UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-44

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ARCHER-DANIELS-MIDLAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-0129150
(State or other jurisdiction of incorporation or organization) (I. R. S. Employer Identification No.)
    
77 West Wacker Drive, Suite 4600  
Chicago,Illinois  60601
(Address of principal executive offices) (Zip Code)
(312) 634-8100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueADMNew York Stock ExchangeNYSE
1.000% Notes due 2025NYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes  ☒  No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒  No  ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒Accelerated Filer☐Emerging Growth Company☐
Non-accelerated Filer☐Smaller Reporting Company☐  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, no par value – 556,686,315556,389,049 shares
(October 30, 2019)29, 2020)


SAFE HARBOR STATEMENT

This Form 10-Q contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995 that is subject to risks and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking information.  Risks and uncertainties that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as may be updated in our subsequent Quarterly Reports on Form 10-Q. To the extent permitted under applicable law, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events.






PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Archer-Daniels-Midland Company

Consolidated Statements of Earnings
(Unaudited)
Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
September 30,		 Nine Months Ended
September 30,
2019 2018 2019 20182020 2019 2020 2019
(In millions, except per share amounts)(In millions, except per share amounts)
              
Revenues$16,726
 $15,800
 $48,327
 $48,394
$15,126
 $16,726
 $46,377
 $48,327
Cost of products sold15,648
 14,742
 45,349
 45,266
14,084
 15,648
 43,276
 45,349
Gross Profit1,078
 1,058
 2,978
 3,128
1,042
 1,078
 3,101
 2,978
              
Selling, general, and administrative expenses578
 534
 1,839
 1,607
636
 578
 1,938
 1,839
Asset impairment, exit, and restructuring costs53
 1
 200
 41
4
 53
 61
 200
Interest expense97
 87
 307
 267
100
 97
 270
 307
Equity in (earnings) losses of unconsolidated affiliates(88) (131) (279) (378)(160) (88) (403) (279)
Interest income(47) (40) (142) (115)(16) (47) (71) (142)
Other (income) expense – net(18) (25) (39) (42)278
 (18) 179
 (39)
Earnings Before Income Taxes503
 632
 1,092
 1,748
200
 503
 1,127
 1,092
              
Income taxes95
 96
 212
 250
Income tax (benefit) expense(26) 95
 38
 212
Net Earnings Including Noncontrolling Interests408
 536
 880
 1,498
226
 408
 1,089
 880
              
Less: Net earnings attributable to noncontrolling interests1
 —
 5
 3
1
 1
 4
 5
              
Net Earnings Attributable to Controlling Interests$407
 $536
 $875
 $1,495
$225
 $407
 $1,085
 $875
              
Average number of shares outstanding – basic562
 565
 564
 564
561
 562
 561
 564
              
Average number of shares outstanding – diluted563
 568
 565
 567
562
 563
 563
 565
              
Basic earnings per common share$0.72
 $0.95
 $1.55
 $2.65
$0.40
 $0.72
 $1.93
 $1.55
              
Diluted earnings per common share$0.72
 $0.94
 $1.55
 $2.64
$0.40
 $0.72
 $1.93
 $1.55
              
Dividends per common share$0.35
 $0.335
 $1.05
 $1.005
$0.36
 $0.35
 $1.08
 $1.05

See notes to consolidated financial statements.







Archer-Daniels-Midland Company

Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
September 30,		 Nine Months Ended
September 30,
2019 2018 2019 20182020 2019 2020 2019
(In millions)(In millions)
              
Net earnings including noncontrolling interests$408
 $536
 $880
 $1,498
$226
 $408
 $1,089
 $880
Other comprehensive income (loss):              
Foreign currency translation adjustment(251) (178) (236) (369)(154) (251) (429) (236)
Tax effect(35) (1) (38) (23)51
 (35) 37
 (38)
Net of tax amount(286) (179) (274) (392)(103) (286) (392) (274)
              
Pension and other postretirement benefit liabilities adjustment7
 8
 10
 23
(5) 7
 0
 10
Tax effect—
 (3) 15
 (7)3
 0
 (9) 15
Net of tax amount7
 5
 25
 16
(2) 7
 (9) 25
              
Deferred gain (loss) on hedging activities(2) 77
 (65) (12)112
 (2) 111
 (65)
Tax effect8
 (17) 13
 4
(22) 8
 (23) 13
Net of tax amount6
 60
 (52) (8)90
 6
 88
 (52)
              
Unrealized gain (loss) on investments7
 (7) 12
 (11)(28) 7
 (25) 12
Tax effect—
 —
 (1) —
0
 0
 (1) (1)
Net of tax amount7
 (7) 11
 (11)(28) 7
 (26) 11
Other comprehensive income (loss)(266) (121) (290) (395)(43) (266) (339) (290)
Comprehensive income (loss) including noncontrolling interests142
 415
 590
 1,103
183
 142
 750
 590
              
Less: Comprehensive income (loss) attributable to noncontrolling interests—
 —
 4
 3
2
 0
 9
 4
              
Comprehensive income (loss) attributable to controlling interests$142
 $415
 $586
 $1,100
$181
 $142
 $741
 $586

See notes to consolidated financial statements.








Archer-Daniels-Midland Company

Consolidated Balance Sheets
(In millions)September 30, 2019 December 31, 2018September 30, 2020 December 31, 2019
(Unaudited)  (Unaudited)  
Assets      
Current Assets      
Cash and cash equivalents$932
 $1,997
$948
 $852
Short-term marketable securities26
 6
Segregated cash and investments4,389
 4,506
5,484
 4,458
Trade receivables2,241
 2,233
2,616
 2,267
Inventories8,075
 8,813
8,762
 9,170
Other current assets3,515
 3,033
4,956
 4,600
Total Current Assets19,178
 20,588
22,766
 21,347
      
Investments and Other Assets 
  
 
  
Investments in and advances to affiliates5,399
 5,317
4,771
 5,132
Long-term marketable securities10
 7
Goodwill and other intangible assets5,401
 4,041
5,275
 5,476
Other assets1,715
 927
2,167
 1,936
Total Investments and Other Assets12,525
 10,292
12,213
 12,544
      
Property, Plant, and Equipment 
  
 
  
Land and land improvements597
 545
538
 592
Buildings5,309
 5,171
5,429
 5,381
Machinery and equipment18,868
 18,399
18,992
 19,005
Construction in progress960
 987
1,037
 1,021
25,734
 25,102
25,996
 25,999
Accumulated depreciation(15,633) (15,149)(16,180) (15,893)
Net Property, Plant, and Equipment10,101
 9,953
9,816
 10,106
Total Assets$41,804
 $40,833
$44,795
 $43,997
      
