filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
Archer-Daniels-Midland Company
Consolidated Statements of Earnings
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Revenues | $ | 25,190 | $ | 27,284 | $ | 49,262 | $ | 50,934 | |||||||||||||||
| Cost of products sold | 23,307 | 25,184 | 45,299 | 46,937 | |||||||||||||||||||
| Gross Profit | 1,883 | 2,100 | 3,963 | 3,997 | |||||||||||||||||||
| Selling, general, and administrative expenses | 841 | 814 | 1,722 | 1,643 | |||||||||||||||||||
| Asset impairment, exit, and restructuring costs | 60 | 1 | 67 | 2 | |||||||||||||||||||
| Equity in earnings of unconsolidated affiliates | (151) | (192) | (325) | (396) | |||||||||||||||||||
| Interest and investment income | (142) | (32) | (276) | (91) | |||||||||||||||||||
| Interest expense | 180 | 73 | 327 | 165 | |||||||||||||||||||
| Other (income) expense – net | (37) | (83) | (81) | (116) | |||||||||||||||||||
| Earnings Before Income Taxes | 1,132 | 1,519 | 2,529 | 2,790 | |||||||||||||||||||
| Income tax expense | 204 | 279 | 429 | 486 | |||||||||||||||||||
| Net Earnings Including Noncontrolling Interests | 928 | 1,240 | 2,100 | 2,304 | |||||||||||||||||||
| Less: Net earnings attributable to noncontrolling interests | 1 | 4 | 3 | 14 | |||||||||||||||||||
| Net Earnings Attributable to Controlling Interests | $ | 927 | $ | 1,236 | $ | 2,097 | $ | 2,290 | |||||||||||||||
| Average number of shares outstanding – basic | 545 | 566 | 548 | 566 | |||||||||||||||||||
| Average number of shares outstanding – diluted | 546 | 568 | 549 | 568 | |||||||||||||||||||
| Basic earnings per common share | $ | 1.70 | $ | 2.18 | $ | 3.83 | $ | 4.05 | |||||||||||||||
| Diluted earnings per common share | $ | 1.70 | $ | 2.18 | $ | 3.82 | $ | 4.03 | |||||||||||||||
| Dividends per common share | $ | 0.45 | $ | 0.40 | $ | 0.90 | $ | 0.80 |
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net earnings including noncontrolling interests | $ | 928 | $ | 1,240 | $ | 2,100 | $ | 2,304 | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustment | 35 | (7) | 188 | 142 | |||||||||||||||||||
| Tax effect | 14 | (84) | 28 | (115) | |||||||||||||||||||
| Net of tax amount | 49 | (91) | 216 | 27 | |||||||||||||||||||
| Pension and other postretirement benefit liabilities adjustment | (6) | — | (32) | 37 | |||||||||||||||||||
| Tax effect | 4 | (4) | (9) | (11) | |||||||||||||||||||
| Net of tax amount | (2) | (4) | (41) | 26 | |||||||||||||||||||
| Deferred gain (loss) on hedging activities | (37) | (80) | (141) | 202 | |||||||||||||||||||
| Tax effect | 16 | 2 | 32 | (45) | |||||||||||||||||||
| Net of tax amount | (21) | (78) | (109) | 157 | |||||||||||||||||||
| Unrealized gain (loss) on investments | 4 | (8) | 8 | (13) | |||||||||||||||||||
| Tax effect | (1) | 1 | (2) | 1 | |||||||||||||||||||
| Net of tax amount | 3 | (7) | 6 | (12) | |||||||||||||||||||
| Other comprehensive income (loss) | 29 | (180) | 72 | 198 | |||||||||||||||||||
| Comprehensive income (loss) | 957 | 1,060 | 2,172 | 2,502 | |||||||||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | — | — | (1) | 5 | |||||||||||||||||||
| Comprehensive income (loss) attributable to controlling interests | $ | 957 | $ | 1,060 | $ | 2,173 | $ | 2,497 |
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Balance Sheets
| (In millions) | June 30, 2023 | December 31, 2022 | |||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 1,426 | $ | 1,037 | |||||||
| Segregated cash and investments | 8,167 | 9,010 | |||||||||
| Trade receivables - net | 4,110 | 4,926 | |||||||||
| Inventories | 11,902 | 14,771 | |||||||||
| Other current assets | 5,081 | 5,666 | |||||||||
| Total Current Assets | 30,686 | 35,410 | |||||||||
| Investments and Other Assets | |||||||||||
| Investments in affiliates | 5,665 | 5,467 | |||||||||
| Goodwill and other intangible assets | 6,542 | 6,544 | |||||||||
| Right of use assets | 1,138 | 1,088 | |||||||||
| Other assets | 1,341 | 1,332 | |||||||||
| Total Investments and Other Assets | 14,686 | 14,431 | |||||||||
| Property, Plant, and Equipment | |||||||||||
| Land and land improvements | 534 | 502 | |||||||||
| Buildings | 5,712 | 5,639 | |||||||||
| Machinery and equipment | 19,566 | 19,194 | |||||||||
| Construction in progress | 1,544 | 1,440 | |||||||||
| 27,356 | 26,775 | ||||||||||
| Accumulated depreciation | (17,229) | (16,842) | |||||||||
| Net Property, Plant, and Equipment | 10,127 | 9,933 | |||||||||
| Total Assets | $ | 55,499 | $ | 59,774 | |||||||
| Liabilities, Temporary Equity, and Shareholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Short-term debt | $ | 125 | $ | 503 | |||||||
| Trade payables | 5,079 | 7,803 | |||||||||
| Payables to brokerage customers | 8,712 | 9,856 | |||||||||
| Accrued expenses and other payables | 4,269 | 4,795 | |||||||||
| Current lease liabilities | 302 | 292 | |||||||||
| Current maturities of long-term debt | 301 | 942 | |||||||||
| Total Current Liabilities | 18,788 | 24,191 | |||||||||
| Long-Term Liabilities | |||||||||||
| Long-term debt | 8,244 | 7,735 | |||||||||
| Deferred income taxes | 1,351 | 1,402 | |||||||||
| Non-current lease liabilities | 853 | 816 | |||||||||
| Other | 984 | 1,014 | |||||||||
| Total Long-Term Liabilities | 11,432 | 10,967 | |||||||||
| Temporary Equity - Redeemable noncontrolling interest | 304 | 299 | |||||||||
| Shareholders’ Equity | |||||||||||
| Common stock | 3,128 | 3,147 | |||||||||
| Reinvested earnings | 24,244 | 23,646 | |||||||||
| Accumulated other comprehensive income (loss) | (2,433) | (2,509) | |||||||||
| Noncontrolling interests | 36 | 33 | |||||||||
| Total Shareholders’ Equity | 24,975 | 24,317 | |||||||||
| Total Liabilities, Temporary Equity, and Shareholders’ Equity | $ | 55,499 | $ | 59,774 | |||||||
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Consolidated Statements of Cash Flows
(Unaudited)
| (In millions) | Six Months Ended June 30, | ||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities | |||||||||||
| Net earnings including noncontrolling interests | $ | 2,100 | $ | 2,304 | |||||||
| Adjustments to reconcile net earnings to net cash provided by (used in) operating activities | |||||||||||
| Depreciation and amortization | 521 | 514 | |||||||||
| Asset impairment charges | 46 | 4 | |||||||||
| Deferred income taxes | 8 | (15) | |||||||||
| Equity in earnings of affiliates, net of dividends | (80) | (162) | |||||||||
| Stock compensation expense | 86 | 97 | |||||||||
| Deferred cash flow hedges | (141) | 206 | |||||||||
| Gains on sales of assets and businesses/investment revaluation | (32) | (42) | |||||||||
| Other – net | (18) | 312 | |||||||||
| Changes in operating assets and liabilities, net of acquisitions and dispositions | |||||||||||
| Segregated investments | (1,392) | (1,753) | |||||||||
| Trade receivables | 846 | (2,155) | |||||||||
| Inventories | 2,917 | (349) | |||||||||
| Other current assets | 582 | (1,593) | |||||||||
| Trade payables | (2,762) | (710) | |||||||||
| Payables to brokerage customers | (1,213) | 2,520 | |||||||||
| Accrued expenses and other payables | (569) | 147 | |||||||||
| Total Operating Activities | 899 | (675) | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (614) | (500) | |||||||||
| Proceeds from sales of assets and businesses | 17 | 12 | |||||||||
| Investments in affiliates | (6) | (58) | |||||||||
| Cost method investments | (5) | (133) | |||||||||
| Other – net | (3) | 32 | |||||||||
| Total Investing Activities | (611) | (647) | |||||||||
| Financing Activities | |||||||||||
| Long-term debt borrowings | 500 | 751 | |||||||||
| Long-term debt payments | (662) | — | |||||||||
| Net borrowings (payments) under lines of credit agreements | (371) | 1,414 | |||||||||
| Share repurchases | (1,001) | (200) | |||||||||
| Cash dividends | (494) | (453) | |||||||||
| Other – net | (103) | (21) | |||||||||
| Total Financing Activities | (2,131) | 1,491 | |||||||||
| Effect of exchange rate on cash, cash equivalents, restricted cash, and restricted cash equivalents | (3) | — | |||||||||
| Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | (1,846) | 169 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period | 7,033 | 7,454 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period | $ | 5,187 | $ | 7,623 | |||||||
| Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets | |||||||||||
| Cash and cash equivalents | $ | 1,426 | $ | 906 | |||||||
| Restricted cash and restricted cash equivalents included in segregated cash and investments | 3,761 | 6,717 | |||||||||
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 5,187 | $ | 7,623 | |||||||
See notes to consolidated financial statements.
