net of cash acquired | $ | 187 |
|
| |
Note 5. | 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, 20172022 and December 31, 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at September 30, 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 | $ | — | | | $ | 4,539 | | | $ | 3,086 | | | $ | 7,625 | |
Unrealized derivative gains: | | | | | | | |
Commodity contracts | — | | | 757 | | | 702 | | | 1,459 | |
Foreign currency contracts | — | | | 751 | | | — | | | 751 | |
Interest rate contracts | — | | | 105 | | | — | | | 105 | |
| | | | | | | |
Cash equivalents | 436 | | | — | | | — | | | 436 | |
| | | | | | | |
Segregated investments | 1,332 | | | — | | | — | | | 1,332 | |
| | | | | | | |
Total Assets | $ | 1,768 | | | $ | 6,152 | | | $ | 3,788 | | | $ | 11,708 | |
| | | | | | | |
Liabilities: | | | | | | | |
Unrealized derivative losses: | | | | | | | |
Commodity contracts | $ | — | | | $ | 681 | | | $ | 709 | | | $ | 1,390 | |
Foreign currency contracts | — | | | 337 | | | — | | | 337 | |
| | | | | | | |
Debt conversion option | — | | | — | | | 3 | | | 3 | |
Inventory-related payables | — | | | 902 | | | 220 | | | 1,122 | |
| | | | | | | |
Total Liabilities | $ | — | | | $ | 1,920 | | | $ | 932 | | | $ | 2,852 | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at September 30, 2017 |
|
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 | $ | — |
| | $ | 3,361 |
| | $ | 1,094 |
| | $ | 4,455 |
|
Unrealized derivative gains: | | | | | | | |
Commodity contracts | — |
| | 240 |
| | 120 |
| | 360 |
|
Foreign currency contracts | — |
| | 81 |
| | — |
| | 81 |
|
Interest rate contracts | — |
| | 2 |
| | — |
| | 2 |
|
Cash equivalents | 49 |
| | — |
| | — |
| | 49 |
|
Marketable securities | 376 |
| | 92 |
| | — |
| | 468 |
|
Segregated investments | 1,827 |
| | — |
| | — |
| | 1,827 |
|
Deferred receivables consideration | — |
| | 399 |
| | — |
| | 399 |
|
Total Assets | $ | 2,252 |
| | $ | 4,175 |
| | $ | 1,214 |
| | $ | 7,641 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Unrealized derivative losses: | | | | | | | |
Commodity contracts | $ | — |
| | $ | 300 |
| | $ | 145 |
| | $ | 445 |
|
Foreign currency contracts | — |
| | 119 |
| | — |
| | 119 |
|
Inventory-related payables | — |
| | 493 |
| | 20 |
| | 513 |
|
Total Liabilities | $ | — |
| | $ | 912 |
| | $ | 165 |
| | $ | 1,077 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Note 4. Fair Value Measurements (Continued) |
| | | Fair Value Measurements at December 31, 2016 | | Fair Value Measurements at December 31, 2021 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In millions) | | (In millions) |
| | | | | | | | |
Assets: | | | | | | | | Assets: | | | | | | | |
Inventories carried at market | $ | — |
| | $ | 3,102 |
| | $ | 1,322 |
| | $ | 4,424 |
| Inventories carried at market | $ | — | | | $ | 6,765 | | | $ | 3,004 | | | $ | 9,769 | |
Unrealized derivative gains: | | | | | | | | Unrealized derivative gains: | | | | | | | |
Commodity contracts | — |
| | 371 |
| | 140 |
| | 511 |
| Commodity contracts | — | | | 902 | | | 460 | | | 1,362 | |
Foreign exchange contracts | — |
| | 102 |
| | — |
| | 102 |
| |
Foreign currency contracts | | Foreign currency contracts | — | | | 238 | | | — | | | 238 | |
Interest rate contracts | — |
| | 11 |
| | — |
| | 11 |
| Interest rate contracts | — | | | 46 | | | — | | | 46 | |
Cash equivalents | 286 |
| | — |
| | — |
| | 286 |
| Cash equivalents | 448 | | | — | | | — | | | 448 | |
Marketable securities | 408 |
| | 69 |
| | — |
| | 477 |
| |
| Segregated investments | 1,613 |
| | — |
| | — |
| | 1,613 |
| Segregated investments | 1,338 | | | — | | | — | | | 1,338 | |
Deferred receivables consideration | — |
| | 540 |
| | — |
| | 540 |
| |
| Total Assets | $ | 2,307 |
| | $ | 4,195 |
| | $ | 1,462 |
| | $ | 7,964 |
| Total Assets | $ | 1,786 | | | $ | 7,951 | | | $ | 3,464 | | | $ | 13,201 | |
| | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | Liabilities: | | | | | | | |
Unrealized derivative losses: | | | | | | | | Unrealized derivative losses: | | | | | | | |
Commodity contracts | $ | — |
| | $ | 419 |
| | $ | 142 |
| | $ | 561 |
| Commodity contracts | $ | — | | | $ | 944 | | | $ | 815 | | | $ | 1,759 | |
Foreign exchange contracts | — |
| | 90 |
| | — |
| | 90 |
| |
Foreign currency contracts | | Foreign currency contracts | — | | | 191 | | | — | | | 191 | |
| Debt conversion option | | Debt conversion option | — | | | — | | | 15 | | | 15 | |
Inventory-related payables | — |
| | 491 |
| | 30 |
| | 521 |
| Inventory-related payables | — | | | 859 | | | 106 | | | 965 | |
Total Liabilities | $ | — |
| | $ | 1,000 |
| | $ | 172 |
| | $ | 1,172 |
| Total Liabilities | $ | — | | | $ | 1,994 | | | $ | 936 | | | $ | 2,930 | |
Estimated fair values for inventories and inventory-related payables carried at market are based on exchange-quoted prices, adjusted for differences in local markets broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) 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 in either the listed or over the counter (OTC) markets and are considered observable. 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 are recognized in the consolidated statements of earnings as a component of cost of products sold.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
Note 4. Fair Value Measurements (Continued)
Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and 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. The majority 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. These differencesMarket 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 or dealer quotations or market transactions in either the listed or OTC markets.markets and are considered observable. 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, or other (income) expense - net, depending upon the purpose of the contract. The effective portions of 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 (loss) (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 asin Level 1.
The Company’s marketable securities are comprised of equity investments, U.S. Treasury securities, corporate debt securities, and other debt securities. Publicly traded equity investments and U.S. Treasury securities are valued using quoted market prices and are classified in Level 1. Corporate debt and other debt securities are valued using third-party pricing services and substantially all are classified in Level 2. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.
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 Company has deferred consideration under its accounts receivable securitization programs (the “Programs”) which represents notes receivable fromdebt conversion option is the purchasers underequity-linked embedded derivative related to the Programs (see Note 16). This amount is reflectedexchangeable bonds issued in other current assets on the consolidated balance sheet (see Note 8). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received.August 2020. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amountembedded derivative is included in long-term debt, with changes in fair value recognized as interest, and is valued with the assistance of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs, which have historically been insignificant.a third-party pricing service (a level 3 measurement).
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
The following table presents a reconciliationrollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2017.2022.
| | | | | | | | | | | | | | | | | |
| 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 | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2017 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, June 30, 2017 | $ | 1,000 |
| | $ | 106 |
| | $ | 1,106 |
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 15 |
| | 54 |
| | 69 |
|
Purchases | 2,792 |
| | — |
| | 2,792 |
|
Sales | (2,655 | ) | | — |
| | (2,655 | ) |
Settlements | — |
| | (82 | ) | | (82 | ) |
Transfers into Level 3 | 37 |
| | 45 |
| | 82 |
|
Transfers out of Level 3 | (95 | ) | | (3 | ) | | (98 | ) |
Ending balance, September 30, 2017 | $ | 1,094 |
| | $ | 120 |
| | $ | 1,214 |
|
* Includes increase in unrealized gains of $52$481 million relating to Level 3 assets still held at September 30, 2017.2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a reconciliationrollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2017.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2017 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | Total Liabilities |
| (In millions) |
| | | | | |
Balance, June 30, 2017 | $ | 32 |
| | $ | 154 |
| | $ | 186 |
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold* | (9 | ) | | 82 |
| | 73 |
|
Purchases | 2 |
| | — |
| | 2 |
|
Sales | (5 | ) | | — |
| | (5 | ) |
Settlements | — |
| | (123 | ) | | (123 | ) |
Transfers into Level 3 | — |
| | 35 |
| | 35 |
|
Transfers out of Level 3 | — |
| | (3 | ) | | (3 | ) |
Ending balance, September 30, 2017 | $ | 20 |
| | $ | 145 |
| | $ | 165 |
|
* Includes increase in unrealized losses of $79$394 million relating to Level 3 liabilities still held at September 30, 2017.2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
The following table presents a reconciliationrollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2016.2021.
| | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2021 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, June 30, 2021 | $ | 2,824 | | | $ | 551 | | | $ | 3,375 | |
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 70 | | | 288 | | | 358 | |
Purchases | 7,351 | | | — | | | 7,351 | |
Sales | (7,346) | | | — | | | (7,346) | |
Settlements | — | | | (311) | | | (311) | |
Transfers into Level 3 | 205 | | | 34 | | | 239 | |
Transfers out of Level 3 | (602) | | | (77) | | | (679) | |
Ending balance, September 30, 2021 | $ | 2,502 | | | $ | 485 | | | $ | 2,987 | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2016 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, June 30, 2016 | $ | 1,099 |
| | $ | 153 |
| | $ | 1,252 |
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | (97 | ) | | 76 |
| | (21 | ) |
Purchases | 2,523 |
| | — |
| | 2,523 |
|
Sales | (2,529 | ) | | — |
| | (2,529 | ) |
Settlements | — |
| | (85 | ) | | (85 | ) |
Transfers into Level 3 | 206 |
| | 66 |
| | 272 |
|
Transfers out of Level 3 | (38 | ) | | (6 | ) | | (44 | ) |
Ending balance, September 30, 2016 | $ | 1,164 |
| | $ | 204 |
| | $ | 1,368 |
|
* Includes increase in unrealized gains of $22$435 million relating to Level 3 assets still held at September 30, 2016.2021.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a reconciliationrollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2021 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | | | Debt Conversion Option | | Total Liabilities |
| (In millions) |
| | | | | | | | | |
Balance, June 30, 2021 | $ | 38 | | | $ | 1,037 | | | | | $ | 24 | | | $ | 1,099 | |
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | 3 | | | 310 | | | | | (7) | | | 306 | |
Purchases | 1 | | | — | | | | | — | | | 1 | |
Sales | (27) | | | — | | | | | — | | | (27) | |
Settlements | — | | | (654) | | | | | — | | | (654) | |
Transfers into Level 3 | — | | | 60 | | | | | — | | | 60 | |
Transfers out of Level 3 | — | | | (50) | | | | | — | | | (50) | |
Ending balance, September 30, 2021 | $ | 15 | | | $ | 703 | | | | | $ | 17 | | | $ | 735 | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2016 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | Total Liabilities |
| (In millions) |
| | | | | |
Balance, June 30, 2016 | $ | 12 |
| | $ | 500 |
| | $ | 512 |
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold* | 3 |
| | (1 | ) | | 2 |
|
Purchases | 3 |
| | — |
| | 3 |
|
Sales | (3 | ) | | — |
| | (3 | ) |
Settlements | — |
| | (247 | ) | | (247 | ) |
Transfers into Level 3 | — |
| | 33 |
| | 33 |
|
Transfers out of Level 3 | — |
| | (167 | ) | | (167 | ) |
Ending balance, September 30, 2016 | $ | 15 |
| | $ | 118 |
| | $ | 133 |
|
* Includes increase in unrealized losses of $1$313 million relating to Level 3 liabilities still held at September 30, 2016.2021.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017.
|
| | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2017 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, December 31, 2016 | $ | 1,322 |
| | $ | 140 |
| | $ | 1,462 |
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | (55 | ) | | 194 |
| | 139 |
|
Purchases | 8,369 |
| | — |
| | 8,369 |
|
Sales | (8,526 | ) | | — |
| | (8,526 | ) |
Settlements | — |
| | (291 | ) | | (291 | ) |
Transfers into Level 3 | 37 |
| | 111 |
| | 148 |
|
Transfers out of Level 3 | (53 | ) | | (34 | ) | | (87 | ) |
Ending balance, September 30, 2017 | $ | 1,094 |
| | $ | 120 |
| | $ | 1,214 |
|
* Includes increase in unrealized gains of $18 million relating to Level 3 assets still held at September 30, 2017.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017.
|
| | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2017 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | Total Liabilities |
| (In millions) |
| | | | | |
Balance, December 31, 2016 | $ | 30 |
| | $ | 142 |
| | $ | 172 |
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold* | (4 | ) | | 201 |
| | 197 |
|
Purchases | 19 |
| | — |
| | 19 |
|
Sales | (25 | ) | | — |
| | (25 | ) |
Settlements | — |
| | (289 | ) | | (289 | ) |
Transfers into Level 3 | — |
| | 108 |
| | 108 |
|
Transfers out of Level 3 | — |
| | (17 | ) | | (17 | ) |
Ending balance, September 30, 2017 | $ | 20 |
| | $ | 145 |
| | $ | 165 |
|
* Includes increase in unrealized losses of $204 million relating to Level 3 liabilities still held at September 30, 2017.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
The following table presents a reconciliationrollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30,
2016.2022. | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2016 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, December 31, 2015 | $ | 1,004 |
| | $ | 243 |
| | $ | 1,247 |
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | (210 | ) | | 171 |
| | (39 | ) |
Purchases | 7,565 |
| | — |
| | 7,565 |
|
Sales | (7,272 | ) | | — |
| | (7,272 | ) |
Settlements | — |
| | (302 | ) | | (302 | ) |
Transfers into Level 3 | 206 |
| | 132 |
| | 338 |
|
Transfers out of Level 3 | (129 | ) | | (40 | ) | | (169 | ) |
Ending balance, September 30, 2016 | $ | 1,164 |
| | $ | 204 |
| | $ | 1,368 |
|
*Includes increase in unrealized gains of $36 million$2.2 billion relating to Level 3 assets still held at September 30, 2016.2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a reconciliationrollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Purchase | 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 | |
| | | | | | | | | |
|
| | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2016 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | Total Liabilities |
| (In millions) |
| | | | | |
Balance, December 31, 2015 | $ | 16 |
| | $ | 113 |
| | $ | 129 |
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold* | 5 |
| | 494 |
| | 499 |
|
Purchases | 5 |
| | — |
| | 5 |
|
Sales | (11 | ) | | — |
| | (11 | ) |
Settlements | — |
| | (392 | ) | | (392 | ) |
Transfers into Level 3 | — |
| | 115 |
| | 115 |
|
Transfers out of Level 3 | — |
| | (212 | ) | | (212 | ) |
Ending balance, September 30, 2016 | $ | 15 |
| | $ | 118 |
| | $ | 133 |
|
*Includes increase in unrealized losses of $499 million$2.1 billion 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, 2021.
| | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Asset Measurements at |
| September 30, 2021 |
| Inventories Carried at Market | | Commodity Derivative Contracts Gains | | Total Assets |
| (In millions) |
| | | | | |
Balance, December 31, 2020 | $ | 2,183 | | | $ | 859 | | | $ | 3,042 | |
Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 875 | | | 804 | | | 1,679 | |
Purchases | 20,899 | | | — | | | 20,899 | |
Sales | (21,334) | | | — | | | (21,334) | |
Settlements | — | | | (1,134) | | | (1,134) | |
Transfers into Level 3 | 1,131 | | | 79 | | | 1,210 | |
Transfers out of Level 3 | (1,252) | | | (123) | | | (1,375) | |
Ending balance, September 30, 2021 | $ | 2,502 | | | $ | 485 | | | $ | 2,987 | |
| | | | | |
* Includes increase in unrealized gains of $1.7 billion relating to Level 3 assets still held at September 30, 2016.2021.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 5. | Fair Value Measurements (Continued) |
Note 4. Fair Value Measurements (Continued)
For all periods presented,The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the Company had no transfers betweennine months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Liability Measurements at |
| September 30, 2021 |
| Inventory- related Payables | | Commodity Derivative Contracts Losses | | | | Debt Conversion Option | | Total Liabilities |
| (In millions) |
| | | | | | | | | |
Balance, December 31, 2020 | $ | 11 | | | $ | 918 | | | | | $ | 34 | | | $ | 963 | |
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | 3 | | | 1,372 | | | | | (17) | | | 1,358 | |
Purchases | 30 | | | — | | | | | — | | | 30 | |
Sales | (29) | | | — | | | | | — | | | (29) | |
Settlements | — | | | (1,667) | | | | | — | | | (1,667) | |
Transfers into Level 3 | — | | | 284 | | | | | — | | | 284 | |
Transfers out of Level 3 | — | | | (204) | | | | | — | | | (204) | |
Ending balance, September 30, 2021 | $ | 15 | | | $ | 703 | | | | | $ | 17 | | | $ | 735 | |
| | | | | | | | | |
* Includes increase in unrealized losses of $1.4 billion relating to Level 1 and 2. 3 liabilities still held at September 30, 2021.
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.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.
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, 20172022 and December 31, 2016.2021. The Company’s Level 3 measurements may include Basisbasis only, transportation cost only, or both price components. As an example, for Level 3 inventories with Basis,basis, the unobservable component as of September 30, 20172022 is a weighted average 16.2%27.9% of the total price for assets and 62.7%18.1% of the total price for liabilities.
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average % of Total Price |
| September 30, 2022 | | December 31, 2021 |
Component Type | Assets | | Liabilities | | Assets | | Liabilities |
Inventories and Related Payables | | | | | | | |
Basis | 27.9 | % | | 18.1 | % | | 28.7 | % | | 13.1 | % |
Transportation cost | 2.9 | % | | — | % | | 13.0 | % | | — | % |
| | | | | | | |
Commodity Derivative Contracts | | | | | | | |
Basis | 29.9 | % | | 22.8 | % | | 30.0 | % | | 27.1 | % |
Transportation cost | 7.0 | % | | 17.0 | % | | 8.1 | % | | 0.7 | % |
|
| | | | | | | | | | | |
| Weighted Average % of Total Price |
| September 30, 2017 | | December 31, 2016 |
Component Type | Assets | | Liabilities | | Assets | | Liabilities |
Inventories and Related Payables | | | | | | | |
Basis | 16.2 | % | | 62.7 | % | | 16.5 | % | | 67.1 | % |
Transportation cost | 18.2 | % | | — | % | | 8.3 | % | | — |
|
| | | | | | | |
Commodity Derivative Contracts | | | | | | | |
Basis | 22.3 | % | | 21.3 | % | | 16.9 | % | | 27.0 | % |
Transportation cost | 12.9 | % | | 12.3 | % | | 11.6 | % | | 13.4 | % |
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.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 6. | Derivative Instruments and Hedging Activities |
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 commodityproduct 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 physicalforward commodity purchase or sale contracts, are stated at market value and inventories of certain merchandisable agricultural commodities,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, 20172022 and December 31, 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Assets | | Liabilities | | Assets | | Liabilities |
| (In millions) |
| | | | | | | |
Foreign Currency Contracts | $ | 380 | | | $ | 337 | | | $ | 217 | | | $ | 116 | |
| | | | | | | |
Commodity Contracts | 1,373 | | | 1,390 | | | 1,276 | | | 1,759 | |
Debt Conversion Option | — | | | 3 | | | — | | | 15 | |
Total | $ | 1,753 | | | $ | 1,730 | | | $ | 1,493 | | | $ | 1,890 | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Assets | | Liabilities | | Assets | | Liabilities |
| (In millions) |
| | | | | | | |
Foreign Currency Contracts | $ | 81 |
| | $ | 119 |
| | $ | 102 |
| | $ | 90 |
|
Commodity Contracts | 360 |
| | 445 |
| | 511 |
| | 561 |
|
Total | $ | 441 |
| | $ | 564 |
| | $ | 613 |
| | $ | 651 |
|
The following table setstables 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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Other expense (income) - net | | | | |
| | | Cost of | | | Interest | | |
(In millions) | Revenues | | products sold | | | expense | | |
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 | |
| | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | |
Consolidated Statement of Earnings | $ | 20,340 | | | $ | 19,014 | | | $ | 20 | | | $ | 61 | | | |
| | | | | | | | | |
Pre-tax gains (losses) on: | | | | | | | | | |
Foreign Currency Contracts | $ | 13 | | | $ | (92) | | | $ | 62 | | | $ | — | | | |
Commodity Contracts | — | | | 214 | | | — | | | — | | | |
Debt Conversion Option | — | | | — | | | — | | | 7 | | | |
Total gain (loss) recognized in earnings | $ | 13 | | | $ | 122 | | | $ | 62 | | | $ | 7 | | | $ | 204 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Other expense (income) - net | | | | |
| | | Cost of | | | Interest | | |
(In millions) | Revenues | | products sold | | | expense | | |
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 | |
| | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Consolidated Statement of Earnings | $ | 62,159 | | | $ | 57,822 | | | $ | 36 | | | $ | 188 | | | |
| | | | | | | | | |
Pre-tax gains (losses) on: | | | | | | | | | |
Foreign Currency Contracts | $ | — | | | $ | (140) | | | $ | 137 | | | $ | — | | | |
Commodity Contracts | — | | | (1,241) | | | — | | | — | | | |
Debt Conversion Option | — | | | — | | | — | | | 17 | | | |
Total gain (loss) recognized in earnings | $ | — | | | $ | (1,381) | | | $ | 137 | | | $ | 17 | | | $ | (1,227) | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | |
| Three months ended September 30, |
| 2017 | | 2016 |
| (In millions) |
Foreign Currency Contracts | |
| | |
|
Revenues | $ | (8 | ) | | $ | (19 | ) |
Cost of products sold | 52 |
| | 1 |
|
Other income (expense) – net | 52 |
| | (3 | ) |
| | | |
Commodity Contracts | |
| | |
|
Cost of products sold | 34 |
| | 369 |
|
Total gain (loss) recognized in earnings | $ | 130 |
| | $ | 348 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 6. | Note 5. Derivative Instruments and Hedging Activities (Continued) |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| (In millions) |
Foreign Currency Contracts | |
| | |
|
Revenues | $ | (16 | ) | | $ | (32 | ) |
Cost of products sold | 82 |
| | 263 |
|
Other income (expense) – net | 186 |
| | (108 | ) |
| | | |
Commodity Contracts | |
| | |
|
Cost of products sold | $ | 294 |
| | $ | (266 | ) |
Total gain (loss) recognized in earnings | $ | 546 |
| | $ | (143 | ) |
Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately.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 or Fair Valueand Net Investment Hedging Strategies
As of September 30, 2017 and December 31, 2016, theThe Company hashad certain derivatives designated as cash flow and fair value hedges.net investment hedges as of September 30, 2022 and December 31, 2021.