Liabilities, Temporary Equity, and Shareholders’ Equity 
  
 
  
Current Liabilities 
  
 
  
Short-term debt$1,242
 $108
$209
 $1,202
Trade payables2,973
 3,545
3,347
 3,746
Payables to brokerage customers4,863
 4,628
6,069
 5,022
Accrued expenses and other payables2,927
 2,913
4,280
 3,757
Current maturities of long-term debt15
 582
2
 7
Total Current Liabilities12,020
 11,776
13,907
 13,734
      
Long-Term Liabilities 
  
 
  
Long-term debt7,631
 7,698
7,922
 7,672
Deferred income taxes1,302
 1,067
1,344
 1,194
Other1,903
 1,247
2,196
 2,114
Total Long-Term Liabilities10,836
 10,012
11,462
 10,980
      
Temporary Equity - Redeemable noncontrolling interest53
 49
85
 58
      
Shareholders’ Equity 
  
 
  
Common stock2,617
 2,560
2,760
 2,655
Reinvested earnings18,651
 18,527
19,311
 18,958
Accumulated other comprehensive income (loss)(2,395) (2,106)(2,749) (2,405)
Noncontrolling interests22
 15
19
 17
Total Shareholders’ Equity18,895
 18,996
19,341
 19,225
Total Liabilities, Temporary Equity, and Shareholders’ Equity$41,804
 $40,833
$44,795
 $43,997
      
See notes to consolidated financial statements.




Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows
(Unaudited)
(In millions)Nine Months Ended
September 30,		Nine Months Ended
September 30,
2019 20182020 2019
Operating Activities      
Net earnings including noncontrolling interests$880
 $1,498
$1,089
 $880
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities 
  
 
  
Depreciation and amortization742
 706
727
 742
Asset impairment charges50
 33
50
 50
Deferred income taxes8
 (124)57
 8
Equity in earnings of affiliates, net of dividends(92) (147)(165) (92)
Stock compensation expense66
 88
114
 66
Loss on debt extinguishment410
 0
Deferred cash flow hedges(65) (11)111
 (65)
Gains on sales of assets and businesses(37) (45)(132) (37)
Other – net148
 (92)34
 148
Changes in operating assets and liabilities 
  
 
  
Segregated investments300
 1,144
147
 300
Trade receivables276
 (62)(343) 276
Inventories994
 578
370
 994
Deferred consideration in securitized receivables(5,714) (5,413)(4,603) (5,714)
Other current assets(444) (720)(467) (444)
Trade payables(808) (776)(389) (808)
Payables to brokerage customers263
 (433)1,060
 263
Accrued expenses and other payables(206) 96
414
 (206)
Total Operating Activities(3,639) (3,680)(1,516) (3,639)
      
Investing Activities 
  
 
  
Purchases of property, plant, and equipment(566) (555)(558) (566)
Proceeds from sales of business and assets43
 177
Proceeds from sales of assets and businesses708
 43
Net assets of businesses acquired(1,946) (324)(3) (1,946)
Purchases of marketable securities(26) —
(2) (26)
Proceeds from sales of marketable securities67
 —
1
 67
Investments in and advances to affiliates(12) (127)(5) (12)
Investments in retained interest in securitized receivables(3,813) (3,391)(2,121) (3,813)
Proceeds from retained interest in securitized receivables9,527
 8,804
6,724
 9,527
Other – net(23) (9)(16) (23)
Total Investing Activities3,251
 4,575
4,728
 3,251
      
Financing Activities 
  
 
  
Long-term debt borrowings3
 762
1,790
 3
Long-term debt payments(615) (13)(2,032) (615)
Net borrowings (payments) under lines of credit agreements960
 (317)(993) 960
Share repurchases(150) —
(117) (150)
Cash dividends(592) (568)(607) (592)
Other – net(36) 32
16
 (36)
Total Financing Activities(430) (104)(1,943) (430)
      
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents(818) 791
1,269
 (818)
Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period3,843
 1,858
2,990
 3,843
Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period$3,025
 $2,649
$4,259
 $3,025
      
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets      
      
Cash and cash equivalents$932
 $915
$948
 $932
Restricted cash and restricted cash equivalents included in segregated cash and investments2,093
 1,734
3,311
 2,093
Total cash, cash equivalents, restricted cash, and restricted cash equivalents$3,025
 $2,649
$4,259
 $3,025
      
Supplemental Disclosure of Noncash Investing Activity:      
Retained interest in securitized receivables$5,657
 $5,598
$4,656
 $5,657

See notes to consolidated financial statements.




Archer-Daniels-Midland-Company

Consolidated Statements of Shareholders’ Equity
(Unaudited)
Common Stock 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Shareholders’
Equity
Common Stock 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Shareholders’
Equity
(In millions, except per share amounts)Shares Amount Shares Amount 
Balance, June 30, 2020556
 $2,705
 $19,293
 $(2,705) $18
 $19,311
Comprehensive income 
  
  
  
  
  
Net earnings   
 225
  
 1
  
Other comprehensive income (loss) 
  
  
 (44) 1
  
Total comprehensive income 
  
  
  
  
 183
Dividends paid - $0.36 per share 
  
 (202)  
  
 (202)
Share repurchases0
   (5)     (5)
Stock compensation expense0
 39
  
  
  
 39
Other0
 16
 0
 0
 (1) 15
Balance, September 30, 2020556
 $2,760
 $19,311
 $(2,749) $19
 $19,341
           
Balance, December 31, 2019557
 $2,655
 $18,958
 $(2,405) $17
 $19,225
Impact of ASC 326 (see Note 2)    (8)     (8)
Balance, January 1, 2020557
 $2,655
 $18,950
 $(2,405) $17
 $19,217
Comprehensive income 
  
  
  
  
  
Net earnings   
 1,085
  
 4
  
Other comprehensive income (loss) 
  
  
 (344) 5
  
Total comprehensive income 
  
  
  
  
 750
Dividends paid - $1.08 per share 
  
 (607)  
  
 (607)
Share repurchases(3)   (117)     (117)
Stock compensation expense2
 114
  
  
  
 114
Other0
 (9) 0
 


 (7) (16)
Balance, September 30, 2020556
 $2,760
 $19,311
 $(2,749) $19
 $19,341
           
           
Balance, June 30, 2019558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
Comprehensive income 
  
  
  
  
  
 
  
  
  
  
  
Net earnings   
 407
  
 1
  
   
 407
  
 1
  
Other comprehensive income (loss) 
  
  
 (265) (1)  
 
  
  
 (265) (1)  
Total comprehensive income 
  
  
  
  
 142
 
  
  
  
  