Archer-Daniels-Midland-Company
Consolidated Statements of Shareholders’ Equity
(Unaudited)
| Common Stock | Reinvested Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 545 | $ | 3,106 | $ | 24,217 | $ | (2,463) | $ | 36 | $ | 24,896 | ||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Net earnings | 927 | 1 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 30 | (1) | |||||||||||||||||||||||||||||||||
| Total comprehensive income | 957 | ||||||||||||||||||||||||||||||||||
| Cash dividends paid - $0.45 per share | (246) | (246) | |||||||||||||||||||||||||||||||||
| Share repurchases | (9) | (654) | (654) | ||||||||||||||||||||||||||||||||
| Stock compensation expense | — | 21 | 21 | ||||||||||||||||||||||||||||||||
| Stock option exercises net of taxes | — | 1 | 1 | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 536 | $ | 3,128 | $ | 24,244 | $ | (2,433) | $ | 36 | $ | 24,975 | ||||||||||||||||||||||||
| Balance, December 31, 2022 | 547 | $ | 3,147 | $ | 23,646 | $ | (2,509) | $ | 33 | $ | 24,317 | ||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Net earnings | 2,097 | 3 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 76 | (4) | |||||||||||||||||||||||||||||||||
| Total comprehensive income | 2,172 | ||||||||||||||||||||||||||||||||||
| Cash dividends paid - $0.90 per share | (494) | (494) | |||||||||||||||||||||||||||||||||
| Share repurchases | (13) | (1,005) | (1,005) | ||||||||||||||||||||||||||||||||
| Stock compensation expense | 3 | 86 | 86 | ||||||||||||||||||||||||||||||||
| Stock option exercises net of taxes | (1) | (107) | (107) | ||||||||||||||||||||||||||||||||
| Other | — | 2 | — | — | 4 | 6 | |||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 536 | $ | 3,128 | $ | 24,244 | $ | (2,433) | $ | 36 | $ | 24,975 | ||||||||||||||||||||||||
| Balance, March 31, 2022 | 563 | $ | 3,028 | $ | 22,483 | $ | (1,789) | $ | 33 | $ | 23,755 | ||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Net earnings | 1,236 | 4 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (176) | (4) | |||||||||||||||||||||||||||||||||
| Total comprehensive income | 1,060 | ||||||||||||||||||||||||||||||||||
| Cash dividends paid - $0.40 per share | (227) | (227) | |||||||||||||||||||||||||||||||||
| Share repurchases | (2) | (200) | (200) | ||||||||||||||||||||||||||||||||
| Stock compensation expense | — | 28 | 28 | ||||||||||||||||||||||||||||||||
| Stock option exercises net of taxes | — | 10 | 10 | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 561 | $ | 3,066 | $ | 23,292 | $ | (1,965) | $ | 33 | $ | 24,426 | ||||||||||||||||||||||||
| Balance, December 31, 2021 | 560 | $ | 2,994 | $ | 21,655 | $ | (2,172) | $ | 31 | $ | 22,508 | ||||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||||||||||||||
| Net earnings | 2,290 | 14 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 207 | (9) | |||||||||||||||||||||||||||||||||
| Total comprehensive income | 2,502 | ||||||||||||||||||||||||||||||||||
| Cash dividends paid - $0.80 per share | (453) | (453) | |||||||||||||||||||||||||||||||||
| Share repurchases | (2) | (200) | (200) | ||||||||||||||||||||||||||||||||
| Stock compensation expense | 3 | 97 | 97 | ||||||||||||||||||||||||||||||||
| Stock option exercises net of taxes | — | (26) | (26) | ||||||||||||||||||||||||||||||||
| Other | — | 1 | — | — | (3) | (2) | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 561 | $ | 3,066 | $ | 23,292 | $ | (1,965) | $ | 33 | $ | 24,426 | ||||||||||||||||||||||||
See notes to consolidated financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022 for Archer-Daniels-Midland Company (the Company or ADM).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company consolidates all entities, including variable interest entities (VIEs), in which it has a controlling financial interest. For VIEs, the Company assesses whether it is the primary beneficiary as defined under the applicable accounting standard. Investments in affiliates, including VIEs through which the Company exercises significant influence but does not control the investee and is not the primary beneficiary of the investee’s activities, are carried at cost plus equity in undistributed earnings since acquisition and are adjusted, where appropriate, for basis differences between the investment balance and the underlying net assets of the investee. The Company’s portion of the results of certain affiliates and results of certain VIEs are included using the most recent available financial statements. In each case, the financial statements are within 93 days of the Company’s year end and are consistent from period to period.
Segregated Cash and Investments
The Company segregates certain cash, cash equivalents, and investment balances in accordance with regulatory requirements, commodity exchange requirements, and insurance arrangements. These balances represent deposits received from customers of the Company’s registered futures commission merchant and commodity brokerage services, cash margins and securities pledged to commodity exchange clearinghouses, and cash pledged as security under certain insurance arrangements. Segregated cash and investments also include restricted cash collateral for the various insurance programs of the Company’s captive insurance business. To the degree these segregated balances are comprised of cash and cash equivalents, they are considered restricted cash and cash equivalents on the consolidated statements of cash flows.
Receivables
The Company records receivables at net realizable value in trade receivables, other current assets, and other assets. These amounts included allowances for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances including any accrued interest receivables thereon. The Company estimates uncollectible accounts by pooling receivables according to type, region, credit risk rating, and age. Each pool is assigned an expected loss co-efficient to arrive at a general reserve based on historical write-offs adjusted, as needed, for regional, economic, and other forward-looking factors. The Company minimizes credit risk due to the large and diversified nature of its worldwide customer base. ADM manages its exposure to counter-party credit risk through credit analysis and approvals, credit limits, and monitoring procedures. Long-term receivables recorded in other assets were not material to the Company’s overall receivables portfolio.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1. Basis of Presentation (Continued)
Changes to the allowance for estimated uncollectible accounts are as follows:
| Three Months Ended June 30 | ||||||||
| 2023 | 2022 | |||||||
| Beginning, April 1 | $ | 182 | $ | 137 | ||||
| Current year provisions | 9 | 22 | ||||||
| Write-offs against allowance | (16) | (4) | ||||||
| Foreign exchange translation adjustment | — | (2) | ||||||
| Other | (1) | 11 | ||||||
| Ending, June 30 | $ | 174 | $ | 164 | ||||
| Six Months Ended June 30 | ||||||||
| 2023 | 2022 | |||||||
| Beginning, January 1 | $ | 199 | $ | 122 | ||||
| Current year provisions | 13 | 44 | ||||||
| Recoveries | 1 | 1 | ||||||
| Write-offs against allowance | (40) | (5) | ||||||
| Foreign exchange translation adjustment | 1 | (2) | ||||||
| Other | — | 4 | ||||||
| Ending, June 30 | $ | 174 | $ | 164 |
Write-offs against allowance in the current quarter primarily related to a customer in Brazil. Also included in write-offs against allowance in the six months ended June 30, 2023 was allowance on receivables that were subsequently sold.
Inventories
Certain merchandisable agricultural commodity inventories, which include inventories acquired under deferred pricing contracts, are stated at market value. In addition, the Company values certain inventories using the first-in, first-out (FIFO) method at the lower of cost or net realizable value.