For derivative instruments that are designated and qualify as net investment hedges, foreign exchange gains and losses related to changes in foreign currency exchange rates are deferred in AOCI until the underlying investment is divested.
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 $0.7 billion and $1.2 billion as of September 30, 2022 and December 31, 2021, respectively, and foreign exchange forwards with an aggregate notional amount of $2.3 billion and $2.6 billion as of September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $283 million and after-tax losses of $44 million in AOCI, respectively, related to foreign exchange gains and losses from these net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.
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.
The Company’s structured trade finance programs use interest rate swaps designated as fair valuecash flow hedges to protecthedge the fair valueforecasted interest payments on certain letters of fixed-rate debt due to changes in interest rates. The changes in the fair value of the interest rate swaps and the underlying fixed-rate debt are recorded in other (income) expense - net.credit from banks. The terms of the interest rate swaps match the terms of the underlying debt resultingforecasted interest payments. The deferred gains and losses are recognized in no ineffectiveness. At revenues over the period in which the related interest payments are paid to the banks. The amounts are recorded in revenues as the related results are also recorded in revenues. As of September 30, 2017,2022 and December 31, 2021, the Company has $2had interest rate swaps maturing on various dates with aggregate notional amounts of $0.5 billion and $1.0 billion, respectively.
The Company also uses 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 match 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. As of September 30, 2022 and December 31, 2021, the Company executed swap locks maturing on various dates with an aggregate notional amount of $400 million.
As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $80 million and $35 million in other current assets representing the fair value ofAOCI, respectively, related to the interest rate swaps and a corresponding increaseswap locks. The Company expects to recognize amounts deferred in AOCI in its consolidated statement of earnings during the underlyinglife of the debt for the same amount with no net impactinstruments.
Archer-Daniels-Midland Company
Notes to earnings.Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. Assuming normal market conditions, theThe 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/gains and losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable. As of September 30, 2017,2022 and December 31, 2021, the Company has $12had after-tax gains of $270 million of after-tax lossesand $161 million in AOCI, respectively, related to gains and losses from commodity cash flow hedge transactions.these programs. The Company expects to recognize $12$270 million of thesethe September 30, 2022 after-tax lossesgains in its consolidated statement of earnings during the next 12 months.
The Company uses futures or options contracts to fixhedge 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 currentlynormally grind approximately 7265 million bushels of corn per month. During the past 12 months, the Company hedged between 19%17% and 62%32% of its monthly anticipated grind. At September 30, 2017,2022, the Company hashad designated hedges representing between 6%5% and 41%33% 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 fixhedge 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, 2022, 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 1 million85% and 66 million gallons100% of ethanolthe anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales per month under these programs.at the designated facilities. At September 30, 2017,2022, the Company hashad designated hedges representing between 00% and 1 million gallons100% of ethanolthe anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales per monthat the designated facilities over the next 12 months.
Archer-Daniels-MidlandThe 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 0% and 121% of the anticipated monthly natural gas consumption at the designated facilities. At September 30, 2022, the Company had designated hedges representing between 0% and 89% of the anticipated monthly natural gas consumption over the next 12 months.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 6. | Derivative Instruments and Hedging Activities (Continued) |
The following table sets forth the fair value of derivatives designated as hedging instruments as of September 30, 20172022 and December 31, 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Assets | | Liabilities | | Assets | | Liabilities |
| (In millions) |
Commodity Contracts | $ | 86 | | | $ | — | | | $ | 86 | | | $ | — | |
Foreign Currency Contracts | 371 | | | — | | | 21 | | | $ | 75 | |
Interest Rate Contracts | 105 | | | — | | | 46 | | | — | |
Total | $ | 562 | | | $ | — | | | $ | 153 | | | $ | 75 | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Assets | | Liabilities | | Assets | | Liabilities |
| (In millions) |
Interest Rate Contracts | $ | 2 |
| | $ | — |
| | $ | 11 |
| | $ | — |
|
Total | $ | 2 |
| | $ | — |
| | $ | 11 |
| | $ | — |
|
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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cost of products sold | | | | | | | | | | |
(In millions) | Revenues | | | | | | | |
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 | |
| | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | | | | | |
Consolidated Statement of Earnings | $ | 20,340 | | | $ | 19,014 | | | | | | | | | | | |
| | | | | | | | | | | | | |
Effective amounts recognized in earnings | | | | | | | | | | | | | |
Pre-tax gains (losses) on: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Commodity Contracts | $ | — | | | $ | 122 | | | | | | | | | | | |
Interest Contracts | — | | | — | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total gain (loss) recognized in earnings | $ | — | | | $ | 122 | | | | | | | | | | | $ | 122 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Cost of products sold | | | | | | |
(In millions) | Revenues | | | | | |
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 | |
| | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Consolidated Statement of Earnings | $ | 62,159 | | | $ | 57,822 | | | | | | | |
| | | | | | | | | |
Effective amounts recognized in earnings | | | | | | | | | |
Pre-tax gains (losses) on: | | | | | | | | | |
| | | | | | | | | |
Commodity Contracts | $ | — | | | $ | 450 | | | | | | | |
Interest Contracts | (15) | | | — | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total gain (loss) recognized in earnings | $ | (15) | | | $ | 450 | | | | | | | $ | 435 | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | |
| | | Three months ended |
| Consolidated Statement of Earnings Locations | | September 30, |
| | 2017 | | 2016 |
| | | (In millions) |
Effective amounts recognized in earnings | | | | | |
Foreign Currency Contracts | Other income/expense – net | | $ | — |
| | $ | (3 | ) |
Interest Contracts | Interest expense | | — |
| | (2 | ) |
Commodity Contracts | Revenues | | — |
| | (9 | ) |
| Cost of products sold | | (15 | ) | | (37 | ) |
Ineffective amount recognized in earnings | | | | | |
Commodity Contracts | Revenues | | — |
| | (1 | ) |
| Cost of products sold | | (4 | ) | | 1 |
|
Total amount recognized in earnings | | | $ | (19 | ) | | $ | (51 | ) |
|
| | | | | | | | | |
| | | Nine months ended |
| Consolidated Statement of Earnings Locations | | September 30, |
| | 2017 | | 2016 |
| | | (In millions) |
Effective amounts recognized in earnings | | | | | |
Foreign Currency Contracts | Other income/expense – net | | $ | (2 | ) | | $ | (25 | ) |
Interest Contracts | Interest expense | | — |
| | (2 | ) |
Commodity Contracts | Revenues | | — |
| | (14 | ) |
| Cost of products sold | | (20 | ) | | (61 | ) |
Ineffective amount recognized in earnings | | | | | |
Commodity Contracts | Revenues | | 4 |
| | — |
|
| Cost of products sold | | 5 |
| | 5 |
|
Total amount recognized in earnings | | | $ | (13 | ) | | $ | (97 | ) |
25
Hedge ineffectiveness for commodity contracts results when the change in the price of the underlying commodity in a specific cash market differs from the change in the price of the derivative financial instrument used to establish the hedging relationship. As an example, if the change in the price of a corn futures contract is strongly correlated to the change in cash price paid for corn, the gain or loss on the derivative instrument is deferred and recognized at the time the corn grind occurs. If the change in price of the derivative does not strongly correlate to the change in the cash price of corn, in the same example, some portion or all of the derivative gains or losses may be required to be recognized in earnings prior to when the corn grind occurs.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 6. | Derivative Instruments and Hedging Activities (Continued) |
Note 5. Derivative Instruments and Hedging Activities (Continued)
Other Net Investment Hedging Strategies
On June 24, 2015, the Company issued €500 million aggregate principal amount of Floating Rate Notes and €600 million aggregate principal amount of 1.75% Notes (collectively, the “Notes”). The Company has designated €1.1€1.3 billion and €1.8 billion of the Notesits outstanding long-term debt and commercial paper borrowings at September 30, 2022 and December 31, 2021, respectively, as a hedgehedges of its net investment in a foreign subsidiary. As of September 30, 2017,2022 and December 31, 2021, the Company has $47had after-tax gains of $311 million of after-tax lossesand $55 million in AOCI, respectively, related to foreign exchange gains and losses from the net investment hedge transaction.transactions. The amount is deferred in AOCI until the underlying investment is divested.
| |
Note 7. | Marketable Securities |
|
| | | | | | | | | | | | | | | |
| Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| (In millions) |
| | | | | | | |
September 30, 2017 | | | | | | | |
United States government obligations | | | | | | | |
Maturity less than 1 year | $ | 259 |
| | $ | — |
| | $ | — |
| | $ | 259 |
|
Maturity 1 to 5 years | 117 |
| | — |
| | — |
| | 117 |
|
Corporate debt securities | |
| | |
| | |
| | |
|
Maturity less than 1 year | 2 |
| | — |
| | — |
| | 2 |
|
Maturity 1 to 5 years | 90 |
| | — |
| | — |
| | 90 |
|
| $ | 468 |
| | $ | — |
| | $ | — |
| | $ | 468 |
|
|
| | | | | | | | | | | | | | | |
| Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| (In millions) |
| | | | | | | |
December 31, 2016 | | | | | | | |
United States government obligations | | | | | | | |
Maturity less than 1 year | $ | 287 |
| | $ | — |
| | $ | — |
| | $ | 287 |
|
Maturity 1 to 5 years | 121 |
| | — |
| | (1 | ) | | 120 |
|
Corporate debt securities | |
| | |
| | |
| | |
|
Maturity less than 1 year | 1 |
| | — |
| | — |
| | 1 |
|
Maturity 1 to 5 years | 66 |
| | — |
| | — |
| | 66 |
|
Other debt securities | |
| | |
| | |
| | |
|
Maturity less than 1 year | 8 |
| | — |
| | — |
| | 8 |
|
Equity securities | |
| | |
| | |
| | |
|
Available-for-sale | 1 |
| | — |
| | — |
| | 1 |
|
| $ | 484 |
| | $ | — |
| | $ | (1 | ) | | $ | 483 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 8.6. Other Current Assets
The following table sets forth the items in other current assets:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
| (In millions) |
| | | |
Unrealized gains on derivative contracts | $ | 2,315 | | | $ | 1,646 | |
| | | |
Margin deposits and grain accounts | 858 | | | 600 | |
Customer omnibus receivable | 1,328 | | | 1,179 | |
Financing receivables - net (1) | 202 | | | 189 | |
Insurance premiums receivable | 38 | | | 20 | |
Prepaid expenses | 473 | | | 370 | |
Biodiesel tax credit | 54 | | | 79 | |
Tax receivables | 527 | | | 708 | |
Non-trade receivables (2) | 316 | | | 285 | |
Other current assets | 53 | | | 82 | |
| $ | 6,164 | | | $ | 5,158 | |
| | | |
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
| (In millions) |
| | | |
Unrealized gains on derivative contracts | $ | 443 |
| | $ | 624 |
|
Deferred receivables consideration | 399 |
| | 540 |
|
Customer omnibus receivable | 474 |
| | 521 |
|
Financing receivables - net (1) | 407 |
| | 373 |
|
Insurance premiums receivable | 137 |
| | 648 |
|
Prepaid expenses | 248 |
| | 268 |
|
Tax receivables | 423 |
| | 480 |
|
Non-trade receivables (2) | 374 |
| | 478 |
|
Other current assets | 179 |
| | 451 |
|
| $ | 3,084 |
| | $ | 4,383 |
|
(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 $6$3 million and $7$4 million at September 30, 20172022 and December 31, 2016,2021, respectively. Interest earned on financing receivables of $6$3 million and $18$11 million for the three and nine months ended September 30, 2017,2022, respectively and $5$2 million and $17$8 million for the three and nine months ended September 30, 2016,2021, respectively, is included in interest and investment income in the consolidated statements of earnings.
(2) Non-trade receivables included $75$18 million and $223$27 million of reinsurance recoverables as of September 30, 20172022 and December 31, 2016,2021, respectively.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 9.7. Accrued Expenses and Other Payables
The following table sets forth the items in accrued expenses and other payables:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
| (In millions) |
| | | |
Unrealized losses on derivative contracts | $ | 1,727 | | | $ | 1,950 | |
Accrued compensation | 423 | | | 445 | |
Income tax payable | 211 | | | 132 | |
Other taxes payable | 141 | | | 168 | |
| | | |
| | | |
Insurance claims payable | 229 | | | 220 | |
Contract liability | 423 | | | 581 | |
| | | |
| | | |
Other accruals and payables | 1,532 | | | 1,294 | |
| $ | 4,686 | | | $ | 4,790 | |
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
| (In millions) |
| | | |
Unrealized losses on derivative contracts | $ | 564 |
| | $ | 651 |
|
Reinsurance premiums payable | 104 |
| | 479 |
|
Insurance claims payables | 260 |
| | 373 |
|
Deferred income | 570 |
| | 1,065 |
|
Other accruals and payable | 1,050 |
| | 1,414 |
|
| $ | 2,548 |
| | $ | 3,982 |
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 10. | Debt and Financing Arrangements |
Note 8. Debt and Financing Arrangements
On September 14, 2017,February 28, 2022, the Company issued $500its first sustainability bond of $750 million aggregate principal amount of 3.75%2.900% notes due in 2047. ProceedsMarch 1, 2032. Net proceeds before expenses were $493$748 million. The Company expects to apply an amount equal to the net proceeds to finance or refinance eligible green projects and/or eligible social projects.
OnDuring the quarter ended September 29, 2017,30, 2022, the Company redeemed $559€500 million aggregate principal amount of 5.45% notesFixed-to-Floating Rate Senior Notes due 2022 issued in a private placement on March 15, 2018 and incurred25, 2021.
On September 29, 2022, Archer Daniels Midland Singapore, Pte. Ltd., a wholly-owned subsidiary of the Company, closed on a $500 million revolving credit facility at an early extinguishment chargeinterest rate of $11 millionSOFR plus 45 basis points. The facility will be used to finance working capital requirements of ADM entities in the quarter endedAsia Pacific region and general corporate purposes.
At September 30, 2017.
At September 30, 2017,2022, the fair value of the Company’s long-term debt exceededwas below the carrying value by $1.1$0.3 billion,, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At September 30, 2017,2022, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $6.9$12.2 billion,, of which $4.8$10.1 billion was unused. Of the Company’s total lines of credit, $4.0$5.0 billion support a supported the combined U.S. and European commercial paper borrowing facility,programs, against which there was $0.6 billion ofno commercial paper outstanding at September 30, 2017.2022.
The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to $1.7$2.6 billion in funding resulting from the sale of accounts receivable. Asreceivable with $0.6 billion unused capacity as of September 30, 2017, the Company utilized $1.4 billion of its facility under the Programs2022 (see Note 1614 for more information onabout the Programs).
Note 9. Income Taxes
The Company’s effective tax raterates were 15.7% and 16.9% for the three and nine months ended September 30, 2017 was 13.3% and 24.0%,2022, respectively, compared to 28.3%18.4% and 27.7%15.8% for the three and nine months ended September 30, 2016,2021, respectively. The change in the ratesrate was primarily due to changes in the geographic mix of earnings and the impact of changes in discrete tax items,items.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“Inflation Act”), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income,” and a one percent excise tax on net repurchases of stock for tax years beginning after December 31, 2022. While the favorable resolutionInflation Act has no immediate impact and is not expected to have a material adverse effect on ADM’s results of an uncertain tax position relatedoperations going forward, the Company will continue to a 2014 acquisition and returnevaluate its impact as further information becomes available.
Archer-Daniels-Midland Company
Notes to provision in the current quarter, partially offset by changes in the forecasted geographic mix of pre-tax earnings and the expiration of U.S. tax credits, including the biodiesel credit, at the end of 2016.Consolidated Financial Statements (Continued)
(Unaudited)
Note 9. Income Taxes (Continued)
The Company is subject to income taxation and routine examination by domestic and foreign tax authoritiesexaminations 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 negotiationnegotiations 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. In its routine evaluations of the exposure associated with various tax filing positions the Company recognizes a liability, when necessary, for estimated potential additional tax owed by the Company in accordance with the applicable accounting standard. However,and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.
The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), has received three separate However, the Company does not anticipate that the total amount of unrecognized tax assessments frombenefits will increase or decrease significantly in the Brazilian Federal Revenue Service(BFRS)challengingnext twelve months. Given the long periods of time involved in resolving tax deductibility of commodity hedging losses and related expenses forpositions, the tax years 2004, 2006, and 2007. As of September 30, 2017, these assessments, updated for estimated penalties, interest, and variation in currency exchange rates, totaled approximately $490 million. The statute of limitations for tax years 2005 and 2008 to 2011 has expired. The Company does not expect to receive any additionalthat the recognition of unrecognized tax assessments.
ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilianbenefits will have a material impact on the Company’s effective income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging lossesrate in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS.given period.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 11. Income Taxes (Continued)
ADM do Brasil filed an administrative appeal for each of the assessments. The appeal panel found in favor of the BFRS on these assessments and ADM do Brasil filed a second level administrative appeal. The second administrative appeal panel continues to conduct customary procedural activities, including ongoing dialogue with the BFRS auditor. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, the Company intends to file appeals in the Brazilian federal courts. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties.
The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2011.
The Company’s subsidiariessubsidiary in Argentina, haveADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports totaling $128for the tax years 1999 through 2011 and 2014. As of September 30, 2022, these assessments totaled $6 million (inclusive of in tax and up to $29 million in interest and adjusted(adjusted for variation in currency exchange rates) for the tax years 2004 through 2010.. The Argentine tax authorities have been conductingconducted 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. While theThe Company strongly believes that it has complied with all Argentine tax laws, itlaws. Currently the Company is under audit for fiscal years 2015 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 2010,2014, and estimates that these potential assessments wouldcould be approximately $213$78 million (as of September 30, 2017in tax and subject to$49 million in interest (adjusted for variation in currency exchange rates)rates as of September 30, 2022). The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments. In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for this assessment because it has concluded that it is more likely than not to prevail on the matter based upon its technical merits and because the taxing jurisdiction’s process does not provide a mechanism for settling at less than the full amount of the assessment. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2010.2014.
In accordance with2014, the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for these assessments because it has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits and because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in financial impacts of up to the entire amount of these assessments.
The Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., has received a tax assessment totaling $106 million 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. The Company has appealedAs of September 30, 2022, this assessment was $80 million in tax and $28 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the assessmentcourt issued an unfavorable ruling and carefully evaluatedin October 2020, assigned a third party expert to establish a valuation. During the underlying transactionssecond 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 has concluded that the amount of the gain recognized on the reorganization forDutch tax purposes was appropriate. While the Company plansauthorities have six weeks to vigorously defend its position against the assessment, it has accruedfile an amount it believes would be the likely outcome of the litigation. The Company’s defense of the judicial appealappeal. Subsequent appeals may take an extended period of time and could result in additional financial impacts of up to the entire amount of thisthe assessment. As of September 30, 2022, the Company has accrued its best estimate of what it believes will be the likely outcome of the litigation.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12.10. Accumulated Other Comprehensive Income (AOCI)
The following tables set forth the changes in AOCI by component for the three and nine months ended September 30, 20172022 and the reclassifications out of AOCI for the three and nine months ended September 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 |
| 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, 2022 | $ | (2,212) | | | $ | 382 | | | $ | (121) | | | $ | (14) | | | $ | (1,965) | |
Other comprehensive income (loss) before reclassifications | (536) | | | 161 | | | 8 | | | — | | | (367) | |
Gain (loss) on net investment hedges | 318 | | | — | | | — | | | — | | | 318 | |
Amounts reclassified from AOCI | — | | | (118) | | | — | | | — | | | (118) | |
Tax effect | (74) | | | (5) | | | (2) | | | 1 | | | (80) | |
Net of tax amount | (292) | | | 38 | | | 6 | | | 1 | | | (247) | |
Balance at September 30, 2022 | $ | (2,504) | | | $ | 420 | | | $ | (115) | | | $ | (13) | | | $ | (2,212) | |
| | | | | | | | | |
| Nine months ended September 30, 2022 |
| 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, 2021 | $ | (2,248) | | | $ | 225 | | | $ | (147) | | | $ | (2) | | | $ | (2,172) | |
Other comprehensive income (loss) before reclassifications | (844) | | | 611 | | | 22 | | | (13) | | | (224) | |
Gain (loss) on net investment hedges | 777 | | | — | | | — | | | — | | | 777 | |
Amounts reclassified from AOCI | — | | | (366) | | | 23 | | | — | | | (343) | |
Tax effect | (189) | | | (50) | | | (13) | | | 2 | | | (250) | |
Net of tax amount | (256) | | | 195 | | | 32 | | | (11) | | | (40) | |
Balance at September 30, 2022 | $ | (2,504) | | | $ | 420 | | | $ | (115) | | | $ | (13) | | | $ | (2,212) | |
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 |
| 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, 2017 | $ | (1,684 | ) | | $ | 39 |
| | $ | (510 | ) | | $ | 14 |
| | $ | (2,141 | ) |
Other comprehensive income (loss) before reclassifications | 244 |
| | (41 | ) | | 160 |
| | 6 |
| | 369 |
|
Amounts reclassified from AOCI | — |
| | 15 |
| | 14 |
| | — |
| | 29 |
|
Tax effect | (40 | ) | | 6 |
| | (66 | ) | | — |
| | (100 | ) |
Net current period other comprehensive income | 204 |
| | (20 | ) | | 108 |
| | 6 |
| | 298 |
|
Balance at September 30, 2017 | $ | (1,480 | ) | | $ | 19 |
| | $ | (402 | ) | | $ | 20 |
| | $ | (1,843 | ) |
| | | | | | | | | |
| Nine months ended September 30, 2017 |
| 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, 2016 | $ | (2,102 | ) | | $ | 6 |
| | $ | (521 | ) | | $ | 19 |
| | $ | (2,598 | ) |
Other comprehensive income before reclassifications | 626 |
| | (10 | ) | | 151 |
| | 1 |
| | 768 |
|
Amounts reclassified from AOCI | — |
| | 22 |
| | 42 |
| | — |
| | 64 |
|
Tax effect | (4 | ) | | 1 |
| | (74 | ) | | — |
| | (77 | ) |
Net current period other comprehensive income | 622 |
| | 13 |
| | 119 |
| | 1 |
| | 755 |
|
Balance at September 30, 2017 | $ | (1,480 | ) | | $ | 19 |
| | $ | (402 | ) | | $ | 20 |
| | $ | (1,843 | ) |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12.10. Accumulated Other Comprehensive Income (AOCI) (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 | 2022 | 2021 | | 2022 | 2021 |
| (In millions) | |
| | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Deferred loss (gain) on hedging activities | | | | | | |
| $ | (1) | | $ | — | | | $ | (1) | | $ | 15 | | Revenues |
| (117) | | (122) | | | (365) | | (450) | | Cost of products sold |
| | | | | | |
| | | | | | |
| (118) | | (122) | | | (366) | | (435) | | Total before tax |
| 17 | | 29 | | | 69 | | 108 | | Tax |
| $ | (101) | | $ | (93) | | | $ | (297) | | $ | (327) | | Net of tax |
| | | | | | |
Pension liability adjustment | | | | | | |
Amortization of defined benefit pension items: | | | | | | |
Prior service loss (credit) | $ | (10) | | $ | (4) | | | $ | (114) | | $ | (71) | | Other (income) expense-net |
Actuarial losses | 10 | | 12 | | | 137 | | 161 | | Other (income) expense-net |
| — | | 8 | | | 23 | | 90 | | Total before tax |
| — | | 6 | | | (8) | | (20) | | Tax |
| $ | — | | $ | 14 | | | $ | 15 | | $ | 70 | | 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
|
| | | | | | | | | | | | | | | | | | |
| | Amount reclassified from AOCI | | |
| | Three months ended | | Nine months ended | | |
Details about AOCI components | | Sep 30 2017 | | Sep 30 2016 | | Sep 30 2017 | | Sep 30 2016 | | Affected line item in the consolidated statement of earnings |
| | (In millions) | | |
| | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | (75 | ) | | Other income/expense |
| | — |
| | — |
| | — |
| | — |
| | Tax |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | (75 | ) | | Net of tax |
| | | | | | | | | | |
Deferred loss (gain) on hedging activities | | | | | | | | | | |
| | $ | 15 |
| | $ | 37 |
| | $ | 20 |
| | $ | 61 |
| | Cost of products sold |
| | — |
| | 2 |
| | — |
| | 2 |
| | Interest expense |
| | — |
| | 3 |
| | 2 |
| | 25 |
| | Other income/expense |
| | — |
| | 9 |
| | — |
| | 14 |
| | Revenues |
| | 15 |
| | 51 |
| | 22 |
| | 102 |
| | Total before tax |
| | (5 | ) | | (19 | ) | | (8 | ) | | (38 | ) | | Tax |
| | $ | 10 |
| | $ | 32 |
| | $ | 14 |
| | $ | 64 |
| | Net of tax |
| | | | | | | | | | |
Pension liability adjustment | | | | | | | | | | |
Amortization of defined benefit pension items: | | | | | | | | | | |
Prior service credit | | $ | (2 | ) | | $ | (5 | ) | | $ | (8 | ) | | $ | (12 | ) | | Selling, general, and administrative expenses |
Actuarial losses | | 16 |
| | 15 |
| | 50 |
| | 44 |
| | Selling, general, and administrative expenses |
| | 14 |
| | 10 |
| | 42 |
| | 32 |
| | Total before tax |
| | (5 | ) | | (4 | ) | | (15 | ) | | (7 | ) | | Tax |
| | $ | 9 |
| | $ | 6 |
| | $ | 27 |
| | $ | 25 |
| | Net of tax |
| | | | | | | | | | |
Unrealized loss on investments | | | | | | | | | | |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | Asset impairment, exit, and restructuring costs |
| | — |
| | — |
| | — |
| | — |
| | Tax |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | Net of tax |
| | | | | | | | | | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 13. | 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, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In millions) |
Gains on sales of assets | $ | (35) | | | $ | (7) | | | $ | (40) | | | $ | (46) | |
Debt extinguishment charges | — | | | 36 | | | — | | | 36 | |
Pension settlement | — | | | 1 | | | — | | | 83 | |
| | | | | | | |
Other – net | (32) | | | (10) | | | (143) | | | (37) | |
Other (Income) Expense - Net | $ | (67) | | | $ | 20 | | | $ | (183) | | | $ | 36 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (In millions) |
(Gains) losses on sales of assets and businesses | $ | (15 | ) | | $ | 7 |
| | $ | (66 | ) | | $ | (117 | ) |
Loss on debt extinguishment | 11 |
| | — |
| | 11 |
| | — |
|
Other – net | — |
| | (11 | ) | | 42 |
| | (21 | ) |
Other (Income) Expense - Net | $ | (4 | ) | | $ | (4 | ) | | $ | (13 | ) | | $ | (138 | ) |
Gains on sales of assets forin the three and nine months ended September 30, 2017 included2022 and 2021 consisted of gains on sales of certain assets and disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets and businesses for the nine months ended September 30, 2017 included gains related to the sale of the crop risk services business and disposals of other individually insignificant assets
Debt extinguishment charges in the ordinary course of business, partially offset by an adjustment of the proceeds of the 2015 sale of the cocoa business. Losses on sale of assets for the three months ended September 30, 2016 related principally to a loss on the sale of an investment. Gains on sales of assets and businesses for the nine months ended September 30, 2016 included realized additional consideration related to the sale of the Company’s equity investment in Gruma S.A.B. de C.V. in December 2012, recovery of loss provisions and gain related to the sale of the Company’s Brazilian sugar ethanol facilities, and gain related to the revaluation of the remaining interest to settlement value in conjunction with the acquisition of the remaining interest in Amazon Flavors.
Loss on debt extinguishment for the three and nine months ended September 30, 20172021 were related to the early redemption of the Company’s $559$500 million aggregate principal amount of 2.750% notes due onin March 15, 2018.2025.
Other - net for the nine months ended September 30, 2017 included foreign exchange losses and changesPension settlement in contingent settlement provisions. Other - net for the three and nine months ended September 30, 20162021 was related to the purchase of group annuity contracts that irrevocably transferred the future benefit obligations and annuity administration for certain salaried and hourly retirees and terminated vested participants under the Company’s ADM Retirement Plan and ADM Pension Plan for Hourly-Wage Employees to independent third parties.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 11. Other (Income) Expense - Net (Continued)
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, foreign exchange gains from hedge activity, and other income. Other - net in the nine months ended September 30, 2022 also included a $50 million one-time payment from the USDA Biofuel Producer Recovery Program. Other - net in the three and nine months ended September 30, 2021 included the non-service components of net pension benefit income of $1 million and $12 million, respectively, foreign exchange gains from hedge activity, and other income and expense.
Note 14.12. Segment Information
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are organized, managed, and classified into fourthree reportable business segments: AgriculturalAg Services Corn Processing,and Oilseeds, Processing,Carbohydrate Solutions, and Wild Flavors and Specialty Ingredients.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.Other Business.
The Agricultural Services segment utilizes its extensive global grain elevator and transportation networks, and port operations to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry. The Agricultural Services segment includes international agricultural commodities merchandising and handling activities managed through a global trade desk based in Rolle, Switzerland. Agricultural Services’ grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. Agricultural Services’ transportation network capabilities include barge, ocean-going vessel, truck, rail, and container freight services. The Agricultural Services segment also includes the activities related to structured trade finance, the processing of wheat into wheat flour, and the Company’s share of the results of its Pacificor (formerly Kalama Export Company LLC) joint venture. The Agricultural Services segment also included returns associated with the Company’s 19.8% investment in GrainCorp until its sale in December 2016. In July 2017, the Company completed the acquisition of a 51% controlling interest in Industries Centers, an Israeli company specializing in the import and distribution of agricultural feed products, which is now known as ADM Israel.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 14. | Segment Information (Continued) |
The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, utilizing its asset base primarily located in the central part of the United States with additional facilities in China, Bulgaria, France, Morocco, Spain, and Turkey. The Corn Processing segment converts corn into sweeteners, starches, and bioproducts. Its products include ingredients used in the food and beverage industry including sweeteners, starch, syrup, glucose, and dextrose. Dextrose and starch are used by the Corn Processing segment as feedstocks for its bioproducts operations. By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other food and animal feed ingredients. Ethyl alcohol is produced by the Company for industrial use as ethanol or as beverage grade. Ethanol, in gasoline, increases octane and is used as an extender and oxygenate. Bioproducts also include essential amino acids such as lysine and threonine used in swine and poultry diets to optimize performance. Corn gluten feed and meal, as well as distillers’ grains, are produced for use as animal feed ingredients. Corn germ, a by-product of the wet milling process, is further processed into vegetable oil and protein meal. The Corn Processing segment also includes activities related to the processing and distribution of formula feeds and animal health and nutrition products. Other Corn Processing products include citric acids and glycols, all of which are used in various food and industrial products. The Corn Processing segment also included the activities of the Company’s Brazilian sugarcane ethanol plant and related operations until the Company completed the sale of these operations in May 2016. This segment also includes the Company’s share of the results of its equity investments in Almidones Mexicanos S.A. and Red Star Yeast Company LLC. In February 2017, the Company acquired Crosswind Industries, Inc., an industry leader in the manufacture of contract and private label pet treats and foods, as well as specialty ingredients, and an 89% controlling interest in Biopolis SL, a leading provider of microbial technology with a strong portfolio of novel food ingredients. In June 2017, the Company completed the acquisition of Chamtor SA, a French producer of wheat-based sweeteners and starches.
The Oilseeds Processing segment includes global activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals. Oilseeds products produced and marketed by the Company include ingredients for the food, feed, energy, and industrial products industries. Crude vegetable oils produced by the segment’s crushing activities are sold “as is” or are further processed by refining, blending, bleaching, and deodorizing into salad oils. Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oils are used to produce biodiesel or are sold to other manufacturers for use in chemicals, paints, and other industrial products. Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds. In Europe and South America, the Oilseeds Processing segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets. These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds. The Oilseeds Processing segment is a major supplier of peanuts, tree nuts, and peanut-derived ingredients to both the U.S. and export markets. In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and other industrial markets. The Oilseeds Processing segment also includes the Company’s share of the results of its equity investment in Wilmar International Limited (Wilmar) and its share of the results of its Stratas Foods LLC, Edible Oils Limited, and Olenex joint ventures. During the nine months ended September 30, 2017, the Company acquired additional shares in Wilmar, increasing its ownership interest from 23.2% to 24.9% as of September 30, 2017.
The Wild Flavors and Specialty Ingredients (WFSI) segment engages in the manufacturing, sales, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients. The WFSI segment also includes the activities related to the procurement, processing, and distribution of edible beans.
Other includes the Company’s remaining operations, primarily its financial business units, related to futures commission and insurance activities. On May 1, 2017, the Company completed the sale of its crop risk services business to Validus Holdings, a global group of insurance and reinsurance companies.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses and specified items.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 the impact of LIFO-related adjustments, unallocated corporate expenses and interest costexpense net of investment income,interest income. Corporate results also include revaluation gains and losses on cost method investments and the Company’s share of the results of its equity investmentinvestments in Compagnie Industrialle et Financiere des Produits Amylaces SA (Luxembourg) (CIP).early-stage start-up companies that ADM Ventures has investments in.
For more information about the Company’s business segments, refer to Note 17 of “Notes to Consolidated Financial Statements” included in Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 14. | Segment Information (Continued) |
Note 12. Segment Information (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2022 | | 2021 | | 2022 | | 2021 |
Gross revenues | | | | | | | |
| | | | | | | |
| | | | | | | |
Ag Services and Oilseeds | $ | 20,238 | | | $ | 16,410 | | | $ | 61,838 | | | $ | 51,148 | |
Carbohydrate Solutions | 4,070 | | | 3,227 | | | 12,750 | | | 9,132 | |
Nutrition | 1,900 | | | 1,755 | | | 5,921 | | | 5,172 | |
Other Business | 97 | | | 88 | | | 305 | | | 290 | |
Intersegment elimination | (1,622) | | | (1,140) | | | (5,197) | | | (3,583) | |
Total gross revenues | $ | 24,683 | | | $ | 20,340 | | | $ | 75,617 | | | $ | 62,159 | |
| | | | | | | |
Intersegment sales | | | | | | | |
| | | | | | | |
| | | | | | | |
Ag Services and Oilseeds | $ | 1,097 | | | $ | 721 | | | $ | 3,015 | | | $ | 2,181 | |
Carbohydrate Solutions | 489 | | | 361 | | | 2,052 | | | 1,223 | |
Nutrition | 36 | | | 58 | | | 130 | | | 179 | |
| | | | | | | |
Total intersegment sales | $ | 1,622 | | | $ | 1,140 | | | $ | 5,197 | | | $ | 3,583 | |
| | | | | | | |
Revenues from external customers | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Ag Services and Oilseeds | | | | | | | |
Ag Services | $ | 12,537 | | | $ | 9,899 | | | $ | 38,717 | | | $ | 32,860 | |
Crushing | 3,220 | | | 2,842 | | | 9,804 | | | 8,411 | |
Refined Products and Other | 3,384 | | | 2,948 | | | 10,302 | | | 7,696 | |
Total Ag Services and Oilseeds | 19,141 | | | 15,689 | | | 58,823 | | | 48,967 | |
Carbohydrate Solutions | | | | | | | |
Starches and Sweeteners | 2,680 | | | 1,972 | | | 7,697 | | | 5,563 | |
Vantage Corn Processors | 901 | | | 894 | | | 3,001 | | | 2,346 | |
Total Carbohydrate Solutions | 3,581 | | | 2,866 | | | 10,698 | | | 7,909 | |
Nutrition | | | | | | | |
Human Nutrition | 906 | | | 808 | | | 2,884 | | | 2,410 | |
Animal Nutrition | 958 | | | 889 | | | 2,907 | | | 2,583 | |
Total Nutrition | 1,864 | | | 1,697 | | | 5,791 | | | 4,993 | |
| | | | | | | |
Other Business | 97 | | | 88 | | | 305 | | | 290 | |
| | | | | | | |
Total revenues from external customers | $ | 24,683 | | | $ | 20,340 | | | $ | 75,617 | | | $ | 62,159 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2017 | | 2016 | | 2017 | | 2016 |
Gross revenues | | | | | | | |
Agricultural Services | $ | 7,022 |
| | $ | 7,953 |
| | $ | 21,351 |
| | $ | 22,486 |
|
Corn Processing | 2,517 |
| | 2,630 |
| | 7,318 |
| | 7,570 |
|
Oilseeds Processing | 6,797 |
| | 6,498 |
| | 20,109 |
| | 19,418 |
|
Wild Flavors and Specialty Ingredients | 586 |
| | 614 |
| | 1,809 |
| | 1,893 |
|
Other | 98 |
| | 95 |
| | 293 |
| | 314 |
|
Intersegment elimination | (2,193 | ) | | (1,958 | ) | | (6,122 | ) | | (5,836 | ) |
Total gross revenues | $ | 14,827 |
| | $ | 15,832 |
| | $ | 44,758 |
| | $ | 45,845 |
|
| | | | | | | |
Intersegment sales | |
| | |
| | |
| | |
|
Agricultural Services | $ | 947 |
| | $ | 993 |
| | $ | 2,622 |
| | $ | 2,659 |
|
Corn Processing | 192 |
| | 239 |
| | 475 |
| | 620 |
|
Oilseeds Processing | 1,045 |
| | 723 |
| | 3,003 |
| | 2,547 |
|
Wild Flavors and Specialty Ingredients | 9 |
| | 3 |
| | 22 |
| | 10 |
|
Total intersegment sales | $ | 2,193 |
| | $ | 1,958 |
| | $ | 6,122 |
| | $ | 5,836 |
|
| | | | | | | |
Revenues from external customers | |
| | |
| | |
| | |
|
Agricultural Services | | | | | | | |
Merchandising and Handling | $ | 5,265 |
| | $ | 6,146 |
| | $ | 16,434 |
| | $ | 17,331 |
|
Milling and Other | 757 |
| | 754 |
| | 2,141 |
| | 2,325 |
|
Transportation | 53 |
| | 60 |
| | 154 |
| | 171 |
|
Total Agricultural Services | 6,075 |
| | 6,960 |
| | 18,729 |
| | 19,827 |
|
Corn Processing | | | | | | | |
Sweeteners and Starches | 1,087 |
| | 1,057 |
| | 3,192 |
| | 3,061 |
|
Bioproducts | 1,238 |
| | 1,334 |
| | 3,651 |
| | 3,889 |
|
Total Corn Processing | 2,325 |
| | 2,391 |
| | 6,843 |
| | 6,950 |
|
Oilseeds Processing | | | | | | | |
Crushing and Origination | 3,665 |
| | 3,660 |
| | 10,850 |
| | 10,799 |
|
Refining, Packaging, Biodiesel, and Other | 2,025 |
| | 2,042 |
| | 6,064 |
| | 5,852 |
|
Asia | 62 |
| | 73 |
| | 192 |
| | 220 |
|
Total Oilseeds Processing | 5,752 |
| | 5,775 |
| | 17,106 |
| | 16,871 |
|
| | | | | | | |
Wild Flavors and Specialty Ingredients | 577 |
| | 611 |
| | 1,787 |
| | 1,883 |
|
Total Wild Flavors and Specialty Ingredients | 577 |
| | 611 |
| | 1,787 |
| | 1,883 |
|
| | | | | | | |
Other - Financial | 98 |
| | 95 |
| | 293 |
| | 314 |
|
Total Other | 98 |
| | 95 |
| | 293 |
| | 314 |
|
Total revenues from external customers | $ | 14,827 |
| | $ | 15,832 |
| | $ | 44,758 |
| | $ | 45,845 |
|
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
| |
Note 14. | Note 12. Segment Information (Continued) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2017 | | 2016 | | 2017 | | 2016 |
Segment operating profit | | | | | | | |
Agricultural Services | $ | 87 |
| | $ | 195 |
| | 284 |
| | 328 |
|
Corn Processing | 253 |
| | 214 |
| | 648 |
| | 506 |
|
Oilseeds Processing | 119 |
| | 145 |
| | 639 |
| | 641 |
|
Wild Flavors and Specialty Ingredients | 61 |
| | 73 |
| | 228 |
| | 237 |
|
Other | 21 |
| | 23 |
| | 78 |
| | 84 |
|
Specified Items: | | | | | | | |
Gains (losses) on sales of assets and businesses(1) | 12 |
| | (4 | ) | | 20 |
| | 114 |
|
Impairment, restructuring, settlement charges(2) | (63 | ) | | (4 | ) | | (98 | ) | | (16 | ) |
Hedge timing effects(3) | (5 | ) | | 3 |
| | 4 |
| | 4 |
|
Total segment operating profit | 485 |
| | 645 |
| | 1,803 |
| | 1,898 |
|
Corporate | (260 | ) | | (165 | ) | | (737 | ) | | (705 | ) |
Earnings before income taxes | $ | 225 |
| | $ | 480 |
| | $ | 1,066 |
| | $ | 1,193 |
|
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2022 | | 2021 | | 2022 | | 2021 |
Segment operating profit | | | | | | | |
| | | | | | | |
| | | | | | | |
Ag Services and Oilseeds | $ | 1,075 | | | $ | 618 | | | $ | 3,202 | | | $ | 1,965 | |
Carbohydrate Solutions | 309 | | | 213 | | | 1,099 | | | 855 | |
Nutrition | 177 | | | 176 | | | 605 | | | 531 | |
Other Business | 18 | | | (5) | | | 78 | | | 10 | |
Specified Items: | | | | | | | |
Gains on sales of assets and businesses(1) | 29 | | | — | | | 30 | | | 22 | |
Impairment, restructuring, and settlement charges(2) | (49) | | | (2) | | | (76) | | | (133) | |
| | | | | | | |
Total segment operating profit | 1,559 | | | 1,000 | | | 4,938 | | | 3,250 | |
Corporate | (329) | | | (347) | | | (918) | | | (948) | |
| | | | | | | |
Earnings before income taxes | $ | 1,230 | | | $ | 653 | | | $ | 4,020 | | | $ | 2,302 | |
| | | | | | | |
(1) Current quarter gain related to disposalsConsists of individually insignificant assets in the ordinary course of business Current year to date gain related to the sale of the crop risk services business and disposals of other individually insignificant assets in the ordinary course of business, partially offset by an adjustment of the proceeds of the 2015 sale of the cocoa business. Prior quarter loss related principally to a lossgains on the sale of an investment. Prior year to date gain primarily related to recovery of loss provisions and gain related to the sale of the Company’s Brazilian sugar ethanol facilities, realized contingent consideration on the December 2012 sale of the Company’s equity investmentcertain assets in Gruma S.A. de C.V., and revaluation of the remaining interest to settlement value in conjunction with the acquisition of the remaining interest in Amazon Flavors.all periods presented.
(2)Current quarter and yearyear-to-date charges related primarily to datethe impairment of certain assets, restructuring, and a contingency/settlement. Prior quarter charges consisted of asset impairmentswere related to the reconfiguration of the Company’s Peoria, Illinois ethanol complex in the Corn processing segment and several individually insignificant asset impairments and restructuring charges.restructuring. Prior quarter and YTDyear-to-date charges primarilywere related to the impairment of certain long-lived assets, restructuring, and restructuring charges.a contingency/settlement.
(3) Hedge timing effects relate to hedge ineffectiveness associated with documented hedge programs.
Note 15.13. Asset Impairment, Exit, and Restructuring Costs
Asset impairment, exit, and restructuring costs in the quarterthree months ended September 30, 20172022 consisted of $107 million included $63$16 million of asset impairments principally in the Corn Processing segment related to the reconfiguration of the Peoria, Illinois ethanol complex due to the Company’s decision to focus on the more profitable high grade industrialcertain long-lived assets and beverage alcohol as well as export fuel. The impaired assets were determined to have no alternative use with zero net salvage value. Other costs in the current quarter included $44$12 million of restructuring charges, related to the reduction of certain positionspresented as specified items within the Company’s global workforce.segment operating profit. Asset impairment, exit, and restructuring costs in the nine months ended September 30, 2017 of $140 million2022 consisted of $63$20 million of asset impairments in the Corn processing segment primarily related to the reconfiguration of the Company’s Peoria, Illinois ethanol complex, $47certain long-lived assets and $12 million of restructuring charges, in Corporate primarily related to the reduction of certain positionspresented as specified items within the Company’s global workforce,segment operating profit, and $30$2 million of several individually insignificant asset impairments and restructuring charges.adjustment in Corporate.
Asset impairment, exit, and restructuring costs in the quarterthree months ended September 30, 20162021 consisted of $6$2 million of other-than-temporary impairmentrestructuring charges, on available for sale equity security investments in Corporate and $5 million of several individually insignificant asset impairments and restructuring charges.presented as a specified item within segment operating profit. Asset impairment, exit, and restructuring costs in the nine months ended September 30, 20162021 consisted of $17$54 million of software impairmentimpairments related to certain long-lived assets and other-than-temporary impairment charges on available for sale equity security investments in Corporate, $5$26 million of asset impairments in the Corn Processingrestructuring charges, presented as specified items within segment operating profit, and $14$4 million of other individually insignificant asset impairments and restructuring charges.charges in Corporate.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 16.14. Sale of Accounts Receivable
Since March 2012, theThe Company has had an accounts receivable securitization program (the “Program”“First Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Purchasers”“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 in turn transfers suchcertain of the purchased accounts receivable to each of the First Purchasers together with a security interest in their entirety toall of its right, title, and interest in the Purchasers pursuant to a receivables purchase agreement.remaining purchased accounts receivable. In exchange, for the transfer of the accounts receivable, ADM Receivables receives a cash payment of up to $1.2$1.8 billion and an additional amount upon the collection of for the accounts receivable (deferred consideration).transferred. The First Program terminates on June 22, 2018,November 18, 2022, unless extended.
In March 2014, theThe Company entered into a secondalso 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(ADM Ireland Receivables”)Receivables). ADM Ireland Receivables in turn transfers suchcertain of the purchased accounts receivable in their entirety to each of the Second Purchasers pursuant totogether with a receivables purchase agreement.security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, for the transfer of the accounts receivable, ADM Ireland Receivables receives a cash payment of up to $0.5$0.8 billion as amended, and an additional amount upon the collection of(€0.8 billion) for the accounts receivable (deferred consideration).receivables transferred. The Second Program terminates on MarchFebruary 16, 2018,2023, unless extended.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14. Sale of Accounts Receivable (Continued)
Under the ProgramFirst and Second ProgramPrograms (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 has no retained interests inacts as a servicer for the transferred receivables, other than collection and administrative responsibilities and its right to the deferred consideration.receivables. At September 30, 20172022 and December 31, 2016,2021, 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, 20172022 and December 31, 2016,2021, the fair value of trade receivables transferred to the Purchasers and Second Purchasers under the Programs and derecognized from the Company’s consolidated balance sheetsheets was $1.8$2.0 billion and $1.6$2.2 billion, respectively. In exchangeTotal receivables sold were $42.9 billion and $36.7 billion for the transfer as of nine months ended September 30, 20172022 and December 31, 2016, the Company received cash of $1.4 billion and $1.0 billion and recorded a receivable for deferred consideration included in other current assets of $399 million and $540 million,2021, respectively. Cash collections from customers on receivables sold were $24.3$42.1 billion and $24.4$34.2 billion for the nine months ended September 30, 20172022 and 2016,2021, respectively. Of this amount, $24.3As of September 30, 2022 and December 31, 2021, receivables pledged as collateral to the Purchasers were $1.3 billion and $23.9$0.5 billion, pertain to cash collections on the deferred consideration for the nine months ended September 30, 2017 and 2016, respectively. Deferred consideration is paid to the Company in cash on behalf of the Purchasers as receivables are collected; however, as this is a revolving facility, cash collected from the Company’s customers is reinvested by the Purchasers daily in new receivable purchases under the Program.
The Company’s risk of loss following the transfer of accounts receivable under the Program is limited to the deferred consideration outstanding. The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received and is principally based on observable inputs (a Level 2 measurement under the applicable accounting standards) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs which have historically been insignificant.
Transfers of receivables under the Programs resulted in an expense for the loss on sale of $2$4 million duringand $12 million for the three months ended September 30, 2017 and 2016, and $7 million and $4 million for the nine months ended September 30, 20172022, respectively, and 2016,$2 million and $8 million for the three and nine months ended September 30, 2021, respectively, which is classified as selling, general, and administrative expenses in the consolidated statements of earnings.
The Company reflects allAll cash flows related tounder the Programs are classified as operating activities in its consolidated statement of cash flows for the nine months ended September 30, 2017 and 2016 because the cash received from the Purchasers and Second Purchasers upon both the sale and collection of the receivables is not subject to significantly different riskssignificant interest rate risk given the short-term nature of the Company’s trade receivables.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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.
The CompanyADM is principally engageda global leader in procuring, transporting, storing,human and animal nutrition and one of the world’s premier agricultural origination and processing companies. It is one of the world’s leading producers of ingredients for human and merchandising agricultural commoditiesanimal nutrition, and products.other products made from nature. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in 163200 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemicalindustrial, and energy uses. The Company also engages in the manufacturing, sale, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, 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 itsour shareholders, principally from margins earned on these activities.
The Company’s operations are organized, managed, and classified into fourthree reportable business segments: AgriculturalAg Services Corn Processing,and Oilseeds, Processing,Carbohydrate Solutions, and Wild Flavors and Specialty Ingredients.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. SeeOther Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 1412 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information about the Company’s business segments..
The Company’sADM’s recent significant portfolio actions and announcements include:
•the acquisition in February 20172022 of Crosswind Industries, Inc., an industry leaderComhan, a leading South African flavor distributor;
•the announcement in April 2022 of a growth investment in the manufacture of contract and private label pet treats and foods, as well as specialty ingredients;
the acquisition in February 2017 of an 89% controlling interest in Biopolis SL, a leading provider of microbial technology with a strong portfolio of novel food ingredients;
the construction of a new feed-premixCompany’s oilseed facility in Xiangtan, China,Mainz, Germany, which is expected to be completed in 2019;the third quarter of 2023;
•the saleannouncement in May 2017 of the Company's crop risk services business to Validus Holdings, a global group of insurance and reinsurance companies;
the completion in May 2017April 2022 of a series of major enhancements at$300 million investment in Decatur, Illinois to expand alternative protein production and the Company’s export terminal in Santos, in the Brazilian state of Sao Paulo;
the constructionopening of a new, flour mill in Mendota, Illinois,state-of-the-art protein innovation center, which is expected to be completed in 2019;the first quarter of 2025;
•the expansionannouncement in April 2022 of a Golden Peanut and Tree Nutscommitment to achieve 100% deforestation-free supply chains by 2025, five years earlier than previously targeted;
•the announcement in May 2022 to significantly expand starch production at the Company’s Marshall, Minnesota facility, in Blakely, Georgia, which is expected to be completed in 2018;the second half of 2023;
•the completionannouncement in May 2022 of five projects funded with support from ADM, in partnership with the U.S. Department of Agriculture’s Natural Resources Conservation Service, to provide farmers with technical and financial resources to help plant cover crop on half a million acres;
•the announcement in June 2022 of the signing of a memorandum of understanding with Bayer, a global enterprise with core competencies in the life science fields of healthcare and agriculture, to build and implement a sustainable crop protection model to soybean farmers in India;
•the announcement in July 2022 of the signing of an agreement with Farmers Business Network (FBN) to expand availability of FBN’s leading-edge digital farm business management platform, Gradable, to ADM’s network of farmers across North America, offering 55,000 growers a comprehensive digital solution to manage their businesses and measure sustainable production data;
•the announcement in August 2022 of the official inauguration of ScaleUp Bio, a joint venture with Nurasa (formerly Asia Sustainable Foods Platform), a company focused on accelerating the commercialization of sustainable foods in Asia. ScaleUp Bio is the first company in Singapore to provide contract development and manufacturing organization services for precision fermentation for food applications;
•the announcement in August 2022 of a long-term strategic partnership with Benson Hill, Inc., a food tech company unlocking the natural genetic diversity of plants, to scale innovative high-protein soy ingredients that will help meet the rapidly growing demand for plant-based proteins;
•the announcement in August 2022 of the launch of two joint ventures, GreenWise Lactic and LG Chem Illinois Biochem, with LG Chem, a leading global diversified chemical company, for the U.S. production of lactic acid and polylactic acid to meet growing demand for a wide variety of plant-based products, including bioplastics;
•the announcement in August 2022 of a strategic partnership with New Culture, a pioneering animal-free dairy company, to accelerate the development and commercialization of alternative dairy products;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
•the opening in September 2022 of the Company’s first Science and Technology Center in China that will leverage its unparalleled research and development, technology, and product innovation capabilities to spur high-quality development in the nutrition and health industry and meet growing and evolving needs in China and Asia Pacific;
•the announcement in September 2022 of a seven-and-a-half-year strategic commercial agreement with PepsiCo to collaborate closely on projects that aim to significantly expand regenerative agriculture across their shared North American supply chains; and
•the opening in September 2022 of a new silo located on the Danube Riverextrusion facility in Silistra, Bulgaria;Serbia that will further expand ADM’s footprint in Europe, extending its production of non-GMO textured soy to include vital origination and extrusion capabilities.
the acquisition
Sustainability is a key driver in June 2017ADM’s expanding portfolio of Chamtor, a French producer of wheat-based sweetenersenvironmentally responsible, plant-derived products. Consumers today increasingly expect their food and starches;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 acquisition in July 2017 of a 51% controlling interest in Industries Centers, an Israeli company specializing in the import and distribution of agricultural feed products, which will now be known as ADM Israel; and
the modernization of the flour mill in Enid, Oklahoma, which is expected to be completed in 2018.
As part of the implementationThe current phase of the Company’s strategic plan,transformation is focused on two strategic pillars: Productivity and Innovation.
The Productivity pillar includes (1) advancing the roles of the Company’s Centers of Excellence in procurement, supply chain, and operations to deliver additional efficiencies 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, analytics, and automation at production facilities, in offices, and with customers.
Innovation activities include expansions and investments in (1) improving the customer experience, including leveraging producer relationships and enhancing the use of state-of-the-art digital technology to help customers grow; (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 to support additional capacity and meet growing demand, and targeted mergers and acquisitions.
ADM will support both pillars with investments in science and technology, which include expanding digital capabilities and investing further in product research and development. All of these efforts will continue to be strengthened by the Company’s ongoing commitment to Readiness.
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. By the end of 2022, the Company continuesexpects to evaluate the capital intensityachieve full traceability of its operationsdirect and portfolio, seeking waysindirect 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.
In 2020, ADM announced its environmental stewardship 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 energy intensity by 15 percent, reduce water intensity by 10 percent, and achieve a 90 percent landfill diversion rate.
In 2021, ADM added 5-year interim targets to ensure the Company stays on track to meet its 2035 goals. By 2025, the Company aims to reduce absolute GHG emissions by 1.5%, reduce energy and redeploy capital inwater intensity by 6% and 5%, respectively, and achieve 87% of its effortswaste diverted from landfill.
In 2021, the Company announced its Scope 3 GHG reduction goal, focused upon the five most material Scope 3 categories for the Company; purchased goods and services; fuel and energy related emissions; upstream transportation and distribution; waste; and processing of solid products/goods. ADM aims to drive long-term returns.reduce its absolute Scope 3 emissions by 25% from a 2019 baseline by 2035.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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, 2016.2021 and in Part II Item 1A “Risk Factors” on page 56.
The Company’s agricultural servicesAg Services and oilseeds processingOilseeds 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. Therefore,As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Thus,Therefore, changes in revenues of these businesses do not necessarily correspond to the 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 corn processingCarbohydrate Solutions operations and Wild Flavors and Specialty IngredientsNutrition 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 equalcorrelate to changes in cost of products sold. Thus,Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margin rates are more meaningful as a performance indicator in these businesses.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
The Company has consolidated subsidiaries in 76more 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 conversionremeasurement 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, 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, manufacturing expenses, selling, general, and administrative expenses, return on invested capital, EBITDA, economic value added, manufacturing expenses, and selling, general,operating cash flows before working capital. Some of these metrics are not defined by accounting principles generally accepted in the United States and administrative expenses.should be considered in addition to, and not in lieu of, GAAP financial measures. For more information, see “Non-GAAP Financial Measures” on pages 43 and 50. 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, and global production of similar and competitive crops.crops, and geopolitical developments. Due to the unpredictable nature of these unpredictableand 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 650 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. Most of the facilities have been temporarily idled since February 24, 2022, some of which were brought back online during the quarter ended September 30, 2022, due in part to the opening of the Black Sea grain export corridor. The Company’s footprint in Russia is limited and operations have been scaled down to those related to the production and transport of essential food commodities and ingredients.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
On February 24, 2022, Russian troops invaded Ukraine. While the Company’s Ukraine and Russian operations have historically represented less than 0.1% 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. For more information, refer to Part II, Item 1A, “Risk Factors”.
As of September 30, 2022, 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, 58% were inventories that represented 1% of ADM’s total inventories.
Market Factors Influencing Operations or Results in the Three Months Ended September 30, 20172022
As an agricultural commodity-based business, theThe Company is subject to a variety of market factors which affect the Company's operating results. AgriculturalIn Ag Services and Oilseeds, the unprecedented market volatility, higher energy prices, inflationary pressures, and supply chain challenges continued along the entire value chain. The conflict in Ukraine continued to have an impact on global commodity flows and prices. Global Trade results were driven by market disconnects, opening of the Black Sea grain corridor, supply distortions, and strong destination marketing results. In South America, a more timely crop saw farmer selling return to historic norms and a tight global supply drove commodity prices higher while crush margins suffered from unprecedented farmer selling in Argentina. North American origination was positively impacted by weaksoybean demand shifting back to the U.S. grain, partially offset by lower river levels which resulted in lower export competitiveness. Overall lowvolumes towards the end of the quarter. Crushing margins continued to benefit from strong protein and renewable diesel demand despite market pricesvolatility. In Refined Products and price volatility continued due to a surplus of grains and oilseeds in the global market. In Corn Processing,Other, margins were driven by strong oil demand and priceselevated oil values. Biodiesel sales benefited from margin appreciation driven by volatile energy markets. In Carbohydrate Solutions, demand for sweetenersstarches and starchessweeteners remained solid with margins remaining steady across the entire portfolio. Production and logistics issues in North America resulted in tightness in the market. Ethanol demand for domestic gasoline was lower, in part due to high gas prices, while co-product prices were stable. Ethanol continues to face a challenging environment. Although ethanolexport demand remained strong both in North America and export markets duestrong. Industry ethanol inventories were elevated compared to favorable gasoline blending economics and ethanol's continuing status as a competitive octane enhancer, U.S. industry ethanol production also remained at high levels, limiting margins. Global oilseeds processing volumes remained strong but competition from Argentine exports significantly decreasedthe prior year. Corn milling margins especially in Europe. Slow selling by farmers in Brazil lowered volumes and pressured grain origination and soy crushing margins. While demand and margins for refined oil remained solid across all regions, the uncertainty surrounding the biodiesel tax credit has negatively impacted biodiesel margins. Wild Flavors and Specialty Ingredients benefited from strong co-product results, as prices for oil and feed products rose in line with higher underlying corn prices. Nutrition benefited from overall strong demand in various food, beverage, and dietary supplement categories. In Human Nutrition, demand for flavor ingredients andflavors, flavor systems, specialty proteins, bioactives, and fibers was strong, but continuedincreased energy, transportation, and raw material costs, and a strong U.S. dollar adversely impacted results. In Animal Nutrition, amino acids margins were pressured due to becompetition returning to market and production cost inflation. Results were also adversely affected by start-up coststhe devaluation of certain currencies and margin pressureweak demand in certain non-flavor foodother product lines with some premix and additives customers cutting products out of formulation due to increased ingredient, markets.freight, and energy costs. Increased competition in Latin America also contributed to the weak demand in that region. ADM’s productivity initiatives are improving the Company’s capabilities to help mitigate the impact of inflation.