 142
Dividends paid - $0.35 per share 
  
 (197)  
  
 (197) 
  
 (197)  
  
 (197)
Share repurchases(2)   (56)     (56)(2)   (56)     (56)
Stock compensation expense1
 21
  
  
  
 21
1
 21
    
  
 21
Other—
 8
 —
 —
 (2) 6
0
 8
 0
 0
 (2) 6
Balance, September 30, 2019557
 $2,617
 $18,651
 $(2,395) $22
 $18,895
557
 $2,617
 $18,651
 $(2,395) $22
 $18,895
                      
Balance, December 31, 2018559
 $2,560
 $18,527
 $(2,106) $15
 $18,996
559
 $2,560
 $18,527
 $(2,106) $15
 $18,996
Comprehensive income 
  
  
  
  
  
 
  
  
  
  
  
Net earnings   
 875
  
 5
  
   
 875
  
 5
  
Other comprehensive income (loss) 
  
  
 (289) (1)  
 
  
  
 (289) (1)  
Total comprehensive income 
  
  
  
  
 590
 
  
  
  
  
 590
Dividends paid - $1.05 per share 
  
 (592)  
  
 (592) 
  
 (592)  
  
 (592)
Share repurchases(4)   (150)     (150)(4)   (150)     (150)
Stock compensation expense2
 66
  
  
  
 66
2
 66
  
  
  
 66
Other


 (9) (9) 


 3
 (15)0
 (9) (9) 0
 3
 (15)
Balance, September 30, 2019557
 $2,617
 $18,651
 $(2,395) $22
 $18,895
557
 $2,617
 $18,651
 $(2,395) $22
 $18,895
                      
Balance, June 30, 2018559
 $2,489
 $18,132
 $(1,911) $2
 $18,712
Comprehensive income 
  
  
  
  
  
Net earnings   
 536
  
 —
  
Other comprehensive income (loss) 
  
  
 (121) —
  
Total comprehensive income 
  
  
  
  
 415
Dividends paid - $0.335 per share 
  
 (189)  
  
 (189)
Stock compensation expense—
 25
  
  
  
 25
Other1
 27
 (1) —
 11
 37
Balance, September 30, 2018560
 $2,541
 $18,478
 $(2,032) $13
 $19,000
           
Balance, December 31, 2017557
 $2,398
 $17,552
 $(1,637) $9
 $18,322
Comprehensive income 
  
  
  
  
  
Net earnings   
 1,495
  
 3
  
Other comprehensive income (loss) 
  
  
 (395) —
  
Total comprehensive income 
  
  
  
  
 1,103
Dividends paid - $1.005 per share 
  
 (568)  
  
 (568)
Stock compensation expense1
 88
  
  
  
 88
Other2
 55
 (1) —
 1
 55
Balance, September 30, 2018560
 $2,541
 $18,478
 $(2,032) $13
 $19,000
           
See notes to consolidated financial statements.




Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements
(Unaudited)
Note 1.Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by 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 nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 20192020.  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, 20182019.

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

In May 2019,Effective January 1, 2020, the Company announcedstarted reporting its newly created dry mill ethanol subsidiary, Vantage Corn Processors (VCP), as a sub-segment within the creation of a new business unit. The former Origination and Oilseeds businesses were merged into aCarbohydrate Solutions segment. VCP replaces the Bioproducts sub-segment which included the combined Ag Services and Oilseeds segment which enables the Company to better respond to market changes by integrating the supply and value chains and risk management, while delivering significant simplification and efficiency to the day-to-day business. As partresults of the Company’s efforts for a streamlined management structure,corn dry and wet mill ethanol operations. The wet mill ethanol operations that were previously reported in Bioproducts are now included in the combined segment is led byStarches and Sweeteners sub-segment. In addition to dry mill ethanol production, VCP sells/brokers ADM’s wet mill ethanol production as the former Presidentsole marketer of Oilseeds expanding his role to President of Ag Services and Oilseeds. Effective July 1, 2019,ethanol produced at the Company changed its segment reporting to reflectCompany’s facilities. The change does not have an impact on the creationtotal results of the combined Ag Services and OilseedsCarbohydrate Solutions segment.

Throughout this quarterly report on Form 10-Q, priorPrior period results haveinformation in Notes 4 and 14 has been reclassified to conform to the current period segment presentation.

Segregated Cash and Investments

The Company segregates certain cash, cash equivalents, and investment balances in accordance with regulatory requirements, commodity exchange requirements, and insurance arrangements. These balances represent deposits received from customers of the Company’s registered futures commission merchant and commodity brokerage services, cash margins and securities pledged to commodity exchange clearinghouses, and cash pledged as security under certain insurance arrangements. Segregated cash and investments also include restricted cash collateral for the various insurance programs of the Company’s captive insurance business. To the degree these segregated balances are comprised of cash and cash equivalents, they are considered restricted cash and cash equivalents on the statementconsolidated statements of cash flows.

Last-in, First-out (“LIFO”) InventoriesReceivables

Interim period LIFO calculations are basedThe Company records receivables at net realizable value in trade receivables, other current assets, and other assets.  These amounts include allowances for estimated uncollectible accounts totaling $105 million and $110 million at September 30, 2020 and December 31, 2019, respectively, to reflect any loss anticipated 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 dueaccounts receivable balances including any accrued interest receivables thereon. Long-term receivables recorded in other assets were not material 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.the Company’s overall receivables portfolio.



Archer-Daniels-Midland
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 1.Basis of Presentation (Continued)

Effective January 1, 2020, the Company adopted Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses (Topic 326), and developed a new methodology for estimating uncollectible accounts. Under this methodology, receivables are pooled according to type, region, credit risk rating, and age. Each pool is assigned an expected loss co-efficient to arrive at a general reserve based on historical write-offs adjusted, as needed, for regional, economic, and other forward-looking factors. The Company minimizes credit risk due to the large and diversified nature of its worldwide customer base. ADM manages its exposure to counter-party credit risk through credit analysis and approvals, credit limits, and monitoring procedures.

The Company recorded bad debt expense in selling, general, and administrative expenses of $7 million and $32 million in the three and nine months ended September 30, 2020, respectively, and $3 million and $10 million in the three and nine months ended September 30, 2019.

Inventory Valuation

Effective January 1, 2020, the Company changed the method of accounting for certain of its agricultural commodity inventories from the last-in, first-out (LIFO) method to market value in the Ag Services and Oilseeds segment. As of December 31, 2019, inventories accounted for using LIFO at the lower of cost or net realizable value represented approximately 10% of consolidated inventories. The Company believes market value is preferable because it: (i) conforms to the inventory valuation methodology used for the majority of ADM’s agricultural commodity inventories; (ii) enhances the matching of inventory costs with revenues and better reflects the current cost of inventory on the Company’s balance sheet; and (iii) provides better comparability with the Company’s peers.

The Company concluded that the accounting change does not have a material effect on prior periods’ financial statements and elected not to apply the change on a retrospective basis. As a result, the Company recorded a reduction in cost of products sold of $91 million ($69 million after tax, equal to $0.12 per diluted share) for the cumulative effect of the change in the three months ended March 31, 2020 with no impact to the statement of cash flows. The Company does not expect the change to have a material impact on its results for the year ending December 31, 2020.

If the Company had not made the accounting change, the effect of LIFO valuation on ADM’s operating results would have been an increase in cost of products sold of $50 million ($38 million after tax, equal to $0.07 per diluted share) in the three months ended September 30, 2020 and an increase in cost of goods sold of $7 million ($5 million after tax, equal to $0.01 per diluted share) in the nine months ended September 30, 2020, with no impact to the consolidated statement of cash flows.
Note 2.New Accounting Standards

Effective January 1, 2019,2020, the Company adopted the newamended guidance of Accounting Standards Codification (“ASC”) Topic 842, Leases (“Topic 842”),326, which superseded ASC Topic 840, Leases. Topic 842is 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 replaces the prior “incurred loss” approach with an “expected loss” model and requires lessees to recognizethe measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and liabilities for all leases.reasonable and supportable forecasts. The Company adopted Topic 842 usingwas required to adopt the optional transition methodamended guidance on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company evaluated its current methodology of estimating allowance for doubtful accounts and the risk profile of its receivable portfolio and developed a model that allows entities to foregoincludes the comparative reporting requirementsqualitative and forecasting aspects of the “expected loss” model under the modified retrospective transition method. In addition, the Company elected to apply the package of practical expedients that allows entities to forego reassessing at the transition date: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases; and (3) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the newamended guidance. The Company also electedfinalized its assessment of the impact of the amended guidance and recorded a $8 million cumulative effect adjustment to use the practical expedient that allows the combination of lease and non-leasecontract components in all of its underlying asset categories, as well as the optional transition practical expedient that permits entities to continue applying current accounting policy for land easements that existed as of or expired before January 1, 2019. The adoption of Topic 842 resulted in the recording of right-of-use assets and lease liabilities of $793 million and $795 million, respectively,retained earnings at January 1, 2019. The new guidance did not have a material impact on the Company’s consolidated statement of earnings and had no impact on the consolidated statement of cash flows.2020. For more information about the adoption of Topic 842,Company’s receivables, see Note 12.1.

Effective January 1, 2019,2020, the Company adopted the amended guidance of ASC Topic 220,820, Income Statement - Reporting Comprehensive Income Fair Value Measurement(“Topic 220”), which allowsmodifies the reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting fromdisclosure requirements on fair value measurements. The adoption of this amended guidance did not impact the Tax Cuts and Jobs Act (the “Act”), eliminating the stranded tax effects resulting from the Act and improving the usefulness of information reported toCompany’s financial statement users. In addition, theresults.

Archer-Daniels-Midland Company is required to disclose: (1) a description of its accounting policy for releasing income tax effects from AOCI; (2) whether it elects to reclassify the stranded income tax effects from the Act; and (3) information about other income tax effects related to the application of the Act that are reclassified from AOCI to retained earnings, if any. The Company’s accounting policy is to release income tax effects from AOCI when individual units of account are sold, terminated, or extinguished. However, the Company has elected to not release from AOCI the stranded income tax effects resulting from the Act.

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 3.Pending Accounting Standards

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 replaces today’s “incurred loss” approach with an “expected loss” model and 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. The Company will be required to adopt the amended guidance on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating its current methodology of estimating allowance for doubtful accounts and the risk profile of its receivable portfolio and is developing a model that includes the qualitative and forecasting aspects of the “expected loss” model under the amended guidance. The Company is in the process of finalizing its assessment of the impact of the amended guidance and does not expect the adoption of this amended guidance to have a significant impact on its financial results.

Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 820, Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. Early adoption is permitted. The adoption of this amended guidance will not impact the Company’s financial results.

Effective December 31, 2020, the Company will be required to adopt the amended guidance of ASC Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Early adoption is permitted. The adoption of this amended guidance will not impact the Company’s financial results.

Archer-Daniels-MidlandEffective January 1, 2021, the Company will be required to adopt the amended guidance of ASC Topic 740, Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify other areas of Topic 740. Early adoption is permitted. The Company has not yet completed its assessment of the impact of the amended guidance on the consolidated financial statements but does not expect the adoption of the amendments to have a significant impact on its financial results.

NotesThrough December 31, 2022, the Company has the option to Consolidated Financial Statements (Continued)
(Unaudited)
adopt the amended guidance of ASC Topic 848, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.  The Company plans to adopt the expedients and exceptions provided by the amended guidance before the December 31, 2022 expiry date but has not yet completed its assessment of the impact on the consolidated financial statements.

Note 4.Revenues

Revenue Recognition

The Company principally generates revenue from merchandising and transporting agricultural commodities and manufactured products used as ingredients in food, feed, energy, and industrial products. Revenue is measured based on the consideration specified in the contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product or service to a customer. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The Company applies the practical expedient in paragraph 10-50-14 of ASC 606, Revenue from Contracts with Customers (“Topic 606”)(Topic 606) and does not disclose information about remaining performance obligations that have original expected durations of one year or less. For transportation service contracts, the Company recognizes revenue over time as the barge, ocean-going vessel, truck, rail, or container freight moves towards its destination in accordance with the transfer of control guidance of Topic 606. The Company recognized revenue from transportation service contracts of $87 million and $310 million for the three and nine months ended September 30, 2020, respectively, and $134 million and $377 million for the three and nine months ended September 30, 2019, respectively. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“Topic 610-20”)610-20).
Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in cost of products sold. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Taxes Collected from Customers and Remitted to Governmental Authorities
The Company does not include taxes assessed by governmental authorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in the measurement of transactions prices or as a component of revenues and cost of products sold.
Contract Liabilities

Contract liabilities relate to advance payments from customers for goods and services that the Company has yet to provide. Contract liabilities of $319 million and $501 million as of September 30, 2019 and December 31, 2018, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Contract liabilities recognized as revenues were $193 million and $519 million for the three and nine months ended September 30, 2019, respectively and $107 million and $616 million for the three and nine months ended September 30, 2018, respectively.




















Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


Contract Liabilities

Contract liabilities relate to advance payments from customers for goods and services that the Company has yet to provide. Contract liabilities of $344 million and $604 million as of September 30, 2020 and December 31, 2019, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Contract liabilities recognized as revenues for the three and nine months ended September 30, 2020 were $121 million and $742 million, respectively, and $193 million and $519 million for the three and nine months ended September 30, 2019, respectively.

Disaggregation of Revenues

The following tables present revenue disaggregated by timing of recognition and major product lines for the three and nine months ended September 30, 20192020 and 2018.2019.

Three Months Ended September 30, 2019Three Months Ended September 30, 2020
Topic 606 Revenue
Topic 815(1)
TotalTopic 606 Revenue
Topic 815(1)
Total
Point in TimeOver TimeTotalRevenueRevenuesPoint in TimeOver TimeTotalRevenueRevenues
(In millions)(In millions)
Ag Services and Oilseeds  
Ag Services$1,369
$134
$1,503
$6,743
$8,246
$776
$87
$863
$6,489
$7,352
Crushing175
—
175
2,290
2,465
113
—
113
2,204
2,317
Refined Products and Other628
—
628
1,277
1,905
462
—
462
1,396
1,858
Total Ag Services and Oilseeds2,172
134
2,306
10,310
12,616
1,351
87
1,438
10,089
11,527
Carbohydrate Solutions  
Starches and Sweeteners1,296
—
1,296
428
1,724
1,162
—
1,162
412
1,574
Bioproducts841
—
841
—
841
Vantage Corn Processors490
—
490
—
490
Total Carbohydrate Solutions2,137
—
2,137
428
2,565
1,652
—
1,652
412
2,064
Nutrition  
Wild Flavors and Specialty Ingredients703
—
703
—
703
Human Nutrition719
—
719
—
719
Animal Nutrition754
—
754
—
754
732
—
732
—
732
Total Nutrition1,457
—
1,457
—
1,457
1,451
—
1,451
—
1,451
  
Other88
—
88
—
88
Other Business84
—
84
—
84
Total Revenues$5,854
$134
$5,988
$10,738
$16,726
$4,538
$87
$4,625
$10,501
$15,126

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


 Nine Months Ended September 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$2,509
$377
$2,886
$20,767
$23,653
Crushing546
—
546
6,584
7,130
Refined Products and Other1,665
—
1,665
3,934
5,599
Total Ag Services and Oilseeds4,720
377
5,097
31,285
36,382
Carbohydrate Solutions     
Starches and Sweeteners3,755
—
3,755
1,275
5,030
Bioproducts2,379
—
2,379
—
2,379
Total Carbohydrate Solutions6,134
—
6,134
1,275
7,409
Nutrition     
Wild Flavors and Specialty Ingredients2,105
—
2,105
—
2,105
Animal Nutrition2,158
—
2,158
—
2,158
Total Nutrition4,263
—
4,263
—
4,263
      
Other273
—
273
—
273
Total Revenues$15,390
$377
$15,767
$32,560
$48,327








 Nine Months Ended September 30, 2020
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$2,504
$310
$2,814
$20,116
$22,930
Crushing493
—
493
6,542
7,035
Refined Products and Other1,501
—
1,501
3,881
5,382
Total Ag Services and Oilseeds4,498
310
4,808
30,539
35,347
Carbohydrate Solutions     
Starches and Sweeteners3,539
—
3,539
1,230
4,769
Vantage Corn Processors1,625
—
1,625
—
1,625
Total Carbohydrate Solutions5,164
—
5,164
1,230
6,394
Nutrition     
Human Nutrition2,161
—
2,161
—
2,161
Animal Nutrition2,198
—
2,198
—
2,198
Total Nutrition4,359
—
4,359
—
4,359
      
Other Business277
—
277
—
277
Total Revenues$14,298
$310
$14,608
$31,769
$46,377










Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


 Three Months Ended September 30, 2018
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$396
$121
$517
$7,106
$7,623
Crushing330
—
330
2,358
2,688
Refined Products and Other593
—
593
1,356
1,949
Total Ag Services and Oilseeds1,319
121
1,440
10,820
12,260
Carbohydrate Solutions     
Starches and Sweeteners1,261
—
1,261
445
1,706
Bioproducts828
—
828
—
828
Total Carbohydrate Solutions2,089
—
2,089
445
2,534
Nutrition     
Wild Flavors and Specialty Ingredients641
—
641
—
641
Animal Nutrition281
—
281
—
281
Total Nutrition922
—
922
—
922
      
Other84
—
84
—
84
Total Revenues$4,414
$121
$4,535
$11,265
$15,800

 Three Months Ended September 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$1,369
$134
$1,503
$6,743
$8,246
Crushing175
—
175
2,290
2,465
Refined Products and Other628
—
628
1,277
1,905
Total Ag Services and Oilseeds2,172
134
2,306
10,310
12,616
Carbohydrate Solutions     
Starches and Sweeteners1,098
—
1,098
428
1,526
Vantage Corn Processors1,039
—
1,039
—
1,039
Total Carbohydrate Solutions2,137
—
2,137
428
2,565
Nutrition     
Human Nutrition703
—
703
—
703
Animal Nutrition754
—
754
—
754
Total Nutrition1,457
—
1,457
—
1,457
      
Other Business88
—
88
—
88
Total Revenues$5,854
$134
$5,988
$10,738
$16,726
Nine Months Ended September 30, 2018Nine Months Ended September 30, 2019
Topic 606 Revenue
Topic 815(1)
TotalTopic 606 Revenue
Topic 815(1)
Total
Point in TimeOver TimeTotalRevenueRevenuesPoint in TimeOver TimeTotalRevenueRevenues
(In millions)(In millions)
Ag Services and Oilseeds  
Ag Services$1,542
$361
$1,903
$21,866
$23,769
$2,509
$377
$2,886
$20,767
$23,653
Crushing647
—
647
7,191
7,838
546
—
546
6,584
7,130
Refined Products and Other1,787
—
1,787
4,037
5,824
1,665
—
1,665
3,934
5,599
Total Ag Services and Oilseeds3,976
361
4,337
33,094
37,431
4,720
377
5,097
31,285
36,382
Carbohydrate Solutions  
Starches and Sweeteners3,699
—
3,699
1,349
5,048
3,507
—
3,507
1,275
4,782
Bioproducts2,734
—
2,734
—
2,734
Vantage Corn Processors2,627
—
2,627
—
2,627
Total Carbohydrate Solutions6,433
—
6,433
1,349
7,782
6,134
—
6,134
1,275
7,409
Nutrition  
Wild Flavors and Specialty Ingredients1,970
—
1,970
—
1,970
Human Nutrition2,105
—
2,105
—
2,105
Animal Nutrition920
—
920
—
920
2,158
—
2,158
—
2,158
Total Nutrition2,890
—
2,890
—
2,890
4,263
—
4,263
—
4,263
  
Other291
—
291
—
291
Other Business273
—
273
—
273
Total Revenues$13,590
$361
$13,951
$34,443
$48,394
$15,390
$377
$15,767
$32,560
$48,327

(1) Topic 815 revenue relates to the physical delivery or the settlement of the Company’s sales contracts that are accounted for as derivatives and are outside the scope of Topic 606.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


Ag Services and Oilseeds

The Ag Services and Oilseeds segment generates revenue from the sale of commodities, from service fees for the transportation of goods, and from the sale of products manufactured in its global processing facilities. Revenue is measured based on the consideration specified in the contract and excludes any sales incentives and amounts collected on behalf of third parties. Revenue is recognized when a performance obligation is satisfied by transferring control over a product or providing service to a customer. For transportation service contracts, the Company recognizes revenue over time as the barge, ocean-going vessel, truck, rail, or container freight moves towards its destination in accordance with the transfer of control guidance of Topic 606. The amount of revenue recognized follows the contractually specified price which may include freight or other contractually specified cost components. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20.

Carbohydrate Solutions

The Carbohydrate Solutions segment generates revenue from the sale of products manufactured at the Company’s global corn and wheat milling facilities around the world. Revenue is recognized when control over products is transferred to the customer. Products are shipped to customers from the Company’s various facilities and from its network of storage terminals. The amount of revenue recognized is based on the consideration specified in the contract which could include freight and other costs depending on the specific shipping terms of each contract. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20.

Nutrition

The Nutrition segment sells specialty products including natural flavor ingredients, flavor systems, natural colors, animal nutrition products, and other specialty food and feed ingredients. Revenue is recognized when control over products is transferred to the customer. The amount of revenue recognized follows the contracted price or the mutually agreed price of the product. Freight and shipping are recognized as a component of revenue at the same time control transfers to the customer.

Other Business

Other Business includes the Company’s futures commission business whose primary sources of revenue are commissions and brokerage income generated from executing orders and clearing futures contracts and options on futures contracts on behalf of its customers. Commissions and brokerage revenue are recognized on the date the transaction is executed. Other Business also includes the Company’s captive insurance business which generates third party revenue through its proportionate share of premiums from third-party reinsurance pools. Reinsurance premiums are recognized on a straight-line basis over the period underlying the policy.

Note 5.Acquisitions

During the nine months ended September 30, 2019, the Company acquired Neovia SAS (“Neovia”), Florida Chemical Company (“FCC”), The Ziegler Group (“Ziegler”), and the remaining 50% interest in Gleadell Agriculture Ltd (“Gleadell”), for an aggregate consideration of $2.0 billion in cash. The aggregate consideration of these acquisitions, net of $95 million in cash acquired, plus the $15 million acquisition-date value of the Company’s previously held equity interest in Gleadell, were allocated as follows, subject to final measurement period adjustments:

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 5.Acquisitions (Continued)


In millionsNeoviaFCCZieglerGleadellTotal
Working capital$104
$40
$18
$(6)$156
Property, plant, and equipment384
17
3
13
417
Goodwill739
85
23
10
857
Other intangible assets679
29
35
—
743
Other long-term assets83
—
—
9
92
Long-term liabilities(297)(1)(10)(11)(319)
Aggregate cash consideration, net of cash acquired, plus acquisition-date fair value of previously held equity interest$1,692
$170
$69
$15
$1,946

Goodwill allocated in connection with the acquisitions is primarily attributable to synergies expected to arise after the Company’s acquisition of the businesses. Of the $857 million preliminarily allocated to goodwill, $90 million is expected to be deductible for tax purposes.

The Company recognized pre-tax gains of $4 million on the Gleadell transaction, representing the difference between the carrying value and acquisition-date fair value of the Company’s previously held equity interest. The acquisition-date fair value was determined based on a discounted cash flow analysis using market participant assumptions (a Level 3 measurement under applicable accounting standards).

The following table sets forth the preliminary fair values and the useful lives of the other intangible assets acquired.

 Useful LivesNeoviaFCCZieglerTotal
 (In years)(In millions)
Intangible assets with finite lives:       
Trademarks/brands5to15$216
$10
$4
$230
Customer lists10to20304
15
5
324
Other intellectual property6to11159
4
26
189
Total other intangible assets acquired   $679
$29
$35
$743


The Neovia, FCC, and Ziegler acquisitions are in line with the Company’s strategy to become one of the world’s leading nutrition companies. The post-acquisition financial results of these acquisitions are reported in the Nutrition segment.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.5.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 September 30, 20192020 and December 31, 20182019.
Fair Value Measurements at September 30, 2019Fair Value Measurements at September 30, 2020

Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 Total

Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 Total
(In millions)(In millions)
              
Assets:              
Inventories carried at market$—
 $2,613
 $1,430
 $4,043
$0
 $3,572
 $2,092
 $5,664
Unrealized derivative gains:              
Commodity contracts—
 263
 161
 424
0
 894
 580
 1,474
Foreign currency contracts—
 171
 —
 171
0
 292
 0
 292
Interest rate contracts—
 4
 —
 4
0
 32
 0
 32
Cash equivalents490
 —
 —
 490
496
 0
 0
 496
Marketable securities35
 1
 —
 36
9
 0
 0
 9
Segregated investments777
 —
 —
 777
1,158
 0
 0
 1,158
Deferred receivables consideration—
 330
 —
 330
0
 272
 0
 272
Total Assets$1,302
 $3,382
 $1,591
 $6,275
$1,663
 $5,062
 $2,672
 $9,397
              
Liabilities:              
Unrealized derivative losses:              
Commodity contracts$—
 $331
 $140
 $471
$0
 $592
 $796
 $1,388
Foreign currency contracts—
 128
 —
 128
0
 547
 0
 547
Interest rate contracts—
 43
 —
 43
0
 34
 0
 34
Debt conversion option0
 0
 32
 32
Inventory-related payables—
 577
 41
 618
0
 482
 7
 489
Total Liabilities$—
 $1,079
 $181
 $1,260
$0
 $1,655
 $835
 $2,490
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.5.Fair Value Measurements (Continued)

Fair Value Measurements at December 31, 2018Fair Value Measurements at December 31, 2019
 
Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 Total
 
Quoted Prices in
 Active Markets
 for Identical
 Assets
 (Level 1)
 
Significant
 Other
 Observable
 Inputs
 (Level 2)
 
Significant 
Unobservable
Inputs
(Level 3)
 Total
(In millions)(In millions)
              