The following table sets forth the Company’s inventories.
| June 30, 2023 | December 31, 2022 | ||||||||||
| (In millions) | |||||||||||
| Raw materials and supplies | $ | 7,592 | $ | 6,975 | |||||||
| Finished goods | 4,310 | 7,796 | |||||||||
| Total inventories | $ | 11,902 | $ | 14,771 |
Included in raw materials and supplies are work in process inventories which were not material as of June 30, 2023 and December 31, 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 1. Basis of Presentation (Continued)
Cost Method Investments
Cost method investments of $494 million and $488 million as of June 30, 2023 and December 31, 2022, respectively, were included in Other Assets in the Company’s consolidated balance sheets. Revaluation gains of $3 million and $37 million in the three and six months ended June 30, 2022, respectively, in connection with observable third-party transactions, were recorded in interest and investment income in the Company's consolidated statements of earnings. There were no revaluation gains in the three and six months ended June 30, 2023.
Operations in Ukraine and Russia
ADM employs approximately 640 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. The Company’s footprint in Russia is limited to operations related to the production and transport of essential food commodities and ingredients.
As a result of the ongoing conflict in Ukraine, the Company reviewed the valuation of its assets and concluded that as of June 30, 2023, receivables, net of allowances, are deemed collectible and market inventories are valued appropriately. The Company also evaluated the impact of Russia’s announcement of its purported annexation of four Ukrainian regions on the valuation of ADM’s assets in those regions and concluded that the assets are appropriately valued. As the conflict in Ukraine evolves, the Company will continue to review the valuation of these assets and make any required adjustments, which are not expected to be material to the Company’s consolidated financial statements.
Note 2. New Accounting Standards
Effective January 1, 2023, the Company adopted the amended guidance of Accounting Standards Codification (ASC) Topic 805, Business Combinations, which improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amended guidance requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers, (Topic 606). The Company’s adoption of this amended guidance did not have an impact on its consolidated financial statements.
Effective January 1, 2023, the Company adopted the amended guidance of ASC Subtopic 405-50, Liabilities - Supplier Finance Programs, which enhances the transparency of supplier finance programs. The amended guidance requires an entity (buyer) in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ADM has Supplier Payable Programs (“SPP”) with financial institutions which act as its paying agents for payables due to certain of its suppliers. The Company has neither an economic interest in a supplier’s participation in the SPP nor a direct financial relationship with the financial institutions, and has concluded that its obligations to the suppliers, including amounts due and scheduled payment terms, are not impacted by their participation in the SPP. Accordingly, amounts associated with the SPP continue to be classified in current liabilities in the Company’s consolidated balance sheet and in operating activities in its consolidated statement of cash flows. The supplier invoices that have been confirmed as valid under the program require payment in full generally within 90 days of the invoice date. As of June 30, 2023 and December 31, 2022, the Company’s outstanding payment obligations that suppliers had elected to sell to the financial institutions were $310 million and $196 million, respectively.
Through December 31, 2024, the Company has the option to adopt the amended guidance of ASC Topic 848, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company plans to adopt the expedients and exceptions provided by the amended guidance before the December 31, 2024 expiry date and does not expect the adoption of the amended guidance to have an impact on its consolidated financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues
Revenue Recognition
The Company principally generates revenue from merchandising and transporting agricultural commodities, and manufacturing products for use in food, beverages, feed, energy, and industrial applications, and ingredients and solutions for human and animal nutrition. Revenue is measured based on the consideration specified in the contract with a customer. The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product or service to a customer. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The Company applies the practical expedient in paragraph 10-50-14 of Topic 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. For transportation service contracts, the Company recognizes revenue over time as the mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The Company recognized revenue from transportation service contracts of $200 million and $378 million for the three and six months ended June 30, 2023, respectively, and $209 million and $384 million for the three and six months ended June 30, 2022, respectively. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20).
Shipping and Handling Costs
Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in cost of products sold. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Taxes Collected from Customers and Remitted to Governmental Authorities
The Company does not include taxes assessed by governmental authorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in the measurement of transaction prices or as a component of revenues and cost of products sold.
Contract Liabilities
Contract liabilities relate to advance payments from customers for goods and services that the Company has yet to provide. Contract liabilities of $286 million and $694 million as of June 30, 2023 and December 31, 2022, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Revenues recognized from contract liabilities were $311 million and $673 million for the three and six months ended June 30, 2023, respectively, and $335 million and $581 million for the three and six months ended June 30, 2022, respectively.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Disaggregation of Revenues
The following tables present revenue disaggregated by timing of recognition and major product lines for the three and six months ended June 30, 2023 and 2022.
| Three Months Ended June 30, 2023 | |||||||||||||||||
| Topic 606 Revenue | Topic 815**(1)** | Total | |||||||||||||||
| (In millions) | Point in Time | Over Time | Total | Revenue | Revenues | ||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 1,071 | $ | 200 | $ | 1,271 | $ | 12,095 | $ | 13,366 | |||||||
| Crushing | 32 | — | 32 | 3,448 | 3,480 | ||||||||||||
| Refined Products and Other | 577 | — | 577 | 2,421 | 2,998 | ||||||||||||
| Total Ag Services and Oilseeds | 1,680 | 200 | 1,880 | 17,964 | 19,844 | ||||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | 1,872 | — | 1,872 | 603 | 2,475 | ||||||||||||
| Vantage Corn Processors | 906 | — | 906 | — | 906 | ||||||||||||
| Total Carbohydrate Solutions | 2,778 | — | 2,778 | 603 | 3,381 | ||||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | 966 | — | 966 | — | 966 | ||||||||||||
| Animal Nutrition | 887 | — | 887 | — | 887 | ||||||||||||
| Total Nutrition | 1,853 | — | 1,853 | — | 1,853 | ||||||||||||
| Other Business | 112 | — | 112 | — | 112 | ||||||||||||
| Total Revenues | $ | 6,423 | $ | 200 | $ | 6,623 | $ | 18,567 | $ | 25,190 |
| Six Months Ended June 30, 2023 | |||||||||||||||||
| Topic 606 Revenue | Topic 815**(1)** | Total | |||||||||||||||
| Point in Time | Over Time | Total | Revenue | Revenues | |||||||||||||
| (In millions) | |||||||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 2,088 | $ | 378 | $ | 2,466 | $ | 22,595 | $ | 25,061 | |||||||
| Crushing | 223 | — | 223 | 6,940 | 7,163 | ||||||||||||
| Refined Products and Other | 1,203 | — | 1,203 | 4,996 | 6,199 | ||||||||||||
| Total Ag Services and Oilseeds | 3,514 | 378 | 3,892 | 34,531 | 38,423 | ||||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | 3,956 | — | 3,956 | 1,256 | 5,212 | ||||||||||||
| Vantage Corn Processors | 1,706 | — | 1,706 | — | 1,706 | ||||||||||||
| Total Carbohydrate Solutions | 5,662 | — | 5,662 | 1,256 | 6,918 | ||||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | 1,902 | — | 1,902 | — | 1,902 | ||||||||||||
| Animal Nutrition | 1,804 | — | 1,804 | — | 1,804 | ||||||||||||
| Total Nutrition | 3,706 | — | 3,706 | — | 3,706 | ||||||||||||
| Other Business | 215 | — | 215 | — | 215 | ||||||||||||
| Total Revenues | $ | 13,097 | $ | 378 | $ | 13,475 | $ | 35,787 | $ | 49,262 | |||||||
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
| Three Months Ended June 30, 2022 | |||||||||||||||||
| Topic 606 Revenue | Topic 815**(1)** | Total | |||||||||||||||
| (In millions) | Point in Time | Over Time | Total | Revenue | Revenues | ||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 1,013 | $ | 209 | $ | 1,222 | $ | 13,111 | $ | 14,333 | |||||||
| Crushing | 128 | — | 128 | 3,234 | 3,362 | ||||||||||||
| Refined Products and Other | 744 | — | 744 | 2,990 | 3,734 | ||||||||||||
| Total Ag Services and Oilseeds | 1,885 | 209 | 2,094 | 19,335 | 21,429 | ||||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | 1,889 | — | 1,889 | 630 | 2,519 | ||||||||||||
| Vantage Corn Processors | 1,232 | — | 1,232 | — | 1,232 | ||||||||||||
| Total Carbohydrate Solutions | 3,121 | — | 3,121 | 630 | 3,751 | ||||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | 1,020 | — | 1,020 | — | 1,020 | ||||||||||||