Three Months Ended September 30, 20172022 Compared to Three Months Ended September 30, 20162021
Net earnings attributable to controlling interests was $192 million in the third quarter of 2017 comparedincreased $0.5 billion from $0.5 billion to $341 million in the third quarter of 2016.$1.0 billion. Segment operating profit was $485 million in the third quarter of 2017 comparedincreased $0.6 billion from $1.0 billion to $645 million in the third quarter of 2016. Included in segment operating profit in the current quarter was$1.6 billion and included a net charge of $56$20 million consisting of charges totaling $49 million related to the impairment of certain assets, restructuring, and a net gaincontingency/settlement, partially offset by gains on salesthe sale of certain assets impairment and restructuring charges, and corn hedge timing effects.of $29 million. Included in segment operating profit in the prior year quarter was a net charge of $5$2 million consisting of a loss on sale of an investment, impairment and restructuring charges, and corn hedge timing effects.charges. Adjusted segment operating profit decreased $109(a non-GAAP measure) increased $0.6 billion to $1.6 billion due primarily to higher results in all businesses except in Vantage Corn Processors and Animal Nutrition. Corporate results in the current 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. Corporate results in the prior year quarter were a net charge of $347 million and included early debt retirement charges of $36 million, a mark-to-market gain of $7 million on the conversion option of the exchangeable bonds issued in August 2020, expenses related to an acquisition of $3 million, and a pension settlement charge of $1 million.
Income tax expense increased $73 million to $541 million due to the lack of competitiveness of U.S. grains in the global markets, compressed global crush margins, risk management losses, and start-up costs. Corporate results were a charge of $260 million this quarter compared to $165 million in last year’s quarter. Corporate results this quarter included an immaterial charge from the effect of changing agricultural commodity prices on LIFO inventory valuation reserves, compared to a credit of $85 million in the third quarter of 2016.
Income taxes decreased $106 million to $30 million due to lower earnings before income taxes and a lower effective tax rate.$193 million. The Company’s effective tax rate for the quarter ended September 30, 2017 decreased to 13.3%2022 was 15.7% compared to 28.3%18.4% for the quarter ended September 30, 2016,2021. The decreased rate was driven primarily due to the impact of changes in discrete tax items, including the favorable resolution of an uncertain tax position related to a 2014 acquisition and return to provision in the current quarter, partially offset by changes in the forecasted geographic mix of pre-taxpretax earnings, andpartially offset by the expirationimpact of U.S.discrete tax credits, including the biodiesel credit, at the end of 2016.items.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Analysis of Statements of Earnings
Processed volumes by product for the quarter are as follows (in metric tons):
| | | Three Months Ended | | | Three Months Ended | |
| September 30, | | | | September 30, | |
(In thousands) | 2017 | | 2016 | | Change | (In thousands) | 2022 | | 2021 | | Change |
Oilseeds | 8,265 |
| | 8,388 |
| | (123 | ) | Oilseeds | 7,688 | | | 8,509 | | | (821) | |
Corn | 5,621 |
| | 5,794 |
| | (173 | ) | Corn | 4,381 | | | 5,051 | | | (670) | |
Total | 13,886 |
| | 14,182 |
| | (296 | ) | Total | 12,069 | | | 13,560 | | | (1,491) | |
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 decrease in corn isoilseeds processed volumes was primarily related to decreased crush rates resulting from the reconfigurationdecline in canola crop due to the drought condition in North America, a temporarily idled facility in Paraguay due to crop failure, the indefinite shutdown of a Ukraine facility since February 2022, and seasonal maintenance and shutdown of facilities. The overall decrease in corn processed volumes was primarily related to logistical challenges surrounding railcar availability and the sale of the Company’s Peoria, Illinois ethanol complex.facility in November 2021.
Revenues by segment for the quarter are as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| September 30, | | |
| 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 12,537 | | | $ | 9,899 | | | $ | 2,638 | |
Crushing | 3,220 | | | 2,842 | | | 378 | |
Refined Products and Other | 3,384 | | | 2,948 | | | 436 | |
Total Ag Services and Oilseeds | 19,141 | | | 15,689 | | | 3,452 | |
| | | | | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 2,680 | | | 1,972 | | | 708 | |
Vantage Corn Processors | 901 | | | 894 | | | 7 | |
Total Carbohydrate Solutions | 3,581 | | | 2,866 | | | 715 | |
| | | | | |
Nutrition | | | | | |
Human Nutrition | 906 | | | 808 | | | 98 | |
Animal Nutrition | 958 | | | 889 | | | 69 | |
Total Nutrition | 1,864 | | | 1,697 | | | 167 | |
| | | | | |
Other Business | 97 | | | 88 | | | 9 | |
| | | | | |
Total | $ | 24,683 | | | $ | 20,340 | | | $ | 4,343 | |
|
| | | | | | | | | | | |
| Three Months Ended | | |
| September 30, | | |
| 2017 | | 2016 | | Change |
| (In millions) |
Agricultural Services | | | | | |
Merchandising and Handling | $ | 5,265 |
| | $ | 6,146 |
| | $ | (881 | ) |
Milling and Other | 757 |
| | 754 |
| | 3 |
|
Transportation | 53 |
| | 60 |
| | (7 | ) |
Total Agricultural Services | 6,075 |
| | 6,960 |
| | (885 | ) |
| | | | | |
Corn Processing | |
| | |
| | |
|
Sweeteners and Starches | 1,087 |
| | 1,057 |
| | 30 |
|
Bioproducts | 1,238 |
| | 1,334 |
| | (96 | ) |
Total Corn Processing | 2,325 |
| | 2,391 |
| | (66 | ) |
| | | | | |
Oilseeds Processing | |
| | |
| | |
|
Crushing and Origination | 3,665 |
| | 3,660 |
| | 5 |
|
Refining, Packaging, Biodiesel, and Other | 2,025 |
| | 2,042 |
| | (17 | ) |
Asia | 62 |
| | 73 |
| | (11 | ) |
Total Oilseeds Processing | 5,752 |
| | 5,775 |
| | (23 | ) |
| | | | | |
Wild Flavors and Specialty Ingredients | 577 |
| | 611 |
| | (34 | ) |
Total Wild Flavors and Specialty Ingredients | 577 |
| | 611 |
| | (34 | ) |
| | | | | |
Other - Financial | 98 |
| | 95 |
| | 3 |
|
Total Other | 98 |
| | 95 |
| | 3 |
|
Total | $ | 14,827 |
| | $ | 15,832 |
| | $ | (1,005 | ) |
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Revenues and cost of products sold in a commodity merchandising and processing business are affected bysignificantly 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 sincebecause both revenues and cost of products sold, particularly in Oilseeds ProcessingAg Services and Agricultural Services,Oilseeds, generally have a relatively equal impact from commoditymarket price changes, which generally result in an insignificant impact to gross profit.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Revenues decreased $1.0increased $4.3 billion to $14.8$24.7 billion due to higher sales prices ($3.7 billion) and higher sales volumes ($0.6 billion). Higher sales prices of corn, oils and soybeans and higher sales volumes of corn and milled rice were partially offset by lower sales volumes ($0.9 billion)of oils and wheat and lower average sellingsales prices ($0.1 billion). The decrease in sales volumes was due principallyof canola seed. Ag Services and Oilseeds revenues increased 22% to a decrease in volumes of unprocessed commodities, in particular volumes of soybeans, corn, and rapeseed. Agricultural Services revenues decreased 13% to $6.1$19.1 billion due to lowerhigher sales prices ($2.8 billion) and higher sales volumes ($0.8 billion) and lower average selling prices ($0.10.6 billion). Corn ProcessingCarbohydrate Solutions revenues decreased 3%increased 25% to $2.3$3.6 billion due to lowerhigher sales volumesprices ($0.10.7 billion). Oilseeds ProcessingNutrition revenues of $5.8increased 10% to $1.9 billion and Wild Flavors and Specialty Ingredients revenues of $0.6 billion were in line with the prior year’s quarter.due to higher sales prices ($0.2 billion).
Cost of products sold decreased $0.7increased $3.9 billion to $14.0$22.9 billion due principally to lower sales volumes. Included inhigher average commodity costs and higher manufacturing expenses. Manufacturing expenses increased $0.2 billion to $1.8 billion due principally to higher energy costs, higher maintenance expenses, and increased operating supplies.
Foreign currency translation decreased revenues and cost of products sold during this quarter was an immaterial charge from the effect of changing agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $85 million in the prior year’s quarter. Manufacturing expenses of $1.3by $1.0 billion in the current quarter was in line with the prior year’s quarter.and $0.9 billion, respectively.
Gross profit decreased $0.3increased $0.5 billion or 37%, to $0.8 billion. The decrease$1.8 billion due principally to higher results in gross profit consisted principally ofAg Services and Oilseeds ($354 million), Starches and Sweeteners ($177 million), and Human Nutrition ($12 million), partially offset by lower results in merchandisingVantage Corn Processors ($42 million), Animal Nutrition ($6 million), and handlingOther ($72 million), soybean and canola processing ($64 million) and biodiesel ($51 million) in Oilseeds Processing, partially offset by higher results in sweeteners and starches ($184 million). These factors are explained in the segment operating profit discussion on page 38. Current period gross profit included an immaterial charge from the effect of changing agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $85 million during the same period last year.42.
Selling, general, and administrative expenses decreased $68 millionincreased $0.1 billion to $478 million$0.8 billion due principallyprimarily to prior periodhigher IT and project-related expenses, related to a settled legal matterincreased provisions for bad debt, amortization of intangibles from new acquisitions, and lower pension expense in the current quarter.higher salaries and benefit costs.
Asset impairment, exit, and restructuring chargescosts increased $96$26 million to $107$28 million. Current period chargesCharges in the current quarter consisted of $63$16 million of asset impairments primarily related to the reconfiguration of the Company’s Peoria, Illinois ethanol complex in the Corn Processing segmentcertain long-lived assets and $44$12 million of restructuring charges, related topresented as specified items within segment operating profit. Charges in the reductionprior year quarter consisted of certain positions within the Company’s global workforce. Prior period charges included $6$2 million of other-than-temporary impairmentrestructuring charges, on two available for sale equity security investments in Corporate and $5 million of several individually insignificant asset impairments and restructuring charges.presented as a specified item within segment operating profit.
Interest expense increased $1 million to $79 million due principally to higher interest rates on short-term debt and the issuance of the $1 billion fixed-rate notes in August 2016.
Equity in earnings of unconsolidated affiliates increased from a loss of $2$100 million to income of $46$210 million due primarily due to higher earnings from the Company’s investment in Wilmar resulting from theand Almidones Mexicanos S.A.
Interest and investment income increased ownership stake in and$65 million to $85 million due primarily to higher results from Wilmar,interest income, partially offset by lower results fromrevaluation gains of $9 million in the prior year quarter.
Interest expense increased $36 million to $97 million due to higher debt balances and increased short-term rates on the Company’s equity investmentU.S. and European commercial paper borrowing programs. Interest expense in CIP.the current quarter also included a $8 million mark-to-market gain adjustment related to the conversion option of the exchangeable bonds issued in August 2020, compared to a $7 million mark-to-market gain adjustment in the prior year quarter.
Other income-net increased from a net expense of $20 million in the prior year quarter to net income of $4 million was comparable to$67 million. Income in the prior period. Current period incomecurrent quarter included gains related toon disposals of individually insignificant assets in the ordinary course of business, partially offset by a chargethe non-service components of net pension benefit income, and foreign exchange gains. Expense in the prior year quarter included charges of $36 million related to the early redemption of the Company’s $559$500 million aggregate principal amount of 2.750% notes due onin March 15, 2018. Prior period income included foreign exchange gains2025 and other incomeexpense, partially offset by a lossgains on the sale of an investment.certain assets and disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, and foreign exchange gains from hedge activity.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
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) | 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 292 | | | $ | 36 | | | $ | 256 | |
Crushing | 346 | | | 280 | | | 66 | |
Refined Products and Other | 295 | | | 236 | | | 59 | |
Wilmar | 142 | | | 66 | | | 76 | |
Total Ag Services and Oilseeds | 1,075 | | | 618 | | | 457 | |
| | | | | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 327 | | | 178 | | | 149 | |
Vantage Corn Processors | (18) | | | 35 | | | (53) | |
Total Carbohydrate Solutions | 309 | | | 213 | | | 96 | |
| | | | | |
Nutrition | | | | | |
Human Nutrition | 146 | | | 139 | | | 7 | |
Animal Nutrition | 31 | | | 37 | | | (6) | |
Total Nutrition | 177 | | | 176 | | | 1 | |
| | | | | |
Other Business | 18 | | | (5) | | | 23 | |
| | | | | |
Specified Items: | | | | | |
Gains on sales of assets and businesses | 29 | | | — | | | 29 | |
Asset impairment, restructuring, and settlement charges | (49) | | | (2) | | | (47) | |
| | | | | |
Total Specified Items | (20) | | | (2) | | | (18) | |
| | | | | |
Total Segment Operating Profit | $ | 1,559 | | | $ | 1,000 | | | $ | 559 | |
| | | | | |
Adjusted Segment Operating Profit(1) | $ | 1,579 | | | $ | 1,002 | | | $ | 577 | |
| | | | | |
Segment Operating Profit | $ | 1,559 | | | $ | 1,000 | | | $ | 559 | |
Corporate | (329) | | | (347) | | | 18 | |
Earnings Before Income Taxes | $ | 1,230 | | | $ | 653 | | | $ | 577 | |
|
| | | | | | | | | | | |
| Three Months Ended | | |
| September 30, | | |
Segment Operating Profit | 2017 | | 2016 | | Change |
| (In millions) |
Agricultural Services | | | | | |
Merchandising and Handling | $ | 20 |
| | $ | 92 |
| | $ | (72 | ) |
Milling and Other | 53 |
| | 60 |
| | (7 | ) |
Transportation | 14 |
| | 43 |
| | (29 | ) |
Total Agricultural Services | 87 |
| | 195 |
| | (108 | ) |
| | | | | |
Corn Processing | |
| | |
| | |
|
Sweeteners and Starches | 202 |
| | 176 |
| | 26 |
|
Bioproducts | 51 |
| | 38 |
| | 13 |
|
Total Corn Processing | 253 |
| | 214 |
| | 39 |
|
| | | | | |
Oilseeds Processing | |
| | |
| | |
|
Crushing and Origination | 39 |
| | 76 |
| | (37 | ) |
Refining, Packaging, Biodiesel, and Other | 66 |
| | 119 |
| | (53 | ) |
Asia | 14 |
| | (50 | ) | | 64 |
|
Total Oilseeds Processing | 119 |
| | 145 |
| | (26 | ) |
| | | | | |
Wild Flavors and Specialty Ingredients | 61 |
| | 73 |
| | (12 | ) |
Total Wild Flavors and Specialty Ingredients | 61 |
| | 73 |
| | (12 | ) |
| | | | | |
Other - Financial | 21 |
| | 23 |
| | (2 | ) |
Total Other | 21 |
| | 23 |
| | (2 | ) |
| | | | | |
Specified Items: | | | | | |
Gains (losses) on sales of assets and businesses | 12 |
| | (4 | ) | | 16 |
|
Impairment and restructuring charges | (63 | ) | | (4 | ) | | (59 | ) |
Hedge timing effects | (5 | ) | | 3 |
| | (8 | ) |
Total Specified Items | (56 | ) | | (5 | ) | | (51 | ) |
| | | | | |
Total Segment Operating Profit | $ | 485 |
| | $ | 645 |
| | $ | (160 | ) |
| | | | | |
Adjusted Segment Operating Profit(1) | $ | 541 |
| | $ | 650 |
| | $ | (109 | ) |
| | | | | |
Segment Operating Profit | $ | 485 |
| | $ | 645 |
| | $ | (160 | ) |
Corporate | (260 | ) | | (165 | ) | | (95 | ) |
Earnings Before Income Taxes | $ | 225 |
| | $ | 480 |
| | $ | (255 | ) |
(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
AgriculturalAg Services operating profit decreased 55%. Merchandising and Handling operating results decreased due to the lack of competitiveness of U.S. grains in the global markets resulting in a significant decrease in margins and lower U.S. grain export volumes. Global Trade generated good results from international origination and destination marketing businesses partially offset by some hedge position losses. Milling and Other results declined due to decreased volumes, mainly in the U.S., while maintaining steady product margins. Transportation results decreased primarily due to low U.S. grain exports and a slower start to harvest in North America resulting in lower barge freight volumes and margins.
Corn ProcessingOilseeds operating profit increased 18%74%. SweetenersAg Services results were significantly higher than the third quarter of 2021. The short crops in South America supported U.S. exports, driving improved volumes and Starches operating profit increased due to strong margins in North American origination, which had significant negative impacts from Hurricane Ida in the prior-year quarter. Better margins in global ocean freight, driven by good execution amid dynamic global trade flows, powered better results in Global Trade. South American origination saw improved volumes and margins driven by increased farmer selling in addition to higher volumes through the Company’s export facilities. Crushing results were significantly higher, with margins driven by resilient global demand for both meal and oil. Strong rapeseed margins in Europe, Middle East, and Africa (EMEA), driven by robust oil demand and continued market dislocations, along with positive impacts from an insurance settlement, helped drive improved results. North America while international operationssoy crush margins continued to provide solid contributions to overall results. Bioproductsbenefit from renewable diesel demand. Also, net positive timing effects in the quarter were more than the prior-year quarter. Positive results increased with better ethanol margins.
Oilseeds Processing operating profit decreased 18%. Crushing and Origination operating profit decreased due to compressed global crush margins amid ample meal supplies, weak canola margins due in part to higher seed costs, increased competition from Argentine meal exports, and weak South America origination margins resulting from continued low commodity prices that reduced the pace of farmer selling forcing higher basis costs. Refining, Packaging, Biodiesel, and Other operating profit declined due to the uncertainty surrounding the biodiesel tax credit that has negatively impacted biodiesel margins. Asia results increased on higher earnings from the Company’s investment in Wilmar due to the increased ownership stake in and higher results from Wilmar.
Wild Flavors and Specialty Ingredients operating profit decreased 16%. Weaker results in specialty ingredients, due in part to operational start-up costs, were partially offset by lower crush volumes, including impacts from idled facilities in Ukraine and Paraguay. Refined Products and Other results were higher year-over-year in a strong margin environment for both refined oils and biodiesel. Robust performance in global refined oils was driven by healthy demand and elevated refined oil margins amid supply chain disruptions. Equity earnings from Wilmar were much higher versus the continuingthird quarter of 2021.
Carbohydrate Solutions operating profit increased 45%. Starches and Sweeteners, which includes ethanol production from the wet mills, delivered much improved year-over-year results amid steady global demand for sweeteners and starches. Corn co-products, including continued robust demand for corn oil, as well as effective risk management, drove higher execution margins in North America. Wheat milling had a strong performance, delivering improved volumes and margins to meet healthy demand for flour. In EMEA, the business delivered solid volumes and margins and managed through a dynamic energy environment to drive stronger results. Vantage Corn Processors results were substantially lower. Ethanol margins were pressured by lower domestic demand and elevated corn costs. In addition, the prior-year quarter’s results included contributions from the now-sold Peoria, Illinois facility.
Nutrition operating profit increased 1%. Human Nutrition results were higher than the third quarter of 2021. Strong demand for plant-based proteins, as well as solid performance in texturants, drove continued growth in Specialty Ingredients. Flavors results were impacted by adverse currency translation effects in EMEA, partially offset by continued strong demand for flavor ingredientsgrowth in the region. Demand fulfillment challenges in North America and flavor systemslower demand in AfricaAsia Pacific, driven partly by lockdowns in China, also negatively impacted results. Health and Asia.Wellness was lower versus the prior-year quarter, which included higher fermentation income. Animal Nutrition results were down versus the prior-year quarter. Pet results were lower in Latin America on lower volumes, partially offset by strong volumes and margins in North America. Softer animal protein demand affected feed volumes.
Other - FinancialBusiness operating profit decreased 9% primarily due to lower results from theincreased $23 million. Higher short-term interest rates drove improved earnings in ADM Investor Services, partially offset by increased claim settlements in captive insurance operations..
