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Item 1A. Risk Factors

2024-03-12 compared with 2023-02-14 · 39 added, 107 removed, 63 unchanged (70% of the section changed)

2 unchanged sentences

The Company conducts its business and has substantial assets located in many countries and geographic areas.

While 64 percent of the Company’s long-lived assets 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.

While 63% of the Company’s long-lived assets 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.

3 unchanged sentences

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.

food and feed ingredients) is less sensitive to demand reductions in any economic downcycle.

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.

23 unchanged sentences

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 monitors position limits, counterparty risks, and liquidity levels, 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 has an established commodity merchandising governance process that ensures proper position reporting and monitoring, limit 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.

Environmental, Social, and Governance Risks

The Company may be impacted by carbon emission regulations in multiple regions throughout the globe.

The production of the Company’s products uses materials that can create emissions of certain regulated substances, including GHG emissions.

Such regulated emissions also include indirect emissions that occur in the value chain as the result of activities from assets now owned or controlled by the Company.

A number of jurisdictions where the Company has operations have implemented or are in the process of implementing carbon pricing programs or regulations to reduce GHG emissions impacting climate change and rising sea levels including, but not limited to, the United States, Canada, Mexico, the European Union and its member states, and China.

In particular, the State of Illinois recently enacted legislation intended to eliminate carbon emissions by 2050.

The Company’s operations located in countries with effective and applicable carbon pricing and regulatory programs, currently meet their obligations in this regard with no significant impact on the earnings and competitive position of the Company.

It is difficult at this time to estimate the likelihood of passage, or predict the potential impact, of any additional legislation, regulations or agreements.

Potential consequences of new obligations could include increased energy, transportation, raw material, and administrative costs, and may require the Company to make additional investments in its facilities and equipment.

The Company has policies in place and has integrated climate specific risk into the enterprise programs and is identifying opportunities through mitigation efforts to expand responsible practices towards reducing its environmental footprint in a sustainable manner while ensuring compliance with laws and regulations.

Food or feed risks derived from quality issues or off label product usage, occupational health and safety issues, and ineffective diversification programs may expose the Company to certain regulatory or reputational risks.

The Company is subject to 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.

The Company is continuing to further diversity throughout the organization 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 the International Organization for Standardization or other recognized global standards.

The Company’s sustainable practices require oversight and robust monitoring requirements.

The Company has programs and policies in place (e.g., Corporate Sustainability Program;

Commitment to Protecting Forests, Biodiversity and Communities;

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 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.

RISK FACTORS (Continued)

Financial Risks

Limitations on access to external financing could adversely affect the Company’s operating results due to its capital-intensive nature.

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.

Strong 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 and diversifying sources of liquidity.

Geopolitical Risks

The Company faces risks related to international conflicts, acts of terrorism or war, or other geopolitical events, such as the conflict in Ukraine, and related sanctions and other economic disruptions.

ADM’s assets and operations could be subject to extensive property damage and business disruption from geopolitical conflicts, acts of terrorism (e.g.

purposeful adulteration of the Company’s products), and war.

The assets and operations located in the region affected by the conflict in Ukraine are at an increased risk to property damage, inventory loss, business disruption, and expropriation.

The conflict could continue to impact global margins due to increased commodity, energy, and input costs.

The Black Sea region is a major exporter of wheat and corn to the world, and the disruption of supply could cause volatility in prices and margins of these commodities and related products.

In addition to ADM’s operations, one of the Company’s joint ventures is also exposed to the same risks.

While the Company has a robust trade sanctions compliance program, there is a risk that ADM and its related parties could trade with a sanctioned partner due to the number of sanctions taken against Russia.

The Company may also face increased cyber risk given that Russia is known to have extensive capabilities to engage in cyber attacks.

Trade receivables may be at risk of higher defaults, and other third-party risks could affect ADM’s ability to obtain inputs if suppliers are unable to perform or face insolvency, as certain supplies may not be attainable due to sanctions and/or restrictions on cross-border payment transactions.

The Company could be materially impacted if, in the worst-case scenario, the conflict advances to other countries.

In such circumstances, trade policies and the Company’s critical global supply chain and logistical networks could be affected, impairing the Company’s ability to satisfy contractual obligations and impacting working capital requirements.