| Animal Nutrition | 983 | — | 983 | — | 983 | ||||||||||||
| Total Nutrition | 2,003 | — | 2,003 | — | 2,003 | ||||||||||||
| Other Business | 101 | — | 101 | — | 101 | ||||||||||||
| Total Revenues | $ | 7,110 | $ | 209 | $ | 7,319 | $ | 19,965 | $ | 27,284 |
| Six Months Ended June 30, 2022 | |||||||||||||||||
| Topic 606 Revenue | Topic 815**(1)** | Total | |||||||||||||||
| Point in Time | Over Time | Total | Revenue | Revenues | |||||||||||||
| (In millions) | |||||||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 1,983 | $ | 384 | $ | 2,367 | $ | 23,813 | $ | 26,180 | |||||||
| Crushing | 253 | — | 253 | 6,331 | 6,584 | ||||||||||||
| Refined Products and Other | 1,376 | — | 1,376 | 5,542 | 6,918 | ||||||||||||
| Total Ag Services and Oilseeds | 3,612 | 384 | 3,996 | 35,686 | 39,682 | ||||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | 3,819 | — | 3,819 | 1,198 | 5,017 | ||||||||||||
| Vantage Corn Processors | 2,100 | — | 2,100 | — | 2,100 | ||||||||||||
| Total Carbohydrate Solutions | 5,919 | — | 5,919 | 1,198 | 7,117 | ||||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | 1,978 | — | 1,978 | — | 1,978 | ||||||||||||
| Animal Nutrition | 1,949 | — | 1,949 | — | 1,949 | ||||||||||||
| Total Nutrition | 3,927 | — | 3,927 | — | 3,927 | ||||||||||||
| Other Business | 208 | — | 208 | — | 208 | ||||||||||||
| Total Revenues | $ | 13,666 | $ | 384 | $ | 14,050 | $ | 36,884 | $ | 50,934 | |||||||
(1) Topic 815 revenue relates to the physical delivery or the settlement of the Company’s sales contracts that are accounted for as derivatives and are outside the scope of Topic 606.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3. Revenues (Continued)
Ag Services and Oilseeds
The Ag Services and Oilseeds segment generates revenue from the sale of commodities, from service fees for the transportation of goods, from the sale of products manufactured in its global processing facilities, and from its structured trade finance activities. Revenue is measured based on the consideration specified in the contract. Revenue is recognized when a performance obligation is satisfied by transferring control over a product or providing service to a customer. For transportation service contracts, the Company recognizes revenue over time as the mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The amount of revenue recognized follows the contractually specified price, which may include freight or other contractually specified cost components. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20. The Company engages in various structured trade finance activities to leverage its global trade flows whereby the Company obtains letters of credit (LCs) to guarantee payments on both global purchases and sales of grain. LCs guaranteeing payment on grain sales are sold on a non-recourse basis with no continuing involvement. The Company earns returns from the difference in interest rates between the LCs that guarantee payment on the underlying purchases and sales of grain given the differing risk profiles of the underlying transactions. The net return related to structured trade finance activities is included in revenue and is not significant for the three and six months ended June 30, 2023 and 2022.
Carbohydrate Solutions
The Carbohydrate Solutions segment generates revenue from the sale of products manufactured at the Company’s global corn and wheat milling facilities around the world. Revenue is recognized when control over products is transferred to the customer. Products are shipped to customers from the Company’s various facilities and from its network of storage terminals. The amount of revenue recognized is based on the consideration specified in the contract, which could include freight and other costs depending on the specific shipping terms of each contract. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20.
Nutrition
The Nutrition segment sells ingredients and solutions including plant-based proteins, natural flavors, flavor systems, natural colors, emulsifiers, soluble fiber, polyols, hydrocolloids, probiotics, prebiotics, enzymes, botanical extracts, edible beans, formula feeds, animal health and nutrition products, pet food and treats, and other specialty food and feed ingredients. Revenue is recognized when control over products is transferred to the customer. The amount of revenue recognized follows the contracted price or the mutually agreed price of the product. Freight and shipping are recognized as a component of revenue at the same time control transfers to the customer.
Other Business
Other Business includes the Company’s futures commission business whose primary sources of revenue are commissions and brokerage income generated from executing orders and clearing futures contracts and options on futures contracts on behalf of its customers. Commissions and brokerage revenue are recognized on the date the transaction is executed. Other Business also includes the Company’s captive insurance business, which generates third party revenue through its proportionate share of premiums from third-party reinsurance pools. Reinsurance premiums are recognized on a straight-line basis over the period underlying the policy.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements
The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.
| Fair Value Measurements at June 30, 2023 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Inventories carried at market | $ | — | $ | 3,631 | $ | 2,859 | $ | 6,490 | |||||||||||||||
| Unrealized derivative gains: | |||||||||||||||||||||||
| Commodity contracts | — | 728 | 886 | 1,614 | |||||||||||||||||||
| Foreign currency contracts | — | 211 | — | 211 | |||||||||||||||||||
| Cash equivalents | 471 | — | — | 471 | |||||||||||||||||||
| Segregated investments | 2,145 | — | — | 2,145 | |||||||||||||||||||
| Total Assets | $ | 2,616 | $ | 4,570 | $ | 3,745 | $ | 10,931 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Unrealized derivative losses: | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 631 | $ | 791 | $ | 1,422 | |||||||||||||||
| Foreign currency contracts | — | 204 | — | 204 | |||||||||||||||||||
| Inventory-related payables | — | 1,077 | 65 | 1,142 | |||||||||||||||||||
| Total Liabilities | $ | — | $ | 1,912 | $ | 856 | $ | 2,768 |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
| Fair Value Measurements at December 31, 2022 | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Inventories carried at market | $ | — | $ | 6,281 | $ | 2,760 | $ | 9,041 | |||||||||||||||
| Unrealized derivative gains: | |||||||||||||||||||||||
| Commodity contracts | — | 796 | 541 | 1,337 | |||||||||||||||||||
| Foreign currency contracts | — | 258 | — | 258 | |||||||||||||||||||
| Interest rate contracts | — | 109 | — | 109 | |||||||||||||||||||
| Cash equivalents | 405 | — | — | 405 | |||||||||||||||||||
| Segregated investments | 1,453 | — | — | 1,453 | |||||||||||||||||||
| Total Assets | $ | 1,858 | $ | 7,444 | $ | 3,301 | $ | 12,603 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Unrealized derivative losses: | |||||||||||||||||||||||
| Commodity contracts | $ | — | $ | 665 | $ | 603 | $ | 1,268 | |||||||||||||||
| Foreign currency contracts | — | 275 | — | 275 | |||||||||||||||||||
| Debt conversion option | — | — | 6 | 6 | |||||||||||||||||||
| Inventory-related payables | — | 1,181 | 89 | 1,270 | |||||||||||||||||||
| Total Liabilities | $ | — | $ | 2,121 | $ | 698 | $ | 2,819 |
Estimated fair values for inventories and inventory-related payables carried at market are based on exchange-quoted prices, adjusted for differences in local markets and quality, referred to as basis. Market valuations for the Company’s inventories are adjusted for location and quality (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using the inputs from competitor and broker quotations or market transactions and are considered observable. Basis adjustments are impacted by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these basis adjustments. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the inventory is classified in Level 3. Changes in the fair value of inventories and inventory-related payables are recognized in the consolidated statements of earnings as a component of cost of products sold.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and over-the-counter (OTC) instruments related primarily to agricultural commodities, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. Substantially all of the Company’s exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in these tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. Market valuations for the Company’s forward commodity purchase and sale contracts are adjusted for location (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using inputs from competitor and broker quotations or market transactions and are considered observable. Basis adjustments are impacted by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these basis adjustments. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, and other (income) expense - net, depending upon the purpose of the contract. The changes in the fair value of derivatives designated as effective cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.
The Company’s cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.
The Company’s segregated investments are comprised of U.S. Treasury securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.
The debt conversion option is the equity linked embedded derivative related to the exchangeable bonds. The fair value of the embedded derivative is included in long-term debt, with changes in fair value recognized as interest, and is valued with the assistance of a third-party pricing service (a level 3 measurement).