Corporate results for the quarter are as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| September 30, | | |
| 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
Interest expense-net | $ | (76) | | | $ | (66) | | | $ | (10) | |
Unallocated corporate costs | (251) | | | (231) | | | (20) | |
| | | | | |
Expenses related to acquisitions | — | | | (3) | | | 3 | |
Debt extinguishment charges | — | | | (36) | | | 36 | |
Gain on debt conversion option | 8 | | | 7 | | | 1 | |
Settlement charges | — | | | (1) | | | 1 | |
Other expense | (10) | | | (17) | | | 7 | |
Total Corporate | $ | (329) | | | $ | (347) | | | $ | 18 | |
|
| | | | | | | | | | | |
| Three Months Ended | | |
| September 30, | | |
| 2017 | | 2016 | | Change |
| (In millions) |
LIFO credit (charge) | $ | — |
| | $ | 85 |
| | $ | (85 | ) |
Interest expense - net | (72 | ) | | (74 | ) | | 2 |
|
Unallocated corporate costs | (109 | ) | | (106 | ) | | (3 | ) |
Other charges | (55 | ) | | (74 | ) | | 19 |
|
Minority interest and other | (24 | ) | | 4 |
| | (28 | ) |
Total Corporate | $ | (260 | ) | | $ | (165 | ) | | $ | (95 | ) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate results were a net charge of $260 million this quarter compared to $165$329 million in last year’s quarter. The effect of changing agricultural commodity prices on LIFO inventory valuation reserves resulted in an immaterial charge thisthe current quarter compared to a creditnet charge of $85$347 million in the prior year quarter. OtherInterest expense-net increased $10 million due to higher debt balances and increased short-term rates on the Company’s U.S. and European commercial paper borrowing programs. Unallocated corporate costs increased $20 million due primarily to higher performance-related compensation accruals, higher IT operating and project-related costs and higher costs in the Company’s centers of excellence. Acquisition expenses in the prior year quarter were related to the acquisition of a 75% majority stake in U.S.-based PetDine, Pedigree Ovens, the Pound Bakery, and NutraDine. Debt extinguishment charges in the current period included a chargeprior year quarter were related to the early redemption of the Company’s $559$500 million aggregate principal amount of 2.750% notes due in March 2025. Gain on March 15, 2018 and restructuring chargesdebt conversion option was related to the reductionmark-to-market adjustment of certain positions within the Company’s global workforce.conversion option of the exchangeable bonds issued in August 2020. Other chargesexpense in the current 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 from hedge activity. Other expense in the prior periodyear quarter included legal settlement costsrailroad repairs and legal fees, other-than-temporary impairment charges on available for sale equity security investments, a loss on the salemaintenance expenses of $31 million, partially offset by an investment and restructuring charges. Minority interestrevaluation gain of $9 million, the non-service components of net pension benefit income of $1 million, and other expense increased $28 million due principally to lower results from the Company’s equity investment in CIP.income.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Non-GAAP Financial Measures
The Company uses adjusted earnings per share (EPS), adjusted earnings before taxes, interest, and depreciation and amortization (EBITDA),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 certain specified items. Adjusted EBITDA is defined as earnings before taxes, interest, andtaxes, 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 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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, |
| 2022 | | 2021 |
| In millions | | Per share | | In millions | | Per share |
Average number of shares outstanding - diluted | 563 | | | | | 566 | | | |
| | | | | | | |
Net earnings and reported EPS (fully diluted) | $ | 1,031 | | | $ | 1.83 | | | $ | 526 | | | $ | 0.93 | |
Adjustments: | | | | | | | |
Debt extinguishment charges - net of tax of $9 million (1) | — | | | — | | | 27 | | | 0.05 | |
Gains on sales of assets and businesses - net of tax of $7 million (1) | (22) | | | (0.04) | | | | | |
Gain on debt conversion option - net of tax of $0 (1) | (8) | | | (0.01) | | | (7) | | | (0.01) | |
Asset impairment, restructuring, and settlement charges - net of tax of $9 million in 2022 and $0 million in 2021 (1) | 40 | | | 0.07 | | | 3 | | | 0.01 | |
Expenses related to acquisitions - net of tax of $1 million (1) | — | | | — | | | 2 | | | — | |
Certain discrete tax adjustments | 7 | | | 0.01 | | | (3) | | | (0.01) | |
Total adjustments | 17 | | | 0.03 | | | 22 | | | 0.04 | |
Adjusted net earnings and adjusted EPS | $ | 1,048 | | | $ | 1.86 | | | $ | 548 | | | $ | 0.97 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, |
| 2017 | | 2016 |
| In millions | | Per share | | In millions | | Per share |
Average number of shares outstanding - diluted | 569 |
| | | | 589 |
| | |
| | | | | | | |
Net earnings and reported EPS (fully diluted) | $ | 192 |
| | $ | 0.34 |
| | $ | 341 |
| | $ | 0.58 |
|
Adjustments: | | | | | | | |
LIFO charge (credit) - net of tax of $32 million(1) | — |
| | — |
| | (53 | ) | | (0.09 | ) |
(Gains) losses on sales of assets and businesses - net of tax of $2 million in 2017 and at 0% in 2016 (2) | (10 | ) | | (0.02 | ) | | 9 |
| | 0.02 |
|
Asset impairment, restructuring, and settlement charges - net of tax of $38 million in 2017 and $25 million in 2016 (2) | 69 |
| | 0.12 |
| | 48 |
| | 0.08 |
|
Loss on debt extinguishment - net of tax of $4 million(1) | 7 |
| | 0.01 |
| | — |
| | — |
|
Total adjustments | 66 |
| | 0.11 |
| | 4 |
| | 0.01 |
|
Adjusted net earnings and adjusted EPS | $ | 258 |
| | $ | 0.45 |
| | $ | 345 |
| | $ | 0.59 |
|
(1)Tax effected using the Company’s U.S. tax rate.
(2) Tax effected using the U.S. and other applicable tax rates.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | |
| Three months ended | | |
| September 30, | | |
(In millions) | 2022 | | 2021 | | Change |
Earnings before income taxes | $ | 1,230 | | | $ | 653 | | | $ | 577 | |
Interest expense | 97 | | | 61 | | | 36 | |
Depreciation and amortization | 260 | | | 247 | | | 13 | |
Gains on sales of assets and businesses | (29) | | | — | | | (29) | |
Debt extinguishment charges | — | | | 36 | | | (36) | |
Expenses related to acquisitions | — | | | 3 | | | (3) | |
Railroad maintenance expenses | 32 | | | 31 | | | 1 | |
Asset impairment, restructuring, and settlement charges | 49 | | | 3 | | | 46 | |
Adjusted EBITDA | $ | 1,639 | | | $ | 1,034 | | | $ | 605 | |
| | | | | |
| | | | | |
| Three months ended | | |
| September 30, | | |
(In millions) | 2022 | | 2021 | | Change |
| | | | | |
| | | | | |
Ag Services and Oilseeds | $ | 1,166 | | | $ | 711 | | | $ | 455 | |
Carbohydrate Solutions | 391 | | | 297 | | | 94 | |
Nutrition | 242 | | | 230 | | | 12 | |
Other Business | 35 | | | (3) | | | 38 | |
Corporate | (195) | | | (201) | | | 6 | |
Adjusted EBITDA | $ | 1,639 | | | $ | 1,034 | | | $ | 605 | |
|
| | | | | | | | | | | |
| Three months ended September 30, | | |
(In millions) | 2017 | | 2016 | | Change |
Earnings before income taxes | $ | 225 |
| | $ | 480 |
| | $ | (255 | ) |
Interest expense | 79 |
| | 78 |
| | 1 |
|
Depreciation and amortization | 232 |
| | 225 |
| | 7 |
|
LIFO | — |
| | (85 | ) | | 85 |
|
(Gains) losses on sales of assets and businesses | (12 | ) | | 9 |
| | (21 | ) |
Loss on debt extinguishment | 11 |
| | — |
| | 11 |
|
Asset impairment, restructuring, and settlement charges | 107 |
| | 73 |
| | 34 |
|
Adjusted EBITDA | $ | 642 |
| | $ | 780 |
| | $ | (138 | ) |
| | | | | |
| Three months ended September 30, | | |
(In millions) | 2017 | | 2016 | | Change |
Agricultural Services | $ | 138 |
| | $ | 245 |
| | $ | (107 | ) |
Corn Processing | 338 |
| | 306 |
| | 32 |
|
Oilseeds Processing | 171 |
| | 194 | | (23 | ) |
Wild Flavors and Specialty Ingredients | 85 |
| | 95 |
| | (10 | ) |
Other - Financial | 26 |
| | 26 |
| | — |
|
Corporate | (116 | ) | | (86 | ) | | (30 | ) |
Adjusted EBITDA | $ | 642 |
| | $ | 780 |
| | $ | (138 | ) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
| |
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, 20172022
As an agricultural commodity-based business, theThe Company is subject to a variety of market factors which affect the Company's operating results. In AgriculturalAg Services U.S. export competitiveness wasand Oilseeds, strong during the first half of the year but weakened during the third quarter. Overall low market volatilityglobal demand continued due to surplusa short crop in theSouth America. The conflict in Ukraine resulted in even tighter global market. In Corn Processing,stocks of commodities and created high volatility which had a positive impact on North and South American origination prices. Global Trade results were driven by market disconnects, tight supply, strong destination marketing margins, and firm ocean freight rates. North American origination was negatively impacted by weather-related supply disruption and delayed planting and lower river levels. Crushing margins continued to benefit from strong protein and renewable diesel demand and tight oilseeds stocks. In Refined Products and Other, margins were driven by strong oil demand and tight supply with volatile energy markets driving up biodiesel margins. In Carbohydrate Solutions, demand for starches and sweeteners was solid with margins remaining steady despite higher input costs. Ethanol demand for domestic gasoline was lower, in part due to high gas prices, for sweeteners and starches remained solid in North America while co-product prices were stable. Ethanol continues to face a challenging environment. Although ethanolexport demand remained strong, both in North America and export markets due todriven by favorable gasoline blending economics and ethanol's continuing status as a competitive octane enhancer, U.S. industry ethanol production also remained at high levels limiting margins. Global oilseeds processing volumes remained strong, although slower meal demand growth pressuredgovernment incentives. Corn milling margins due to meal exports from Argentina and ample supply of competing proteins. Slow selling by farmers in Brazil continues to depress grain origination margins despite strong export volumes. While demand and margins for refined oil remained solid across all regions, the uncertainty surrounding the biodiesel tax credit has negatively impacted biodiesel margins. Wild Flavors and Specialty Ingredients benefited from strong co-product results, as prices for oil and feed products rose in line with higher underlying corn prices. Corn costs were volatile and higher, in part due to a relatively low projected corn stocks-to-use ratio and uncertainty caused by the conflict in Ukraine. Nutrition benefited from overall strong demand in various food, beverage, and dietary supplement categories. In Human Nutrition, demand for flavor ingredients andflavors, flavor systems, specialty proteins, bioactives, and fibers was strong, but continued to be adversely affected by start-uphigher energy, transportation, and raw material costs, and margin pressurea strong U.S. dollar adversely impacted results. In Animal Nutrition, amino acids pricing and margins improved due to a tighter global supply environment, partially offset by the devaluation of certain currencies and weak demand in certain non-flavor foodother product lines with some premix and additives customers cutting products out of formulation due to increased ingredient, markets.freight, and energy costs. Increased competition in Latin America also contributed to the weak demand in that region. ADM’s productivity initiatives are improving the Company’s capabilities to help mitigate the impact of inflation.
Nine Months Ended September 30, 20172022 Compared to Nine Months Ended September 30, 20162021
Net earnings attributable to controlling interests decreased $48 millionincreased $1.4 billion to $807 million.$3.3 billion. Segment operating profit was $1.8increased $1.7 billion in the current period compared to $1.9$4.9 billion in the prior period. Included in segment operating profit in the current period wasand included a net charge of $74$46 million consisting of a net gain on salescharges totaling $76 million related to the impairment of certain assets, and businesses, impairment, restructuring, and a contingency/settlement, charges, and corn hedge timing effects.partially offset by gains on the sale of certain assets of $30 million. Included in segment operating profit in the prior period was incomea net charge of $102$111 million consisting of a net gainasset impairment, restructuring, and settlement charges of $133 million, partially offset by gains on salesthe sale of certain assets and businesses/revaluation, impairment and restructuring charges, and corn hedge timing effects.of $22 million. Adjusted segment operating profit (a non-GAAP measure) increased $0.1$1.6 billion to $1.9$5.0 billion due primarily to solidhigher results in all businesses except in Vantage Corn Processing, partially offset by weaker South American origination margins, lower soybean crush margins, and weakerProcessors. Corporate results in some specialty ingredients.the current and prior periods were a net charge of $0.9 billion. Corporate results werein the current period included a mark-to-market gain of $12 million on the conversion option of the exchangeable bonds issued in August 2020. Corporate results in the prior period included a pension settlement charge of $737$83 million, for the nine months compared to $705early debt retirement charges of $36 million, the same period last year. Corporate results for the nine months included a credit of $4 million from the effect of increasing agricultural commodity prices on LIFO inventory valuation reserves, compared to a chargemark-to-market gain of $17 million on the same period last year.conversion option of the exchangeable bonds issued in August 2020, expenses related to an acquisition of $3 million, and a restructuring charge of $4 million.
Income taxes decreased $75of $679 million due to lower earnings before income taxes and a lower effective tax rate.increased $315 million. The Company’s effective tax rate for the nine months ended September 30, 2017 decreased to 24.0%2022 was 16.9% compared to 27.7%15.8% for the nine months ended September 30, 2016,2021. The change in the rate was due primarily due to changes in the geographic mix of pretax earnings and the impact of changes in discrete tax items, including the favorable resolution of an uncertain tax position related to a 2014 acquisition and return to provision in the current period, partially offset by changes in the forecasted geographic mix of pre-tax earnings and the expiration of U.S. tax credits, including the biodiesel credit, at the end of 2016.items.
Analysis of Statements of Earnings
Processed volumes by product for the nine months ended September 30, 2022 and 2021 are as follows (in metric tons):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | |
| September 30, | | |
(In thousands) | 2022 | | 2021 | | Change |
Oilseeds | 24,387 | | | 26,247 | | | (1,860) | |
Corn | 13,969 | | | 13,743 | | | 226 | |
Total | 38,356 | | | 39,990 | | | (1,634) | |
|
| | | | | | | | |
| Nine Months Ended | |
| September 30, | | |
(In thousands) | 2017 | | 2016 | | Change |
Oilseeds | 25,602 |
| | 25,137 |
| | 465 |
|
Corn | 16,851 |
| | 16,623 |
| | 228 |
|
Total | 42,453 |
| | 41,760 |
| | 693 |
|
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. ProcessedThe overall decrease in oilseeds processed volumes of oilseeds increasedwas primarily related to decreased crush rates resulting from the decline in global demand for rapeseed and the decline in canola crop due to the strong demand environment for soybean mealdrought condition in North America, a temporarily idled facility in Paraguay due to crop failure, and canola oil.the indefinite shutdown of a Ukraine facility since February 2022. The overall increase in corn is dueprocessed volumes was primarily related to the strong demand environment for ethanol,two dry mill facilities that were idled since April 2020 and restarted in April 2021, partially offset by the production disruption in onesale of the Company’s plants due to a water pipe leak in the first quarter and the reconfiguration of the Company’s Peoria, Illinois ethanol complex.facility in November 2021 and logistical challenges surrounding railcar availability since the second quarter of 2022.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Revenues by segment for the nine months ended nine months ended September 30, 2022 and 2021 are as follows:
|
| | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
| 2017 | | 2016 | | Change |
| (In millions) |
Agricultural Services | |
| | |
| | |
|
Merchandising and Handling | $ | 16,434 |
| | $ | 17,331 |
| | $ | (897 | ) |
Milling and Other | 2,141 |
| | 2,325 |
| | (184 | ) |
Transportation | 154 |
| | 171 |
| | (17 | ) |
Total Agricultural Services | 18,729 |
| | 19,827 |
| | (1,098 | ) |
| | | | | |
Corn Processing | |
| | |
| | |
|
Sweeteners and Starches | 3,192 |
| | 3,061 |
| | 131 |
|
Bioproducts | 3,651 |
| | 3,889 |
| | (238 | ) |
Total Corn Processing | 6,843 |
| | 6,950 |
| | (107 | ) |
| | | | | |
Oilseeds Processing | | | | | |
Crushing and Origination | 10,850 |
| | 10,799 |
| | 51 |
|
Refining, Packaging, Biodiesel, and Other | 6,064 |
| | 5,852 |
| | 212 |
|
Asia | 192 |
| | 220 |
| | (28 | ) |
Total Oilseeds Processing | 17,106 |
| | 16,871 |
| | 235 |
|
| | | | | |
Wild Flavors and Specialty Ingredients | 1,787 |
| | 1,883 |
| | (96 | ) |
Total Wild Flavors and Specialty Ingredients | 1,787 |
| | 1,883 |
| | (96 | ) |
| | | | | |
Other - Financial | 293 |
| | 314 |
| | (21 | ) |
Total Other | 293 |
| | 314 |
| | (21 | ) |
Total | $ | 44,758 |
| | $ | 45,845 |
| | $ | (1,087 | ) |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
| 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 38,717 | | | $ | 32,860 | | | $ | 5,857 | |
Crushing | 9,804 | | | 8,411 | | | 1,393 | |
Refined Products and Other | 10,302 | | | 7,696 | | | 2,606 | |
Total Ag Services and Oilseeds | 58,823 | | | 48,967 | | | 9,856 | |
| | | | | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 7,697 | | | 5,563 | | | 2,134 | |
Vantage Corn Processors | 3,001 | | | 2,346 | | | 655 | |
Total Carbohydrate Solutions | 10,698 | | | 7,909 | | | 2,789 | |
| | | | | |
Nutrition | | | | | |
Human Nutrition | 2,884 | | | 2,410 | | | 474 | |
Animal Nutrition | 2,907 | | | 2,583 | | | 324 | |
Total Nutrition | 5,791 | | | 4,993 | | | 798 | |
| | | | | |
Other Business | 305 | | | 290 | | | 15 | |
Total | $ | 75,617 | | | $ | 62,159 | | | $ | 13,458 | |
| | | | | |
Revenues and cost of products sold in a commodity merchandising and processing business are affected bysignificantly 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 sincebecause both revenues and cost of products sold, particularly in Oilseeds ProcessingAg Services and Agricultural Services,Oilseeds, generally have a relatively equal impact from commodity price changes, which generally result in an insignificant impact to gross profit.
Revenues decreased $1.1increased $13.5 billion to $44.8$75.6 billion due to lowerhigher sales volumesprices ($1.1 billion) in Agricultural Services ($1.1 billion), Corn Processing ($0.1 billion), and Wild Flavors and Specialty Ingredients ($0.114.2 billion), partially offset by lower sales volumes ($0.7 billion). Higher sales prices of corn, oils and soybeans, and higher sales volumes inof milled rice, were partially offset by lower sales volumes of soybeans, oils, and wheat. Ag Services and Oilseeds Processingrevenues increased 20% to $58.8 billion due to higher sales prices ($11.3 billion), partially offset by lower sales volumes ($1.4 billion). Carbohydrate Solutions revenues increased 35% to $10.7 billion due to higher sales prices ($2.3 billion) and higher sales volumes ($0.5 billion) despite the loss of USD-grade industrial alcohol volumes from the divested Peoria, Illinois facility. Nutrition revenues increased 16% to $5.8 billion due to higher sales prices ($0.6 billion) and higher sales volumes ($0.2 billion). The decrease in sales volumes was due principally to a decrease in volumes of unprocessed commodities, in particular volumes of soybeans, corn, rapeseed, and wheat.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold decreased $1.0increased $12.0 billion to $42.2$69.8 billion due principally to lower sales volumes. Included in cost of products sold was a credit of $4 million from the effect of increasing agriculturalhigher average commodity prices on LIFO inventory valuation reserves compared to a charge of $17 million in the prior year’s period.costs and higher manufacturing expenses. Manufacturing expenses increased $0.1$0.7 billion to $3.9$5.1 billion due principally to higher energy costs, higher maintenance expenses, increased operating supplies, and higher salaries and benefitsbenefit costs.