Insurance may not adequately cover these risks.

In addition, provisions for certain products that ADM produces, particularly those that support the food services channels, could be materially impacted.

The Company continues to monitor the conflict in Ukraine along with other political tensions and evaluate alternatives to mitigate the impacts of these risks.

RISK FACTORS (Continued)

Political instability and changes in trade policies could negatively impact the Company’s financial results.

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, 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.

The Company has historically 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.

Technological Risks

Information technology (IT) systems are subject to interruptions 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 it with various third party service providers on a worldwide basis as part of its ongoing business transformation program, which is improving the efficiency and effectiveness of certain financial and business transaction processes and the underlying systems environment.

This will mitigate the instability of aging legacy systems and manual processes.

The Company’s IT systems, processes, and sites may suffer cyber security breaches, which could expose the Company to operational and various regulatory risks.

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.

RISK FACTORS (Continued)

Regulatory Risks

4 unchanged sentences

The Company frequently faces challenges from U.S.

and foreign tax authorities regarding the amount of taxes due including questions regarding the timing, amount of deductions, the allocation of income among various tax jurisdictions, and further risks related to changing tax laws domestically and globally.

and foreign tax authorities regarding the amount of taxes due including questions regarding the timing, amount of deductions, the allocation of income among various tax jurisdictions.

Legislatures and taxing authorities in many jurisdictions in which ADM operates may enact changes to their tax rules.

For example, the Organization for Economic Cooperation and Development (the “OECD”), the European Union, and other countries (including countries in which the Company operates) have committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed.

In particular, the OECD’s Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024.

ADM will continually monitor potential and enacted tax changes, including the implementation of Pillar Two legislation, in the countries in which the Company operates.

The impact of these potential new rules, as well as any other changes in domestic and international tax rules and regulations, could have a material effect on ADM’s effective tax rate.

Any failure to comply with applicable laws and regulations or appropriately resolve these challenges could subject the Company to administrative, civil, and criminal remedies, including fines, penalties, disgorgement, injunctions, and recalls of its products, and damage to its reputation.

RISK FACTORS (Continued)

Regulations specifically affecting the agricultural sector and related industries;

18 unchanged sentences

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.

UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments.

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 160 warehouses and terminals primarily used as bulk storage facilities and has 64 innovation centers.

Processing plants and procurement facilities owned or leased by unconsolidated joint ventures are not included in the tables below.

Technological Risks

Information technology (IT) systems are subject to interruptions or failures which may affect the Company’s ability to conduct its business.

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.

Additionally, legacy technologies are used to support significant business functions.

The instability of aging legacy systems could diminish performance and elevate the risk of system failures, reduce compatibility with modern software, and impact growth initiatives.

The Company is implementing a new enterprise resource planning (ERP) system and integrating it with various third party service providers on a worldwide basis as part of its ongoing business transformation program, which will improve the efficiency and effectiveness of certain financial and business transaction processes and the underlying systems environment.

The new ERP system will mitigate the instability of aging legacy systems as the Company transitions to the new 1ADM platform.

RISK FACTORS (Continued)

The Company’s IT systems, processes, and sites may suffer cyber security breaches, which could expose the Company to operational and various regulatory risks.

The Company has put in place security measures to endeavor to prevent, detect, and mitigate cyber-based attacks, and has instituted control procedures for cybersecurity incident response plans for its critical systems.

In addition, the Company monitors this risk on an ongoing basis to detect and correct 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 recovery efforts 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.

Generative AI advancements are progressing at an unprecedented pace, which brings risks that could subject the Company to loss through various technical, legal, and opportunistic-related risks.

The pace of Generative AI and the complex and dynamic regulatory environment subjects the Company to a variety of risks including, but not limited to, data privacy and security vulnerabilities, unauthorized third-party usage of Company data associated with training models, malicious use and advanced deceitful communication methods, missed innovation opportunities, and potential competitive disadvantages.

Guidance for awareness and responsible Generative AI use to protect ADM data from a legal and ethical standpoint, along with technological development for opportunistic uses, monitoring, and oversight are important components of the Company’s risk mitigation approach.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors