Notes to Consolidated Financial Statements
(Unaudited)
|
|
Note 1.
|
Basis of Presentation
|
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six-month period ended
June 30, 2017
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2017
. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company consolidates all entities, including variable interest entities (VIEs), in which it has a controlling financial interest. For VIEs, the Company assesses whether it is the primary beneficiary as defined under the applicable accounting standard. Investments in affiliates, including VIEs through which the Company exercises significant influence but does not control the investee and is not the primary beneficiary of the investee’s activities, are carried at cost plus equity in undistributed earnings since acquisition and are adjusted, where appropriate, for basis differences between the investment balance and the underlying net assets of the investee. The Company’s portion of the results of certain affiliates and results of certain VIEs are included using the most recent available financial statements. In each case, the financial statements are within 93 days of the Company’s year end and are consistent from period to period.
Reclassifications
The Company classified
$17 million
and
$32 million
of fees from its U.S. futures commission brokerage business in cost of products sold in the quarter and six months ended
June 30, 2017
, respectively. The current presentation is consistent with the classification of similar fees in the Company’s futures commission brokerage business in the U.K. Prior period amounts of
$20 million
and
$35 million
in the quarter and six months ended
June 30, 2016
, respectively, have been reclassified from selling, general, and administrative expenses in the consolidated statement of earnings to conform to the current presentation.
In the quarter ended June 30, 2017, the Company began presenting certain items (specified items) separately from the individual business segments as further described in Note 14 and Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations. Prior period amounts conform to the current presentation with no change in total segment operating profit.
Last-in, First-out (LIFO) Inventories
Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels. Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventories at interim periods may vary significantly from management’s estimates of year-end inventory levels.
|
|
Note 2.
|
New Accounting Standards
|
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 330,
Inventory
, which simplifies the measurement of inventory. The amended guidance requires an entity to measure its cost-based inventory at the lower of cost or net realizable value, where net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 2.
|
New Accounting Standards (Continued)
|
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 323,
Investments - Equity Method and Joint Ventures
, which simplifies the transition to the equity method of accounting. The amended guidance eliminates the requirement of an investor to adjust the investment, results of operations, and retained earnings retroactively when an investment qualifies for equity method accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments require that the investor add the cost of acquiring the additional interest in the investee to the current basis of the investors’ previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The adoption of this amended guidance did not have an impact on the Company’s financial results.
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 810,
Consolidatio
n, which affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. The amended guidance changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The Company was required to adopt the amended guidance using a retrospective transition approach to all periods presented. The adoption of this amended guidance did not result in the deconsolidation or consolidation of any of its variable interest entities.
Effective January 1, 2017, the Company adopted the amended guidance of ASC Topic 740,
Income Taxes
, which requires entities to recognize the income tax consequences of an intra-entity transfer, other than inventory, when the transfer occurs. Under the previous accounting rules, entities were prohibited from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amended guidance does not change the accounting for the pre-tax effects of an intra-entity asset transfer or for an intra-entity transfer of inventory. The Company adopted the amended guidance on a modified retrospective approach basis through a
$7 million
cumulative effect adjustment to retained earnings as of January 1, 2017.
|
|
Note 3.
|
Pending Accounting Standards
|
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Subtopic 825-10,
Financial Instruments - Overall
, which is intended to improve the recognition and measurement of financial instruments. The amended guidance requires an entity to measure equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, at fair value with changes in fair value recognized in net income and simplify the impairment assessment of equity investments without readily determinable fair values by using a qualitative assessment to identify impairment. The Company does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 3.
|
Pending Accounting Standards (Continued)
|
Effective January 1, 2018, the Company will be required to adopt the new guidance of ASC Topic 606,
Revenue from Contracts with Customers
(Topic 606), which will supersede the revenue recognition requirements in ASC Topic 605,
Revenue Recognition
. Topic 606 requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company will be required to adopt Topic 606 either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application. The Company will adopt Topic 606 on a modified retrospective basis and will be required to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes. The adoption of this new guidance will require expanded disclosures in the Company’s consolidated financial statements including separate quantitative disclosure of revenues within the scope of Topic 606 and revenues excluded from the scope of Topic 606. Many of the Company’s sales contracts are considered derivatives under ASC Topic 815,
Derivatives and Hedging
, and are therefore excluded from the scope of Topic 606. The Company has established a cross-functional implementation team consisting of representatives from all of its business segments. The Company utilized surveys to validate all of its current revenue recognition streams and identify areas of its business where potential differences could result from applying the requirements of the new standard. The Company also conducted workshops and is currently conducting contract reviews to gather more information about the nature, magnitude, and frequency of the underlying transactions that drove the survey responses. Based on the surveys, workshops, and contract reviews, the Company identified potential accounting change in the areas of control transfer, consignment arrangements, repurchase options/rights, multiple element arrangements, voyage charter revenue, variable consideration, and principal versus agent arrangements. In the second half of the year, the Company will complete the final phase of its revenue recognition implementation plan which includes quantification of the areas of accounting change and an assessment of the financial impact of the new guidance on its consolidated financial statements.
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Topic 805,
Business Combinations
,
which clarifies the definition of a business. The amended guidance is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (disposals) of assets or businesses and provides a more robust framework to use in determining when a set of assets and activities is a business. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. No disclosures are required at adoption. The Company plans to adopt the amended guidance on October 1, 2017.
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Topic 715,
Compensation - Retirement Benefits
, which requires that an employer report the service cost component in the same line or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The adoption of this amended guidance will require expanded disclosures and the reclassification of the other components of net benefit cost from cost of products sold and selling, general, and administrative expenses to other (income) expense - net in the Company’s consolidated statements of earnings but will not impact financial results.
Effective January 1, 2018, the Company will be required to adopt the amended guidance of ASC Topic 718,
Compensation - Stock Compensation
(Topic 718), which provides clarity and reduces diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of the terms and conditions of a share-based payment. The amendments include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. Early adoption is permitted, including in any interim period for which financial statements have not yet been issued. The Company does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 3.
|
Pending Accounting Standards (Continued)
|
Effective January 1, 2019, the Company will be required to adopt the new guidance of ASC Topic 842,
Leases
(Topic 842), which will supersede ASC Topic 840,
Leases
. Topic 842 requires lessees to recognize assets and liabilities for all leases with lease terms of more than 12 months. The Company expects to adopt Topic 842 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The adoption of this new guidance will require expanded disclosures in the Company’s consolidated financial statements. The Company has established a cross-functional implementation team consisting of representatives from accounting, legal, procurement, and operations. The Company utilized surveys to centrally gather more information about its existing leases and lease processes and to gather lease contracts. To ensure completeness of the population of lease contracts, the results of the survey were cross-referenced against other available lease information (i.e., year-end disclosures and general ledger). The Company is also working with a vendor to implement a lease management system which will assist in delivering the required accounting changes and disclosures. The next phase of the implementation plan is the abstraction of the relevant lease contract data points which is expected to be completed in the first quarter of 2018. The impact of the new standard will be a material increase to right of use assets and lease liabilities on the Company’s consolidated balance sheet, primarily, as a result of operating leases currently not recognized on the balance sheet. The Company has not yet completed its assessment of the impact of the new guidance on its consolidated statement of earnings.
Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 326,
Financial Instruments - Credit Losses
, which is intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amended guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.
Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 350,
Goodwill and Other
, which simplifies the subsequent measurement of goodwill. The amended guidance removes the second step of the goodwill impairment test and requires the application of a one-step quantitative test where the amount of goodwill impairment is the excess of a reporting unit's carrying amount over its fair value, but not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The impact on the Company’s financial results resulting from the adoption of the amended guidance will depend on the outcome of the goodwill impairment test on the chosen adoption date.
During the
six
months ended
June 30, 2017
, the Company acquired Crosswind Industries, Inc., an
89%
ownership stake in Biopolis SL, and Chamtor SA. The aggregate cash purchase price of these acquisitions of
$180 million
, net of cash acquired of
$6 million
, was preliminarily allocated to working capital, property, plant, and equipment, goodwill, other intangible assets, other long term assets, long-term liabilities, and noncontrolling interest for
$18 million
,
$101 million
,
$21 million
,
$50 million
,
$6 million
,
$14 million
, and
$2 million
, respectively.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements
|
The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of
June 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2017
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Inventories carried at market
|
$
|
—
|
|
|
$
|
3,143
|
|
|
$
|
1,000
|
|
|
$
|
4,143
|
|
Unrealized derivative gains:
|
|
|
|
|
|
|
|
Commodity contracts
|
—
|
|
|
338
|
|
|
106
|
|
|
444
|
|
Foreign currency contracts
|
—
|
|
|
83
|
|
|
—
|
|
|
83
|
|
Interest rate contracts
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Cash equivalents
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Marketable securities
|
346
|
|
|
90
|
|
|
—
|
|
|
436
|
|
Segregated investments
|
1,492
|
|
|
—
|
|
|
—
|
|
|
1,492
|
|
Deferred receivables consideration
|
—
|
|
|
353
|
|
|
—
|
|
|
353
|
|
Total Assets
|
$
|
1,860
|
|
|
$
|
4,015
|
|
|
$
|
1,106
|
|
|
$
|
6,981
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Unrealized derivative losses:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
1
|
|
|
$
|
316
|
|
|
$
|
154
|
|
|
$
|
471
|
|
Foreign currency contracts
|
—
|
|
|
110
|
|
|
—
|
|
|
110
|
|
Inventory-related payables
|
—
|
|
|
329
|
|
|
32
|
|
|
361
|
|
Total Liabilities
|
$
|
1
|
|
|
$
|
755
|
|
|
$
|
186
|
|
|
$
|
942
|
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Inventories carried at market
|
$
|
—
|
|
|
$
|
3,102
|
|
|
$
|
1,322
|
|
|
$
|
4,424
|
|
Unrealized derivative gains:
|
|
|
|
|
|
|
|
Commodity contracts
|
—
|
|
|
371
|
|
|
140
|
|
|
511
|
|
Foreign exchange contracts
|
—
|
|
|
102
|
|
|
—
|
|
|
102
|
|
Interest rate contracts
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Cash equivalents
|
286
|
|
|
—
|
|
|
—
|
|
|
286
|
|
Marketable securities
|
408
|
|
|
69
|
|
|
—
|
|
|
477
|
|
Segregated investments
|
1,613
|
|
|
—
|
|
|
—
|
|
|
1,613
|
|
Deferred receivables consideration
|
—
|
|
|
540
|
|
|
—
|
|
|
540
|
|
Total Assets
|
$
|
2,307
|
|
|
$
|
4,195
|
|
|
$
|
1,462
|
|
|
$
|
7,964
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Unrealized derivative losses:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
—
|
|
|
$
|
419
|
|
|
$
|
142
|
|
|
$
|
561
|
|
Foreign exchange contracts
|
—
|
|
|
90
|
|
|
—
|
|
|
90
|
|
Inventory-related payables
|
—
|
|
|
491
|
|
|
30
|
|
|
521
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
172
|
|
|
$
|
1,172
|
|
Estimated fair values for inventories carried at market are based on exchange-quoted prices adjusted for differences in local markets, broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) markets. Market valuations for the Company’s inventories are adjusted for location and quality because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. When unobservable inputs have a significant impact on the measurement of fair value, the inventory is classified in Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
Derivative contracts include exchange-traded commodity futures and options contracts, forward commodity purchase and sale contracts, and OTC instruments related primarily to agricultural commodities, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the Company’s exchange-traded futures and options contracts are cash-settled on a daily basis and, therefore, are not included in these tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, or other (income) expense – net depending upon the purpose of the contract. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.
The Company’s cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.
The Company’s marketable securities are comprised of equity investments, U.S. Treasury securities, corporate debt securities, and other debt securities. Publicly traded equity investments and U.S. Treasury securities are valued using quoted market prices and are classified in Level 1. Corporate debt and other debt securities are valued using third-party pricing services and substantially all are classified in Level 2. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.
The Company’s segregated investments are comprised of U.S. Treasury securities. U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.