Foreign currency translation decreased revenues and increased expenses for energy, operatingcost of goods sold by $2.1 billion and maintenance supplies, and contracted labor.$2.0 billion, respectively.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Gross profit of $2.6increased $1.5 billion in the current period was comparableor 34% to the prior period. Lower results in soybean processing ($143 million) and grain origination ($67 million) were offset by$5.8 billion due principally to higher results in canola processingAg Services and Oilseeds ($46 million)1.1 billion), sweetenersStarches and starchesSweeteners ($51280 million), and ethanolNutrition ($75151 million)., partially offset by lower results in Vantage Corn Processors ($120 million) and Other ($27 million) These factors are explained in the segment operating profit discussion on page 45. Current period gross profit included a credit of $4 million from the effect of changing agricultural commodity prices on LIFO inventory valuation reserves compared to a charge of $17 million during the same period last year.49.
Selling, general, and administrative expenses increased $0.3 billion to $2.5 billion due principally to higher IT and project-related expenses, higher insurance costs, increased provisions for bad debt, amortization of $1.5 billion was comparable to the prior period. Current period increase inintangibles from new acquisitions, and higher salaries and benefits cost related to increased investments in the Company’s business transformation, IT, and innovation initiatives was offset by prior period expenses related to a settled legal matter.benefit costs.
Asset impairment, exit, and restructuring costs increased $104decreased $54 million to $140$30 million. CurrentCharges in the current period charges consisted of $63$20 million of asset impairments related to certain long-lived assets and $12 million of restructuring charges, presented as specified items within segment operating profit, and $2 million of restructuring adjustment in Corporate. Charges in the Corn processing segment primarilyprior period consisted of $54 million of impairments related to the reconfigurationcertain long-lived assets and $26 million of the Company’s Peoria, Illinois ethanol complex, $47restructuring charges, presented as specified items within segment operating profit, and $4 million of restructuring charges in Corporate primarily related to the reduction of certain positions within the Company’s global workforce, and $30 million of several individually insignificant asset impairments and restructuring charges. Prior period charges included $17 million of software impairment and other-than-temporary impairment charges on available for sale equity security investments in Corporate, $5 million of asset impairments in the Corn Processing segment, and $14 million of other individually insignificant asset impairments and restructuring charges.Corporate.
Interest expense increased $33 million to $246 million due principally to higher interest rates on short-term debt, the issuance of the $1 billion fixed-rate notes in August 2016, and interest related to a prior year foreign income tax amended return, partially offset by the retirement of the $261 million bond that matured in April 2017. Interest expense in the prior period also included a credit of $8 million for the revaluation of the mandatorily redeemable 10% interest in Harvest Innovations.
Equity in earnings of unconsolidated affiliates increased $174$208 million to $327$606 million due primarily due to higher earnings from the Company’s investmentinvestments in Wilmar, resulting from theAlmidones Mexicanos S.A., Olenex, SoyVen, and Stratas Foods LLC.
Interest and investment income increased ownership stake in and$93 million to $176 million due primarily to higher results from Wilmar and improved results from the Company’s equity investment in CIP,interest income, partially offset by losses from a new equity investment and decreased earnings resulting fromlower revaluation gains of $37 million compared to $49 million in the disposal of an equity investment.prior period.
Other income decreased $125Interest expense increased $74 million to $13 million. Current$262 million due to higher debt balances and increased short-term rates on the Company’s U.S. and European commercial paper borrowing programs. Interest expense in the current period incomealso included gainsa $12 million mark-to-market gain adjustment related to the saleconversion option of the crop risk services business andexchangeable bonds issued in August 2020 compared to a $17 million mark-to-market gain adjustment in the prior period.
Other income-net increased from a net expense of $36 million in the prior period to net income of $183 million. Income in the current period included gains on disposals of other individually insignificant assets in the ordinary course of business, partially offset by an adjustmentthe non-service components of net pension benefit income, a $50 million one-time payment from the proceedsUSDA Biofuel Producer Recovery Program, foreign exchange gains, and other income. Expense in the prior period included a non-cash pension settlement charge of $83 million related to the 2015 salepurchase of group annuity contracts that irrevocably transferred the cocoa business, a chargefuture benefit obligations and annuity administration for certain salaried and hourly retirees and terminated vested participants under the ADM Retirement Plan and ADM Pension Plan for Hourly-Wage Employees to independent third parties, charges of $36 million related to the early redemption of the Company’s $559$500 million aggregate principal amount of 2.750% notes due onin March 15, 2018, foreign exchange losses,2025, and changes in contingent settlement provisions. Prior period income included realized additional consideration related to the December 2012 sale of the Company’s equity investment in Gruma S.A.B de C.V., recovery of loss provisions as well as gain related toother expense, partially offset by gains on the sale of certain assets and disposals of individually insignificant assets in the Company’s Brazilian sugar ethanol facilities, gain related toordinary course of business, the revaluationnon-service components of the remaining interest to settlement value in conjunction with the acquisition of the remaining interest in Amazon Flavors,net pension benefit income, and foreign exchange gains and other income.from hedge activity.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
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, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
Segment Operating Profit (Loss) | 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | | | | | |
Ag Services | $ | 957 | | | $ | 435 | | | $ | 522 | |
Crushing | 1,242 | | | 812 | | | 430 | |
Refined Products and Other | 623 | | | 467 | | | 156 | |
Wilmar | 380 | | | 251 | | | 129 | |
Total Ag Services and Oilseeds | 3,202 | | | 1,965 | | | 1,237 | |
| | | | | |
Carbohydrate Solutions | | | | | |
Starches and Sweeteners | 1,036 | | | 706 | | | 330 | |
Vantage Corn Processors | 63 | | | 149 | | | (86) | |
Total Carbohydrate Solutions | 1,099 | | | 855 | | | 244 | |
| | | | | |
Nutrition | | | | | |
Human Nutrition | 470 | | | 429 | | | 41 | |
Animal Nutrition | 135 | | | 102 | | | 33 | |
Total Nutrition | 605 | | | 531 | | | 74 | |
| | | | | |
Other Business | 78 | | | 10 | | | 68 | |
| | | | | |
Specified Items: | | | | | |
Gains (losses) on sales of assets and businesses | 30 | | | 22 | | | 8 | |
Asset impairment, restructuring, and settlement charges | (76) | | | (133) | | | 57 | |
| | | | | |
Total Specified Items | (46) | | | (111) | | | 65 | |
| | | | | |
Total Segment Operating Profit | $ | 4,938 | | | $ | 3,250 | | | $ | 1,688 | |
| | | | | |
Adjusted Segment Operating Profit(1) | $ | 4,984 | | | $ | 3,361 | | | $ | 1,623 | |
| | | | | |
Segment Operating Profit | $ | 4,938 | | | $ | 3,250 | | | $ | 1,688 | |
Corporate | (918) | | | (948) | | | 30 | |
Earnings Before Income Taxes | $ | 4,020 | | | $ | 2,302 | | | $ | 1,718 | |
|
| | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
Segment Operating Profit | 2017 | | 2016 | | Change |
| (In millions) |
Agricultural Services | |
| | |
| | |
|
Merchandising and Handling | $ | 79 |
| | $ | 102 |
| | $ | (23 | ) |
Milling and Other | 156 |
| | 164 |
| | (8 | ) |
Transportation | 49 |
| | 62 |
| | (13 | ) |
Total Agricultural Services | 284 |
| | 328 |
| | (44 | ) |
| | | | | |
Corn Processing | |
| | |
| | |
|
Sweeteners and Starches | 561 |
| | 499 |
| | 62 |
|
Bioproducts | 87 |
| | 7 |
| | 80 |
|
Total Corn Processing | 648 |
| | 506 |
| | 142 |
|
| | | | | |
Oilseeds Processing | | | | | |
Crushing and Origination | 197 |
| | 331 |
| | (134 | ) |
Refining, Packaging, Biodiesel, and Other | 208 |
| | 251 |
| | (43 | ) |
Asia | 234 |
| | 59 |
| | 175 |
|
Total Oilseeds Processing | 639 |
| | 641 |
| | (2 | ) |
| | | | | |
Wild Flavors and Specialty Ingredients | 228 |
| | 237 |
| | (9 | ) |
Total Wild Flavors and Specialty Ingredients | 228 |
| | 237 |
| | (9 | ) |
| |
| | |
| | |
|
Other - Financial | 78 |
| | 84 |
| | (6 | ) |
Total Other | 78 |
| | 84 |
| | (6 | ) |
| | | | | |
Specified Items: | | | | | |
Gains (losses) on sales of assets and businesses | 20 |
| | 114 |
| | (94 | ) |
Impairment, restructuring, settlement charges | (98 | ) | | (16 | ) | | (82 | ) |
Hedge timing effects | 4 |
| | 4 |
| | — |
|
Total Specified Items | (74 | ) | | 102 |
| | (176 | ) |
| | | | | |
Total Segment Operating Profit | $ | 1,803 |
| | $ | 1,898 |
| | $ | (95 | ) |
| | | | | |
Adjusted Segment Operating Profit(1) | $ | 1,877 |
| | $ | 1,796 |
| | $ | 81 |
|
| | | | | |
Segment Operating Profit | $ | 1,803 |
| | $ | 1,898 |
| | $ | (95 | ) |
Corporate | (737 | ) | | (705 | ) | | (32 | ) |
Earnings Before Income Taxes | $ | 1,066 |
| | $ | 1,193 |
| | $ | (127 | ) |
(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
AgriculturalAg Services operating profits decreased 13%. Merchandising and Handling operating results decreased due to decreased volumes in the U.S. corn exports and lower export margins. Global Trade generated solid results benefiting from improved margins which was partially offset by some hedge position losses. Milling and Other decreased due to lower volumes and margins. Transportation results decreased due to river conditions and lower barge freight volumes and margins.
Corn ProcessingOilseeds operating profit increased 28%63%. SweetenersAg Services results were significantly higher versus the prior period. Global trade results were higher, driven by strong performances in destination marketing and Starchesglobal ocean freight. North American origination margins and volumes were lower year-over-year. South America results were higher, driven by better origination margins on good demand for grain. Crushing was higher year over year driven by robust protein and renewable diesel demand. Positive net timing effects in the current period versus negative timing effects in the prior period helped drive higher year-over-year results. Refined Products and Other results were higher than the prior period, driven by higher margins due to strong oils demand. Biodiesel margins also benefited from direct sales compared to the historical auction sales. Equity earnings from Wilmar were higher versus the prior period.
Carbohydrate Solutions operating profit increased due to improved domestic demand29%. Starches and higher volumes and marginsSweeteners, including ethanol production from the international business. Bioproducts profit increased due to strongwet mills, delivered higher results versus the prior period, driven by solid margins across sweeteners and starches and corn co-products, improved ethanol export demand and improved margins, and improved lysine margins, partially offset byeffective risk management. Sales volumes for starches and sweeteners continued their recovery, and the biosolutions platform continued to deliver revenue growth as demand for plant-based products expanded into more diverse applications. Vantage Corn Processors results were lower volumes caused by a mild winter.
Oilseeds Processing operating profit was comparable toversus the prior period. Crushing and Origination operating profit decreasedperiod with the $50 million one-time payment from the USDA Biofuel Producer Recovery Program partially offsetting the prior period. Higher softseed results in North Americaperiod’s strong positioning gains and Europe were offset by lower crushing and origination results in South America as margins remain challenged. A competitive global protein meal market continued to pressure soybean crush margins in all regions. Refining, Packaging, Biodiesel, and Other operating profit declined due to the uncertainty surrounding the biodiesel tax credit that has negatively impacted biodiesel margins partially offset by higher results in South American refined and packaged oils and the global peanut business. Asia results increased on higher earnings from the Company’s investment in Wilmar due to the increased ownership stake in and higher results from Wilmar.
Wild Flavors and Specialty Ingredients operating profit decreased 4%. Weaker results in specialty ingredients, due in part to operational start-up costs, were partially offset by the continuing strong demand for flavor ingredients and flavor systems especially in Africa and Asia.
Other - Financial operating profit decreased 7% primarily due to the absence of the Company’s share in the earnings of an equity investment that was sold in the third quarter of fiscal 2016 partially offset by improvedindustrial alcohol results from the now-sold Peoria, Illinois facility.
Nutrition operating profit increased 14%. Human Nutrition delivered higher year-over-year results. Flavors results were lower driven by the impact of the strong U.S. dollar in EMEA, softer demand in Asia Pacific, and higher costs in North America. Strong sales growth in alternative proteins, including contribution from the Sojaprotein acquisition, and good demand for texturants offset some higher operating costs to help deliver better year-over-year results in Specialty Ingredients. Health and Wellness was also higher year-over-year, powered by probiotics, including the contribution from the November 2021 Deerland Probiotics and Enzymes acquisition, and robust demand for fiber and Vitamin E. Animal Nutrition profits were higher than the prior period due primarily to strength in amino acids.
Other Business operating profit increased $68 million. Higher short-term interest rates drove improved earnings in ADM Investor Services and improved underwriting performance resulted in better captive insurance operations.results.
Corporate results for the nine months ended September 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
| 2022 | | 2021 | | Change |
| (In millions) |
| | | | | |
Interest expense-net | $ | (239) | | | $ | (200) | | | (39) | |
Unallocated corporate costs | (727) | | | (681) | | | (46) | |
Loss on sale of assets | (3) | | | — | | | (3) | |
Expenses related to acquisitions | (2) | | | (3) | | | 1 | |
Debt extinguishment charges | — | | | (36) | | | 36 | |
Gain on debt conversion option | 12 | | | 17 | | | (5) | |
Restructuring and settlement adjustment (charges) | 2 | | | (87) | | | 89 | |
Other income | 39 | | | 42 | | | (3) | |
Total Corporate | $ | (918) | | | $ | (948) | | | $ | 30 | |
|
| | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | | |
| 2017 | | 2016 | | Change |
| (In millions) |
LIFO credit (charge) | $ | 4 |
| | $ | (17 | ) | | $ | 21 |
|
Interest expense - net | (232 | ) | | (205 | ) | | (27 | ) |
Unallocated corporate costs | (376 | ) | | (325 | ) | | (51 | ) |
Other charges | (58 | ) | | (87 | ) | | 29 |
|
Minority interest and other | (75 | ) | | (71 | ) | | (4 | ) |
Total Corporate | $ | (737 | ) | | $ | (705 | ) | | $ | (32 | ) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate results were a net charge of $737 million$0.9 billion in the current period, comparedwhich was comparable to $705 million in the prior period. The effects of increasing commodity prices on LIFO inventory valuations resulted in a credit of $4 million in the current period compared to a charge of $17 million in the prior period. Interest expense - netexpense-net increased $27$39 million due principally to higher interestdebt balances, increased short-term rates on short-term debt, the issuance of the new $1 billion fixed-rate debt in August 2016,Company’s U.S. and European commercial paper borrowing programs, and interest related to a prior year foreign income tax amended return, partially offset by the retirement of the $261 million bond that matured in April 2017.item. Unallocated corporate costs increased $51$46 million due principallyprimarily to increased investmentshigher IT and project-related costs and higher costs in the Company’s business transformation, IT, and innovation initiatives. Othercenters of excellence, partially offset by lower incentive compensation accruals. Debt extinguishment charges in the current period included a chargeprior year quarter were related to the early redemption of the Company’s $559$500 million aggregate principal amount of 2.750% notes due in March 2025. Gain on March 15, 2018 and restructuring chargesdebt conversion option was related to the reductionmark-to-market adjustment of certain positions within the Company’s global workforce. Otherconversion option of the exchangeable bonds issued in August 2020. Restructuring and settlement charges in the prior period included legala non-cash pension settlement costscharge of $83 million related to the purchase of group annuity contracts that irrevocably transferred the future benefit obligations and legal fees, a software impairment charge, other-than-temporary impairment charges on availableannuity administration for sale equity security investments, a loss oncertain salaried and hourly retirees and terminated vested participants under the saleADM Retirement Plant and ADM Pension Plan for Hourly-Wage Employees to independent third parties, and restructuring charges. Other income in the current 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 from hedge activity, partially offset by railroad maintenance expenses of $41 million. Other income in the prior period included the non-service components of net pension benefit income of $12 million, an investment revaluation gain of $49 million, and other asset impairment and restructuring charges.income, partially offset by railroad maintenance expenses of $34 million.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Non-GAAP Financial Measures
The Company uses adjusted earnings per share (EPS),EPS, adjusted earnings before taxes, interest, and depreciation and amortization (EBITDA),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 certain specified items. Adjusted EBITDA is defined as earnings before taxes, interest, andtaxes, 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 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The table below provides a reconciliation of diluted EPS to adjusted EPS for the nine months ended September 30, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | | 2021 |
| In millions | | Per share | | | In millions | | Per share |
Average number of shares outstanding - diluted | 566 | | | | | | 566 | | | |
| | | | | | | | |
Net earnings and reported EPS (fully diluted) | $ | 3,321 | | | $ | 5.87 | | | | $ | 1,927 | | | $ | 3.41 | |
Adjustments: | | | | | | | | |
Gains on sales of assets and businesses - net of tax of $7 million in 2022 and $5 million in 2021 (1) | (20) | | | (0.04) | | | | (17) | | | (0.03) | |
Asset impairment, restructuring, and settlement charges - net of tax of $14 million in 2022 and $53 million in 2021 (1) | 60 | | | 0.10 | | | | 167 | | | 0.30 | |
Expenses related to acquisitions - net of tax of $1 million in 2022 and 2021 (1) | 1 | | | — | | | | 2 | | | — | |
Debt extinguishment charges - net of tax of $9 million (1) | — | | | — | | | | 27 | | | 0.05 | |
Gain on debt conversion option - net of tax of $0 (1) | (12) | | | (0.02) | | | | (17) | | | (0.03) | |
Certain discrete tax adjustments | 2 | | | — | | | | (4) | | | (0.01) | |
Total adjustments | 31 | | | 0.04 | | | | 158 | | | 0.28 | |
Adjusted net earnings and adjusted EPS | $ | 3,352 | | | $ | 5.91 | | | | $ | 2,085 | | | $ | 3.69 | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| In millions | | Per share | | In millions | | Per share |
Average number of shares outstanding - diluted | 574 |
| | | | 593 |
| | |
| | | | | | | |
Net earnings and reported EPS (fully diluted) | $ | 807 |
| | $ | 1.41 |
| | $ | 855 |
| | $ | 1.44 |
|
Adjustments: | | | | | | | |
LIFO charge (credit) - net of tax of $2 million in 2017 and $6 million in 2016 (1) | (2 | ) | | — |
| | 11 |
| | 0.02 |
|
(Gains) losses on sales of assets and businesses - net of tax of $32 million in 2017 and $17 million in 2016 (2) | 12 |
| | 0.02 |
| | (92 | ) | | (0.15 | ) |
Asset impairment, restructuring, and settlement charges - net of tax of $47 million in 2017 and $34 million in 2016 (2) | 98 |
| | 0.17 |
| | 64 |
| | 0.10 |
|
Loss on debt extinguishment - net of tax of $4 million(1) | 7 |
| | 0.01 |
| | — |
| | — |
|
Certain discrete tax adjustments | 4 |
| | 0.01 |
| | — |
| | — |
|
Total adjustments | 119 |
| | 0.21 |
| | (17 | ) | | (0.03 | ) |
Adjusted net earnings and adjusted EPS | $ | 926 |
| | $ | 1.62 |
| | $ | 838 |
| | $ | 1.41 |
|
| | | | | | | |
(1) Tax effected using the Company’s U.S. tax rate.