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2023.
| Level 3 Fair Value Asset Measurements at | |||||||||||||||||
| June 30, 2023 | |||||||||||||||||
| Inventories Carried at Market | Commodity Derivative Contracts Gains | Total Assets | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance, March 31, 2023 | $ | 3,503 | $ | 649 | $ | 4,152 | |||||||||||
| Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 362 | 475 | 837 | ||||||||||||||
| Purchases | 9,910 | — | 9,910 | ||||||||||||||
| Sales | (10,646) | — | (10,646) | ||||||||||||||
| Settlements | (4) | (457) | (461) | ||||||||||||||
| Transfers into Level 3 | 547 | 240 | 787 | ||||||||||||||
| Transfers out of Level 3 | (813) | (21) | (834) | ||||||||||||||
| Ending balance, June 30, 2023 | $ | 2,859 | $ | 886 | $ | 3,745 |
- Includes increase in unrealized gains of $780 million relating to Level 3 assets still held at June 30, 2023.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2023.
| Level 3 Fair Value Liability Measurements at | |||||||||||||||||||||||||||||
| June 30, 2023 | |||||||||||||||||||||||||||||
| Inventory- related Payables | Commodity Derivative Contracts Losses | Debt Conversion Option | Total Liabilities | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | 57 | $ | 455 | $ | 1 | $ | 513 | |||||||||||||||||||||
| Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | 4 | 535 | (1) | 538 | |||||||||||||||||||||||||
| Purchases | 5 | — | — | 5 | |||||||||||||||||||||||||
| Sales | — | — | — | — | |||||||||||||||||||||||||
| Settlements | (3) | (283) | — | (286) | |||||||||||||||||||||||||
| Transfers into Level 3 | 2 | 86 | — | 88 | |||||||||||||||||||||||||
| Transfers out of Level 3 | — | (2) | — | (2) | |||||||||||||||||||||||||
| Ending balance, June 30, 2023 | $ | 65 | $ | 791 | $ | — | $ | 856 |
- Includes increase in unrealized losses of $545 million relating to Level 3 liabilities still held at June 30, 2023.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2022.
| Level 3 Fair Value Asset Measurements at | |||||||||||||||||
| June 30, 2022 | |||||||||||||||||
| Inventories Carried at Market | Commodity Derivative Contracts Gains | Total Assets | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance, March 31, 2022 | $ | 3,959 | $ | 828 | $ | 4,787 | |||||||||||
| Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | (216) | 319 | 103 | ||||||||||||||
| Purchases | 11,678 | — | 11,678 | ||||||||||||||
| Sales | (11,993) | — | (11,993) | ||||||||||||||
| Settlements | — | (495) | (495) | ||||||||||||||
| Transfers into Level 3 | 222 | 293 | 515 | ||||||||||||||
| Transfers out of Level 3 | (405) | (65) | (470) | ||||||||||||||
| Ending balance, June 30, 2022 | $ | 3,245 | $ | 880 | $ | 4,125 |
- Includes increase in unrealized gains of $253 million relating to Level 3 assets still held at June 30, 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2022.
| Level 3 Fair Value Liability Measurements at | |||||||||||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||||||||
| Inventory- related Payables | Commodity Derivative Contracts Losses | Debt Conversion Option | Total Liabilities | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 53 | $ | 1,856 | $ | 30 | $ | 1,939 | |||||||||||||||||||||
| Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | (2) | 293 | (19) | 272 | |||||||||||||||||||||||||
| Purchases | 7 | — | — | 7 | |||||||||||||||||||||||||
| Sales | (3) | — | — | (3) | |||||||||||||||||||||||||
| Settlements | — | (1,251) | — | (1,251) | |||||||||||||||||||||||||
| Transfers into Level 3 | — | 161 | — | 161 | |||||||||||||||||||||||||
| Transfers out of Level 3 | — | (99) | — | (99) | |||||||||||||||||||||||||
| Ending balance, June 30, 2022 | $ | 55 | $ | 960 | $ | 11 | $ | 1,026 |
- Includes increase in unrealized losses of $294 million relating to Level 3 liabilities still held at June 30, 2022.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2023.
| Level 3 Fair Value Asset Measurements at | |||||||||||||||||
| June 30, 2023 | |||||||||||||||||
| Inventories Carried at Market | Commodity Derivative Contracts Gains | Total Assets | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance, December 31, 2022 | $ | 2,760 | $ | 541 | $ | 3,301 | |||||||||||
| Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 364 | 952 | 1,316 | ||||||||||||||
| Purchases | 18,575 | — | 18,575 | ||||||||||||||
| Sales | (18,900) | — | (18,900) | ||||||||||||||
| Settlements | (4) | (839) | (843) | ||||||||||||||
| Transfers into Level 3 | 1,152 | 290 | 1,442 | ||||||||||||||
| Transfers out of Level 3 | (1,088) | (58) | (1,146) | ||||||||||||||
| Ending balance, June 30, 2023 | $ | 2,859 | $ | 886 | $ | 3,745 | |||||||||||
- Includes increase in unrealized gains of $1.4 billion relating to Level 3 assets still held at June 30, 2023.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2023.
| Level 3 Fair Value Liability Measurements at | |||||||||||||||||||||||||||||
| June 30, 2023 | |||||||||||||||||||||||||||||
| Inventory- related Payables | Commodity Derivative Contracts Losses | Debt Conversion Option | Total Liabilities | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | 89 | $ | 603 | $ | 6 | $ | 698 | |||||||||||||||||||||
| Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | 2 | 778 | (6) | 774 | |||||||||||||||||||||||||
| Purchase | 7 | — | — | 7 | |||||||||||||||||||||||||
| Sales | — | — | — | — | |||||||||||||||||||||||||
| Settlements | (34) | (707) | — | (741) | |||||||||||||||||||||||||
| Transfers into Level 3 | 1 | 125 | — | 126 | |||||||||||||||||||||||||
| Transfers out of Level 3 | — | (8) | — | (8) | |||||||||||||||||||||||||
| Ending balance, June 30, 2023 | $ | 65 | $ | 791 | $ | — | $ | 856 | |||||||||||||||||||||
- Includes increase in unrealized losses of $0.8 billion relating to Level 3 liabilities still held at June 30, 2023.
The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2022.
| Level 3 Fair Value Asset Measurements at | |||||||||||||||||
| June 30, 2022 | |||||||||||||||||
| Inventories Carried at Market | Commodity Derivative Contracts Gains | Total Assets | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance, December 31, 2021 | $ | 3,004 | $ | 460 | $ | 3,464 | |||||||||||
| Total increase (decrease) in net realized/unrealized gains included in cost of products sold* | 431 | 952 | 1,383 | ||||||||||||||
| Purchases | 21,230 | — | 21,230 | ||||||||||||||
| Sales | (21,308) | — | (21,308) | ||||||||||||||
| Settlements | — | (771) | (771) | ||||||||||||||
| Transfers into Level 3 | 549 | 316 | 865 | ||||||||||||||
| Transfers out of Level 3 | (661) | (77) | (738) | ||||||||||||||
| Ending balance, June 30, 2022 | $ | 3,245 | $ | 880 | $ | 4,125 | |||||||||||
- Includes increase in unrealized gains of $1.7 billion relating to Level 3 assets still held at June 30, 2022.
The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
| Level 3 Fair Value Liability Measurements at | |||||||||||||||||||||||||||||
| June 30, 2022 | |||||||||||||||||||||||||||||
| Inventory- related Payables | Commodity Derivative Contracts Losses | Debt Conversion Option | Total Liabilities | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 106 | $ | 815 | $ | 15 | $ | 936 | |||||||||||||||||||||
| Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* | (4) | 1,669 | (4) | 1,661 | |||||||||||||||||||||||||
| Purchases | 9 | — | — | 9 | |||||||||||||||||||||||||
| Sales | (56) | — | — | (56) | |||||||||||||||||||||||||
| Settlements | — | (1,729) | — | (1,729) | |||||||||||||||||||||||||
| Transfers into Level 3 | — | 322 | — | 322 | |||||||||||||||||||||||||
| Transfers out of Level 3 | — | (117) | — | (117) | |||||||||||||||||||||||||
| Ending balance, June 30, 2022 | $ | 55 | $ | 960 | $ | 11 | $ | 1,026 | |||||||||||||||||||||
- Includes increase in unrealized losses of $1.7 billion relating to Level 3 liabilities still held at June 30, 2022.
Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.
In some cases, the price components that result in differences between exchange-traded prices and local prices for inventories and commodity purchase and sale contracts are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as basis. The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components.
The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of June 30, 2023 and December 31, 2022. The Company’s Level 3 measurements may include basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with basis, the unobservable component as of June 30, 2023 is a weighted average 21.7% of the total price for assets and 21.5% of the total price for liabilities.
| Weighted Average % of Total Price | |||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Component Type | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
| Inventories and Related Payables | |||||||||||||||||||||||
| Basis | 21.7 | % | 21.5 | % | 19.4 | % | 15.2 | % | |||||||||||||||
| Transportation cost | 14.1 | % | — | % | 10.5 | % | — | % | |||||||||||||||
| Commodity Derivative Contracts | |||||||||||||||||||||||
| Basis | 26.1 | % | 21.6 | % | 22.7 | % | 26.5 | % | |||||||||||||||
| Transportation cost | 6.4 | % | 2.4 | % | 13.5 | % | 3.7 | % |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4. Fair Value Measurements (Continued)
In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3.
Note 5. Derivative Instruments and Hedging Activities
Derivatives Not Designated as Hedging Instruments
The majority of the Company’s derivative instruments have not been designated as hedging instruments. The Company uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural product inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Derivatives, including exchange-traded contracts and forward commodity purchase or sale contracts, and inventories of certain merchandisable agricultural products, which include amounts acquired under deferred pricing contracts, are stated at fair value or market value. Inventory is not a derivative and therefore fair values of and changes in fair values of inventories are not included in the tables below.
The following table sets forth the fair value of derivatives not designated as hedging instruments as of June 30, 2023 and December 31, 2022.
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Foreign Currency Contracts | $ | 167 | $ | 85 | $ | 154 | $ | 275 | |||||||||||||||
| Commodity Contracts | 1,612 | 1,422 | 1,337 | 1,248 | |||||||||||||||||||
| Debt Conversion Option | — | — | — | 6 | |||||||||||||||||||
| Total | $ | 1,779 | $ | 1,507 | $ | 1,491 | $ | 1,529 |
The following tables set forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2023 and 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
| Other (income) expense - net | |||||||||||||||||||||||||||||
| Cost of | Interest | ||||||||||||||||||||||||||||
| (In millions) | Revenues | products sold | expense | ||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 25,190 | $ | 23,307 | $ | (37) | $ | 180 | |||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | (15) | $ | 153 | $ | 43 | $ | — | |||||||||||||||||||||
| Commodity Contracts | — | 35 | — | — | |||||||||||||||||||||||||
| Debt Conversion Option | — | — | — | 1 | |||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | (15) | $ | 188 | $ | 43 | $ | 1 | $ | 217 | |||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 27,284 | $ | 25,184 | $ | (83) | $ | 73 | |||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | 13 | $ | (95) | $ | 240 | $ | — | |||||||||||||||||||||
| Commodity Contracts | — | 1,062 | — | — | |||||||||||||||||||||||||
| Debt Conversion Option | — | — | — | 19 | |||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | 13 | $ | 967 | $ | 240 | $ | 19 | $ | 1,239 | |||||||||||||||||||
| Other (income) expense - net | |||||||||||||||||||||||||||||
| Cost of | Interest | ||||||||||||||||||||||||||||
| (In millions) | Revenues | products sold | expense | ||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 49,262 | $ | 45,299 | $ | (81) | $ | 327 | |||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | (26) | $ | 248 | $ | 27 | $ | — | |||||||||||||||||||||
| Commodity Contracts | — | 475 | — | — | |||||||||||||||||||||||||
| Debt Conversion Option | — | — | — | 6 | |||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | (26) | $ | 723 | $ | 27 | $ | 6 | $ | 730 | |||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 50,934 | $ | 46,937 | $ | (116) | $ | 165 | |||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | (25) | $ | 348 | $ | 263 | $ | — | |||||||||||||||||||||
| Commodity Contracts | — | (39) | — | — | |||||||||||||||||||||||||
| Debt Conversion Option | — | — | — | 4 | |||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | (25) | $ | 309 | $ | 263 | $ | 4 | $ | 551 | |||||||||||||||||||
Changes in the market value of inventories of certain merchandisable agricultural commodities, inventory-related payables, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately as a component of cost of products sold.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, and other (income) expense - net depending on the purpose of the contract.
Derivatives Designated as Cash Flow and Net Investment Hedging Strategies
The Company had certain derivatives designated as cash flow and net investment hedges as of June 30, 2023 and December 31, 2022.
For derivative instruments that are designated and qualify as highly-effective cash flow hedges (i.e., hedging the exposure to variability in expected future cash flow that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of AOCI and as an operating activity in the statement of cash flows, and is reclassified into earnings in the same line item affected by the hedged transaction in the same period or periods during which the hedged transaction affects earnings. Hedge components excluded from the assessment of effectiveness and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.
Commodity Contracts
For each of the hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains and losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable.
The Company uses futures or options contracts to hedge the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants normally grind approximately 65 million bushels of corn per month. During the past 12 months, the Company hedged between 17% and 33% of its monthly grind. At June 30, 2023, the Company had designated hedges representing between 1% and 34% of its anticipated monthly grind of corn for the next 12 months.
The Company, from time to time, also uses futures, options, and swaps to hedge the sales price of certain ethanol sales contracts. The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol. During the past 12 months and as of June 30, 2023, the Company had no hedges related to ethanol sales under these programs.
The Company uses futures and options contracts to hedge the purchase price of the anticipated volumes of soybeans to be purchased and processed in a future month for certain of its U.S. soybean crush facilities, subject to certain program limits. The Company also uses futures or options contracts to hedge the sales prices of anticipated soybean meal and soybean oil sales proportionate to the soybean crushing process at these facilities, subject to certain program limits. During the past 12 months, the Company hedged between 92% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. At June 30, 2023, the Company had designated hedges representing between 0% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities over the next 12 months.
The Company uses futures and OTC swaps to hedge the purchase price of anticipated volumes of natural gas consumption in a future month for certain of its facilities in North America and Europe, subject to certain program limits. During the past 12 months, the Company hedged between 71% and 91% of the anticipated monthly natural gas consumption at the designated facilities. At June 30, 2023, the Company had designated hedges representing between 37% and 78% of the anticipated monthly natural gas consumption over the next 12 months.
As of June 30, 2023 and December 31, 2022, the Company had after-tax losses of $91 million and $17 million in AOCI, respectively, related to gains and losses from these programs. The Company expects to recognize $91 million of the June 30, 2023 after-tax losses in its consolidated statement of earnings during the next 12 months.
Interest Rate Contracts
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
The Company used swap locks designated as cash flow hedges to hedge the changes in the forecasted interest payments due to changes in the benchmark rate leading up to future bond issuance dates. The terms of the swap locks matched the terms of the forecasted interest payments. The deferred gains and losses will be recognized in interest expense over the period in which the related interest payments will be paid. The Company executed swap locks maturing on various dates with an aggregate notional amount of $400 million as of December 31, 2022. During the quarter ended March 31, 2023, the Company unwound the swap locks in anticipation of the April 3, 2023 debt issuance.
Foreign Currency Contracts
The Company uses cross-currency swaps and foreign exchange forwards designated as net investment hedges to protect the Company’s investment in a foreign subsidiary against changes in foreign currency exchange rates. The Company executed USD-fixed to Euro-fixed cross-currency swaps with an aggregate notional amount of $0.8 billion as of June 30, 2023 and December 31, 2022, and foreign exchange forwards with an aggregate notional amount of $3.2 billion and $2.5 billion as of June 30, 2023 and December 31, 2022, respectively.
As of June 30, 2023 and December 31, 2022, the Company had after-tax gains of $16 million and $79 million in AOCI, respectively, related to foreign exchange gains and losses from net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.
The following table sets forth the fair value of derivatives designated as hedging instruments as of June 30, 2023 and December 31, 2022.
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Commodity Contracts | $ | 2 | $ | — | $ | — | $ | 20 | |||||||||||||||
| Foreign Currency Contracts | 44 | 119 | 104 | $ | — | ||||||||||||||||||
| Interest Rate Contracts | — | — | 109 | — | |||||||||||||||||||
| Total | $ | 46 | $ | 119 | $ | 213 | $ | 20 |
The following table sets forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three and six months ended June 30, 2023 and 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5. Derivative Instruments and Hedging Activities (Continued)
| Cost of products sold | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 23,307 | |||||||||||||||||||||||||||||||||||||||
| Effective amounts recognized in earnings | |||||||||||||||||||||||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||||||||||||||
| Commodity Contracts | $ | (41) | |||||||||||||||||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | (41) | $ | (41) | |||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 25,184 | |||||||||||||||||||||||||||||||||||||||
| Effective amounts recognized in earnings | |||||||||||||||||||||||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||||||||||||||
| Commodity Contracts | $ | 150 | |||||||||||||||||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | 150 | $ | 150 |
| Cost of products sold | |||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 45,299 | |||||||||||||||||||||||||||
| Effective amounts recognized in earnings | |||||||||||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Commodity Contracts | $ | (145) | |||||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | (145) | $ | (145) | |||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Consolidated Statement of Earnings | $ | 46,937 | |||||||||||||||||||||||||||
| Effective amounts recognized in earnings | |||||||||||||||||||||||||||||
| Pre-tax gains (losses) on: | |||||||||||||||||||||||||||||
| Commodity Contracts | $ | 248 | |||||||||||||||||||||||||||
| Total gain (loss) recognized in earnings | $ | 248 | $ | 248 | |||||||||||||||||||||||||
Other Net Investment Hedging Strategies
The Company has designated €0.9 billion and €1.3 billion of its outstanding long-term debt and commercial paper borrowings at June 30, 2023 and December 31, 2022, respectively, as hedges of its net investment in a foreign subsidiary. As of June 30, 2023 and December 31, 2022, the Company had after-tax gains of $208 million and $228 million in AOCI, respectively, related to foreign exchange gains and losses from the net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6. Other Current Assets
The following table sets forth the items in other current assets:
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Unrealized gains on derivative contracts | $ | 1,825 | $ | 1,704 | |||||||
| Margin deposits and grain accounts | 460 | 723 | |||||||||
| Customer omnibus receivable | 1,068 | 1,309 | |||||||||
| Financing receivables - net (1) | 161 | 235 | |||||||||
| Insurance premiums receivable | 71 | 54 | |||||||||
| Prepaid expenses | 349 | 443 | |||||||||
| Biodiesel tax credit | 177 | 68 | |||||||||
| Tax receivables | 544 | 616 | |||||||||
| Non-trade receivables | 328 | 361 | |||||||||
| Other current assets | 98 | 153 | |||||||||
| $ | 5,081 | $ | 5,666 | ||||||||
(1) The Company provides financing to certain suppliers, primarily Brazilian farmers, to finance a portion of the suppliers’ production costs. The amounts are reported net of allowances of $3 million at June 30, 2023 and December 31, 2022. Interest earned on financing receivables of $4 million and $10 million for the three and six months ended June 30, 2023, respectively, and $4 million and $8 million for the three and six months ended June 30, 2022, respectively, is included in interest and investment income in the consolidated statements of earnings.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7. Accrued Expenses and Other Payables
The following table sets forth the items in accrued expenses and other payables:
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Unrealized losses on derivative contracts | $ | 1,626 | $ | 1,543 | |||||||
| Accrued compensation | 302 | 475 | |||||||||
| Income tax payable | 268 | 248 | |||||||||
| Other taxes payable | 178 | 136 | |||||||||
| Insurance claims payable | 294 | 223 | |||||||||
| Contract liability | 286 | 694 | |||||||||
| Other accruals and payables | 1,315 | 1,476 | |||||||||
| $ | 4,269 | $ | 4,795 |
Note 8. Debt and Financing Arrangements
On April 3, 2023, the Company issued $500 million aggregate principal amount of 4.500% Notes due August 15, 2033. Net proceeds before expenses were $493 million.
In June 2023, the Company redeemed €600 million aggregate principal amount of 1.750% Notes due 2023.
During the six months ended June 30, 2023, Archer Daniels Midland Singapore, Pte. Ltd., a wholly-owned subsidiary of the Company, increased its revolving credit facility from $500 million to $750 million. The facility is used to finance working capital requirements and for general corporate purposes.
At June 30, 2023, the fair value of the Company’s long-term debt was below the carrying value by $0.3 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At June 30, 2023, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $13.6 billion, of which $11.3 billion was unused. Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was no commercial paper outstanding at June 30, 2023.
The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to $3.0 billion in funding resulting from the sale of accounts receivable with $0.9 billion unused capacity as of June 30, 2023.
Note 9. Income Taxes
The Company’s effective tax rate was 18.0% and 17.0% for the three and six months ended June 30, 2023, respectively, compared to 18.4% and 17.4% for the three and six months ended June 30, 2022, respectively. The decrease in the rate was primarily due to the impact of discrete tax items.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“Inflation Act”), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” and a one percent excise tax on net repurchases of stock for tax years beginning after December 31, 2022. The Company’s adoption of the Inflation Act did not have a significant impact on the Company’s consolidated financial statements.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 9. Income Taxes (Continued)
The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax jurisdictions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period.
The Company’s subsidiary in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011, 2014 and 2015. As of June 30, 2023, these assessments totaled $3 million in tax and up to $18 million in interest (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes it has complied with all Argentine tax laws. Currently the Company is under audit for fiscal years 2016 to 2017. While the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2015. The Company believes it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position is more likely than not to be sustained based upon its technical merits, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against any assessments.
In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization, which involved two of its subsidiary companies in the Netherlands. As of June 30, 2023, this assessment was $88 million in tax and $33 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the court issued an unfavorable ruling and in October 2020, assigned a third party expert to establish a valuation. During the second quarter of 2021, the third party expert issued a final valuation. On September 30, 2022, the court issued a ruling consistent with the valuation report, and the Dutch tax authorities have filed an appeal. During the quarter ended March 31, 2023, ADM filed a cross-appeal. As of June 30, 2023, the Company has accrued its best estimate of what it believes will be the likely outcome of the litigation.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10. Accumulated Other Comprehensive Income
The following tables set forth the changes in AOCI by component for the three and six months ended June 30, 2023 and the reclassifications out of AOCI for the three and six months ended June 30, 2023 and 2022:
| Three months ended June 30, 2023 | |||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustment | Deferred Gain (Loss) on Hedging Activities | Pension Liability Adjustment | Unrealized Gain (Loss) on Investments | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | (2,452) | $ | 60 | $ | (61) | $ | (10) | $ | (2,463) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 88 | (78) | (2) | 4 | 12 | ||||||||||||||||||||||||
| Gain (loss) on net investment hedges | (52) | — | — | — | (52) | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | — | 41 | (4) | — | 37 | ||||||||||||||||||||||||
| Tax effect | 14 | 16 | 4 | (1) | 33 | ||||||||||||||||||||||||
| Net of tax amount | 50 | (21) | (2) | 3 | 30 | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | (2,402) | $ | 39 | $ | (63) | $ | (7) | $ | (2,433) | |||||||||||||||||||
| Six months ended June 30, 2023 | |||||||||||||||||||||||||||||
| Foreign Currency Translation Adjustment | Deferred Gain (Loss) on Hedging Activities | Pension Liability Adjustment | Unrealized Gain (Loss) on Investments | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (2,622) | $ | 148 | $ | (22) | $ | (13) | $ | (2,509) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 322 | (286) | 3 | 8 | 47 | ||||||||||||||||||||||||
| Gain (loss) on net investment hedges | (130) | — | — | — | (130) | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | — | 145 | (35) | — | 110 | ||||||||||||||||||||||||
| Tax effect | 28 | 32 | (9) | (2) | 49 | ||||||||||||||||||||||||
| Net of tax amount | 220 | (109) | (41) | 6 | 76 | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | (2,402) | $ | 39 | $ | (63) | $ | (7) | $ | (2,433) |
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10. Accumulated Other Comprehensive Income (Continued)
| Amount reclassified from AOCI | ||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | Affected line item in the consolidated statements of earnings | ||||||||||||||||||
| Details about AOCI components | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Deferred loss (gain) on hedging activities | ||||||||||||||||||||
| $ | 41 | $ | (150) | 145 | (248) | Cost of products sold | ||||||||||||||
| 41 | (150) | 145 | (248) | Total before tax | ||||||||||||||||
| (8) | 33 | (26) | 52 | Tax | ||||||||||||||||
| $ | 33 | $ | (117) | $ | 119 | $ | (196) | Net of tax | ||||||||||||
| Pension liability adjustment | ||||||||||||||||||||
| Amortization of defined benefit pension items: | ||||||||||||||||||||
| Prior service loss (credit) | $ | (6) | $ | (112) | $ | (17) | $ | (104) | Other (income) expense-net | |||||||||||
| Actuarial losses | 2 | 104 | (18) | 127 | Other (income) expense-net | |||||||||||||||
| (4) | (8) | (35) | 23 | Total before tax | ||||||||||||||||
| 3 | (2) | (9) | (8) | Tax | ||||||||||||||||
| $ | (1) | $ | (10) | $ | (44) | $ | 15 | Net of tax | ||||||||||||
The Company’s accounting policy is to release the income tax effects from AOCI when the individual units of account are sold, terminated, or extinguished.
Note 11. Other (Income) Expense - Net
The following table sets forth the items in other (income) expense:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Gains on sales of assets | $ | (21) | $ | (5) | $ | (32) | $ | (5) | |||||||||||||||
| Other – net | (16) | (78) | (49) | (111) | |||||||||||||||||||
| Other (Income) Expense - Net | $ | (37) | $ | (83) | $ | (81) | $ | (116) |
Gains on sales of assets in the three and six months ended June 30, 2023 and 2022 consisted of gains on sales of certain assets and disposals of individually insignificant assets in the ordinary course of business.
Other - net in the three and six months ended June 30, 2023 included the non-service components of net pension benefit income of $5 million and $9 million, respectively, net foreign exchange gains, and net other income. Other - net in the three and six months ended June 30, 2022 included the non-service components of net pension benefit income of $6 million and $12 million, respectively, a $50 million payment from the USDA Biofuel Producer Recovery Program, net foreign exchange gains, and net other expense.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information
The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard*,* and are classified as Other Business.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in operating profit for each segment is equity in earnings of affiliates based on the equity method of accounting. Specified items included in total segment operating profit and certain corporate items are not allocated to the Company’s individual business segments because operating performance of each business segment is evaluated by management exclusive of these items. Corporate results principally include unallocated corporate expenses, interest cost net of interest income, and revaluation gains and losses on cost method investments and the share of the results of equity investments in early-stage start-up companies that ADM Ventures has investments in.
For more information about the Company’s business segments, refer to Note 17 of “Notes to Consolidated Financial Statements” included in Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information (Continued)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Gross revenues | |||||||||||||||||||||||
| Ag Services and Oilseeds | $ | 20,864 | $ | 22,468 | $ | 40,778 | $ | 41,600 | |||||||||||||||
| Carbohydrate Solutions | 3,829 | 4,500 | 8,095 | 8,680 | |||||||||||||||||||
| Nutrition | 1,926 | 2,055 | 3,870 | 4,021 | |||||||||||||||||||
| Other Business | 112 | 101 | 215 | 208 | |||||||||||||||||||
| Intersegment elimination | (1,541) | (1,840) | (3,696) | (3,575) | |||||||||||||||||||
| Total gross revenues | $ | 25,190 | $ | 27,284 | $ | 49,262 | $ | 50,934 | |||||||||||||||
| Intersegment sales | |||||||||||||||||||||||
| Ag Services and Oilseeds | $ | 1,020 | $ | 1,039 | $ | 2,355 | $ | 1,918 | |||||||||||||||
| Carbohydrate Solutions | 448 | 749 | 1,177 | 1,563 | |||||||||||||||||||
| Nutrition | 73 | 52 | 164 | 94 | |||||||||||||||||||
| Total intersegment sales | $ | 1,541 | $ | 1,840 | $ | 3,696 | $ | 3,575 | |||||||||||||||
| Revenues from external customers | |||||||||||||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||||||||
| Ag Services | $ | 13,366 | $ | 14,333 | $ | 25,061 | $ | 26,180 | |||||||||||||||
| Crushing | 3,480 | 3,362 | 7,163 | 6,584 | |||||||||||||||||||
| Refined Products and Other | 2,998 | 3,734 | 6,199 | 6,918 | |||||||||||||||||||
| Total Ag Services and Oilseeds | 19,844 | 21,429 | 38,423 | 39,682 | |||||||||||||||||||
| Carbohydrate Solutions | |||||||||||||||||||||||
| Starches and Sweeteners | 2,475 | 2,519 | 5,212 | 5,017 | |||||||||||||||||||
| Vantage Corn Processors | 906 | 1,232 | 1,706 | 2,100 | |||||||||||||||||||
| Total Carbohydrate Solutions | 3,381 | 3,751 | 6,918 | 7,117 | |||||||||||||||||||
| Nutrition | |||||||||||||||||||||||
| Human Nutrition | 966 | 1,020 | 1,902 | 1,978 | |||||||||||||||||||
| Animal Nutrition | 887 | 983 | 1,804 | 1,949 | |||||||||||||||||||
| Total Nutrition | 1,853 | 2,003 | 3,706 | 3,927 | |||||||||||||||||||
| Other Business | 112 | 101 | 215 | 208 | |||||||||||||||||||
| Total revenues from external customers | $ | 25,190 | $ | 27,284 | $ | 49,262 | $ | 50,934 | |||||||||||||||
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Segment Information (Continued)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Segment operating profit | |||||||||||||||||||||||
| Ag Services and Oilseeds | $ | 1,054 | $ | 1,119 | $ | 2,264 | $ | 2,127 | |||||||||||||||
| Carbohydrate Solutions | 303 | 473 | 576 | 790 | |||||||||||||||||||
| Nutrition | 185 | 239 | 330 | 428 | |||||||||||||||||||
| Other Business | 86 | 18 | 183 | 60 | |||||||||||||||||||
| Specified Items: | |||||||||||||||||||||||
| Gains on sales of assets(1) | 11 | — | 12 | 1 | |||||||||||||||||||
| Impairment and restructuring charges and contingency provisions(2) | (114) | (9) | (121) | (27) | |||||||||||||||||||
| Total segment operating profit | 1,525 | 1,840 | 3,244 | 3,379 | |||||||||||||||||||
| Corporate | (393) | (321) | (715) | (589) | |||||||||||||||||||
| Earnings before income taxes | $ | 1,132 | $ | 1,519 | $ | 2,529 | $ | 2,790 | |||||||||||||||
(1) Consists of gains related to the sale of certain assets in all periods presented.
(2) Current quarter and year-to-date charges were related to the impairment of certain long-lived assets and intangibles, restructuring, and a contingent loss provision related to import duties. Prior-year quarter and year-to-date charges were related to the impairment of certain Ukraine assets. Prior year-to-date charges was partially offset by an insurance settlement.
Note 13. Asset Impairment, Exit, and Restructuring Costs
Asset impairment, exit, and restructuring costs in the three and six months ended June 30, 2023 consisted of $43 million and $46 million of impairments related to certain long-lived assets and intangibles, respectively, and $17 million and $21 million of restructuring charges, respectively.
Asset impairment, exit, and restructuring costs in the three and six months ended June 30, 2022 consisted of immaterial charges.
Note 14. Sale of Accounts Receivable
The Company has an accounts receivable securitization program (the “First Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “First Purchasers”). Under the First Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables transfers certain of the purchased accounts receivable to each of the First Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Receivables receives a cash payment of up to $1.9 billion, as amended, for the accounts receivable transferred. The First Program terminates on May 17, 2024, unless extended.
The Company also has an accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (ADM Ireland Receivables). ADM Ireland Receivables transfers certain of the purchased accounts receivable to each of the Second Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Ireland Receivables receives a cash payment of up to $1.1 billion (€1.0 billion) for the accounts receivables transferred. The Second Program terminates on February 20, 2024, unless extended.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14. Sale of Accounts Receivable (Continued)
Under the First and Second Programs (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the First Purchasers and Second Purchasers (collectively, the “Purchasers”) and other consideration, as applicable, to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables. The Company accounts for these transfers as sales. The Company acts as a servicer for the transferred receivables. At June 30, 2023 and December 31, 2022, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions, and its cost of servicing the receivables sold.
As of June 30, 2023 and December 31, 2022, the fair value of trade receivables transferred to the Purchasers under the Programs and derecognized from the Company’s consolidated balance sheets was $2.1 billion and $2.6 billion, respectively. Total receivables sold were $28.8 billion and $29.3 billion for the six months ended June 30, 2023 and 2022, respectively. Cash collections from customers on receivables sold were $28.4 billion and $28.2 billion for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, receivables pledged as collateral to the Purchasers was $0.8 billion and $0.6 billion, respectively.
Transfers of receivables under the Programs resulted in an expense for the loss on sale of $11 million and $34 million for the three and six months ended June 30, 2023, respectively, and $3 million and $8 million for the three and six months ended June 30, 2022, respectively, which is classified as selling, general, and administrative expenses in the consolidated statements of earnings.
All cash flows under the Programs are classified as operating activities because the cash received from the Purchasers upon both the sale and collection of the receivables is not subject to significant interest rate risk given the short-term nature of the Company’s trade receivables.
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