The Company has deferred consideration under its accounts receivable securitization programs (the “Programs”) which represents notes receivable from the purchasers under the Programs (see Note 16). This amount is reflected in other current assets on the consolidated balance sheet (see Note 8). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs, which have historically been insignificant.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Asset Measurements at
|
|
June 30, 2017
|
|
Inventories
Carried at
Market
|
|
Commodity
Derivative
Contracts
Gains
|
|
Total
Assets
|
|
(In millions)
|
|
|
|
|
|
|
Balance, March 31, 2017
|
$
|
1,129
|
|
|
$
|
173
|
|
|
$
|
1,302
|
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
|
157
|
|
|
71
|
|
|
228
|
|
Purchases
|
2,329
|
|
|
—
|
|
|
2,329
|
|
Sales
|
(2,677
|
)
|
|
—
|
|
|
(2,677
|
)
|
Settlements
|
—
|
|
|
(140
|
)
|
|
(140
|
)
|
Transfers into Level 3
|
115
|
|
|
19
|
|
|
134
|
|
Transfers out of Level 3
|
(53
|
)
|
|
(17
|
)
|
|
(70
|
)
|
Ending balance, June 30, 2017
|
$
|
1,000
|
|
|
$
|
106
|
|
|
$
|
1,106
|
|
* Includes increase in unrealized gains of
$148 million
relating to Level 3 assets still held at
June 30, 2017
.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Liability Measurements at
|
|
June 30, 2017
|
|
Inventory-
related
Payables
|
|
Commodity
Derivative
Contracts
Losses
|
|
Total
Liabilities
|
|
(In millions)
|
|
|
|
|
|
|
Balance, March 31, 2017
|
$
|
28
|
|
|
$
|
123
|
|
|
$
|
151
|
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
|
(9
|
)
|
|
81
|
|
|
72
|
|
Purchases
|
16
|
|
|
—
|
|
|
16
|
|
Sales
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
Settlements
|
—
|
|
|
(98
|
)
|
|
(98
|
)
|
Transfers into Level 3
|
—
|
|
|
49
|
|
|
49
|
|
Transfers out of Level 3
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Ending balance, June 30, 2017
|
$
|
32
|
|
|
$
|
154
|
|
|
$
|
186
|
|
* Includes decrease in unrealized losses of
$85 million
relating to Level 3 liabilities still held at
June 30, 2017
.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended
June 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Asset Measurements at
|
|
June 30, 2016
|
|
Inventories
Carried at
Market
|
|
Commodity
Derivative
Contracts
Gains
|
|
Total
Assets
|
|
(In millions)
|
|
|
|
|
|
|
Balance, March 31, 2016
|
$
|
969
|
|
|
$
|
218
|
|
|
$
|
1,187
|
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
|
(105
|
)
|
|
32
|
|
|
(73
|
)
|
Purchases
|
2,686
|
|
|
—
|
|
|
2,686
|
|
Sales
|
(2,506
|
)
|
|
—
|
|
|
(2,506
|
)
|
Settlements
|
—
|
|
|
(120
|
)
|
|
(120
|
)
|
Transfers into Level 3
|
79
|
|
|
34
|
|
|
113
|
|
Transfers out of Level 3
|
(24
|
)
|
|
(11
|
)
|
|
(35
|
)
|
Ending balance, June 30, 2016
|
$
|
1,099
|
|
|
$
|
153
|
|
|
$
|
1,252
|
|
* Includes decrease in unrealized gains of
$3 million
relating to Level 3 assets still held at
June 30, 2016
.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended
June 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Liability Measurements at
|
|
June 30, 2016
|
|
Inventory-
related
Payables
|
|
Commodity
Derivative
Contracts
Losses
|
|
Total
Liabilities
|
|
(In millions)
|
|
|
|
|
|
|
Balance, March 31, 2016
|
$
|
23
|
|
|
$
|
111
|
|
|
$
|
134
|
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
|
(11
|
)
|
|
417
|
|
|
406
|
|
Purchases
|
1
|
|
|
—
|
|
|
1
|
|
Sales
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Settlements
|
—
|
|
|
(73
|
)
|
|
(73
|
)
|
Transfers into Level 3
|
—
|
|
|
67
|
|
|
67
|
|
Transfers out of Level 3
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
Ending balance, June 30, 2016
|
$
|
12
|
|
|
$
|
500
|
|
|
$
|
512
|
|
* Includes increase in unrealized losses of
$419 million
relating to Level 3 liabilities still held at
June 30, 2016
.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
six months ended
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Asset Measurements at
|
|
June 30, 2017
|
|
Inventories
Carried at
Market
|
|
Commodity
Derivative
Contracts
Gains
|
|
Total
Assets
|
|
(In millions)
|
|
|
|
|
|
|
Balance, December 31, 2016
|
$
|
1,322
|
|
|
$
|
140
|
|
|
$
|
1,462
|
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
|
(90
|
)
|
|
140
|
|
|
50
|
|
Purchases
|
5,577
|
|
|
—
|
|
|
5,577
|
|
Sales
|
(5,871
|
)
|
|
—
|
|
|
(5,871
|
)
|
Settlements
|
—
|
|
|
(209
|
)
|
|
(209
|
)
|
Transfers into Level 3
|
115
|
|
|
66
|
|
|
181
|
|
Transfers out of Level 3
|
(53
|
)
|
|
(31
|
)
|
|
(84
|
)
|
Ending balance, June 30, 2017
|
$
|
1,000
|
|
|
$
|
106
|
|
|
$
|
1,106
|
|
* Includes decrease in unrealized gains of
$34 million
relating to Level 3 assets still held at
June 30, 2017
.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
six months ended
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Liability Measurements at
|
|
June 30, 2017
|
|
Inventory-
related
Payables
|
|
Commodity
Derivative
Contracts
Losses
|
|
Total
Liabilities
|
|
(In millions)
|
|
|
|
|
|
|
Balance, December 31, 2016
|
$
|
30
|
|
|
$
|
142
|
|
|
$
|
172
|
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
|
5
|
|
|
119
|
|
|
124
|
|
Purchases
|
17
|
|
|
—
|
|
|
17
|
|
Sales
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Settlements
|
—
|
|
|
(166
|
)
|
|
(166
|
)
|
Transfers into Level 3
|
—
|
|
|
73
|
|
|
73
|
|
Transfers out of Level 3
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
Ending balance, June 30, 2017
|
$
|
32
|
|
|
$
|
154
|
|
|
$
|
186
|
|
* Includes decrease in unrealized losses of
$124 million
relating to Level 3 liabilities still held at
June 30, 2017
.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
six months ended
June 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Asset Measurements at
|
|
June 30, 2016
|
|
Inventories
Carried at
Market
|
|
Commodity
Derivative
Contracts
Gains
|
|
Total
Assets
|
|
(In millions)
|
|
|
|
|
|
|
Balance, December 31, 2015
|
$
|
1,004
|
|
|
$
|
243
|
|
|
$
|
1,247
|
|
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*
|
(155
|
)
|
|
94
|
|
|
(61
|
)
|
Purchases
|
5,042
|
|
|
—
|
|
|
5,042
|
|
Sales
|
(4,743
|
)
|
|
—
|
|
|
(4,743
|
)
|
Settlements
|
—
|
|
|
(217
|
)
|
|
(217
|
)
|
Transfers into Level 3
|
79
|
|
|
66
|
|
|
145
|
|
Transfers out of Level 3
|
(128
|
)
|
|
(33
|
)
|
|
(161
|
)
|
Ending balance, June 30, 2016
|
$
|
1,099
|
|
|
$
|
153
|
|
|
$
|
1,252
|
|
*Includes increase in unrealized gains of
$14 million
relating to Level 3 assets still held at
June 30, 2016
.
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
six months ended
June 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Liability Measurements at
|
|
June 30, 2016
|
|
Inventory-
related
Payables
|
|
Commodity
Derivative
Contracts
Losses
|
|
Total
Liabilities
|
|
(In millions)
|
|
|
|
|
|
|
Balance, December 31, 2015
|
$
|
16
|
|
|
$
|
113
|
|
|
$
|
129
|
|
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*
|
2
|
|
|
496
|
|
|
498
|
|
Purchases
|
2
|
|
|
—
|
|
|
2
|
|
Sales
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Settlements
|
—
|
|
|
(146
|
)
|
|
(146
|
)
|
Transfers into Level 3
|
—
|
|
|
83
|
|
|
83
|
|
Transfers out of Level 3
|
—
|
|
|
(46
|
)
|
|
(46
|
)
|
Ending balance, June 30, 2016
|
$
|
12
|
|
|
$
|
500
|
|
|
$
|
512
|
|
*Includes increase in unrealized losses of
$498 million
relating to Level 3 assets still held at
June 30, 2016
.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 5.
|
Fair Value Measurements (Continued)
|
For all periods presented, the Company had no transfers between Level 1 and 2. Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.
In some cases, the price components that result in differences between exchange-traded prices and local prices for inventories and commodity purchase and sale contracts are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as Basis. The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components.
The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of
June 30, 2017
and
December 31, 2016
. The Company’s Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with Basis, the unobservable component as of
June 30, 2017
is a weighted average
12.6%
of the total price for assets and
53.9%
of the total price for liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average % of Total Price
|
|
June 30, 2017
|
|
December 31, 2016
|
Component Type
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Inventories and Related Payables
|
|
|
|
|
|
|
|
Basis
|
12.6
|
%
|
|
53.9
|
%
|
|
16.5
|
%
|
|
67.1
|
%
|
Transportation cost
|
16.1
|
%
|
|
17.8
|
%
|
|
8.3
|
%
|
|
—
|
|
|
|
|
|
|
|
|
|
Commodity Derivative Contracts
|
|
|
|
|
|
|
|
Basis
|
19.7
|
%
|
|
27.5
|
%
|
|
16.9
|
%
|
|
27.0
|
%
|
Transportation cost
|
6.8
|
%
|
|
9.6
|
%
|
|
11.6
|
%
|
|
13.4
|
%
|
In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 6.
|
Derivative Instruments and Hedging Activities
|
Derivatives Not Designated as Hedging Instruments
The majority of the Company’s derivative instruments have not been designated as hedging instruments. The Company uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Derivatives, including exchange-traded contracts and physical purchase or sale contracts, are stated at market value and inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Inventory is not a derivative and therefore fair values of and changes in fair values of inventories are not included in the tables below.
The following table sets forth the fair value of derivatives not designated as hedging instruments as of
June 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
$
|
83
|
|
|
$
|
110
|
|
|
$
|
102
|
|
|
$
|
90
|
|
Commodity Contracts
|
444
|
|
|
471
|
|
|
511
|
|
|
561
|
|
Total
|
$
|
527
|
|
|
$
|
581
|
|
|
$
|
613
|
|
|
$
|
651
|
|
The following table sets forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the
three and six
months ended
June 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
2017
|
|
2016
|
|
(In millions)
|
Foreign Currency Contracts
|
|
|
|
|
|
Revenues
|
$
|
3
|
|
|
$
|
(13
|
)
|
Cost of products sold
|
(30
|
)
|
|
155
|
|
Other income (expense) – net
|
133
|
|
|
(104
|
)
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
Cost of products sold
|
1
|
|
|
(625
|
)
|
Total gain (loss) recognized in earnings
|
$
|
107
|
|
|
$
|
(587
|
)
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 6.
|
Derivative Instruments and Hedging Activities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
(In millions)
|
Foreign Currency Contracts
|
|
|
|
|
|
Revenues
|
$
|
(8
|
)
|
|
$
|
(13
|
)
|
Cost of products sold
|
30
|
|
|
262
|
|
Other income (expense) – net
|
134
|
|
|
(105
|
)
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
Cost of products sold
|
$
|
260
|
|
|
$
|
(635
|
)
|
Total gain (loss) recognized in earnings
|
$
|
416
|
|
|
$
|
(491
|
)
|
Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately.
Derivatives Designated as Cash Flow or Fair Value Hedging Strategies
As of
June 30, 2017
and
December 31, 2016
, the Company has certain derivatives designated as cash flow and fair value hedges.
The Company uses interest rate swaps designated as fair value hedges to protect the fair value of fixed-rate debt due to changes in interest rates. The changes in the fair value of the interest rate swaps and the underlying fixed-rate debt are recorded in other (income) expense - net. The terms of the interest rate swaps match the terms of the underlying debt resulting in no ineffectiveness. At
June 30, 2017
, the Company has
$8 million
in other current assets representing the fair value of the interest rate swaps and a corresponding increase in the underlying debt for the same amount with no impact to earnings.
For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. Assuming normal market conditions, the changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable.
The Company uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants currently grind approximately
76 million
bushels of corn per month. During the past 12 months, the Company hedged between
19%
and
62%
of its monthly anticipated grind. At
June 30, 2017
, the Company has designated hedges representing between
1%
and
34%
of its anticipated monthly grind of corn for the next
12 months
.
The Company, from time to time, also uses futures, options, and swaps to fix the sales price of certain ethanol sales contracts. The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol. During the past 12 months, the Company hedged between
1 million
and
66 million
gallons of ethanol sales per month under these programs. At
June 30, 2017
, the Company has designated hedges representing between
0
and
1 million
gallons of ethanol sales per month over the next
12 months
.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 6.
|
Derivative Instruments and Hedging Activities (Continued)
|
The following table sets forth the fair value of derivatives designated as hedging instruments as of
June 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(In millions)
|
Interest Rate Contracts
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
Total
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
The following table sets forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the
three and six
months ended
June 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Consolidated Statement of
Earnings Locations
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
|
|
(In millions)
|
Effective amounts recognized in earnings
|
|
|
|
|
|
Foreign Currency Contracts
|
Other income/expense – net
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
Commodity Contracts
|
Revenues
|
|
1
|
|
|
(6
|
)
|
|
Cost of products sold
|
|
(6
|
)
|
|
(5
|
)
|
Ineffective amount recognized in earnings
|
|
|
|
|
|
Commodity Contracts
|
Revenues
|
|
—
|
|
|
(1
|
)
|
|
Cost of products sold
|
|
4
|
|
|
2
|
|
Total amount recognized in earnings
|
|
|
$
|
(1
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Consolidated Statement of
Earnings Locations
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
|
|
(In millions)
|
Effective amounts recognized in earnings
|
|
|
|
|
|
Foreign Currency Contracts
|
Other income/expense – net
|
|
$
|
(2
|
)
|
|
$
|
(22
|
)
|
Commodity Contracts
|
Revenues
|
|
—
|
|
|
(5
|
)
|
|
Cost of products sold
|
|
(5
|
)
|
|
(24
|
)
|
Ineffective amount recognized in earnings
|
|
|
|
|
|
Commodity Contracts
|
Revenues
|
|
4
|
|
|
1
|
|
|
Cost of products sold
|
|
9
|
|
|
4
|
|
Total amount recognized in earnings
|
|
|
$
|
6
|
|
|
$
|
(46
|
)
|
Hedge ineffectiveness for commodity contracts results when the change in the price of the underlying commodity in a specific cash market differs from the change in the price of the derivative financial instrument used to establish the hedging relationship. As an example, if the change in the price of a corn futures contract is strongly correlated to the change in cash price paid for corn, the gain or loss on the derivative instrument is deferred and recognized at the time the corn grind occurs. If the change in price of the derivative does not strongly correlate to the change in the cash price of corn, in the same example, some portion or all of the derivative gains or losses may be required to be recognized in earnings prior to when the corn grind occurs.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 6.
|
Derivative Instruments and Hedging Activities (Continued)
|
Net Investment Hedging Strategies
On June 24, 2015, the Company issued
€500 million
aggregate principal amount of Floating Rate Notes and
€600 million
aggregate principal amount of
1.75%
Notes (collectively, the “Notes”). The Company has designated
€1.1 billion
of the Notes as a hedge of its net investment in a foreign subsidiary. As of
June 30, 2017
, the Company has
$20 million
of after-tax losses in AOCI related to gains and losses from the net investment hedge transaction. The amount is deferred in AOCI until the underlying investment is divested.
|
|
Note 7.
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
(In millions)
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
$
|
234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
234
|
|
Maturity 1 to 5 years
|
112
|
|
|
—
|
|
|
—
|
|
|
112
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Maturity 1 to 5 years
|
87
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
$
|
436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
(In millions)
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
287
|
|
Maturity 1 to 5 years
|
121
|
|
|
—
|
|
|
(1
|
)
|
|
120
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Maturity 1 to 5 years
|
66
|
|
|
—
|
|
|
—
|
|
|
66
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Maturity less than 1 year
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
$
|
484
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
483
|
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 8. Other Current Assets
The following table sets forth the items in other current assets:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
|
|
|
|
Unrealized gains on derivative contracts
|
$
|
535
|
|
|
$
|
624
|
|
Deferred receivables consideration
|
353
|
|
|
540
|
|
Customer omnibus receivable
|
430
|
|
|
521
|
|
Financing receivables - net
(1)
|
351
|
|
|
373
|
|
Insurance premiums receivable
|
52
|
|
|
648
|
|
Prepaid expenses
|
285
|
|
|
268
|
|
Tax receivables
|
347
|
|
|
480
|
|
Non-trade receivables
(2)
|
370
|
|
|
478
|
|
Other current assets
|
175
|
|
|
451
|
|
|
$
|
2,898
|
|
|
$
|
4,383
|
|
(1)
The Company provides financing to certain suppliers, primarily Brazilian farmers, to finance a portion of the suppliers’ production costs. The amounts are reported net of allowances of
$7 million
at
June 30, 2017
and
December 31, 2016
. Interest earned on financing receivables of
$5 million
and
$12 million
for the
three and six
months ended
June 30, 2017
, respectively, and
$4 million
and
$12 million
for the
three and six
months ended
June 30, 2016
, respectively, is included in interest income in the consolidated statements of earnings.
(2)
Non-trade receivables include
$58 million
and
$223 million
of reinsurance recoverables as of
June 30, 2017
and
December 31, 2016
, respectively.
Note 9. Accrued Expenses and Other Payables
The following table sets forth the items in accrued expenses and other payables:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
|
|
|
|
Unrealized losses on derivative contracts
|
$
|
581
|
|
|
$
|
651
|
|
Reinsurance premiums payable
|
13
|
|
|
479
|
|
Insurance claims payables
|
245
|
|
|
373
|
|
Deferred income
|
366
|
|
|
1,065
|
|
Other accruals and payable
|
1,260
|
|
|
1,414
|
|
|
$
|
2,465
|
|
|
$
|
3,982
|
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 10.
|
Debt and Financing Arrangements
|
At
June 30, 2017
, the fair value of the Company’s long-term debt exceeded the carrying value by
$1.1 billion
, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).
At
June 30, 2017
, the Company had lines of credit, including the accounts receivable securitization programs, totaling
$6.7 billion
, of which
$5.1 billion
was unused. Of the Company’s total lines of credit,
$4.0 billion
support a commercial paper borrowing facility, against which there was
$0.2 billion
of commercial paper outstanding at
June 30, 2017
.
The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to
$1.5 billion
in funding resulting from the sale of accounts receivable. As of
June 30, 2017
, the Company utilized
$1.2 billion
of its facility under the Programs (see Note 16 for more information on the Programs).
The Company’s effective tax rate for the
three and six
months ended
June 30, 2017
was
28.2%
and
26.9%
, respectively, compared to
29.2%
and
27.3%
for the
three and six
months ended
June 30, 2016
, respectively. The change in the rates was primarily due to changes in the forecasted geographic mix of pre-tax earnings and the effect of certain discrete adjustments, partially offset by the expiration of U.S. tax credits, including the biodiesel credit, at the end of 2016.
The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. Resolution of the related tax positions, through negotiation with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential additional tax owed by the Company in accordance with the applicable accounting standard. However, the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.
The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), has received
three
separate tax assessments from the Brazilian Federal Revenue Service
(BFRS)
challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006, and 2007. As of
June 30, 2017
, these assessments, updated for estimated penalties, interest, and variation in currency exchange rates, totaled approximately
$464 million
. The statute of limitations for tax years 2005 and 2008 to 2011 has expired. The Company does not expect to receive any additional tax assessments.
ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS.
ADM do Brasil filed an administrative appeal for each of the assessments. The appeal panel found in favor of the BFRS on these assessments and ADM do Brasil filed a second level administrative appeal. The second administrative appeal panel continues to conduct customary procedural activities, including ongoing dialogue with the BFRS auditor. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, the Company intends to file appeals in the Brazilian federal courts. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties.
The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2011.
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 11. Income Taxes (Continued)
The Company’s subsidiaries in Argentina have received tax assessments challenging transfer prices used to price grain exports totaling
$130 million
(inclusive of interest and adjusted for variation in currency exchange rates) for the tax years 2004 through 2010. The Argentine tax authorities have been conducting a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. While the Company believes that it has complied with all Argentine tax laws, it cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2010, and estimates that these potential assessments would be approximately
$210 million
(as of
June 30, 2017
and subject to variation in currency exchange rates). The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2010.
In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for these assessments because it has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits and because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in financial impacts of up to the entire amount of these assessments.
The Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., has received a tax assessment totaling
$103 million
from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization which involved two of its subsidiary companies in the Netherlands. The Company has appealed the assessment and carefully evaluated the underlying transactions and has concluded that the amount of the gain recognized on the reorganization for tax purposes was appropriate. While the Company plans to vigorously defend its position against the assessment, it has accrued an amount it believes would be the likely outcome of the litigation. The Company’s defense of the judicial appeal may take an extended period of time, and could result in additional financial impacts of up to the entire amount of this assessment.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Accumulated Other Comprehensive Income (AOCI)
The following tables set forth the changes in AOCI by component for the
three and six
months ended
June 30, 2017
and the reclassifications out of AOCI for the
three and six
months ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
Foreign Currency Translation Adjustment
|
|
Deferred Gain (Loss) on Hedging Activities
|
|
Pension Liability Adjustment
|
|
Unrealized Gain (Loss) on Investments
|
|
Total
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
$
|
(2,078
|
)
|
|
$
|
6
|
|
|
$
|
(515
|
)
|
|
$
|
13
|
|
|
$
|
(2,574
|
)
|
Other comprehensive income (loss) before reclassifications
|
361
|
|
|
30
|
|
|
(6
|
)
|
|
1
|
|
|
386
|
|
Amounts reclassified from AOCI
|
—
|
|
|
5
|
|
|
13
|
|
|
—
|
|
|
18
|
|
Tax effect
|
33
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
29
|
|
Net current period other comprehensive income
|
394
|
|
|
33
|
|
|
5
|
|
|
1
|
|
|
433
|
|
Balance at June 30, 2017
|
$
|
(1,684
|
)
|
|
$
|
39
|
|
|
$
|
(510
|
)
|
|
$
|
14
|
|
|
$
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
Foreign Currency Translation Adjustment
|
|
Deferred Gain (Loss) on Hedging Activities
|
|
Pension Liability Adjustment
|
|
Unrealized Gain (Loss) on Investments
|
|
Total
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
(2,102
|
)
|
|
$
|
6
|
|
|
$
|
(521
|
)
|
|
$
|
19
|
|
|
$
|
(2,598
|
)
|
Other comprehensive income before reclassifications
|
382
|
|
|
31
|
|
|
(9
|
)
|
|
(5
|
)
|
|
399
|
|
Amounts reclassified from AOCI
|
—
|
|
|
7
|
|
|
28
|
|
|
—
|
|
|
35
|
|
Tax effect
|
36
|
|
|
(5
|
)
|
|
(8
|
)
|
|
—
|
|
|
23
|
|
Net current period other comprehensive income
|
418
|
|
|
33
|
|
|
11
|
|
|
(5
|
)
|
|
457
|
|
Balance at June 30, 2017
|
$
|
(1,684
|
)
|
|
$
|
39
|
|
|
$
|
(510
|
)
|
|
$
|
14
|
|
|
$
|
(2,141
|
)
|
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12. Accumulated Other Comprehensive Income (AOCI) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
Details about AOCI components
|
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30
2017
|
|
June 30
2016
|
|
Affected line item in the consolidated statement of earnings
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(73
|
)
|
|
$
|
—
|
|
|
$
|
(73
|
)
|
|
Other income/expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Tax
|
|
|
$
|
—
|
|
|
$
|
(73
|
)
|
|
$
|
—
|
|
|
$
|
(73
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss (gain) on hedging activities
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
24
|
|
|
Cost of products sold
|
|
|
—
|
|
|
8
|
|
|
2
|
|
|
22
|
|
|
Other income/expense
|
|
|
(1
|
)
|
|
6
|
|
|
—
|
|
|
5
|
|
|
Revenues
|
|
|
5
|
|
|
19
|
|
|
7
|
|
|
51
|
|
|
Total before tax
|
|
|
(2
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
(19
|
)
|
|
Tax
|
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
4
|
|
|
$
|
32
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
|
Selling, general, and administrative expenses
|
Actuarial losses
|
|
16
|
|
|
15
|
|
|
34
|
|
|
29
|
|
|
Selling, general, and administrative expenses
|
|
|
13
|
|
|
12
|
|
|
28
|
|
|
22
|
|
|
Total before tax
|
|
|
(4
|
)
|
|
(2
|
)
|
|
(10
|
)
|
|
(3
|
)
|
|
Tax
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
18
|
|
|
$
|
19
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 13.
|
Other (Income) Expense - Net
|
The following table sets forth the items in other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In millions)
|
(Gains) losses on sales of assets and businesses
|
$
|
(35
|
)
|
|
$
|
(121
|
)
|
|
$
|
(51
|
)
|
|
$
|
(124
|
)
|
Other – net
|
33
|
|
|
(13
|
)
|
|
42
|
|
|
(10
|
)
|
Other (Income) Expense - Net
|
$
|
(2
|
)
|
|
$
|
(134
|
)
|
|
$
|
(9
|
)
|
|
$
|
(134
|
)
|
Gains on sales of assets and businesses for the
three and six
months ended
June 30, 2017
include gains related to the sale of the crop risk services business and disposals of other individually insignificant assets in the ordinary course of business, partially offset by an adjustment of the proceeds of the 2015 sale of the cocoa business. Gains on sales of assets and businesses for the
three and six
months ended
June 30, 2016
included realized additional consideration related to the sale of the Company’s equity investment in Gruma S.A.B. de C.V. in December 2012, recovery of loss provisions and gain related to the sale of the Company’s Brazilian sugar ethanol facilities, and gain related to the revaluation of the remaining interest to settlement value in conjunction with the acquisition of the remaining interest in Amazon Flavors.
Other - net for the
three and six
months ended
June 30, 2017
includes foreign exchange losses and changes in contingent settlement provisions. Other - net for the
three and six
months ended
June 30, 2016
included foreign exchange gains and other income.
Note 14. Segment Information
The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are organized, managed, and classified into
four
reportable business segments: Agricultural Services, Corn Processing, Oilseeds Processing, and Wild Flavors and Specialty Ingredients. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard
,
and are classified as Other.
The Agricultural Services segment utilizes its extensive global grain elevator and transportation networks, and port operations to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry. The Agricultural Services segment includes international agricultural commodities merchandising and handling activities managed through a global trade desk based in Rolle, Switzerland. Agricultural Services’ grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. Agricultural Services’ transportation network capabilities include barge, ocean-going vessel, truck, rail, and container freight services. The Agricultural Services segment also includes the activities related to structured trade finance, the processing of wheat into wheat flour, and the Company’s share of the results of its Pacificor (formerly Kalama Export Company LLC) joint venture. The Agricultural Services segment also included returns associated with the Company’s
19.8%
investment in GrainCorp until its sale in December 2016.
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 14.
|
Segment Information (Continued)
|
The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, utilizing its asset base primarily located in the central part of the United States with additional facilities in China, Bulgaria, France, Morocco, Spain, and Turkey. The Corn Processing segment converts corn into sweeteners, starches, and bioproducts. Its products include ingredients used in the food and beverage industry including sweeteners, starch, syrup, glucose, and dextrose. Dextrose and starch are used by the Corn Processing segment as feedstocks for its bioproducts operations. By fermentation of dextrose, the Corn Processing segment produces alcohol, amino acids, and other food and animal feed ingredients. Ethyl alcohol is produced by the Company for industrial use as ethanol or as beverage grade. Ethanol, in gasoline, increases octane and is used as an extender and oxygenate. Bioproducts also include essential amino acids such as lysine and threonine used in swine and poultry diets to optimize performance. Corn gluten feed and meal, as well as distillers’ grains, are produced for use as animal feed ingredients. Corn germ, a by-product of the wet milling process, is further processed into vegetable oil and protein meal. The Corn Processing segment also includes activities related to the processing and distribution of formula feeds and animal health and nutrition products. Other Corn Processing products include citric acids and glycols, all of which are used in various food and industrial products. The Corn Processing segment also included the activities of the Company’s Brazilian sugarcane ethanol plant and related operations until the Company completed the sale of these operations in May 2016. This segment also includes the Company’s share of the results of its equity investments in Almidones Mexicanos S.A. and Red Star Yeast Company LLC. In February 2017, the Company acquired Crosswind Industries, Inc., an industry leader in the manufacture of contract and private label pet treats and foods, as well as specialty ingredients, and an
89%
ownership stake in Biopolis SL, a leading provider of microbial technology with a strong portfolio of novel food ingredients. In June 2017, the Company completed the acquisition of Chamtor SA, a French producer of wheat-based sweeteners and starches.
The Oilseeds Processing segment includes global activities related to the origination, merchandising, crushing, and further processing of oilseeds such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals. Oilseeds products produced and marketed by the Company include ingredients for the food, feed, energy, and industrial products industries. Crude vegetable oils produced by the segment’s crushing activities are sold “as is” or are further processed by refining, blending, bleaching, and deodorizing into salad oils. Salad oils are sold “as is” or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oils are used to produce biodiesel or are sold to other manufacturers for use in chemicals, paints, and other industrial products. Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds. In Europe and South America, the Oilseeds Processing segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets. These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds. The Oilseeds Processing segment is a major supplier of peanuts, tree nuts, and peanut-derived ingredients to both the U.S. and export markets. In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and other industrial markets. The Oilseeds Processing segment also includes the Company’s share of the results of its equity investment in Wilmar International Limited (Wilmar) and its share of the results of its Stratas Foods LLC, Edible Oils Limited, and Olenex joint ventures. During the six months ended June 30, 2017, the Company acquired additional shares in Wilmar, increasing its ownership interest from
23.2%
to
24.3%
as of June 30, 2017.
The Wild Flavors and Specialty Ingredients (WFSI) segment engages in the manufacturing, sales, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients. The WFSI segment also includes the activities related to the procurement, processing, and distribution of edible beans.
Other includes the Company’s remaining operations, primarily its financial business units, related to futures commission and insurance activities. On May 1, 2017, the Company completed the sale of its crop risk services business to Validus Holdings, a global group of insurance and reinsurance companies.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses and specified items. Also included in operating profit for each segment is equity in earnings of affiliates based on the equity method of accounting. Specified items included in total segment operating profit and certain corporate items are not allocated to the Company’s individual business segments because operating performance of each business segment is evaluated exclusive of these items. Corporate results principally include the impact of LIFO-related adjustments, unallocated corporate expenses, interest cost net of investment income, and the Company’s share of the results of its equity investment in Compagnie Industrialle et Financiere des Produits Amylaces SA (Luxembourg) (CIP).
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 14.
|
Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Gross revenues
|
|
|
|
|
|
|
|
Agricultural Services
|
$
|
6,594
|
|
|
$
|
7,098
|
|
|
$
|
14,329
|
|
|
$
|
14,533
|
|
Corn Processing
|
2,455
|
|
|
2,549
|
|
|
4,801
|
|
|
4,940
|
|
Oilseeds Processing
|
7,161
|
|
|
7,195
|
|
|
13,312
|
|
|
12,920
|
|
Wild Flavors and Specialty Ingredients
|
656
|
|
|
684
|
|
|
1,223
|
|
|
1,279
|
|
Other
|
101
|
|
|
111
|
|
|
195
|
|
|
219
|
|
Intersegment elimination
|
(2,024
|
)
|
|
(2,008
|
)
|
|
(3,929
|
)
|
|
(3,878
|
)
|
Total gross revenues
|
$
|
14,943
|
|
|
$
|
15,629
|
|
|
$
|
29,931
|
|
|
$
|
30,013
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Services
|
$
|
746
|
|
|
$
|
711
|
|
|
$
|
1,675
|
|
|
$
|
1,666
|
|
Corn Processing
|
181
|
|
|
197
|
|
|
283
|
|
|
381
|
|
Oilseeds Processing
|
1,089
|
|
|
1,096
|
|
|
1,958
|
|
|
1,824
|
|
Wild Flavors and Specialty Ingredients
|
8
|
|
|
4
|
|
|
13
|
|
|
7
|
|
Total intersegment sales
|
$
|
2,024
|
|
|
$
|
2,008
|
|
|
$
|
3,929
|
|
|
$
|
3,878
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Services
|
|
|
|
|
|
|
|
Merchandising and Handling
|
$
|
5,099
|
|
|
$
|
5,506
|
|
|
$
|
11,169
|
|
|
$
|
11,185
|
|
Milling and Other
|
698
|
|
|
825
|
|
|
1,384
|
|
|
1,571
|
|
Transportation
|
51
|
|
|
56
|
|
|
101
|
|
|
111
|
|
Total Agricultural Services
|
5,848
|
|
|
6,387
|
|
|
12,654
|
|
|
12,867
|
|
Corn Processing
|
|
|
|
|
|
|
|
Sweeteners and Starches
|
1,077
|
|
|
1,037
|
|
|
2,105
|
|
|
2,004
|
|
Bioproducts
|
1,197
|
|
|
1,315
|
|
|
2,413
|
|
|
2,555
|
|
Total Corn Processing
|
2,274
|
|
|
2,352
|
|
|
4,518
|
|
|
4,559
|
|
Oilseeds Processing
|
|
|
|
|
|
|
|
Crushing and Origination
|
3,911
|
|
|
4,033
|
|
|
7,185
|
|
|
7,139
|
|
Refining, Packaging, Biodiesel, and Other
|
2,094
|
|
|
2,041
|
|
|
4,039
|
|
|
3,810
|
|
Asia
|
67
|
|
|
25
|
|
|
130
|
|
|
147
|
|
Total Oilseeds Processing
|
6,072
|
|
|
6,099
|
|
|
11,354
|
|
|
11,096
|
|
|
|
|
|
|
|
|
|
Wild Flavors and Specialty Ingredients
|
648
|
|
|
680
|
|
|
1,210
|
|
|
1,272
|
|
Total Wild Flavors and Specialty Ingredients
|
648
|
|
|
680
|
|
|
1,210
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
Other - Financial
|
101
|
|
|
111
|
|
|
195
|
|
|
219
|
|
Total Other
|
101
|
|
|
111
|
|
|
195
|
|
|
219
|
|
Total revenues from external customers
|
$
|
14,943
|
|
|
$
|
15,629
|
|
|
$
|
29,931
|
|
|
$
|
30,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
Note 14.
|
Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment operating profit
|
|
|
|
|
|
|
|
Agricultural Services
|
$
|
109
|
|
|
$
|
57
|
|
|
197
|
|
|
133
|
|
Corn Processing
|
224
|
|
|
163
|
|
|
395
|
|
|
292
|
|
Oilseeds Processing
|
206
|
|
|
235
|
|
|
520
|
|
|
496
|
|
Wild Flavors and Specialty Ingredients
|
92
|
|
|
94
|
|
|
167
|
|
|
164
|
|
Other
|
27
|
|
|
24
|
|
|
57
|
|
|
61
|
|
Specified Items:
|
|
|
|
|
|
|
|
Gains (losses) on sales of assets and businesses
1
|
8
|
|
|
118
|
|
|
8
|
|
|
118
|
|
Impairment, restructuring, settlement charges
2
|
(26
|
)
|
|
(10
|
)
|
|
(35
|
)
|
|
(12
|
)
|
Hedge timing effects
3
|
2
|
|
|
(1
|
)
|
|
9
|
|
|
1
|
|
Total segment operating profit
|
642
|
|
|
680
|
|
|
1,318
|
|
|
1,253
|
|
Corporate
|
(259
|
)
|
|
(273
|
)
|
|
(477
|
)
|
|
(540
|
)
|
Earnings before income taxes
|
$
|
383
|
|
|
$
|
407
|
|
|
$
|
841
|
|
|
$
|
713
|
|
|
|
|
|
|
|
|
|
1
Current period gain 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. Prior period gain primarily related to recovery of loss provisions and gain related to the sale of the Company’s Brazilian sugar ethanol facilities, realized contingent consideration on the 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 the remaining interest in Amazon Flavors.
2
Current quarter and year to date charges related to impairment of certain long-lived assets, restructuring charges, and a settlement charge. Prior quarter and YTD charges primarily related to impairment of certain long-lived assets and restructuring charges.
3
Hedge timing effects relate to hedge ineffectiveness associated with documented hedge programs.
Note 15. Asset Impairment, Exit, and Restructuring Costs
Asset impairment, exit, and restructuring costs in the quarter ended
June 30, 2017
consisted of
$7 million
of asset impairments in the Agricultural Services segment,
$6 million
of asset impairments in the WFSI segment,
$4 million
of other individually insignificant asset impairments, and
$6 million
of restructuring charges. Asset impairment, exit, and restructuring costs in the
six months ended
June 30, 2017
consisted of
$8 million
of asset impairments and
$7 million
of restructuring charges in the Agricultural Services segment,
$6 million
of asset impairments in the WFSI segment,
$5 million
of other individually insignificant asset impairments, and
$7 million
of other restructuring charges.
Asset impairment, exit, and restructuring costs in the quarter ended
June 30, 2016
consisted of
$5 million
of asset impairments in the Corn Processing segment and
$7 million
of other individually insignificant asset impairments and restructuring charges. Asset impairment, exit, and restructuring costs in the
six months ended
June 30, 2016
consisted of
$11 million
of software impairment in Corporate,
$5 million
of asset impairments in the Corn Processing segment, and
$9 million
of other individually insignificant asset impairments and restructuring charges.
Note 16. Sale of Accounts Receivable
Since March 2012, the Company has had an accounts receivable securitization program (the “Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Purchasers”). Under the Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables in turn transfers such purchased accounts receivable in their entirety to the Purchasers pursuant to a receivables purchase agreement. In exchange for the transfer of the accounts receivable, ADM Receivables receives a cash payment of up to
$1.2 billion
, as amended, and an additional amount upon the collection of the accounts receivable (deferred consideration). The Program terminates on June 22, 2018, unless extended.
A
rcher-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 16. Sale of Accounts Receivable (Continued)
In March 2014, the Company entered into a second accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (“ADM Ireland Receivables”). ADM Ireland Receivables in turn transfers such purchased accounts receivable in their entirety to the Second Purchasers pursuant to a receivables purchase agreement. In exchange for the transfer of the accounts receivable, ADM Ireland Receivables receives a cash payment of up to
$0.3 billion
and an additional amount upon the collection of the accounts receivable (deferred consideration). The Second Program terminates on March 16, 2018, unless extended.
Under the Program and Second Program (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the Purchasers and Second Purchasers and other consideration to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables.
The Company accounts for these transfers as sales. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred consideration. At
June 30, 2017
and
December 31, 2016
, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.
As of
June 30, 2017
and
December 31, 2016
, the fair value of trade receivables transferred to the Purchasers and Second Purchasers under the Programs and derecognized from the Company’s consolidated balance sheet was
$1.6 billion
. In exchange for the transfer as of
June 30, 2017
and
December 31, 2016
, the Company received cash of
$1.2 billion
and
$1.0 billion
and recorded a receivable for deferred consideration included in other current assets of
$353 million
and
$540 million
, respectively. Cash collections from customers on receivables sold were
$16.5 billion
and
$16.1 billion
for the
six months ended June 30, 2017
and
2016
, respectively. Of this amount,
$16.5 billion
and
$16.0 billion
pertain to cash collections on the deferred consideration for the
six months ended June 30, 2017
and
2016
, respectively. Deferred consideration is paid to the Company in cash on behalf of the Purchasers as receivables are collected; however, as this is a revolving facility, cash collected from the Company’s customers is reinvested by the Purchasers daily in new receivable purchases under the Program.
The Company’s risk of loss following the transfer of accounts receivable under the Program is limited to the deferred consideration outstanding. The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received and is principally based on observable inputs (a Level 2 measurement under the applicable accounting standards) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs which have historically been insignificant.
Transfers of receivables under the Programs resulted in an expense for the loss on sale of
$2 million
and
$1 million
during the three months ended
June 30, 2017
and
2016
, respectively, and
$4 million
and
$2 million
for the
six months ended
June 30, 2017
and
2016
, respectively, classified as selling, general, and administrative expenses in the consolidated statements of earnings.
The Company reflects all cash flows related to the Programs as operating activities in its consolidated statement of cash flows for the
six months ended June 30, 2017
and
2016
because the cash received from the Purchasers and Second Purchasers upon both the sale and collection of the receivables is not subject to significantly different risks given the short-term nature of the Company’s trade receivables.
Archer-Daniels-Midland Company
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 17. Subsequent Events
On July 19, 2017, the Company announced that it has completed the acquisition of a
51%
controlling interest in Industries Centers, an Israeli company specializing in the import and distribution of agricultural feed products, which will now be known as ADM Israel, for
$10 million
.
In July 2017, the Company announced that it is reconfiguring its Peoria, Illinois ethanol complex to focus on the more profitable high grade industrial and beverage alcohol as well as export fuel. Also in July 2017, the Company announced that as part of Project Readiness, it is reducing certain positions within its global workforce following a detailed review of its structure, organizational levels, spans of controls, degree of centralization of activities, organization of various staff activities, and leadership. The Company expects to record restructuring and impairment charges of approximately
$80 million
to
$100 million
pre-tax related to these actions in the third quarter of 2017.
On July 31, 2017, the Company announced a change to its U.S. salaried employee defined benefit pension plan (the ADM Retirement Plan). Effective December 31, 2021, the accrued pension benefits of active traditional formula plan participants will be frozen. Effective January 1, 2022, the impacted participants will begin participating in the Company’s existing cash-balance pension plan formula for future benefit accruals. Due to the significance of this plan amendment, the Company will be undertaking a plan remeasurement in the third quarter of 2017.