(2) Tax effected using theand other applicable tax rates.
| |
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, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | |
| Nine months ended | | |
| September 30, | | |
(In millions) | 2022 | | 2021 | | Change |
Earnings before income taxes | $ | 4,020 | | | $ | 2,302 | | | $ | 1,718 | |
Interest expense | 262 | | | 188 | | | 74 | |
Depreciation and amortization | 774 | | | 739 | | | 35 | |
Gains on sales of assets and businesses | (27) | | | (22) | | | (5) | |
Debt extinguishment charges | — | | | 36 | | | (36) | |
Expenses related to acquisitions | 2 | | | 3 | | | (1) | |
Railroad maintenance expenses | 41 | | | 34 | | | 7 | |
Asset impairment, restructuring, and settlement charges | 74 | | | 220 | | | (146) | |
Adjusted EBITDA | $ | 5,146 | | | $ | 3,500 | | | $ | 1,646 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Nine months ended | | |
| September 30, | | |
(In millions) | 2022 | | 2021 | | Change |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Ag Services and Oilseeds | $ | 3,469 | | | $ | 2,243 | | | $ | 1,226 | |
Carbohydrate Solutions | 1,337 | | | 1,106 | | | 231 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Nutrition | 800 | | | 692 | | | 108 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other Business | 103 | | | 15 | | | 88 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Corporate | (563) | | | (556) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Adjusted EBITDA | $ | 5,146 | | | $ | 3,500 | | | $ | 1,646 | |
|
| | | | | | | | | | | |
| Nine months ended September 30, | | |
(In millions) | 2017 | | 2016 | | Change |
Earnings before income taxes | $ | 1,066 |
| | $ | 1,193 |
| | $ | (127 | ) |
Interest expense | 246 |
| | 213 |
| | 33 |
|
Depreciation and amortization | 684 |
| | 677 |
| | 7 |
|
LIFO | (4 | ) | | 17 |
| | (21 | ) |
(Gains) losses on sales of assets and businesses | (20 | ) | | (109 | ) | | 89 |
|
Loss on debt extinguishment | 11 |
| | — |
| | 11 |
|
Asset impairment, restructuring, and settlement charges | 145 |
| | 98 |
| | 47 |
|
Adjusted EBITDA | $ | 2,128 |
| | $ | 2,089 |
| | $ | 39 |
|
| | | | | |
| | | | | |
| Nine months ended September 30, | | |
(In millions) | 2017 | | 2016 | | Change |
Agricultural Services | $ | 434 |
| | $ | 479 |
| | $ | (45 | ) |
Corn Processing | 918 |
| | 777 |
| | 141 |
|
Oilseeds Processing | 790 |
| | 788 |
| | 2 |
|
Wild Flavors and Specialty Ingredients | 299 |
| | 304 |
| | (5 | ) |
Other - Financial | 90 |
| | 91 |
| | (1 | ) |
Corporate | (403 | ) | | (350 | ) | | (53 | ) |
Adjusted EBITDA | $ | 2,128 |
| | $ | 2,089 |
| | $ | 39 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
| |
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 intensivecapital-intensive agricultural commodity-based business. The Company’s strategy involves expanding the volume and diversity of crops that it merchandises and processes, expanding the global reach of its core model, and expanding its value-added product portfolio. The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of the Company’sADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance the Company’sADM’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.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 $3.3 billion for the nine months ended September 30, 2022 compared to $5.9 billion for the same period last year. Working capital changes decreased cash by $1.3 billion for the nine months ended September 30, 2022 compared to an increase of $2.8 billion for the same period last year. Segregated cash and investments increased approximately $1.5 billion due to increased trading activity in the Company’s futures commission and brokerage business. Trade receivables increased $1.6 billion due to higher revenues. Inventories decreased approximately $0.6 billion due to lower inventory volumes partially offset by higher inventory prices. Other current assets increased $0.9 billion primarily due to increases in contracts and futures gains, margin deposits and grain accounts, and customer omnibus receivable. Brokerage payables increased approximately $1.7 billion due to increased customer trading activity in the Company’s futures commission and brokerage business.
Cash used in investing activities was $0.9 billion for the nine months ended September 30, 2022 compared to $1.3 billion for the same period last year. Capital expenditures for the nine months ended September 30, 2022 were $0.8 billion compared to $0.7 billion for the same period last year. Other-net for the nine months ended September 30, 2022 of $0.1 billion consisted of new and additional cost method equity investments.
Cash used in financing activities was $2.4 billion for the nine months ended September 30, 2022 compared to $1.6 billion for the same period last year. Long-term debt borrowings for the nine months ended September 30, 2022 of $0.8 billion consisted of the $750 million aggregate principal amount of 2.900% notes due 2032, compared to long-term debt borrowings for the same period last year of $1.3 billion which consisted of the $750 million aggregate principal amount of 2.700% Notes due 2051 issued on September 10, 2021 and 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. The Company expects to apply an amount equal to the proceeds from the borrowings in the current period to finance or refinance eligible green projects and/or eligible social projects. Proceeds from the borrowings in the prior period were used to redeem debt and for general corporate purposes. Long-term debt payments of $0.5 billion for the nine months ended September 30, 2022 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, compared to $0.5 billion for the same period last year which consisted of the early redemption of the $500 million aggregate principal amount of 2.750% notes due 2025 in September 2021. Net payments on short-term credit agreements for the nine months ended September 30, 2022 were $0.8 billion compared to $1.7 billion for the same period last year. Dividends for the nine months ended September 30, 2022 were $0.7 billion compared to $0.6 billion for the same period last year. Share repurchases for the nine months ended September 30, 2022 were $1.2 billion compared to an insignificant amount for the same period last year.
At September 30, 2017,2022, the Company had $0.8$1.1 billion of cash and cash equivalents and short-term marketable securities and a current ratio, defined as current assets divided by current liabilities, of 1.61.5 to 1. Included in working capital was $5.3$7.6 billion of readily marketable commodity inventories. Cash provided by operating activities was $2.2 billion for the nine months compared to $1.3 billion the same period last year. Working capital changes increased cash by $0.6 billion for the nine months compared to a decrease of $0.3 billion for the same period last year. Trade receivables decreased $0.1 billion due to lower revenues. Inventories decreased approximately $0.7 billion due to lower inventory quantities partially offset by higher prices. Trade payables declined approximately $0.3 billion principally reflecting seasonal cash payments for North American harvest-related grain purchases. Cash used in investing activities was $0.9 billion for the nine months compared to $1.2 billion the same period last year. Sales of marketable securities, net of purchases, were $73 million for the nine months compared to $35 million the same period last year. Capital expenditures and net assets of businesses acquired were $0.9 billion for the nine months compared to $0.8 billion the same period last year. Investments in and advances to affiliates included the additional investment in Wilmar of $0.3 billion for the nine months compared to $0.6 billion the same period last year. Cash used in financing activities was $1.0 billion for the nine months compared to $0.1 billion the same period last year. Long-term debt borrowings for the nine months were $0.5 billion related to the 3.75% notes issued on September 14, 2017 compared to long-term debt borrowings of $1.0 billion the same period last year which related to the 2.5% debt issued on August 11, 2016. Long-term debt payments for the nine months of $0.8 billion primarily related to the redemption of the $559 million notes due on 2018 and the retirement of the $261 million bond that matured in April 2017 compared to long-term debt payments of $9 million the same period last year. Commercial paper borrowings for the nine months were $0.6 billion compared to $0.1 billion the same period last year. Share repurchases for the nine months were $0.7 billion compared to $0.8 billion the same period last year.
At September 30, 2017,2022, the Company’s capital resources included net worthshareholders’ equity of $17.6$24.0 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $6.9$12.2 billion, of which $4.8$10.1 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 27%24% and 26% at September 30, 20172022 and 27% at December 31, 2016.2021, respectively. The Company uses this ratio as a measure of the Company’s long-term indebtedness and as 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 24% and 28% at September 30, 2022 and December 31, 2021, respectively. Of the Company’s total lines of credit, $4.0$5.0 billion supported athe combined U.S. and European commercial paper borrowing facility,programs, against which there was $0.6 billion ofno commercial paper outstanding at September 30, 2017.2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As of September 30, 2017,2022, the Company had $0.5$1.1 billion of cash and cash equivalents, $0.4$0.5 billion of which was cash held by foreign subsidiaries whose undistributed earnings are considered permanentlyindefinitely 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 $3.7$6.5 billion, the Company has asserted that these funds are permanentlyindefinitely 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 $1.7$2.6 billion as amended, 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 1614 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, 2017,2022, the Company utilized $1.4had $0.6 billion unused capacity of its facility under the Programs.
As of September 30, 2022, the Company has total available liquidity of $11.2 billion comprised of cash and cash equivalents and unused lines of credit.
For the nine months ended September 30, 2017,2022, the Company spent approximately $0.7$0.8 billion in capital expenditures, $0.2 billion in acquisitions, $0.3 billion in additional Wilmar investment, $0.5$0.7 billion in dividends, and $0.7$1.2 billion in share repurchases. The Company has a stock repurchase program. Under the program, andthe Company has acquired approximately 15.790.5 million shares during the nine months endedremaining as of September 30, 2017. The Company has 15.7 million shares remaining2022 that may be repurchased under the program until December 31, 2019.2024.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
TheIn 2022, the Company expects total capital expenditures of approximately $1.0$1.3 billion during 2017. In 2017, the Company expects aggregateand additional cash outlaysoutlay of approximately $0.7$0.9 billion in dividends, and up to $1.0 billion in share repurchases, subject to other strategic uses of capital requirements and leverage considerations.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, 20172022 and December 31, 20162021 were $10.0$17.9 billion and $10.6$18.6 billion, respectively. The decreasechange is primarily related to a decrease in obligations to purchase lower quantities of agricultural commodity inventoriesfor commitments other than energy and lower prices as well as lower obligations in other commitments.inventory. As of September 30, 2017,2022, the Company expects to make payments related to purchase obligations of $8.8$16.7 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended September 30, 2017.2022.
Off Balance Sheet Arrangements
In September 2017, the Company amended its second accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”) and increased its facility from $0.3 billion to $0.5 billion. The program terminates on March 16, 2018 unless extended (see Note 16 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures on the Program).
There were no other material changes in the Company’s off balance sheet arrangements during the quarter ended September 30, 2017.2022.
Critical Accounting Policies and Estimates
Retirement Benefit Changes
On July 31, 2017, the Company announced that all participants in the Company’s U.S. salaried pension plan and the Supplemental Executive Retirement Plan (SERP) will begin accruing benefits under the cash balance formula effective January 1, 2022. Benefits for participants who were accruing under the final average pay formula will be frozen as of December 31, 2021, including pay and service through that date.
This change, along with other changes in participation associated with divestitures and restructuring, triggered a remeasurement of the salaried pension plan and the SERP resulting in decreases in the fiscal 2017 pension expense, accumulated other comprehensive loss, and underfunded status by $18 million, $182 million, and $164 million, respectively.
Concurrent with this change, the Company also changed the method used to estimate the service and interest cost components of the net periodic pension and postretirement benefit costs for its U.S. plans. The new method uses the spot rate yield curve approach to estimate the service and interest costs. Previously, those costs were determined using a single weighted-average discount rate applied to all future cash outflows. The change does not affect the measurement of the Company’s benefit obligations and was accounted for as a change in accounting estimate in accordance with the guidance of ASC Topic 250, Accounting Estimates and Error Corrections, thereby impacting the current and future quarters. The impact of this change on after-tax earnings and diluted earnings per share for the quarter ended September 30, 2017 was immaterial.
There were no other material changes in the Company’s critical accounting policies and estimates during the quarter ended September 30, 2017.2022. 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, 2021.
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ITEM 3. | 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, 20172022 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.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) |
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, 2016.2021.
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 significantof the commodity risk 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, 2022 | | December 31, 2021 |
Long/(Short) (In millions) | | Fair Value | | Market Risk | | Fair Value | | Market Risk |
Highest position | | $ | 986 | | | $ | 99 | | | $ | 1,426 | | | $ | 143 | |
Lowest position | | 112 | | | 11 | | | (98) | | | (10) | |
Average position | | 403 | | | 40 | | | 671 | | | 67 | |
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| | | | | | | | | | | | | | | | |
| | Nine months ended | | Year ended |
| | September 30, 2017 | | December 31, 2016 |
Long/(Short) (In millions) | | Fair Value | | Market Risk | | Fair Value | | Market Risk |
Highest position | | $ | 455 |
| | $ | 46 |
| | $ | 876 |
| | $ | 88 |
|
Lowest position | | (82 | ) | | (8 | ) | | (529 | ) | | (53 | ) |
Average position | | 215 |
| | 21 |
| | 27 |
| | 3 |
|
The change in fair value of the average position was principallydue to the resultdecrease in prices of an increase in average quantities underlying the weekly commodity positioncertain commodities and, to a lesser extent, an increasethe overall decrease in prices.average quantities.
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ITEM 4. | ITEM 4. CONTROLS AND PROCEDURES |
As of September 30, 2017,2022, 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 (a)(i) recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b)(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.
TheDuring 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, as part of its ongoing business transformation program, which is expected to improve the efficiency and effectiveness of certain financial and business transaction processes. The implementation is expected to occur in phases over the next several years. The Company has currently implemented changes to certain processes in corporate finance, two processing businesses, and in over 200 locations, and will continue to roll outfirst phase of the ERP system over the next several years.implementation occurred in October 2021 to a limited pilot scope of legal entities. The Company has appropriately consideredcontinues to consider these changes in its design of and testing for effectiveness of internal controls over financial reporting and concluded, as part of the evaluation described in the above paragraph, that the implementation of the new ERP system in these circumstances has not materially affected its internal control over financial reporting.
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 119 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 ourits business, and at any given time, the Company has matters at various stages of resolution with the applicable government authorities.resolution. The outcomes of these matters are not within ourthe Company’s 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.
The Company isOn September 4, 2019, AOT Holding AG (“AOT”) filed a party to numerous lawsuits pending in various U.S. state and federal courts arising out of Syngenta Corporation’s (Syngenta) marketing and distribution of genetically modified corn products, Agrisure Viptera and Agrisure Duracade, inputative class action under the U.S. First,Commodities Exchange Act in federal district court in Urbana, Illinois, alleging that the Company broughtsought 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 state courtsecond 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 in Louisiana against Syngenta in 2014,lawsuit, alleging Syngenta was negligent in commercializing its products beforesubstantially the products were approved in China. Second, the Company is a party in a number of purported class actions filed beginning in 2013 by farmers and other parties against Syngenta in federal and state courts, again alleging that Syngenta was negligent in commercializing its products. The federal actions have been consolidated for pretrial proceedings in a multidistrict litigation (MDL) proceedingsame operative facts, in federal court in Kansas City, Kansas, and some state actions have been consolidated for pretrial proceedingsNebraska, seeking to represent sellers of ethanol. On July 23, 2020, Midwest Renewable Energy, LLC (“MRE”) filed a putative class action in MDL in Minnesota state court. In the fourth quarter of 2015, Syngenta filed third-party claims against the Company and other grain companies in these MDLs seeking contribution in the event Syngenta is held liable in these lawsuits. In September 2017, Syngenta filed similar third-party claims against the Company in Iowa state court. The federal court in Illinois alleging substantially the Kansas MDL dismissed allsame operative facts and asserting claims againstunder the Company on April 4, 2016,Sherman Act. On November 11, 2020, United Wisconsin Grain Producers LLC (“UWGP”) and the statefive other ethanol producers filed a lawsuit in federal court in Illinois alleging substantially the Minnesota MDL dismissed allsame facts and asserting claims againstunder the Company on September 6, 2016. Therefore, the Company is no longer a third-party defendant in the federal or state MDL.Sherman Act and Illinois, Iowa, and Wisconsin law. The Company also intends to movecourt granted ADM’s motion to dismiss the third-party claims in IowaMRE 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 court. In September 2017, Syngenta and the farmer plaintiffs announced a tentative settlement, subjectlaw claim. MRE filed an amended complaint on August 30, 2021, which ADM moved to court approval, of all claims by those plaintiffs. Third, the Company and other grain companies have been named as defendants in numerous individual and purported class action suits filed by farmers and other parties in state and federal courts beginning in the fourth quarter of 2015, alleging the Company and other grain companies were negligent in failing to screen for genetically modified corn. As noted,dismiss on September 6, 2016,27, 2021. UWGP filed an amended complaint on October 19, 2021, which the court dismissed on July 12, 2022. UWGP has given notice that it intends to appeal the dismissal. On October 26, 2021, GP filed a new complaint in Nebraska federal district court, alleging substantially the Minnesota state MDL dismissed all claims againstsame facts and asserting a claim for tortious interference with contractual relations. On March 18, 2022, the Company, and on January 4, 2017, aNebraska federal district court ingranted ADM’s motion to transfer the SouthernGP case back to the Central District of Illinois similarly dismissed all of the pending complaints against the Company in Southern Illinois. Some parties are expected to appeal some or all of these dismissals. Currently, the Company remains a defendant in only certain state court actions by farmers and other parties pending in Illinois state court, which the Company hasfor further proceedings. ADM moved to dismiss as well.the complaint on May 20, 2022. The Company denies liability, in all of the actions in which it has been named as a third-party defendant or defendant and is vigorously defending itself in these cases. All ofactions. As these actions are in pretrial proceedings. At this time,proceedings, the Company is unable at this time to predict the final outcome of this matter 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. | ITEM 1A. RISK FACTORS |
There were no significant changes
The information presented below updates, and should be read in conjunction with, the Company’s risk factors during the quarter ended September 30, 2017. For further information about the Company’s risk factors, refer toin Part I, “ItemItem 1A. Risk“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021. Except as presented below, there were no other significant changes in the Company’s risk factors during the quarter ended September 30, 2022.
The Company faces risks related to international conflicts, terrorism or other geopolitical events, such as the conflict in Ukraine, and related sanctions and other economic disruptions.
ADM’s assets and operations located in the region affected by the conflict in Ukraine are at an increased risk to property damage, inventory loss, business disruption, and expropriation. The conflict could continue to impact global margins due to increased commodity, energy, and input costs. The Black Sea region is a major exporter of wheat and corn to the world, and the disruption of supply could cause volatility in prices and margins of these commodities and related products. Ukraine is also the largest supplier of sun seed and sun oil in the world which cannot be completely replaced from other origins. If current inventories are depleted prior to the restoration of operations, Europe will have to reformulate to alternative oils. In addition to ADM’s operations, one of the Company’s joint ventures is also exposed to the same risks. While the Company has a robust sanction program, there is a risk that ADM and its related parties could trade with a sanctioned partner due to the number of sanctions taken against Russia. The Company may also face increased cyber risk given that Russia is known to have extensive capabilities to engage in cyber attacks. Trade receivables may be at risk of higher defaults and other third-party risks could affect ADM’s ability to obtain inputs if suppliers are unable to perform or face insolvency, as certain supplies may not be attainable due to sanctions and/or restrictions on cross-border payment transactions. The Company could be materially impacted if, in the worst-case scenario, the conflict advances to other countries. In such circumstances, trade policies and the Company’s critical global supply chain and logistical networks could be affected, impairing the Company’s ability to satisfy contractual obligations and impacting working capital requirements. Insurance may not adequately cover these risks. In addition, provisions for certain products that ADM produces, particularly those that support the food services channels, could be materially impacted. The Company continues to monitor the conflict in Ukraine and evaluate alternatives to mitigate the impacts of these risks.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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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 that May be Purchased Under the Program(2) |
July 1, 2022 to | | | | | | | | |
July 31, 2022 | | 205,743 | | | $ | 79.362 | | | 205,587 | | | 101,998,106 | |
| | | | | | | | |
August 1, 2022 to | | | | | | | | |
August 31, 2022 | | 4,636,133 | | | 84.398 | | | 4,633,816 | | | 97,364,290 | |
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September 1, 2022 to | | | | | | | | |
September 30, 2022 | | 6,882,764 | | | 86.128 | | | 6,879,181 | | | 90,485,109 | |
Total | | 11,724,640 | | | $ | 85.325 | | | 11,718,584 | | | 90,485,109 | |
(1)Total shares purchased represents 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, 2022, there were 6,056 shares received as payments for the minimum 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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| | | | | | | | | | | | | |
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 that May be Purchased Under the Program (2) |
July 1, 2017 to | | | | | | | | |
July 31, 2017 | | 475,697 |
| | $ | 41.000 |
| | 475,697 |
| | 19,123,029 |
|
| | | | | | | | |
August 1, 2017 to | | |
| | |
| | |
| | |
|
August 31, 2017 | | 1,959,118 |
| | 41.835 |
| | 1,959,118 |
| | 17,163,911 |
|
| | | | | | | | |
September 1, 2017 to | | |
| | |
| | |
| | |
|
September 30, 2017 | | 1,494,187 |
| | 42.433 |
| | 1,494,187 |
| | 15,669,724 |
|
Total | | 3,929,002 |
| | $ | 41.961 |
| | 3,929,002 |
| | 15,669,724 |
|
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(1) | Total shares purchased represents 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, 2017, there were no shares received as payments for the minimum withholding taxes on vested restricted stock awards and for the exercise price of stock option exercises. |
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(2) | On November 5, 2014, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing January 1, 2015 and ending December 31, 2019. |
ITEM 6. EXHIBITS
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(3)(i) | | |
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(3)(ii) | | |
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(4.1)(31.1) | | The registrant hereby agrees that it will, upon request of the Securities and Exchange Commission, furnish a copy of each instrument with respect to long-term debt. |
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(12) | | |
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(31.1) | | |
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(31.2) | | |
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(32.1) | | |
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(32.2) | | |
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(101) | | Interactive Data FileInline XBRL file set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
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(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.
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| ARCHER-DANIELS-MIDLAND COMPANY |
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| ARCHER-DANIELS-MIDLAND COMPANY |
| /s/ V. Luthar |
| V. Luthar |
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| /s/ R. G. Young |
| R. G. Young |
| ExecutiveSenior Vice President and Chief Financial Officer |
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| /s/ D. C. Findlay |
| D. C. Findlay |
| Senior Vice President, General Counsel, and Secretary |
Dated: October 31, 2017
25, 2022