Item 1A. RISK FACTORS
The Company faces risks in the normal course of business as it executes its strategy while demonstrating strong corporate responsibility. Global, regional, and local events could have an adverse impact on its reputation, operations, and financial performance.
Management directs a Company-wide Enterprise Risk Management (ERM) Program, with oversight from the Company’s Board of Directors. The Company’s Audit Committee has the delegated risk management oversight responsibility and receives updates on the risk management processes and key risk factors on a quarterly basis.
The Company, through its business unit, functional, and corporate teams, continually updates, assesses, monitors, and mitigates these and other business and compliance risks in accordance with the ERM Program as monitored by the ERM Program team and Chief Risk Officer.
The risk factors that follow are the main risks that the ERM Program focuses on to protect and enhance shareholder value and promote socially responsible behaviors through intentional risk mitigation plans based on management-defined risk limits. The areas of risk mitigation emphasis include operational efficiencies, cyber threat prevention, strategy, environmental, social, and governance solutions, economic factors, and food safety.
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Item 1A. RISK FACTORS (Continued)
Global Operations Risks
The Company faces risks related to health epidemics, pandemics, and similar outbreaks.
ADM is monitoring the novel coronavirus (COVID-19) global pandemic and taking steps to mitigate the potential risks posed by its spread, including working with its customers, employees, suppliers, local communities, and other stakeholders. COVID-19 or other health epidemics, pandemics, or similar outbreaks could impact the Company’s operations if significant portions of its workforce are unable to work effectively, including because of illness, quarantines, lockdowns, government actions, facility closures, or other restrictions. Additionally, third party service providers, suppliers, joint ventures, customers, and other business partners may not be able fulfill their commitments creating additional disruptions for the Company. In such circumstances, ADM may be unable to perform fully on its contractual obligations, critical global supply chain and logistical networks may be affected, and costs and working capital may increase. These cost increases may not be fully recoverable or adequately covered by insurance. In addition, demand for certain products that ADM produces, particularly biofuels and ingredients that go into food and beverages that support the food services channels, may be materially impacted from a prolonged outbreak of COVID-19 or significant local resurgences of the virus, leading to additional government-imposed lockdowns, quarantines, or other restrictions. The Company cannot at this time predict the impact of the COVID-19 pandemic on its future financial or operational results, but the impact could potentially be material over time.
The Company’s information technology (IT) systems, processes, and sites may suffer interruptions, security breaches, or failures which may affect the Company’s ability to conduct its business.
The Company’s operations rely on certain key IT systems, some of which are dependent on services provided by third parties, to provide critical data connectivity, information, and services for internal and external users. These interactions include, but are not limited to: ordering and managing materials from suppliers; risk management activities; converting raw materials to finished products; inventory management; shipping products to customers; processing transactions; summarizing and reporting financial results of operations; human resources benefits and payroll management; and complying with regulatory, legal or tax requirements. The Company is implementing a new enterprise resource planning (ERP) system and integrating with various third party service providers on a worldwide basis as part of its ongoing business transformation program, which is expected to improve the efficiency and effectiveness of certain financial and business transaction processes and the underlying systems environment. This will help the Company in mitigating the risk of instability in aging legacy systems and manual processes. Increased IT security and social engineering threats and more sophisticated computer crime, including advanced persistent threats, pose a potential risk to the security of the Company’s IT systems, networks, and services, as well as the confidentiality, availability, and integrity of the Company’s third party data. The Company is subject to a variety of laws and regulations in the United States and other jurisdictions regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. Compliance with and interpretation of various data privacy regulations continue to evolve and any violation could subject the Company to legal claims, regulatory penalties, and damage to its reputation. The Company has put in place security measures to prevent, detect, and mitigate cyber-based attacks, and has instituted control procedures for cybersecurity incident responses and disaster recovery plans for its critical systems. In addition, the Company monitors this risk on an ongoing basis to detect and correct any breaches, and reports metrics on the quality of the Company’s data security efforts and control environment to the highest level of management and to the Board of Directors. However, if the Company’s IT systems are breached, damaged, or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, or cyber-based attacks, and the Company’s disaster recovery plans do not effectively mitigate the risks on a timely basis, the Company may suffer significant interruptions in its ability to manage its operations, loss of valuable data, actual or threatened legal actions, and damage to its reputation, which may adversely impact the Company’s revenues, operating results, and financial condition.
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Item 1A. RISK FACTORS (Continued)
The Company is exposed to potential business disruption including, but not limited to, disruption of transportation services, disruption in the supply of non-commodity raw materials used in its processing operations, and other impacts resulting from acts of terrorism or war, natural disasters, pandemics, severe weather conditions, and accidents which could adversely affect the Company’s operating results.
The Company’s operations rely on dependable and efficient transportation services the disruption of which could result in difficulties supplying materials to the Company’s facilities and impair the Company’s ability to deliver products to its customers in a timely manner. The Company relies on access to navigable rivers and waterways in order to fulfill its transportation obligations more effectively. In addition, if certain non-agricultural commodity raw materials, such as water or certain chemicals used in the Company’s processing operations, are not available, the Company’s business could be disrupted. Any major lack of available water for use in certain of the Company’s processing operations could have a material adverse impact on operating results. Certain factors which may impact the availability of non-agricultural commodity raw materials are out of the Company’s control including, but not limited to, disruptions resulting from weather, high river water conditions, economic conditions, manufacturing delays or disruptions at suppliers, shortage of materials, interruption of energy supply, and unavailable or poor supplier credit conditions.
The assets and operations of the Company could be subject to extensive property damage and business disruption from various events which include, but are not limited to, acts of terrorism (for example, purposeful adulteration of the Company’s products), war, natural disasters, pandemics, severe weather conditions, accidents, explosions, and fires. The Company is continuing to enhance and deploy additional food safety and security procedures and controls to appropriately mitigate the risks of any adulteration of the Company’s products in the supply chain and finished products in production and distribution networks. In addition, the Company conforms to management systems, such as International Organization for Standardization (ISO) or other recognized global standards.
The Company’s risk management strategies may not be effective.
The Company has a Chief Risk Officer who oversees the ERM Program and regularly reports to the Board of Directors on the myriad of risks facing the Company and the Company’s strategies for mitigating those risks. The Company’s business is affected by fluctuations in agricultural commodity cash prices and derivative prices, transportation costs, energy prices, interest rates, foreign currency exchange rates, and equity markets. The Company monitors position limits and counterparty risks and engages in other strategies and controls to manage these risks. The Company regularly reports its aggregate commodity risk exposures to the Board of Directors through the ERM process. The Company has an established commodity merchandising governance process that ensures proper position reporting and monitoring, limits approvals, and executes training on trade compliance, commodity regulatory reporting controls, and other policies. The Company’s risk monitoring efforts may not be successful at detecting a significant risk exposure. If these controls and strategies are not successful in mitigating the Company’s exposure to these fluctuations, it could adversely affect the Company’s operating results.
The Company has limited control over and may not realize the expected benefits of its equity investments and joint ventures.
The Company has $4.9 billion invested in or advanced to joint ventures and investments over which the Company has limited control as to governance and management activities. Net sales to unconsolidated affiliates during the year ended December 31, 2020 were $4.7 billion. Risks related to these investments may include: the financial strength of the investment partner; loss of revenues and cash flows to the investment partner and related gross profit; the inability to implement beneficial management strategies, including risk management and compliance monitoring, with respect to the investment’s activities; and the risk that the Company may not be able to resolve disputes with the partners. The Company may encounter unanticipated operating issues, financial results, or compliance and reputational risks related to these investments. The Company mitigates this risk using controls and policies related to joint venture formation, governance (including board of directors’ representation), merger and acquisition integration management, and harmonization of joint venture policies with the Company’s policies and controls.
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Item 1A. RISK FACTORS (Continued)
Legal Regulations and Compliance Risks
The Company is subject to numerous laws, regulations, and mandates globally which could adversely affect the Company’s operating results and forward strategy.
The Company does business globally, connecting crops and markets in 200 countries, and is required to comply with laws and regulations administered by the United States federal government as well as state, local, and non-U.S. governmental authorities in numerous areas including: accounting and income taxes, anti-corruption, anti-bribery, global trade, trade sanctions, environmental, product safety, and handling and production of regulated substances. The Company frequently faces challenges from U.S. and foreign tax authorities regarding the amount of taxes due including questions regarding the timing, amount of deductions, and the allocation of income among various tax jurisdictions. Any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject the Company to administrative, civil, and criminal remedies, including fines, penalties, disgorgement, injunctions, and recalls of its products, and damage to its reputation.
The production of the Company’s products uses materials that can create emissions of certain regulated substances, including greenhouse gas emissions. The Company has programs and policies in place (e.g., Corporate Sustainability Program, No-Deforestation Policy, Environmental Policy, Strive 35 environmental goals, etc.) to expand responsible practices while reducing its environmental footprint and to help ensure compliance with laws and regulations. Implementation of these programs and policies sometimes requires the acquisition of technology or capital investments at a cost to the Company. Failure to comply with the laws and regulations can have serious consequences, including civil, administrative, and criminal penalties as well as a negative impact on the Company’s reputation, business, cash flows, and results of operations.
In addition, changes to regulations or implementation of additional regulations - for example, the imposition of regulatory restrictions on greenhouse gases or regulatory modernization of food safety laws - may require the Company to modify existing processing facilities and/or processes which could significantly increase operating costs and adversely affect operating results.
Government policies, mandates, and regulations specifically affecting the agricultural sector and related industries; regulatory policies or matters that affect a variety of businesses; taxation polices; and political instability could adversely affect the Company’s operating results.
Agricultural production and trade flows are subject to government policies, mandates, regulations, and trade agreements, including taxes, tariffs, duties, subsidies, incentives, foreign exchange rates, and import and export restrictions, including policies related to genetically modified organisms, traceability standards, sustainable practices, product safety and labeling, renewable fuels, and low carbon fuel mandates. These policies can influence the planting of certain crops; the location and size of crop production; whether unprocessed or processed commodity products are traded; the volume and types of imports and exports; the availability and competitiveness of feedstocks as raw materials; the viability and volume of production of certain of the Company’s products; and industry profitability. For example, changes in government policies or regulations of ethanol and biodiesel including, but not limited to, changes in the Renewable Fuel Standard program under the Energy Independence and Security Act of 2007 in the United States, including the treatment of small refinery exemptions, can have an impact on the Company’s operating results. International trade regulations can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Regulations of financial markets and instruments, including the Dodd-Frank Act, Consumer Protection Act, and the European Market Infrastructure Regulation, create uncertainty and may lead to additional risks and costs, and could adversely affect the Company’s futures commission merchant business and its agricultural commodity risk management practices. Future government policies may adversely affect the supply of, demand for, and prices of the Company’s products; adversely affect the Company’s ability to deploy adequate hedging programs; restrict the Company’s ability to do business in its existing and target markets; and adversely affect the Company’s revenues and operating results.
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Item 1A. RISK FACTORS (Continued)
The Company’s operating results could be affected by political instability and by changes in monetary, fiscal, trade, and environmental policies, laws, regulations, and acquisition approvals, creating risks including, but not limited to: changes in a country’s or region’s economic or political conditions (e.g. Brexit), local labor conditions and regulations, and safety and environmental regulations; reduced protection of intellectual property rights; changes in the regulatory or legal environment; restrictions on currency exchange activities; currency exchange fluctuations; burdensome taxes and tariffs; enforceability of legal agreements and judgments; adverse tax, administrative agency or judicial outcomes; and regulation or taxation of greenhouse gases. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities, and war, could limit the Company’s ability to transact business in these markets. There has been a recent increase in populism and nationalism in various countries around the world and the concept and benefits of free trade are being challenged. The Company has benefited from the free flow of agricultural and food and feed ingredient products from the U.S. and other sources to markets around the world. Increases in tariff and restrictive trade activities around the world (e.g., the U.S.-China trade relations dispute, Iran sanctions) could negatively impact the Company’s ability to enter certain markets or the price of products may become less competitive in those markets.
