Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of a capital-intensive agricultural commodity-based business. The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of ADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance ADM’s operations, capital expenditures, and advancement of its growth strategy is cash generated by operations and lines of credit, including a commercial paper borrowing facility and accounts receivable securitization programs. In addition, the Company believes it has access to funds from public and private equity and debt capital markets in both U.S. and international markets.
Cash provided by operating activities was $0.7 billion for the three months ended March 31, 2024 compared to a use of $1.6 billion for the same period last year. Working capital changes decreased cash by $0.2 billion for the three months ended March 31, 2024 compared to a decrease of $2.9 billion for the same period last year. Segregated investments increased $0.2 billion due to increased trading activity in the Company’s futures commission and brokerage business. Trade receivables decreased $0.1 billion due to lower revenues. Inventories decreased $0.3 billion due to lower inventory prices and volumes. Trade payables decreased $0.7 billion primarily due to lower payables related to grain purchases. Brokerage payables increased approximately $0.3 billion due to increased trading activity in the Company’s futures commission and brokerage business.
Cash used in investing activities was $1.2 billion for the three months ended March 31, 2024 compared to $0.3 billion for the same period last year. Capital expenditures for the three months ended March 31, 2024 of $0.3 billion was comparable to the same period last year. Net assets of businesses acquired in the three months ended March 31, 2024 were $0.9 billion compared to none in the same period last year.
Cash used in financing activities was $2 million for the three months ended March 31, 2024 compared to cash provided of $0.6 billion for the same period last year. Long-term debt payments were immaterial for the three months ended March 31, 2024 compared to $2 million for the same period last year. Net borrowings on short-term credit agreements for the three months ended March 31, 2024 were $1.6 billion compared to $1.3 billion for the same period last year. Share repurchases for the three months ended March 31, 2024 were $1.3 billion compared to $0.4 billion for the same period last year. Dividends were $0.3 billion for the three months ended March 31, 2024 compared to $0.2 billion for the same period last year.
At March 31, 2024, the Company had $0.8 billion of cash and cash equivalents and a current ratio, defined as current assets divided by current liabilities, of 1.5 to 1. Included in working capital was $6.7 billion of readily marketable commodity inventories. At March 31, 2024, the Company’s capital resources included shareholders’ equity of $23.2 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $12.8 billion, of which $8.8 billion was unused. The Company’s ratio of long-term debt to total capital (the sum of long-term debt of $8.2 billion and shareholders’ equity of $23.2 billion in 2024 and the sum of long-term debt of $8.3 billion and shareholders’ equity of $24.1 billion in 2023) was 26% and 25% at March 31, 2024 and December 31, 2023, respectively. The Company uses this ratio as a measure of the Company’s long-term indebtedness and an indicator of financial flexibility. The Company’s ratio of net debt (the sum of short-term debt of $1.7 billion, current maturities of long-term debt of $1 million, and long-term debt of $8.2 billion less the sum of cash and cash equivalents of $0.8 billion and short-term marketable securities of none in 2024 and the sum of short-term debt of $0.1 billion, current maturities of long-term debt of $1 million, and long-term debt of $8.3 billion less the sum of cash and cash equivalents of $1.4 billion and short-term marketable securities of none in 2023) to capital (the sum of net debt of $9.2 billion and shareholders’ equity of $23.2 billion in 2024 and the sum of net debt of $7.0 billion and shareholders' equity of $24.1 billion in 2023) was 28% and 22% at March 31, 2024 and December 31, 2023, respectively. Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was $0.9 billion of commercial paper outstanding at March 31, 2024.
As of March 31, 2024, the Company had $0.8 billion of cash and cash equivalents, $0.7 billion of which was cash held by foreign subsidiaries whose undistributed earnings are considered indefinitely reinvested. Based on the Company’s historical ability to generate sufficient cash flows from its U.S. operations and unused and available U.S. credit capacity of $5.2 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.
The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs provide the Company with up to $3.0 billion in funding against accounts receivable transferred into the Programs and expands the Company’s access to liquidity through efficient use of its balance sheet assets (see Note 15 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
more information and disclosures on the Programs). As of March 31, 2024, the Company had $0.7 billion unused capacity of its facility under the Programs.
As of March 31, 2024, the Company has total available liquidity of $9.6 billion comprised of cash and cash equivalents and unused lines of credit with a well-diversified group of primarily investment-grade institutions.
For the three months ended March 31, 2024, the Company spent approximately $0.3 billion in capital expenditures, $0.3 billion in dividends, and $1.3 billion in share repurchases. The Company has a stock repurchase program. On March 12, 2024, the Company entered into an ASR Agreement with Merrill Lynch International, an affiliate of BofA Securities, Inc., to repurchase $1.0 billion of ADM common stock as part of ADM’s existing share repurchase program to repurchase up to 200 million shares through December 31, 2024. On March 28, 2024, the Company received an interim delivery of 8,880,986 shares at an average share price of $60.596 or $538 million. Under the program, the Company had 38.5 million shares remaining as of March 31, 2024 that may be repurchased until December 31, 2024. On April 15, 2024, the Company received a final delivery of 7,325,733 shares as final settlement of the ASR transaction (see Notes 11 and 18 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information). As of the final settlement date, the Company had 31.2 million shares remaining that may be repurchased under the program until December 31, 2024.
In 2024, the Company expects total capital expenditures of approximately $1.3 billion and additional cash outlays of approximately $1.0 billion in dividends and up to $2.3 billion in share repurchases, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year.
Contractual Obligations and Commercial Commitments
The Company’s purchase obligations as of March 31, 2024 and December 31, 2023 were $12.2 billion and $14.0 billion, respectively. The decrease is primarily related to lower energy commitments and obligations to purchase agricultural commodity inventories at lower prices. As of March 31, 2024, the Company expects to make payments related to purchase obligations of $11.6 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended March 31, 2024.
Off Balance Sheet Arrangements
There were no material changes in the Company’s off balance sheet arrangements during the quarter ended March 31, 2024.
Critical Accounting Policies and Estimates
There were no material changes in the Company’s critical accounting policies and estimates during the quarter ended March 31, 2024. For a description of the Company’s critical accounting policies, estimates, and assumptions used in the preparation of the Company’s financial statements, see Part II, Item 7 and Note 1 of “Notes to Consolidated Financial Statements” included in Part II, Item 8, of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company’s market risk sensitive instruments and positions is the potential loss arising from adverse changes in: commodity market prices as they relate to the Company’s net commodity position, foreign currency exchange rates, and interest rates. Significant changes in market risk sensitive instruments and positions for the quarter ended March 31, 2024 are described below. There were no material changes during the period in the Company’s potential loss arising from changes in foreign currency exchange rates and interest rates.
For detailed information regarding the Company’s market risk sensitive instruments and positions, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2023.
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