The Company’s strategy involves expanding the volume and diversity of crops it merchandises and processes, expanding the global reach of its core model, and expanding its value-added product portfolio. Government policies including, but not limited to, antitrust and competition law, trade restrictions, food safety regulations, sustainability requirements, and traceability, can impact the Company’s ability to execute this strategy successfully.
Credit and Liquidity Risk - The Company’s business is capital-intensive in nature and the Company relies on cash generated from its operations and external financing to fund its growth and ongoing capital needs. Limitations on access to external financing could adversely affect the Company’s operating results.
The Company requires significant capital, including continuing access to credit markets, to operate its current business and fund its growth strategy. The Company’s working capital requirements, including margin requirements on open positions on futures exchanges, are directly affected by the price of agricultural commodities, which may fluctuate significantly and change quickly. The Company also requires substantial capital to maintain and upgrade its extensive network of storage facilities, processing plants, refineries, mills, ports, transportation assets, and other facilities to keep pace with competitive developments, technological advances, regulations, and changing safety standards in the industry. Moreover, the expansion of the Company’s business and pursuit of acquisitions or other business opportunities may require significant amounts of capital. Access to credit markets and pricing of the Company’s capital is dependent upon maintaining sufficient credit ratings from credit rating agencies. Sufficient credit ratings allow the Company to access cost competitive tier one commercial paper markets. If the Company is unable to maintain sufficiently high credit ratings, access to these commercial paper and other debt markets and costs of borrowings could be adversely affected. If the Company is unable to generate sufficient cash flow or maintain access to adequate external financing, including as a result of significant disruptions in the global credit markets, it could restrict the Company’s current operations and its growth opportunities. The Company manages this risk with constant monitoring of credit/liquidity metrics, cash forecasting, and routine communications with credit rating agencies regarding risk management practices.
LIBOR (London Interbank Offered rate) has been the subject of recent proposals for international reform and it is anticipated LIBOR will be discontinued or modified by June 2023. The Company’s variable rate debt, credit facilities, certain derivative agreements, and commercial agreements may use LIBOR as a benchmark for establishing interest rates. While it is not possible to predict the consequences of discontinuation or modification of LIBOR at this time, the Company’s financing costs could be adversely or positively impacted. Although the Company does not expect that a transition from LIBOR will have a material adverse impact on its financing costs, the Company continues to monitor developments.
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Item 1A. RISK FACTORS (Continued)
Business Environment and Competition Risks
The availability and prices of the agricultural commodities and agricultural commodity products the Company procures, transports, stores, processes, and merchandises can be affected by climate change, weather conditions, disease, government programs, competition, and various other factors beyond the Company’s control and could adversely affect the Company’s operating results.
The availability and prices of agricultural commodities are subject to wide fluctuations, including impacts from factors outside the Company’s control such as changes in weather conditions, climate change, rising sea levels, crop disease, plantings, government programs and policies, competition, and changes in global demand, which could adversely affect the Company’s operating results. The Company uses a global network of procurement, processing, and transportation assets, as well as robust communications between global commodity merchandiser teams, to continually assess price and basis opportunities. Management-established limits (including a corporate wide value-at-risk metric), with robust internal reporting, help to manage risks in pursuit of driving performance. Additionally, the Company depends globally on agricultural producers to ensure an adequate supply of the agricultural commodities.
Reduced supply of agricultural commodities could adversely affect the Company’s profitability by increasing the cost of raw materials and/or limiting the Company’s ability to procure, transport, store, process, and merchandise agricultural commodities in an efficient manner. High and volatile commodity prices can place more pressures on short-term working capital funding. Conversely, if supplies are abundant and crop production globally outpaces demand for more than one or two crop cycles, price volatility is somewhat diminished. This could result in reduced operating results due to the lack of supply chain dislocations and reduced market spread and basis opportunities.
The Company has certain finished products, such as ethanol and biodiesel, which are closely related to, or may be substituted for, petroleum products, or in the case of ethanol, blended into gasoline to increase octane content. Therefore, the selling prices of ethanol and biodiesel can be impacted by the selling prices of gasoline, diesel fuel, and other octane enhancers. A significant decrease in the price of gasoline, diesel fuel, or other octane enhancers could result in a significant decrease in the selling price of the Company’s ethanol and biodiesel. The Company uses derivative contracts as anticipatory hedges for both purchases of commodity inputs and sales of energy-based products in order to protect itself in the near term against these price trends and to protect and maximize processing margins.
Advances in technology, such as seed and crop protection, farming techniques, storage and logistics, and speed of information flow, may reduce the significance of dislocations and arbitrage opportunities in the agricultural global markets, which may reduce the earnings potential of agricultural merchandisers and processors.
Fluctuations in energy prices could adversely affect the Company’s operating results.
The Company’s operating costs and the selling prices of certain finished products are sensitive to changes in energy prices. The Company’s processing plants are powered principally by electricity, natural gas, and coal. The Company’s transportation operations are dependent upon diesel fuel and other petroleum-based products. Significant increases in the cost of these items, including any consequences of regulation or taxation of greenhouse gases, could adversely affect the Company’s production costs and operating results. The Company continues to use internal and external resources to identify opportunities and take action to reduce its energy intensity globally to meet its continued commitment to mitigate the effects of climate change.
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Item 1A. RISK FACTORS (Continued)
The Company has significant competition in the markets in which it operates.
The Company faces significant competition in each of its businesses and has numerous competitors, who can be different depending upon each of the business segments in which it participates. The Company competes for the acquisition of inputs such as raw materials, transportation services, and other materials and supplies, as well as for workforce and talent. Competition impacts the Company’s ability to generate and increase its gross profit as a result of the following factors: Pricing of the Company’s products is partly dependent upon industry processing capacity, which is impacted by competitor actions to bring idled capacity on-line, build new production capacity or execute aggressive consolidation; many of the products bought and sold by the Company are global commodities or are derived from global commodities that are highly price competitive and, in many cases, subject to substitution; significant changes in exchange rates of foreign currencies versus the U.S. dollar, particularly the currencies of major crop growing countries, could also make goods and products of these countries more competitive than U.S. products; improved yields in different crop growing regions may reduce the reliance on origination territories in which the Company has a significant presence; and continued merger and acquisition activities resulting in further consolidations could result in greater cost competitiveness and global scale of certain players in the industry, especially when acquirers are state-owned and/or backed by public funds and have profit and return objectives that may differ from publicly traded enterprises. To compete effectively, the Company focuses on safely improving efficiency in its production and distribution operations, developing and maintaining appropriate market presence, maintaining a high level of product safety and quality, supporting socially responsible and sustainable practices, promoting environmental responsibility, and working with customers to develop new products and tailored solutions.
In the case of the nutrition business, while maintaining efficient and cost-effective operations are important, the ability to drive innovation and develop quality nutritional and wellness solutions for human and animal needs are key factors to remain competitive in the nutrition market.
The Company is subject to economic downturns and regional economic volatilities, which could adversely affect the Company’s operating results.
The Company conducts its business and has substantial assets located in many countries and geographic areas. While 45 percent of the Company’s processing plants and 61 percent of its procurement facilities are located in the United States, the Company also has significant operations in both developed areas (such as Western Europe, Canada, and Brazil) and emerging market areas. One of the Company’s strategies is to expand the global reach of its core model, which may include expanding or developing its business in emerging market areas. Both developed and emerging market areas are subject to impacts of economic downturns, including decreased demand for the Company’s products, and reduced availability of credit, or declining credit quality of the Company’s suppliers, customers, and other counterparties. In addition, emerging market areas could be subject to more volatile operating conditions including, but not limited to, logistics limitations or delays, labor-related challenges, epidemic outbreaks and economic recovery, limitations or regulations affecting trade flows, local currency concerns, and other economic and political instability. Political fiscal instability could generate intrusive regulations in emerging markets, potentially creating unanticipated assessments of taxes, fees, increased risks of corruption, etc. Economic downturns and volatile market conditions could adversely affect the Company’s operating results and ability to execute its long-term business strategies, although the nature of many of the Company’s products (i.e. food and feed ingredients) is less sensitive to demand reductions in any economic downcycles. The Company mitigates this risk in many ways, including country risk and exposure analysis, government relations and tax compliance activities, and robust ethics compliance training requirements.
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Item 1A. RISK FACTORS (Continued)
The Company may fail to realize the benefits of or experience delays in the execution of its growth strategy, which encompasses organic and inorganic initiatives, including those outside the U.S. and in businesses where the Company does not currently have a large presence.
As the Company executes its growth strategy, through both organic and inorganic growth, it may encounter risks which could result in increased costs, decreased revenues, and delayed synergies. Growth in new geographies outside the U.S. can expose the Company to volatile economic, political, and regulatory risks that may negatively impact its operations and ability to achieve its growth strategy. Expanding businesses where the Company has limited presence may expose the Company to risks related to the inability to identify an appropriate partner or target and favorable terms, inability to retain/hire strategic talent, or integration risks that may require significant management resources that would have otherwise been available for ongoing growth or operational initiatives. Acquisitions may involve unanticipated delays, costs, and other problems. Due diligence performed prior to an acquisition may not identify a material liability or issue that could impact the Company's reputation or adversely affect results of operations resulting in a reduction of the anticipated acquisition benefits. Additionally, acquisitions may involve integration risks such as: internal control effectiveness, system integration risks, the risk of impairment charges related to goodwill and other intangibles, ability to retain acquired employees, and other unanticipated risks.
The Company is subject to industry-specific risks which could adversely affect the Company’s operating results.
The Company is subject to industry-specific risks which include, but are not limited to, product safety and quality; launch of new products by other industries that can replace the functionalities of the Company’s production; shifting consumer preferences; federal, state, and local regulations on manufacturing or labeling; socially acceptable and sustainable farming practices; environmental, health, and safety regulations; and customer product liability claims. The liability which could result from certain of these risks may not always be covered by, or could exceed liability insurance related to product liability and food safety matters maintained by the Company. The Company has a particularly strong capability and culture around occupational health and safety and food safety; however, risks to the Company’s reputation may exist due to potential negative publicity caused by product liability, food safety, occupational health and safety, workforce diversity, and environmental matters.
Certain of the Company’s merchandised commodities and finished products are used as ingredients in livestock and poultry feed. The Company is subject to risks associated with economic, product quality, feed safety or other factors which may adversely affect the livestock and poultry businesses, including the outbreak of disease in livestock and poultry, for example African swine fever, which could adversely affect demand for the Company’s products used as ingredients in feed. In addition, as the Company increases its investment in flavors and ingredients businesses, it is exposed to increased risks related to rapidly changing consumer preferences and the impacts these changes could have on the success of certain of the Company's customers.
Item 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved staff comments.
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Item 2. PROPERTIES
The Company owns or leases, under operating leases, the following processing plants and procurement facilities:
Processing Plants Procurement Facilities
Owned Leased Total Owned Leased Total
The Company’s operations are such that most products are efficiently processed near the source of raw materials. Consequently, the Company has many plants strategically located in agricultural commodity producing areas. The annual volume of commodities processed will vary depending upon availability of raw materials and demand for finished products. The Company also owns approximately 170 warehouses and terminals primarily used as bulk storage facilities and has 61 innovation centers. Warehouses, terminals, corporate, and sales offices are not included in the tables above. Processing plants and procurement facilities owned or leased by unconsolidated joint ventures are also not included in the tables above.
To enhance the efficiency of transporting large quantities of raw materials and finished products between the Company’s procurement facilities and processing plants and also the final delivery of products to its customers around the world, the Company owns approximately 1,800 barges, 11,500 rail cars, 350 trucks, 1,300 trailers, 110 boats, and 3 oceangoing vessels; and leases, under operating leases, approximately 780 barges, 16,700 rail cars, 330 trucks, 330 trailers, 44 boats, and 29 oceangoing vessels.
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Item 2. PROPERTIES (Continued)
Ag Services and Oilseeds Processing Facilities
Owned Leased
Refined Refined
Ag Products Ag Products
Services Crushing and Other Total Services Crushing and Other Total
North America
Canada — 3 4 7 — — — —
Mexico — 1 — 1 — — — —
Daily capacity
South America
Argentina — — 1 1 — — — —
Paraguay — 1 — 1 — — — —
Peru — — 1 1 — — — —
Daily capacity
Europe
Belgium — — 1 1 — — — —
Czech Republic — 1 1 2 — — — —
Germany — 4 8 12 — — — —
Netherlands — 1 1 2 — — — —
Poland — 2 5 7 — — — —
Ukraine — 1 — 1 — — — —
United Kingdom — 1 3 4 — — — —
Daily capacity
Australia
Australia — — — — 1 — — 1
Total — — — — 1 — — 1
Daily capacity
Metric tons (in 1,000’s) — — — — — — — —
Asia
India — — 2 2 — — 1 1
Total — — 2 2 — — 1 1
Daily capacity
Total daily capacity
*The U.S. processing plants are located in Alabama, California, Georgia, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Carolina, Tennessee, and Texas.
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Item 2. PROPERTIES (Continued)
Ag Services and Oilseeds Procurement Facilities
Owned Leased
Refined Refined
Ag Products Ag Products
Services Crushing and Other Total Services Crushing and Other Total
North America
Canada 2 2 — 4 — — — —
Dominican Republic 1 — — 1 — — — —
Mexico — 1 — 1 — — — —
Storage capacity
South America
Argentina 3 — — 3 — — — —
Colombia — — — — 8 — — 8
Ecuador — — — — 2 — — 2
Paraguay 12 — — 12 — — — —
Uruguay 1 — — 1 — — — —
Storage capacity
Europe
Bulgaria — — — — 2 — — 2
Germany 1 — — 1 — — — —
Hungary — — — — 7 — — 7
Ireland — — — — 1 — — 1
Netherlands — 1 — 1 1 — — 1
Romania 9 — — 9 1 — — 1
Russian Federation — — — — 14 — — 14
Spain — — — — 4 — — 4
Ukraine 4 — — 4 6 — — 6
United Kingdom — 1 2 3 — — — —
Storage capacity
Asia
China — — — — 2 — 1 3
Korea — — — — 1 — — 1
Storage capacity
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Item 2. PROPERTIES (Continued)
Ag Services and Oilseeds Procurement Facilities
Owned Leased
Refined Refined
Ag Products Ag Products
Services Crushing and Other Total Services Crushing and Other Total
Africa
Egypt — — — — 1 — — 1
Total — — — — 1 — — 1
Storage capacity
Metric tons (in 1,000’s) — — — — 30 — — 30
Total storage capacity
*The U.S. procurement facilities are located in Alabama, Arkansas, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, and Wisconsin.
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Item 2. PROPERTIES (Continued)
Carbohydrate Solutions Processing Plants
Owned Leased
Starches & Sweeteners VCP Total Starches & Sweeteners
North America
Canada 8 — 8 —
Barbados 1 — 1 —
Belize 1 — 1 —
Grenada 1 — 1 —
Jamaica 1 — 1 —
Daily capacity
Europe
Bulgaria 1 — 1 —
France 2 — 2 —
Turkey 1 — 1 —
United Kingdom 3 — 3 4
Daily capacity
Asia
China 1 — 1 —
Total 1 — 1 —
Daily capacity
Metric tons (in 1,000’s) — — — —
Africa
Morocco 1 — 1 —
Total 1 — 1 —
Daily capacity
Metric tons (in 1,000’s) — — — —
Total daily capacity
*The U.S. processing plants are located in California, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, Washington and Wisconsin.
1 Includes 16,000 metric tons in temporarily idled daily capacity.
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Item 2. PROPERTIES (Continued)
Carbohydrate Solutions Procurement Facilities
Owned Leased
Starches & Sweeteners VCP Total Starches & Sweeteners VCP Total
North America
U.S.* 5 — 5 — — —
Total 5 — 5 — — —
Storage capacity
Grand Total 5 — 5 — — —
Total storage capacity
*The U.S. procurement facilities are located in Iowa and Minnesota.
Nutrition Processing Plants
Owned Leased
Human Nutrition Animal Nutrition Total Human Nutrition Animal Nutrition Total
North America
Canada 1 4 5 — — —
Puerto Rico — 2 2 — — —
Trinidad & Tobago — 1 1 — — —
Daily capacity
South America
Colombia — 1 1 — — —
Ecuador — 1 1 — — —
Daily capacity
Metric tons (in 1,000’s) — 4 4 — — —
Total daily capacity
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Item 2. PROPERTIES (Continued)
Nutrition Processing Plants
Owned Leased
Human Nutrition Animal Nutrition Total Human Nutrition Animal Nutrition Total
Europe
Belgium — 1 1 — — —
Italy — 1 1 — — —
Netherlands — 1 1 1 — 1
Poland 1 1 2 — — —
Portugal — 1 1 — — —
Spain 3 1 4 — — —
Switzerland — 1 1 — — —
Turkey — — — 1 — 1
United Kingdom 1 — 1 — — —
Daily capacity
Africa
Algeria — 1 1 — — —
Madagascar 2 — 2 — — —
Nigeria — 1 1 — — —
South Africa — 1 1 — 1 1
Daily capacity
Metric tons (in 1,000’s) — — — — — —
Asia
Philippines — — — — 2 2
Vietnam — 4 4 — — —
Daily capacity
Total daily capacity
*The U.S. processing plants are located in Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, New Jersey, North Dakota, Ohio, Pennsylvania, Texas, and Washington.
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Item 2. PROPERTIES (Continued)
Nutrition Procurement Facilities
Owned Leased
Human Nutrition Animal Nutrition Total Human Nutrition
North America
Storage capacity
Total storage capacity
*The U.S. procurement facilities are located in California, Idaho, Kentucky, Michigan, Minnesota, Missouri, North Dakota, and Wyoming.
Item 3. LEGAL PROCEEDINGS
The Company is routinely involved in a number of actual or threatened legal actions, including those involving alleged personal injuries, employment law, product liability, intellectual property, environmental issues, alleged tax liability (see Note 13 in Item 8 for information on income tax matters), and class actions. The Company also routinely receives inquiries from regulators and other government authorities relating to various aspects of its business, and at any given time, the Company has matters at various stages of resolution. The outcomes of these matters are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, claimants seek damages, as well as other relief, including injunctive relief, that could require significant expenditures or result in lost revenues. In accordance with applicable accounting standards, the Company records a liability in its consolidated financial statements for material loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a material loss contingency is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, disgorgement, or punitive damages; or could result in a change in business practice. See Note 20 in Item 8 for information on the Company’s legal proceedings.
Item 4. MINE SAFETY DISCLOSURES
None.
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PART II
Common Stock Market
The Company’s common stock is listed and traded on the New York Stock Exchange under the trading symbol “ADM”.
The number of registered stockholders of the Company’s common stock at December 31, 2020, was 8,858.
Issuer Purchases of Equity Securities
(1) Total shares purchased represent those shares purchased in the open market as part of the Company’s publicly announced stock repurchase program described below, shares received as payment for the exercise price of stock option exercises, and shares received as payment for the withholding taxes on vested restricted stock awards. During the three-month period ended December 31, 2020, there were 21,472 shares received as payments for the exercise price of stock option exercises and withholding taxes on vested restricted stock awards.
(2) On November 5, 2014, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing January 1, 2015 and ending December 31, 2019. On August 7, 2019, the Company’s Board of Directors approved the extension of the stock repurchase program through December 31, 2024 and the repurchase of up to an additional 100,000,000 shares under the extended program.
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Performance Graph
The graph below compares the Company’s common stock with those of the S&P 500 Index and the S&P Consumer Staples Index. The graph assumes an initial investment of $100 on December 31, 2015 and assumes all dividends have been reinvested through December 31, 2020.
COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN
Among Archer Daniels Midland Company (ADM), the S&P 500 Index, and the S&P Consumer Staples Index
Index Data: Copyright© Standard and Poor’s, Inc.
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Item 6. SELECTED FINANCIAL DATA
Selected Financial Data
(In millions, except ratio and per share data)
Years Ended
December 31
Significant items affecting the comparability of the financial data shown above are as follows:
•Net earnings attributable to controlling interests for the year ended December 31, 2020 included a credit of $91 million ($69 million after tax, equal to $0.12 per share) related to the elimination of the LIFO reserve in connection with the accounting change effective January 1, 2020; gains of $90 million ($80 million after tax, equal to $0.14 per share) primarily related to the sale of a portion of the Company’s shares in Wilmar and certain other assets; charges of $92 million ($69 million after tax, equal to $0.12 per share) related to the impairment of certain assets, restructuring, and settlement; charges of $409 million ($310 million after tax, equal to $0.55 per share) related to the early repurchase of certain of the Company’s debentures; charges of $17 million ($17 million after tax, equal to $0.03 per share) related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020; expenses of $4 million ($3 million after tax, equal to $0.01 per share) related to a target acquisition; and a net tax benefit adjustment related to certain discrete items totaling $3 million (equal to $0.01 per share).
•Net earnings attributable to controlling interests for the year ended December 31, 2019 included a net loss of $89 million ($124 million after tax, equal to $0.22 per share) related to the loss on sale of an equity investment partially offset by gains on sale of certain assets and a step-up gain on an equity investment; charges of $305 million ($249 million after tax, equal to $0.44 per share) consisting of restructuring and pension settlement and remeasurement charges primarily related to early retirement and reorganization initiatives in Corporate and impairments related to certain long-lived assets; expenses of $17 million ($11 million after tax, equal to $0.02 per share) primarily related to the Neovia acquisition; and tax expense adjustments related to certain discrete items totaling $39 million (equal to $0.07 per share).
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Item 6. SELECTED FINANCIAL DATA (Continued)
•Net earnings attributable to controlling interests for the year ended December 31, 2018 included net gains totaling $13 million ($13 million after tax, equal to $0.02 per share) related to the sale of businesses and assets; charges of $292 million ($226 million after tax, equal to $0.40 per share) consisting of a non-cash pension settlement charge related to the purchase of a group annuity contract that irrevocably transferred the future benefit obligations and annuity administration for certain retirees under the Company's ADM Retirement Plan, charges related to a discontinued software project, a long-term receivable, an equity investment, certain long-lived assets, and several individually insignificant asset impairment charges, restructuring charges in Corporate primarily related to the reorganization of IT services and several individually insignificant restructuring charges, and other settlement charges; charges of $8 million ($6 million after tax, equal to $0.01 per share) related to acquisition expenses and net losses on foreign currency derivative contracts to economically hedge certain acquisitions; and net tax benefits due to changes in the provisional transition tax amount related to the enactment of the Tax Cuts and Jobs Act and certain discrete items totaling $33 million (equal to $0.06 per share).
•Net earnings attributable to controlling interests for the year ended December 31, 2017 included gains totaling $22 million ($10 million after tax loss, equal to $0.02 per share) primarily related to the sale of the crop risk services business partially offset by an adjustment of the proceeds of the 2015 sale of the cocoa business; charges of $214 million ($144 million after tax, equal to $0.25 per share) consisting of asset impairments related to the reconfiguration of the Company’s Peoria, Illinois ethanol complex, restructuring charges related to the reduction of certain positions within the Company’s global workforce, several individually insignificant asset impairments and restructuring charges, and provisions for contingent losses related to certain settlement items; a debt extinguishment charge of $11 million ($7 million after tax, equal to $0.01 per share) related to the early redemption of the Company’s $559 million notes due on March 15, 2018; and net tax benefits related to the Tax Cuts and Jobs Act and certain discrete tax adjustments totaling $366 million (equal to $0.64 per share).
•Net earnings attributable to controlling interests for the year ended December 31, 2016 included gains totaling $119 million ($100 million after tax, equal to $0.17 per share) primarily related to recovery of loss provisions and gains related to the sale of the Company’s Brazilian sugar ethanol facilities, realized contingent consideration on the sale of the Company’s equity investment in Gruma S.A. de C.V. in December 2012, and revaluation of the remaining interest to settlement value in conjunction with the acquisition of Amazon Flavors; a gain of $38 million ($24 million after tax, equal to $0.04 per share) related to a U.S. retiree medical benefit plan curtailment; charges of $117 million ($77 million after tax, equal to $0.13 per share) primarily related to legal fees and settlement, impairment of software, investments, and certain long-lived assets; a $10 million ($8 million after tax, equal to $0.02 per share) loss on sale of individually immaterial assets; and certain discrete tax adjustments totaling $24 million (equal to $0.04 per share) related to valuation allowances, deferred tax re-rates, and changes in assertion.
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Company Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements.
ADM is a global leader in human and animal nutrition and one of the world’s premier agricultural origination and processing companies. It is one of the world’s leading producers of ingredients for human and animal nutrition, and other products made from nature. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in 200 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemical and energy uses. The Company also engages in the manufacturing, sale, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for our shareholders, principally from margins earned on these activities.
The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 17 of “Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data” (Item 8).
Effective January 1, 2020, the Company started reporting its newly created dry mill ethanol subsidiary, Vantage Corn Processors (VCP), as a sub-segment within the Carbohydrate Solutions segment. VCP replaces the Bioproducts sub-segment which included the combined results of the Company’s corn dry and wet mill ethanol operations. The wet mill ethanol operations that were previously reported in Bioproducts are now included in the Starches and Sweeteners sub-segment. In addition to dry mill ethanol production, VCP sells/brokers ADM’s wet mill ethanol production as the sole marketer of ethanol produced at the Company’s facilities. The change does not have an impact on the total results of the Carbohydrate Solutions segment. The Company’s review of its strategic options related to VCP is ongoing.
Prior period results have been reclassified to conform to the current period segment presentation.
The Company’s recent significant portfolio actions and announcements include:
•the acquisition in January 2020 of Yerbalatina, a natural plant-based extracts and ingredients manufacturer in Brazil;
•the temporary idling in April 2020 of ethanol production at the corn dry mill facilities in Cedar Rapids, Iowa, and Columbus, Nebraska due to reduced demand. To better align production with current demand, the Company has also reduced the ethanol grind at its corn wet mill plants and rebalanced grind to produce more industrial alcohol for the sanitizer market and industrial starches for the container board market;
•the announcements in March and May 2020 of new goals to, by 2035, reduce the Company’s absolute greenhouse gas emissions by 25%, energy intensity by 15%, and water intensity by 10%, and achieve a 90% landfill diversion rate;
•the announcement in July 2020 of ADM’s participation as signatory, along with almost one hundred flavor and fragrance companies, to an ambitious new sustainability charter seeking to improve sustainability across the two industries;
•the sale in August 2020 of a portion of the Company’s shares in Wilmar and the issuance of $300 million aggregate principal amount of zero-coupon bonds, exchangeable into Wilmar shares;
•the repurchase and redemption in September 2020 of $1.2 billion aggregate principal amount of debentures and notes;
•the announcement in October 2020 of an agreement with Spiber Inc. (Spiber) to expand the production of Spiber’s innovative Brewed ProteinTM polymers for use in apparel and other consumer products;
•the announcement in October 2020 of the Company’s plan to construct a new, state-of-the-art facility in Valencia, Spain, that will expand its capabilities to meet growing demand for microbiome solutions;
•the launch in October 2020 of PlantPlus Foods, a 30% joint venture with Marfrig, one of the world’s leading beef producers and the world’s largest beef patty producer, that will offer a wide range of finished plant-based food products across North and South America;
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•the announcement in November 2020 of the Company’s investment in the Health for Life Capital Fund II, a leading venture capital fund dedicated to health, nutrition, microbiota, and digital health;
•the announcement in November 2020 of plans to collaborate with InnovaFeed, the world leader in producing premium insect ingredients for animal feed, on the construction and operation of the world’s largest insect protein production site in Decatur, Illinois; and
•the announcement in December 2020 of the end of dry lysine production in early 2021.
The Company executes its strategic vision through three pillars: Optimize the Core, Drive Efficiencies, and Expand Strategically, all supported by its Readiness effort. The Company launched Readiness to drive new efficiencies and improve the customer experience in the Company’s existing businesses through a combination of data and analytics, process simplification and standardization, and behavioral and cultural change, building upon its earlier 1ADM and operational excellence programs.
Operating Performance Indicators
The Company’s Ag Services and Oilseeds operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Therefore, changes in revenues of these businesses do not necessarily correspond to the changes in margins or gross profit. Thus, gross margins per volume or metric ton are more meaningful than gross margins as percentage of revenues.
The Company’s Carbohydrate Solutions operations and Nutrition businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily correlate to changes in cost of products sold. Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margin rates are more meaningful as a performance indicator in these businesses.
The Company has consolidated subsidiaries in more than 70 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except certain significant subsidiaries in Switzerland where Euro is the functional currency, and Brazil and Argentina where U.S. dollar is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil and Argentina, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require remeasurement to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar.
The Company measures its performance using key financial metrics including net earnings, gross margins, segment operating profit, return on invested capital, EBITDA, economic value added, manufacturing expenses, and selling, general, and administrative expenses. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, trade policies, changes in global demand, general global economic conditions, changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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Market Factors Influencing Operations or Results in the Twelve Months Ended December 31, 2020
The Company is subject to a variety of market factors which affect the Company’s operating results. North American crushing margins were volatile due to slow farmer selling and COVID-19 impacts on demand for meal and oil earlier in 2020, but strengthened in the third quarter due to the increasingly tight soybean stocks in South America. South America saw record origination volumes in the first half of 2020 as it benefited from strong farmer selling in Brazil driven by the devaluation of the Brazilian Real. Record U.S. industry exports in the fourth quarter were driven by strong demand from China and the rest of the world. Demand and margins for biodiesel remained solid in North and South America. Margins for starches and sweeteners and wheat flour remained solid while demand was soft due to the impacts of COVID-19 in the food service sector. Ethanol margins were mixed as U.S. industry ethanol production exceeded demand and inventories remained high early in the year, but improved and stabilized the rest of the year as ADM and many ethanol producers idled some capacity due to the low demand. Nutrition benefited from growing demand for flavors, pet food, feed for livestock, plant-based proteins, edible beans, and probiotics. Lower out-of-home consumption caused by COVID-19 lockdown measures negatively impacted flavors and textured plant-based protein volumes, especially in the food service channel, as well as demand for aqua feed and amino acids. Global demand for amino acids was also negatively impacted by lower livestock counts following an African swine fever outbreak.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net earnings attributable to controlling interests increased 28% or $0.4 billion, to $1.8 billion. Segment operating profit increased 17% or $0.5 billion, to $3.5 billion, and included net income of $7 million consisting of gains on the sale of a portion of the Company’s shares in Wilmar and certain other assets, partially offset by asset impairment, restructuring, and settlement charges. Included in segment operating profit in the prior year was a net charge of $134 million consisting of asset impairment, restructuring, and settlement charges, gains on the sale of certain assets, and a step-up gain on an equity investment. Adjusted segment operating profit increased $0.4 billion to $3.4 billion due primarily to higher results in Ag Services, Vantage Corn Processors, Human and Animal Nutrition, and higher equity earnings from the Wilmar investment, partially offset by lower results in Crushing, Refined Products and Other, and Other Business. Refined Products and Other in the prior year included the $128 million 2018 portion of the two-year retroactive biodiesel tax credits. Corporate results in the current year were a net charge of $1.6 billion included early debt retirement charges of $409 million, a mark-to-market loss of $17 million on the conversion option of the exchangeable bonds issued in August 2020, impairment and restructuring charges of $16 million, acquisition-related expenses of $4 million, gains on the sale of certain assets of $7 million, and a credit of $91 million from the elimination of the last-in, first-out (LIFO) reserve in connection with the accounting change effective January 1, 2020. Corporate results in the prior year were a net charge of $1.4 billion and included restructuring and pension settlement and remeasurement charges of $159 million primarily related to early retirement and reorganization initiatives, a loss on sale of the Company's equity investment in CIP of $101 million, and a charge of $37 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves.
Income taxes of $101 million decreased $108 million. The Company’s effective tax rate for 2020 was 5.4% compared to 13.2% for 2019. The change in rate was due primarily to changes in the geographic mix of earnings, foreign currency remeasurement, and adjustments to previously filed returns. The rates for 2020 and 2019 were also impacted by U.S. tax credits, mainly the railroad maintenance tax credit, which had an offsetting expense in cost of products sold.
Analysis of Statements of Earnings
Processed volumes by product for the years ended December 31, 2020 and 2019 are as follows (in metric tons):
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The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to local supply and demand conditions. The overall increase in oilseeds is due to increased plant capacity utilization combined with downtime in the prior year due to weather-related issues. The overall decrease in corn processed is primarily related to the temporary idling of two dry mill facilities in the second quarter due to the low ethanol demand. The Company currently expects that the idled facilities will be restarted as demand for ethanol improves within the next 12 months.
Revenues by segment for the years ended December 31, 2020 and 2019 are as follows:
Ag Services and Oilseeds
Carbohydrate Solutions
Nutrition
Revenues and cost of products sold in agricultural merchandising and processing businesses are significantly correlated to the underlying commodity prices and volumes. In periods of significant changes in market prices, the underlying performance of the Company is better evaluated by looking at margins since both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from market price changes which generally result in an insignificant impact to gross profit.
Revenues decreased $0.3 billion to $64.4 billion due to lower sales volumes ($2.3 billion), partially offset by higher sales prices ($2.0 billion). Lower sales volumes of rice, ethanol, oils, and corn by-products and lower sales prices of biodiesel were partially offset by higher sales volumes of biodiesel and higher sales prices of soybeans, oils, and meal. Ag Services and Oilseeds revenues increased 2% to $49.7 billion due to higher sales prices ($1.9 billion), partially offset by lower sales volumes ($0.9 billion). Carbohydrate Solutions revenues decreased 14% to $8.5 billion due to lower sales volumes ($1.4 billion) primarily due to temporarily idled dry mill facilities. Nutrition revenues increased 2% to $5.8 billion due to higher sales prices ($0.1 billion).
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Cost of products sold decreased $0.6 billion to $59.9 billion due principally to lower sales volumes, partially offset by higher commodity prices. Included in cost of products sold in the current year was a credit of $91 million from the effect of the elimination of the LIFO reserve in connection with the accounting change in the current year compared to a charge of $37 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves in the prior year. Manufacturing expenses decreased $0.1 billion to $5.6 billion due principally to lower energy costs and decreased operating supplies, partially offset by increased railroad maintenance expenses.
Foreign currency translation impacts decreased both revenues and cost of products sold by $0.3 billion.
Gross profit increased $0.3 billion or 7%, to $4.5 billion. Higher results in Human and Animal Nutrition ($0.2 billion) and Ag Services ($0.3 billion) were partially offset by lower results in Refined Products and Other ($0.1 billion) and Crushing ($0.1 billion). These factors are explained in the segment operating profit discussion on page 38. In Corporate, the positive period-over-period impact from LIFO of $0.1 billion due to the elimination of the LIFO reserve in connection with the accounting change effective January 1, 2020 and the changes in agricultural commodity prices on LIFO inventory valuation reserves in the prior period, were offset by the increase in railroad maintenance expenses of $0.1 billion.
Selling, general, and administrative expenses increased 8% to $2.7 billion due principally to higher variable performance related compensation expenses and increased IT and project-related expenses.
Asset impairment, exit, and restructuring costs decreased $223 million to $80 million. Charges in the current year consisted primarily of $47 million of impairments related to certain intangible and other long-lived assets and $17 million of individually insignificant restructuring charges presented as specified items within segment operating profit, $7 million of individually insignificant impairments and $9 million of individually insignificant restructuring charges in Corporate. Prior year charges consisted of impairments of $131 million related to certain facilities, vessels, and other long lived assets and $11 million related to goodwill and other intangible assets presented as specified items within segment operating profit, $159 million of restructuring and pension settlement and remeasurement charges in Corporate primarily related to early retirement and reorganization initiatives, and several individually insignificant restructuring charges presented as specified items within segment operating profit.
Interest expense decreased $63 million to $339 million due to lower interest rates and net interest savings from cross currency swaps, partially offset by the mark-to-market loss adjustment related to the conversion option of the exchangeable bonds issued
in August 2020.
Equity in earnings of unconsolidated affiliates increased $125 million to $579 million due principally to higher earnings from the Company’s investment in Wilmar.
Loss on debt extinguishment of $409 million in the current year related to multiple early debt redemptions including the $0.7 billion debt tender in September 2020.
Interest income decreased $104 million to $88 million. Interest income on segregated funds in the Company’s futures commission and brokerage business declined due to lower interest rates.
Other income - net of $278 million increased $285 million. Current year income included gains related to the sale of a portion of the Company’s shares in Wilmar and certain other assets, an investment revaluation gain, the non-service components of net pension benefit income, foreign exchange gains, and other income. Prior year expense included a loss on sale of the Company’s equity investment in CIP and foreign exchange losses, partially offset by gains on the sale of certain assets, step-up gains on equity investments, gains on disposals of individually insignificant assets in the ordinary course of business, and other income.
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Segment operating profit, adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the years ended December 31, 2020 and 2019 are as follows:
Segment Operating Profit 2020 2019 Change
(In millions)
Ag Services and Oilseeds
Carbohydrate Solutions
Vantage Corn Processors (45) (109) 64
Nutrition
Specified Items:
Gain on sales of assets 83 12 71
Impairment, restructuring, and settlement charges (76) (146) 70
(1) Adjusted segment operating profit is segment operating profit excluding the listed specified items.
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Ag Services and Oilseeds operating profit increased 9%. Ag Services results were higher than the prior year, which was negatively impacted by challenging weather conditions and the U.S.-China trade tensions. Strong performance in global trade was driven by strong results in destination marketing and increased trading volumes. Robust farmer selling in Brazil and strong margins in North America drove higher origination results. Current year results also included a $54 million settlement related to U.S. high water insurance claims in 2019. Crushing results were lower than the prior year. Although volumes were strong and execution margins were solid, negative timing impacts drove lower results in the current year compared to the favorable timing effects in the prior year. Refined Products and Other results were lower due to decreased biodiesel margins in North America and the $128 million 2018 portion of retroactive biodiesel tax credits that were recorded in the prior year. Equity earnings from Wilmar were higher year-over-year.
Carbohydrate Solutions operating profit increased 11%. Starches and Sweeteners results were higher due to strong margins in corn wet milling and wheat milling in North America and improved conditions in EMEAI, partially offset by negative mark-to-market timing effects on corn oil and COVID-related impacts on volumes across the business. Vantage Corn Processors results improved from the prior year due to effective risk management and strong demand for industrial alcohol.
Nutrition operating profit increased 37%. Human Nutrition delivered strong performance and growth across its broad portfolio. Strong execution to meet rising customer demand for plant-based proteins and edible beans drove higher results in Specialty Ingredients. Additional income from fermentation and strong sales for probiotics and fiber drove higher performance in Health & Wellness. Flavors continued to deliver strong results. Animal Nutrition results improved year-over-year driven by strong performance from Neovia, good margins in commercial and livestock premix, and improved margins in amino acids.
Other Business operating profit decreased 39%. Lower results, including loss provisions related to the Company’s futures commission and brokerage business, were partially offset by improvements in underwriting performance at the captive insurance operations.
Corporate results are as follows:
LIFO credit (charge) $ 91 $ (37) $ 128
Gain (loss) on sale of assets 7 (101) 108
Expenses related to acquisitions (4) (17) 13
Loss on debt extinguishment (409) — (409)
Loss on debt conversion option (17) — (17)
Impairment, restructuring, and settlement charges (16) (159) 143
Other charges (54) (51) (3)
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Corporate results were a net charge of $1.6 billion in the current year compared to $1.4 billion in the prior year. The elimination of the LIFO reserve in connection with the accounting change effective January 1, 2020 resulted in a credit of $91 million in the current year compared to a charge of $37 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves in the prior year. Interest expense - net decreased $35 million due principally to lower interest rates and net interest savings from cross currency swaps. Unallocated corporate costs increased $210 million due principally to higher variable performance-related compensation expenses and increased IT and project-related expenses related to the business transformation program which includes the implementation of an Enterprise Resource Planning system. Loss on sale of assets in the prior year related to the sale of the Company’s equity investment in CIP. Expenses related to acquisitions in the prior year consisted of expenses primarily related to the Neovia acquisition. Loss on debt extinguishment was related to multiple early debt redemptions and the $0.7 billion debt tender in September 2020. Loss on debt conversion option was related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Impairment and restructuring charges in the current year related to impairment of certain assets and individually insignificant restructuring charges. Impairment, restructuring, and settlement charges in the prior year included restructuring and pension settlement and remeasurement charges related to early retirement and reorganization initiatives. Other charges in the current year included railroad maintenance expenses of $138 million, partially offset by foreign exchange gains, an investment revaluation gain, and the non-service components of net pension benefit income. Other charges in the prior year included railroad maintenance expenses of $51 million.
Non-GAAP Financial Measures
The Company uses adjusted earnings per share (EPS), adjusted earnings before taxes, interest, and depreciation and amortization (EBITDA), and adjusted segment operating profit, non-GAAP financial measures as defined by the SEC, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.
Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.
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The table below provides a reconciliation of diluted EPS to adjusted EPS for the years ended December 31, 2020 and 2019.
In millions Per share In millions Per share
Average number of shares outstanding - diluted 563 565
Net earnings and reported EPS (fully diluted) $ 1,772 $ 3.15 $ 1,379 $ 2.44
Adjustments:
Loss on debt extinguishment (net of tax of $99 million) (2) 310 0.55 — —
Loss on debt conversion option (net of tax of $0) (2) 17 0.03 — —
(1) Tax effected using the Company’s U.S. tax rate. LIFO accounting was discontinued effective January 1, 2020.
(2) Tax effected using the applicable tax rates.
The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the years ended December 31, 2020 and 2019.
Depreciation and amortization 976 993 (17)
(Gain) loss on sales of assets (90) 89 (179)
Asset impairment, restructuring, and settlement charges 92 305 (213)
Railroad maintenance expense 138 51 87
Expenses related to acquisitions 4 17 (13)
Loss on debt extinguishment 409 — 409
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Market Factors Influencing Operations or Results in the Twelve Months Ended December 31, 2019
The Company is subject to a variety of market factors which affect the Company’s operating results. Sales volumes and margins in Ag Services and Oilseeds were negatively impacted by challenging North American weather conditions, in particular high water in the Mississippi river system in the first half of 2019, and the continuing global trade tensions with China. Handling volumes in North America were impacted by the late harvest as planting was delayed due to spring flooding. Continued good global meal demand resulted in strong global crushing volumes and solid margins. South American origination volumes benefited from the U.S.-China trade dispute but were also impacted by softer Chinese demand due to the African swine fever impact on local feed demand and intermittent farmer selling. Global demand and margins for refined oil and biodiesel remained solid. Demand and prices for sweeteners and starches remained solid in North America while co-product prices were stable. Although ethanol demand remained steady in North America, margins were severely pressured as U.S. industry ethanol production and stocks remained at high levels and U.S. exports to China ceased during the trade dispute. The severe weather conditions in North America also adversely impacted operations in the Carbohydrate Solutions business unit. Nutrition benefited from growing demand for flavors, flavors systems, human and pet health and wellness products, and plant-based proteins but was negatively impacted by the African swine fever in Asia Pacific, which also resulted in pricing pressures in the global lysine market.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Net earnings attributable to controlling interests decreased 24% or $0.4 billion, to $1.4 billion. Segment operating profit decreased 10% or $0.3 billion, to $2.9 billion, and included a net charge of $134 million consisting of asset impairment, restructuring, and settlement charges, gains on sale of certain assets, and a step-up gain on an equity investment. Included in segment operating profit in 2018 was a net charge of $89 million consisting of asset impairment, restructuring, and settlement charges and a net gain on sales of assets and businesses. Adjusted segment operating profit decreased $0.3 billion to $3.1 billion due to lower results in Ag Services, Crushing, and Carbohydrate Solutions, and lower equity earnings from Wilmar, partially offset by higher results in Refined Products and Other and Nutrition. Refined Products and Other in 2019 included $270 million related to the biodiesel tax credit for 2018 and 2019 compared to $120 million for 2017 recorded in the prior year. Corporate results were a net charge of $1.4 billion in 2019, and included restructuring and pension settlement and remeasurement charges of $159 million primarily related to early retirement and reorganization initiatives, a loss on sale of the Company’s equity investment in CIP of $101 million, and a charge of $37 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves, compared to a credit of $18 million in 2018. Corporate results in 2018 of $1.2 billion included a pension settlement charge of $117 million, a $49 million charge related to a discontinued software project, and restructuring charges of $24 million primarily related to the reorganization of IT services.
Income taxes of $209 million decreased $36 million. The Company’s effective tax rate for 2019 was 13.2% compared to 11.9% for 2018. The low 2019 tax rate was primarily due to the impact of U.S. tax credits, including the 2018 and 2019 biodiesel tax credit and the railroad maintenance tax credit, signed into law in December 2019. The effective tax rate for 2018 included the 2017 biodiesel tax credit recorded in the first quarter of 2018 and the additional true-up adjustments related to the 2017 U.S. tax reform, along with certain favorable discrete tax items netting to a favorable $74 million.
Analysis of Statements of Earnings
Processed volumes by product for the years ended December 31, 2019 and 2018 are as follows (in metric tons):
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The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to local supply and demand conditions. Processed volumes of Corn decreased slightly from the prior year levels primarily related to the production disruptions in the Columbus, Nebraska corn processing plant due to flooding and production issues in the Decatur, Illinois corn complex.
Revenues by segment for the years ended December 31, 2019 and 2018 are as follows:
Ag Services and Oilseeds
Carbohydrate Solutions
Nutrition
Revenues and cost of products sold in agricultural merchandising and processing businesses are significantly correlated to the underlying commodity prices and volumes. In periods of significant changes in market prices, the underlying performance of the Company is better evaluated by looking at margins since both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from market price changes which generally result in an insignificant impact to gross profit.
Revenues increased $315 million to $64.7 billion due to overall higher sales volumes ($3.2 billion), partially offset by lower sales prices ($2.9 billion). The increase in sales volumes was due principally to soybeans, wheat, cotton, and higher sales volumes of feed ingredients related to acquisitions. The decrease in sales prices was due principally to soybeans, meal, and wheat. Ag Services and Oilseeds revenues decreased 2% to $48.7 billion due to lower sales prices ($3.0 billion), partially offset by higher sales volumes ($1.8 billion). Carbohydrate Solutions revenues decreased 4% to $9.9 billion due to lower sales volumes ($0.4 billion). Nutrition revenues increased 50% to $5.7 billion due to higher sales volumes ($1.8 billion), primarily related to acquisitions and higher sales prices ($0.1 billion).
Cost of products sold increased $0.3 billion to $60.5 billion due to overall higher sales volumes, partially offset by lower prices of commodities. Included in cost of products sold in 2019 was a charge of $37 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $18 million in 2018. Manufacturing expenses increased $0.3 billion to $5.7 billion due principally to new acquisitions.
Foreign currency translation impacts decreased both revenues and cost of products sold by $0.8 billion.
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Gross profit decreased $34 million or 1%, to $4.1 billion. Lower results in Ag Services and Oilseeds ($40 million), Carbohydrate Solutions ($301 million), and Other ($6 million) were offset by higher results in Nutrition ($400 million). These factors are explained in the discussions of segment operating profit on page 45. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a negative impact on gross profit of $37 million in 2019 compared to a positive impact of $18 million in 2018.
Selling, general, and administrative expenses increased 15% to $2.5 billion due principally to new acquisitions, primarily in the Nutrition segment, and higher spending on IT, business transformation, growth-related investments, and Readiness-related projects, partially offset by lower variable performance-related and stock compensation expenses.
Asset impairment, exit, and restructuring costs increased $132 million to $303 million. Charges in 2019 consisted of asset impairments of $131 million related to certain facilities, vessels, and other long-lived assets and $11 million related to goodwill and other intangible assets presented as specified items within segment operating profit, and $159 million of restructuring and pension settlement and remeasurement charges in Corporate primarily related to early retirement and reorganization initiatives and several individually insignificant restructuring charges presented as specified items within segment operating profit. Charges in 2018 totaling $171 million consisted of $56 million of impairment of certain long-lived assets, a $12 million impairment of an equity investment, a $21 million impairment related to a long-term financing receivable, and $9 million of other individually insignificant impairment and restructuring charges presented as specified items within segment operating profit, and a $49 million charge related to a discontinued software project, $18 million of restructuring charges related to the reorganization of IT services and $6 million individually insignificant restructuring charges in Corporate.
Interest expense increased $38 million to $402 million due to higher borrowings to fund recent acquisitions, partially offset by lower interest rates.
Equity in earnings of unconsolidated affiliates decreased $64 million to $454 million due to lower earnings from the Company’s investments in Wilmar and CIP, partially offset by higher earnings from the Company’s investments in Olenex and other equity investees.
Other expense - net of $7 million decreased $94 million. Expense in 2019 included a loss on sale of the Company’s equity investment in CIP and foreign exchange loss, partially offset by gains on the sale of certain assets, step-up gains on equity investments, gains on disposals of individually insignificant assets in the ordinary course of business, and other income. Expense in 2018 included foreign exchange losses and a non-cash pension settlement charge of $117 million related to the purchase of a group annuity contract that irrevocably transferred the future benefit obligations and annuity administration for certain U.S. salaried retirees under the Company’s ADM Retirement Plan. These expenses were partially offset by gains on disposals of businesses, an equity investment, and individually insignificant assets in the ordinary course of business, and other income.
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Operating profit by segment and earnings before income taxes for the years ended December 31, 2019 and 2018 are as follows:
Segment Operating Profit 2019 2018 Change
(In millions)
Ag Services and Oilseeds
Carbohydrate Solutions
Nutrition
Specified Items:
Gain on sales of assets and businesses 12 13 (1)
Impairment, restructuring, and exit charges (146) (102) (44)
Total Specified Items (134) (89) (45)
(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
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Ag Services and Oilseeds operating profit decreased 4%. Ag Services results were lower due to weaker North American grain margins and lower volumes, in part due to challenging weather conditions and the U.S.-China trade tensions. Results in 2019 were negatively impacted by high water conditions in the first half of the year, which limited grain movement and sales in North America. Slow farmer selling and lower Chinese demand for South American origination, in part due to African swine fever, also impacted results. Crushing results were strong but down compared to 2018. Lower executed crush margins around the globe drove lower results, partially offset by favorable timing effects of approximately $102 million from hedges entered in 2018. Refined Products and Other results were up compared to 2018 primarily due to the retroactive biodiesel tax credit of $270 million for 2018 and 2019 recorded in 2019 compared to $120 million for 2017 recorded in 2018, strong demand, and higher results from equity investments. Wilmar results were lower year over year.
Carbohydrate Solutions operating profit decreased 32%. Starches and Sweeteners results were down primarily due to lower results in EMEA where margins were pressured due to low sugar prices and the Turkish quota on starch-based sweeteners. Higher manufacturing costs at the Decatur, IL complex and weaker margins in flour milling also contributed to the decrease. Vantage Corn Processors results were down due to significantly lower ethanol margins amid a continued unfavorable ethanol industry environment, exacerbated by the lack of Chinese demand for ethanol due to the U.S.-China trade dispute.
Nutrition operating profit increased 23%. Human Nutrition results were higher year over year on strong sales and margin growth in North America and Europe, Middle East, Africa, and India (EMEAI) and contributions from acquisitions. Animal Nutrition results were up driven largely by contributions from the acquisition of Neovia, partially offset by additional expenses related to inventory valuation of newly-acquired Neovia and weaker lysine results.
Other Business operating profit increased 47% primarily due to improved results from the Company’s futures commission brokerage business and captive insurance underwriting performance.
Corporate results are as follows:
LIFO credit (charge) $ (37) $ 18 $ (55)
Unallocated corporate costs (647) (660) 13
Loss on sale of asset (101) — (101)
Expenses related to acquisitions (17) (8) (9)
Impairment, restructuring, and settlement charges (159) (190) 31
Corporate results were a net charge of $1.4 billion in 2019 compared to $1.2 billion in 2018. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves resulted in a charge of $37 million in 2019 compared to a credit of $18 million in 2018. Interest expense - net increased $27 million due to higher borrowings to fund recent acquisitions, partially offset by interest savings from cross-currency swaps. Unallocated corporate costs decreased $13 million due principally to decreased performance-related compensation accruals partially offset by higher spending on IT, business transformation, growth-related investments, and Readiness-related projects. Loss on sale of asset related to the sale of the Company’s equity investment in CIP. Expenses related to acquisitions in 2019 consisted of expenses primarily related to the Neovia acquisition. Expenses related to acquisitions in 2018 consisted of expenses and losses on foreign currency derivative contracts entered into to economically hedge certain acquisitions. Impairment, restructuring, and settlement charges in 2019 included restructuring and pension settlement and remeasurement charges related to early retirement and reorganization initiatives. Impairment, restructuring, and settlement charges in 2018 included pension settlement charge of $117 million related to the purchase of a group annuity contract that irrevocably transferred the future benefit obligations and annuity administration for certain U.S. salaried retirees under the Company’s ADM Retirement Plan, a $49 million charge related to a discontinued software project, and restructuring charges of $24 million primarily related to the reorganization of IT services. Other charges in 2019 included railroad maintenance expenses of $51 million. Other charges in 2018 included foreign exchange losses which were partially offset by earnings from the Company’s equity investment in CIP.
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Non-GAAP Financial Measures
The Company uses adjusted earnings per share (EPS), adjusted earnings before taxes, interest, and depreciation and amortization (EBITDA), and adjusted segment operating profit, non-GAAP financial measures as defined by the SEC, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.
Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.
The table below provides a reconciliation of diluted EPS to adjusted EPS for the years ended December 31, 2019 and 2018.
In millions Per share In millions Per share
Average number of shares outstanding - diluted 565 567
Net earnings and reported EPS (fully diluted) $ 1,379 $ 2.44 $ 1,810 $ 3.19
Adjustments:
(1) Tax effected using the Company’s U.S. tax rate.
(2) Tax effected using the applicable tax rates.
(3) Includes tax adjustments related to the U.S. Tax Cuts and Jobs Act and other discrete items.
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The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the years ended December 31, 2019 and 2018.
LIFO charge (credit) 37 (18) 55
Gain (loss) on sales of assets and businesses 89 (13) 102
Asset impairment, restructuring, and settlement charges 305 292 13
Railroad maintenance expense 51 — 51
Expenses related to acquisitions 17 8 9
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Liquidity and Capital Resources
A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of a capital intensive agricultural commodity-based business. The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of ADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance ADM’s operations, capital expenditures, and advancement of its growth strategy is cash generated by operations and lines of credit, including a commercial paper borrowing facility and accounts receivable securitization programs. In addition, the Company believes it has access to funds from public and private equity and debt capital markets in both U.S. and international markets.
Cash used in operating activities was $2.4 billion in 2020 compared to $5.5 billion in 2019. Working capital changes as described below, including the impact of deferred consideration, decreased cash by $5.5 billion in the current year compared to $7.7 billion in the prior year.
Trade receivables increased $0.1 billion primarily due to lower receivables sold. Inventories increased $2.4 billion primarily due to higher inventory prices. Other current assets and accrued expenses and other payables increased $2.1 billion and $1.3 billion, respectively, primarily due to increases in contracts and futures gains and losses. Trade payables increased $0.7 billion principally reflecting seasonal cash payments for North American harvest-related grain purchases. Payables to brokerage customers increased $1.4 billion due to increased customer trading activity in the Company’s futures commission and brokerage business.
Deferred consideration in securitized receivables of $4.6 billion and $7.7 billion in 2020 and 2019, respectively, was offset by the same amounts of net consideration received for beneficial interest obtained for selling trade receivables.
Cash provided by investing activities was $4.5 billion this year compared to $5.3 billion last year. Capital expenditures of $0.8 billion in the current year were comparable to last year. Net assets of businesses acquired were $15 million this year compared to $1.9 billion last year due to the acquisition of Neovia in 2019. Proceeds from sales of business and assets of $0.7 billion in the current year related to the sale of a portion of the Company shares in Wilmar and certain other assets compared to $0.3 billion in the prior year. Net consideration received for beneficial interest obtained for selling trade receivables was $4.6 billion and $7.7 billion in 2020 and 2019, respectively.
Cash used in financing activities was $0.4 billion this year compared to $0.7 billion last year. Long-term debt borrowings in the current year of $1.8 billion consisted of the $0.5 billion and $1.0 billion aggregate principal amounts of 2.75% Notes due in 2025 and 3.25% Notes due in 2030, respectively, issued on March 27, 2020 and the $0.3 billion aggregate principal amount of zero coupon exchangeable bonds due in 2023 issued on August 26, 2020. Proceeds from the borrowings in the current year were used for general corporate purposes, including the reduction of short-term debt. Commercial paper net borrowings were $0.8 billion in the current year compared to $0.9 billion in the prior year. Long-term debt payments in the current year of $2.1 billion related primarily to the early redemption of the $0.5 billion and $0.4 billion aggregate principal amounts of 4.479% debentures due in 2021 and 3.375% debentures due in 2022, respectively, the repurchase of $0.7 billion aggregate principal amount of certain outstanding notes and debentures, and the redemption of $0.2 billion aggregate principal amount of private placement notes due in 2021 and 2024. Long-term debt payments of $0.6 billion in the prior year related to the €500 million Floating Rate Notes that matured in June 2019. Share repurchases in the current year were $0.1 billion compared to $0.2 billion in the prior year. Dividends paid in the current year of $0.8 billion were comparable to the prior year.
At December 31, 2020, ADM had $0.7 billion of cash, cash equivalents, and short-term marketable securities and a current ratio, defined as current assets divided by current liabilities, of 1.5 to 1. Included in working capital is $7.9 billion of readily marketable commodity inventories. At December 31, 2020, the Company’s capital resources included shareholders’ equity of $20.0 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $10.2 billion, of which $6.6 billion was unused. ADM’s ratio of long-term debt to total capital (the sum of long-term debt and shareholders’ equity) was 28% and 29% at December 31, 2020 and 2019, respectively. The Company uses this ratio as a measure of ADM’s long-term indebtedness and an indicator of financial flexibility. The Company’s ratio of net debt (the sum of short-term debt, current maturities of long-term debt, and long-term debt less the sum of cash and cash equivalents and short-term marketable securities) to capital (the sum of net debt and shareholders’ equity) was 32% and 29% at December 31, 2020 and 2019, respectively. Of the Company’s total lines of credit, $5.0 billion supported the commercial paper borrowing programs, against which there was $1.7 billion of commercial paper outstanding at December 31, 2020.
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COVID-19 has not significantly impacted ADM’s capital and financial resources, and pricing on its revolving credit facility remains unchanged. However, in line with the overall markets, COVID-19 created dislocations in the credit markets during certain periods in the first half of 2020 with corporate spreads increasing, partially offset by a decline in benchmark yields. The Company has utilized its diversified sources of liquidity, including its inventory financing and bilateral bank facilities, to ensure it has ample cash and is prepared for possible unexpected credit market disruptions. Additionally, ADM has been accepted into the Federal Reserve’s Commercial Paper Financing Facility and the Bank of England’s COVID Corporate Financing Facility ensuring uninterrupted access to both the U.S. and European commercial paper markets. The Federal Reserve’s Commercial Paper Financing Facility and the Bank of England’s COVID Corporate Financing Facility expire in March and June 2021, respectively, unless renewed. To date, the Company has not utilized these facilities.
During the second half of 2020, the global credit market stabilized with corporate credit spreads below pre-pandemic levels. Continued actions by central banks provided additional support in both the short-term and long-term funding markets further stabilizing corporate credit markets. Low benchmark yields and favorable credit spreads coupled with continued strong cash flow generation during the second half of the year presented opportunities for ADM to re-balance the company’s liability portfolio to pre-pandemic levels. Starting in June 2020, ADM began a series of liability management transactions including multiple early debt redemptions and the $0.7 billion debt tender in September 2020 to capitalize on all-time low interest rates.
As of December 31, 2020, the Company had $0.7 billion of cash and cash equivalents, $0.3 billion of which is cash held by foreign subsidiaries whose undistributed earnings are considered indefinitely reinvested. Based on the Company’s historical ability to generate sufficient cash flows from its U.S. operations and unused and available U.S. credit capacity of $4.0 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.
The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs provide the Company with up to $1.8 billion in funding against accounts receivable transferred into the Programs and expand the Company’s access to liquidity through efficient use of its balance sheet assets (see Note 19 in Item 8 for more information and disclosures on the Programs). As of December 31, 2020, the Company utilized $1.6 billion of its facility under the Programs.
On November 5, 2014, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing January 1, 2015 and ending December 31, 2019. On August 7, 2019, the Company’s Board of Directors approved the extension of the stock repurchase program through December 31, 2024 and the repurchase of up to an additional 100,000,000 shares under the extended program. The Company has acquired approximately 95.5 million shares under this program as of December 31, 2020.
In 2021, the Company expects capital expenditures of $0.9 billion to $1.0 billion, and additional cash outlays of approximately $0.8 billion in dividends and up to $0.5 billion in share repurchases, subject to other strategic uses of capital.
The Company’s credit facilities and certain debentures require the Company to comply with specified financial and non-financial covenants including maintenance of minimum tangible net worth as well as limitations related to incurring liens, secured debt, and certain other financing arrangements. The Company was in compliance with these covenants as of December 31, 2020.
The three major credit rating agencies have maintained the Company’s credit ratings at solid investment grade levels with stable outlooks.
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Contractual Obligations
In the normal course of business, the Company enters into contracts and commitments which obligate the Company to make payments in the future. The following table sets forth the Company’s significant future obligations by time period. Purchases include commodity-based contracts entered into in the normal course of business, which are further described in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” energy-related purchase contracts entered into in the normal course of business, and other purchase obligations related to the Company’s normal business activities. The following table does not include unrecognized income tax benefits of $151 million as of December 31, 2020 as the Company is unable to reasonably estimate the timing of settlement. Where applicable, information included in the Company’s consolidated financial statements and notes is cross-referenced in this table.
Payments Due by Period
Item 8
Contractual Obligations and Note Less than 1 - 3 3 - 5 More than
Other Commitments Reference Total 1 Year Years Years 5 Years
(In millions)
Purchases
(1) Includes pension contributions of $29 million for fiscal 2021. The Company is unable to estimate the amount of pension contributions beyond fiscal year 2021. For more information concerning the Company’s pension and other postretirement plans, see Note 15 in Item 8.
At December 31, 2020, the Company estimates it will spend approximately $1.7 billion through fiscal year 2025 to complete currently approved capital projects which are not included in the table above.
The Company also has outstanding letters of credit and surety bonds of $1.2 billion at December 31, 2020 which are not included in the table above.
The Company has entered into agreements, primarily debt guarantee agreements related to equity-method investees, which could obligate the Company to make future payments. The Company’s liability under these agreements is immaterial and arises only if the primary entity fails to perform its contractual obligation. The Company has collateral for a portion of these contingent obligations.
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Off Balance Sheet Arrangements
Accounts Receivable Securitization Programs
On April 1, 2020 and October 1, 2020, the Company restructured its accounts receivable securitization programs (Programs) from a deferred purchase price to a pledge structure. Under the new structure, ADM Ireland Receivables and ADM Receivables transfer a portion of the purchased accounts receivable together with an equally proportional interest in all of its right, title and interest in the remaining purchased accounts receivable to each of the commercial paper conduit purchasers and committed purchasers. In exchange, ADM Ireland Receivables and ADM Receivables receive a cash payment for the accounts receivables transferred. See Note 19 of “Notes to Consolidated Financial Statements” included in Item 8 herein, “Financial Statements and Supplementary Data” for more information and disclosures on the Programs
There were no other material changes in the Company’s off balance sheet arrangements during the year.
Critical Accounting Policies
The process of preparing financial statements requires management to make estimates and judgments that affect the carrying values of the Company’s assets and liabilities as well as the recognition of revenues and expenses. These estimates and judgments are based on the Company’s historical experience and management’s knowledge and understanding of current facts and circumstances. Certain of the Company’s accounting policies are considered critical, as these policies are important to the depiction of the Company’s financial statements and require significant or complex judgment by management. Management has discussed with the Company’s Audit Committee the development, selection, disclosure, and application of these critical accounting policies. Following are the accounting policies management considers critical to the Company’s financial statements.
Fair Value Measurements - Inventories and Commodity Derivatives
Certain of the Company’s inventory and commodity derivative assets and liabilities as of December 31, 2020 are valued at estimated fair values, including $7.9 billion of merchandisable agricultural commodity inventories, $2.8 billion of commodity derivative assets, $2.0 billion of commodity derivative liabilities, and $0.5 billion of inventory-related payables. Commodity derivative assets and liabilities include forward fixed-price purchase and sale contracts for agricultural commodities. Merchandisable agricultural commodities are freely traded, have quoted market prices, and may be sold without significant additional processing. Management estimates fair value for its commodity-related assets and liabilities based on exchange-quoted prices, adjusted for differences in local markets. The Company’s inventory and derivative commodity fair value measurements are mainly based on observable market quotations without significant adjustments and are therefore reported as Level 2 within the fair value hierarchy. Level 3 fair value measurements of approximately $3.0 billion of assets and $0.9 billion of liabilities represent fair value estimates where unobservable price components represent 10% or more of the total fair value price. For more information concerning amounts reported as Level 3, see Note 4 in Item 8. Changes in the market values of these inventories and commodity contracts are recognized in the statement of earnings as a component of cost of products sold. If management used different methods or factors to estimate market value, amounts reported as inventories and cost of products sold could differ materially. Additionally, if market conditions change subsequent to year-end, amounts reported in future periods as inventories and cost of products sold could differ materially.
Derivatives – Designated Hedging Activities
The Company, from time to time, uses derivative contracts designated as cash flow hedges to hedge the purchase or sales price of anticipated volumes of commodities to be purchased and processed in a future month. Assuming normal market conditions, the change in the market value of such derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Gains and losses arising from open and closed hedging transactions are deferred in accumulated other comprehensive income, net of applicable income taxes, and recognized as a component of cost of products sold and revenues in the statement of earnings when the hedged item is recognized in earnings. If it is determined that the derivative instruments used are no longer effective at offsetting changes in the price of the hedged item, then the changes in the market value of these exchange-traded futures and exchange-traded and over-the-counter option contracts would be recorded immediately in the statement of earnings as a component of revenues and/or cost of products sold. See Note 5 in Item 8 for additional information.
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Investments in Affiliates
The Company applies the equity method of accounting for investments over which the Company has the ability to exercise significant influence. These investments are carried at cost plus equity in undistributed earnings and are adjusted, where appropriate, for amortizable basis differences between the investment balance and the underlying net assets of the investee. Generally, the minimum ownership threshold for asserting significant influence is 20% ownership of the investee. However, the Company considers all relevant factors in determining its ability to assert significant influence including, but not limited to, ownership percentage, board membership, customer and vendor relationships, and other arrangements. If management used a different accounting method for these investments, then the amount of earnings from affiliates the Company recognizes may materially differ.
Income Taxes
The Company accounts for income taxes in accordance with the applicable accounting standards. These standards prescribe a minimum threshold a tax position is required to meet before being recognized in the consolidated financial statements. The Company recognizes in its consolidated financial statements tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the position. The Company faces challenges from U.S. and foreign tax authorities regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the Company records reserves for estimates of potential additional tax owed by the Company. For example, the Company has received tax assessments from tax authorities in Argentina and the Netherlands, challenging income tax positions taken by subsidiaries of the Company. The Company evaluated its tax positions for these matters and concluded, based in part upon advice from legal counsel, that it was appropriate to recognize the tax benefits of these positions (see Note 13 in Item 8 for additional information).
Deferred tax assets represent items to be used as tax deductions or credits in future tax returns where the related tax benefit has already been recognized in the Company’s income statement. The realization of the Company’s deferred tax assets is dependent upon future taxable income in specific tax jurisdictions, the timing and amount of which are uncertain. The Company evaluates all available positive and negative evidence including estimated future reversals of existing temporary differences, projected future taxable income, tax planning strategies, and recent financial results. Valuation allowances related to these deferred tax assets have been established to the extent the realization of the tax benefit is not likely. During 2020, the Company increased valuation allowances by approximately $14 million primarily related to capital loss carryforwards. To the extent the Company were to favorably resolve matters for which valuation allowances have been established or be required to pay amounts in excess of the aforementioned valuation allowances, the Company’s effective tax rate in a given financial statement period may be impacted.
Undistributed earnings of the Company’s foreign subsidiaries and corporate joint ventures amounting to approximately $12.5 billion at December 31, 2020, are considered to be indefinitely reinvested.
The Company has a responsibility to ensure that all ADM businesses within the Company follow responsible tax practices. ADM manages its tax affairs based upon the following key principles:
–a commitment to paying tax in compliance with all applicable laws and regulations in the jurisdictions in which the Company operates;
–a commitment to the effective, sustainable, and active management of the Company's tax affairs; and
–developing and sustaining open and honest relationships with the governments and jurisdictions in which the Company operates regarding the formulation of tax laws.
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Property, Plant, and Equipment and Asset Abandonments and Write-Downs
The Company is principally engaged in the business of procuring, transporting, storing, processing, and merchandising agricultural commodities and products. This business is global in nature and is highly capital-intensive. Both the availability of the Company’s raw materials and the demand for the Company’s finished products are driven by factors such as weather, plantings, government programs and policies, changes in global demand, changes in standards of living, and global production of similar and competitive crops. These aforementioned factors may cause a shift in the supply/demand dynamics for the Company’s raw materials and finished products. Any such shift will cause management to evaluate the efficiency and cash flows of the Company’s assets in terms of geographic location, size, and age of its facilities. The Company, from time to time, will also invest in equipment, technology, and companies related to new, value-added products produced from agricultural commodities and products. These new products are not always successful from either a commercial production or marketing perspective. Management evaluates the Company’s property, plant, and equipment for impairment whenever indicators of impairment exist. In addition, assets are written down to fair value after consideration of the ability to utilize the assets for their intended purpose or to employ the assets in alternative uses or sell the assets to recover the carrying value. If management used different estimates and assumptions in its evaluation of these assets, then the Company could recognize different amounts of expense over future periods. During 2020, the Company temporarily idled certain of its corn processing assets where ethanol is produced and performed a quantitative impairment assessment of those assets, resulting in no impairment charges. The total carrying value of the temporarily idled assets as of December 31, 2020 was immaterial. During the years ended December 31, 2020, 2019, and 2018, asset abandonment and impairment charges for property, plant, and equipment were $28 million, $131 million, and $100 million, respectively.
Business Combinations
The Company’s acquisitions are accounted for in accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations, as amended. The consideration transferred is allocated to various assets acquired and liabilities assumed at their estimated fair values as of the acquisition date with the residual allocated to goodwill. Fair values allocated to assets acquired and liabilities assumed in business combinations require management to make significant judgments, estimates, and assumptions, especially with respect to intangible assets. Management makes estimates of fair values based upon assumptions it believes to be reasonable. These estimates are based upon historical experience and information obtained from the management of the acquired companies and are inherently uncertain. The estimated fair values related to intangible assets primarily consist of customer relationships, trademarks, and developed technology which are determined primarily using discounted cash flow models. Estimates in the discounted cash flow models include, but are not limited to, certain assumptions that form the basis of the forecasted results (e.g. revenue growth rates, customer attrition rates, and royalty rates). These significant assumptions are forward looking and could be affected by future economic and market conditions. During the measurement period, which may take up to one year from the acquisition date, adjustments due to changes in the estimated fair value of assets acquired and liabilities assumed may be recorded as adjustments to the consideration transferred and related allocations. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any such adjustments are charged to the consolidated statements of earnings.
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Goodwill and Other Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The Company evaluates goodwill for impairment at the reporting unit level annually on October 1 or whenever there are indicators that the carrying value may not be fully recoverable. The Company adopted the provisions of ASC 350, Intangibles - Goodwill and Other, which permits, but does not require, a company to qualitatively assess indicators of a reporting unit’s fair value. If after completing the qualitative assessment, a company believes it is likely that a reporting unit is impaired, a discounted cash flow analysis is prepared to estimate fair value. Critical estimates in the determination of the fair value of each reporting unit include, but are not limited to, future expected cash flows and discount rates. During the year ended December 31, 2020, the Company evaluated goodwill for impairment using a qualitative assessment in six reporting units and using a quantitative assessment in one reporting unit. The estimated fair value of the reporting unit evaluated for impairment using a quantitative assessment was substantially in excess of its carrying value. Definite-lived intangible assets, including capitalized expenses related to the Company’s 1ADM program, are amortized over their estimated useful lives of 1 to 50 years and are reviewed for impairment whenever there are indicators that the carrying values may not be fully recoverable. The Company recorded impairment charges totaling $26 million related to customer lists, $11 million related to goodwill and intangibles, and $9 million related customer lists during the years ended December 31, 2020, 2019, and 2018, respectively (see Note 18 in Item 8 for more information). If management used different estimates and assumptions in its impairment tests, then the Company could recognize different amounts of expense over future periods.
Employee Benefit Plans
The Company provides substantially all U.S. employees and employees at certain international subsidiaries with retirement benefits including defined benefit pension plans and defined contribution plans. The Company provides certain eligible U.S. employees who retire under qualifying conditions with subsidized postretirement health care coverage or Health Care Reimbursement Accounts.
In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including interest rates used to discount certain liabilities, rates of return on assets set aside to fund these plans, rates of compensation increases, employee turnover rates, anticipated mortality rates, and anticipated future health care costs. These estimates and assumptions are based on the Company’s historical experience combined with management’s knowledge and understanding of current facts and circumstances. Management also uses third-party actuaries to assist in measuring the expense and funded status of these employee benefit plans. If management used different estimates and assumptions regarding these plans, the funded status of the plans could vary significantly, and the Company could recognize different amounts of expense over future periods.
The Company uses the corridor approach when amortizing actuarial losses. Under the corridor approach, net unrecognized actuarial losses in excess of 10% of the greater of the projected benefit obligation or the market related value of plan assets are amortized over future periods. For plans with little to no active participants, the amortization period is the remaining average life expectancy of the participants. For plans with active participants, the amortization period is the remaining average service period of the active participants. The amortization periods range from 2 to 36 years for the Company’s defined benefit pension plans and from 6 to 24 years for the Company’s postretirement benefit plans.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in: commodity market prices as they relate to the Company’s net commodity position, foreign currency exchange rates, and interest rates as described below.
Commodities
The availability and prices of agricultural commodities are subject to wide fluctuations due to factors such as changes in weather conditions, crop disease, plantings, government programs and policies, competition, changes in global demand, changes in customer preferences and standards of living, and global production of similar and competitive crops.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The Company manages its exposure to adverse price movements of agricultural commodities used for, and produced in, its business operations, by entering into derivative and non-derivative contracts which reduce the Company’s overall short or long commodity position. Additionally, the Company uses exchange-traded futures and exchange-traded and over-the-counter option 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 cash prices of the underlying commodities, counterparty contract defaults, and volatility of freight markets. In addition, the Company, from time-to-time, enters into derivative contracts which are designated as hedges of specific volumes of commodities that will be purchased and processed, or sold, in a future month. The changes in the market value of such futures contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Gains and losses arising from open and closed designated hedging transactions are deferred in other comprehensive income, net of applicable taxes, and recognized as a component of cost of products sold or revenues in the statement of earnings when the hedged item is recognized.
The Company’s commodity position consists of merchandisable agricultural commodity inventories, related purchase and sales contracts, energy and freight contracts, and exchange-traded futures and exchange-traded and over-the-counter option contracts including contracts used to hedge portions of production requirements, net of sales.
The fair value of the Company’s commodity position is a summation of the fair values calculated for each commodity by valuing all of the commodity positions at quoted market prices for the period, where available, or utilizing a close proxy. The Company has established metrics to monitor the amount of market risk exposure, which consist of volumetric limits, and value-at-risk (VaR) limits. VaR measures the potential loss, at a 95% confidence level, that could be incurred over a one year period. Volumetric limits are monitored daily and VaR calculations and sensitivity analysis are monitored weekly.
In addition to measuring the hypothetical loss resulting from an adverse two standard deviation move in market prices (assuming no correlations) over a one year period using VaR, sensitivity analysis is performed measuring the potential loss in fair value resulting from a hypothetical 10% adverse change in market prices. The highest, lowest, and average weekly position for the years ended December 31, 2020 and 2019 together with the market risk from a hypothetical 10% adverse price change is as follows:
Long/(Short) Fair Value Market Risk Fair Value Market Risk
(In millions)
The change in fair value of the average position was principally the result of a decrease in quantities.
Currencies
The Company has consolidated subsidiaries in more than 70 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except certain significant subsidiaries in Switzerland where Euro is the functional currency, and Brazil and Argentina where U.S. dollar is the functional currency. To reduce the risks associated with foreign currency exchange rate fluctuations, the Company enters into currency exchange contracts to minimize its foreign currency position related to transactions denominated primarily in Euro, British pound, Canadian dollar, and Brazilian real currencies. These currencies represent the major functional or local currencies in which recurring business transactions occur. The Company also uses currency exchange contracts as hedges against amounts indefinitely invested in foreign subsidiaries and affiliates. The currency exchange contracts used are forward contracts, swaps with banks, exchange-traded futures contracts, and over-the-counter options. The changes in market value of such contracts have a high correlation to the price changes in the currency of the related transactions. The potential loss in fair value for such net currency position resulting from a hypothetical 10% adverse change in foreign currency exchange rates is not material.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The amount the Company considers indefinitely invested in foreign subsidiaries and corporate joint ventures translated into dollars using the year-end exchange rates is $10.5 billion and $9.6 billion ($12.5 billion and $11.6 billion at historical rates) at December 31, 2020 and 2019, respectively. The increase is due to the increase in retained earnings of the foreign subsidiaries of $1.0 billion. The potential loss in fair value, which would principally be recognized in Other Comprehensive Income, resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates is $1.3 billion and $1.2 billion for December 31, 2020 and 2019, respectively. Actual results may differ.
Interest
The fair value of the Company’s long-term debt is estimated using quoted market prices, where available, and discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. Such fair value exceeded the long-term debt carrying value. Market risk is estimated as the potential increase in fair value resulting from a hypothetical 50 basis points decrease in interest rates. Actual results may differ.
(In millions)
Fair value of long-term debt $ 9,487 $ 9,211
Excess of fair value over carrying value 1,602 1,540
The increase in the fair value of long-term debt at December 31, 2020 is primarily due to decreased interest rates and increased borrowings.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements Page No.
Consolidated Statements of Earnings 58
Consolidated Statements of Comprehensive Income (Loss) 59
Consolidated Balance Sheets 60
Consolidated Statements of Cash Flows 61
Consolidated Statements of Shareholders’ Equity 62
Notes to Consolidated Financial Statements 63
Reports of Independent Registered Public Accounting Firm 119
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Archer-Daniels-Midland Company
Consolidated Statements of Earnings
Year Ended
(In millions, except per share amounts) December 31
Selling, general and administrative expenses 2,687 2,493 2,165
Asset impairment, exit, and restructuring costs 80 303 171
Equity in earnings of unconsolidated affiliates (579) (454) (518)
Loss on debt extinguishment 409 — —
Other (income) expense - net (278) 7 101
Net Earnings Including Noncontrolling Interests 1,782 1,379 1,815
Less: Net earnings (losses) attributable to noncontrolling interests 10 — 5
Net Earnings Attributable to Controlling Interests $ 1,772 $ 1,379 $ 1,810
Average number of shares outstanding – basic 561 563 564
Average number of shares outstanding – diluted 563 565 567
Basic earnings per common share $ 3.16 $ 2.45 $ 3.21
Diluted earnings per common share $ 3.15 $ 2.44 $ 3.19
See notes to consolidated financial statements.
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Archer-Daniels-Midland Company
Consolidated Statements of Comprehensive Income (Loss)
Year Ended
(In millions) December 31
Net earnings including noncontrolling interests $ 1,782 $ 1,379 $ 1,815
Other comprehensive income (loss):
Foreign currency translation adjustment (362) (176) (581)
Pension and other postretirement benefit liabilities adjustment (113) (98) 156
Deferred gain (loss) on hedging activities 254 (91) 57
Unrealized gain (loss) on investments (27) 13 (4)
Tax effect — (1) (1)
Net of tax effect (27) 12 (5)
Other comprehensive income (loss) (192) (297) (469)
See notes to consolidated financial statements.
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Archer-Daniels-Midland Company
Consolidated Balance Sheets
Assets
Current Assets
Cash and cash equivalents $ 666 $ 852
Segregated cash and investments 5,890 4,458
Investments and Other Assets
Investments in and advances to affiliates 4,913 5,132
Goodwill and other intangible assets 5,413 5,476
Property, Plant, and Equipment
Land and land improvements 545 592
Net Property, Plant, and Equipment 9,951 10,106
Liabilities, Temporary Equity, and Shareholders’ Equity