Assets:              
Inventories carried at market$—
 $3,032
 $1,515
 $4,547
$0
 $3,227
 $1,477
 $4,704
Unrealized derivative gains:              
Commodity contracts—
 306
 155
 461
0
 277
 201
 478
Foreign currency contracts—
 175
 —
 175
0
 138
 0
 138
Interest rate contracts0
 3
 0
 3
Cash equivalents1,288
 —
 —
 1,288
505
 0
 0
 505
Marketable securities12
 1
 —
 13
5
 0
 0
 5
Segregated investments1,044
 —
 —
 1,044
628
 0
 0
 628
Deferred receivables consideration—
 379
 —
 379
0
 446
 0
 446
Total Assets$2,344
 $3,893
 $1,670
 $7,907
$1,138
 $4,091
 $1,678
 $6,907
              
Liabilities:              
Unrealized derivative losses:              
Commodity contracts$—
 $344
 $245
 $589
$0
 $375
 $199
 $574
Foreign currency contracts—
 152
 —
 152
0
 125
 0
 125
Interest rate contracts—
 20
 —
 20
0
 43
 0
 43
Inventory-related payables—
 579
 18
 597
0
 702
 27
 729
Total Liabilities$—
 $1,095
 $263
 $1,358
$0
 $1,245
 $226
 $1,471


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.and quality, referred to as basis. Market valuations for the Company’s inventories are adjusted for location and quality (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using the inputs from broker or dealer quotations or market transactions in either the listed or over the counter (OTC) markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When unobservable inputs have a significant impact 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 6.5.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 differencesMarket valuations for the Company’s forward commodity purchase and sale contracts are adjusted for location (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets.markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2.  When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold.  Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, or other (income) expense - net, depending upon the purpose of the contract. The changes in the fair value of derivatives designated as effective cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (“AOCI”)(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 U.S. Treasury securities and corporate debt securities.  U.S. Treasury securities are valued using quoted market prices and are classified in Level 1.  Corporate 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 debt 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 programsprogram (the “Programs”“First Program”) which represents notes receivable from the purchasers under the ProgramsFirst Program (see Note 1716 for more information). This amount is reflected in other current assets on the consolidated balance sheetsheets (see Note 87 for more information). The Company carries the deferred receivables 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 receivables consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the Programs,First Program, which have historically been insignificant.



Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.5.Fair Value Measurements (Continued)

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2020.

 Level 3 Fair Value Asset Measurements at
 September 30, 2020
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, June 30, 2020$1,399
 $442
 $1,841
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*258
 286
 544
Purchases3,181
 0
 3,181
Sales(2,703) 0
 (2,703)
Settlements0
 (96) (96)
Transfers into Level 3290
 13
 303
Transfers out of Level 3(333) (65) (398)
Ending balance, September 30, 2020$2,092
 $580
 $2,672

* Includes increase in unrealized gains of $392 million relating to Level 3 assets still held at September 30, 2020.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2020.

 Level 3 Fair Value Liability Measurements at
 September 30, 2020
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 Debt Conversion Option 
 
Total 
Liabilities
 (In millions)
        
Balance, June 30, 2020$14
 $363
 $0
 $377
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*(3) 618
 15
 630
Purchases and issuance of debt conversion option3
 0
 17
 20
Sales(7) 0
 —
 (7)
Settlements0
 (188) —
 (188)
Transfers into Level 30
 24
 —
 24
Transfers out of Level 30
 (21) —
 (21)
Ending balance, September 30, 2020$7
 $796
 $32
 $835

* Includes increase in unrealized losses of $635 million relating to Level 3 liabilities still held at September 30, 2020.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 5.Fair Value Measurements (Continued)

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2019.

Level 3 Fair Value Asset Measurements atLevel 3 Fair Value Asset Measurements at
September 30, 2019September 30, 2019
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
(In millions)(In millions)
          
Balance, June 30, 2019$1,388
 $159
 $1,547
$1,388
 $159
 $1,547
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*27
 91
 118
27
 91
 118
Purchases2,772
 —
 2,772
2,772
 0
 2,772
Sales(2,643) —
 (2,643)(2,643) 0
 (2,643)
Settlements—
 (106) (106)0
 (106) (106)
Transfers into Level 3213
 21
 234
213
 21
 234
Transfers out of Level 3(327) (4) (331)(327) (4) (331)
Ending balance, September 30, 2019$1,430
 $161
 $1,591
$1,430
 $161
 $1,591

* Includes increase in unrealized gains of $165$165 million relating to Level 3 assets still held at September 30, 2019.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2019.

Level 3 Fair Value Liability Measurements atLevel 3 Fair Value Liability Measurements at
September 30, 2019September 30, 2019
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
(In millions)(In millions)
          
Balance, June 30, 2019$22
 $216
 $238
$22
 $216
 $238
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*(3) 82
 79
(3) 82
 79
Purchases26
 —
 26
26
 0
 26
Sales(4) —
 (4)(4) 0
 (4)
Settlements—
 (167) (167)0
 (167) (167)
Transfers into Level 3—
 13
 13
0
 13
 13
Transfers out of Level 3—
 (4) (4)0
 (4) (4)
Ending balance, September 30, 2019$41
 $140
 $181
$41
 $140
 $181

* Includes increase in unrealized losses of $81$81 million relating to Level 3 liabilities still held at September 30, 2019.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.5.Fair Value Measurements (Continued)

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the threenine months ended September 30, 20182020.
 Level 3 Fair Value Asset Measurements at
 September 30, 2020
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, December 31, 2019$1,477
 $201
 $1,678
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*626
 732
 1,358
Purchases9,600
 0
 9,600
Sales(9,838) 0
 (9,838)
Settlements0
 (331) (331)
Transfers into Level 3290
 57
 347
Transfers out of Level 3(63) (79) (142)
Ending balance, September 30, 2020$2,092
 $580
 $2,672
 Level 3 Fair Value Asset Measurements at
 September 30, 2018
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, June 30, 2018$1,378
 $208
 $1,586
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*183
 130
 313
Purchases3,518
 —
 3,518
Sales(3,282) —
 (3,282)
Settlements—
 (150) (150)
Transfers into Level 3235
 38
 273
Transfers out of Level 3(233) (9) (242)
Ending balance, September 30, 2018$1,799
 $217
 $2,016


* Includes increase in unrealized gains of $243 million$1.2 billion relating to Level 3 assets still held at September 30, 20182020.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the threenine months ended September 30, 20182020.
 Level 3 Fair Value Liability Measurements at
 September 30, 2020
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 Debt Conversion Option 
 
Total 
Liabilities
 (In millions)
        
Balance, December 31, 2019$27
 $199
 $0
 $226
Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense*1
 1,070
 15
 1,086
Purchases and issuance of debt conversion option11
 0
 17
 28
Sales(32) 0
   (32)
Settlements0
 (521)   (521)
Transfers into Level 30
 79
   79
Transfers out of Level 30
 (31)   (31)
Ending balance, September 30, 2020$7
 $796
 $32
 $835
 Level 3 Fair Value Liability Measurements at
 September 30, 2018
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 (In millions)
      
Balance, June 30, 2018$22
 $200
 $222
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*4
 114
 118
Purchases30
 —
 30
Sales(12) —
 (12)
Settlements—
 (130) (130)
Transfers into Level 3—
 30
 30
Transfers out of Level 3—
 (11) (11)
Ending balance, September 30, 2018$44
 $203
 $247


* Includes increase in unrealized losses of $118 million$1.1 billion relating to Level 3 liabilities still held at September 30, 20182020.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.5.Fair Value Measurements (Continued)

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2019.
Level 3 Fair Value Asset Measurements atLevel 3 Fair Value Asset Measurements at
September 30, 2019September 30, 2019
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
(In millions)(In millions)
          
Balance, December 31, 2018$1,515
 $155
 $1,670
$1,515
 $155
 $1,670
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*148
 319
 467
148
 319
 467
Purchases8,118
 —
 8,118
8,118
 0
 8,118
Sales(8,425) —
 (8,425)(8,425) 0
 (8,425)
Settlements—
 (346) (346)0
 (346) (346)
Transfers into Level 3213
 54
 267
213
 54
 267
Transfers out of Level 3(139) (21) (160)(139) (21) (160)
Ending balance, September 30, 2019$1,430
 $161
 $1,591
$1,430
 $161
 $1,591


* Includes increase in unrealized gains of $656 million relating to Level 3 assets still held at September 30, 2019.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2019.

Level 3 Fair Value Liability Measurements atLevel 3 Fair Value Liability Measurements at
September 30, 2019September 30, 2019
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
(In millions)(In millions)
          
Balance, December 31, 2018$18
 $245
 $263
$18
 $245
 $263
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*(2) 254
 252
(2) 254
 252
Purchases41
 —
 41
41
 0
 41
Sales(16) —
 (16)(16) 0
 (16)
Settlements—
 (354) (354)0
 (354) (354)
Transfers into Level 3—
 37
 37
0
 37
 37
Transfers out of Level 3—
 (42) (42)0
 (42) (42)
Ending balance, September 30, 2019$41
 $140
 $181
$41
 $140
 $181


* Includes increase in unrealized losses of $258 million relating to Level 3 liabilities still held at September 30, 2019.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.Fair Value Measurements (Continued)

The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2018.
 Level 3 Fair Value Asset Measurements at
 September 30, 2018
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, December 31, 2017$1,486
 $111
 $1,597
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*559
 302
 861
Purchases7,890
 —
 7,890
Sales(8,264) —
 (8,264)
Settlements—
 (294) (294)
Transfers into Level 3235
 123
 358
Transfers out of Level 3(107) (25) (132)
Ending balance, September 30, 2018$1,799
 $217
 $2,016


* Includes increase in unrealized gains of $523 million relating to Level 3 assets still held at September 30, 2018.

The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2018.
 Level 3 Fair Value Liability Measurements at
 September 30, 2018
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 (In millions)
      
Balance, December 31, 2017$39
 $103
 $142
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*12
 360
 372
Purchases54
 —
 54
Sales(61) —
 (61)
Settlements—
 (348) (348)
Transfers into Level 3—
 136
 136
Transfers out of Level 3—
 (48) (48)
Ending balance, September 30, 2018$44
 $203
 $247


* Includes increase in unrealized losses of $364 million relating to Level 3 liabilities still held at September 30, 2018.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.Fair Value Measurements (Continued)

For all periods presented, the Company had no transfers between Levels 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.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 5.Fair Value Measurements (Continued)

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 September 30, 20192020 and December 31, 20182019. 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 September 30, 20192020 is a weighted average 78.0%20.6% of the total price for assets and 28.1%56.4% of the total price for liabilities.

Weighted Average % of Total PriceWeighted Average % of Total Price
September 30, 2019 December 31, 2018September 30, 2020 December 31, 2019
Component TypeAssets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities
Inventories and Related Payables              
Basis78.0% 28.1% 18.5% 125.0%20.6% 56.4% 28.2% 14.7%
Transportation cost30.5% 31.4% 25.9% 39.4%15.8% 0% 24.7% 0%
              
Commodity Derivative Contracts              
Basis23.4% 31.2% 21.6% 19.1%12.6% 18.7% 16.0% 20.2%
Transportation cost61.7% 46.7% 29.5% 35.1%5.2% 4.3% 9.7% 3.1%


In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3.

Note 7.6.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 commodityproduct 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, and inventories of certain merchandisable agricultural commodities,product inventories, 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.






Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.6.Derivative Instruments and Hedging Activities (Continued)

The following table sets forth the fair value of derivatives not designated as hedging instruments as of September 30, 20192020 and December 31, 20182019.

September 30, 2019 December 31, 2018September 30, 2020 December 31, 2019
Assets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities
(In millions)(In millions)
              
Foreign Currency Contracts$132
 $128
 $175
 $152
$276
 $547
 $125
 $120
Commodity Contracts424
 471
 461
 589
1,474
 1,388
 478
 574
Debt Conversion Option0
 32
 0
 0
Total$556
 $599
 $636
 $741
$1,750
 $1,967
 $603
 $694

The following tables set forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and nine months ended September 30, 20192020 and 20182019.
    Other expense (income) - net      Other expense (income) - net    
  Cost of products sold    Cost of Interest  
(In millions)Revenues Other expense (income) - net Revenues products sold expense  
Three Months Ended September 30, 2020  
      
Consolidated Statement of Earnings$15,126
 $14,084
 $278
 $100
  
         
Pre-tax gains (losses) on:         
Foreign Currency Contracts$8
 $(77) $(85) $—
  
Commodity Contracts—
 (272) 0
 —
  
Debt Conversion Option—
 —
 —
 (15)  
Total gain (loss) recognized in earnings$8
 $(349) $(85) $(15) $(441)
         
Three Months Ended September 30, 2019  
             
Consolidated Statement of Earnings$16,726
 $15,648
 $(18)  $16,726
 $15,648
 $(18) $97
  
                
Pre-tax gains (losses) on:                
Foreign Currency Contracts$17
 $(81) $(6)  $17
 $(81) $(6) $—
  
Commodity Contracts—
 153
 —
  —
 153
 —
 —
  
Total gain (loss) recognized in earnings$17
 $72
 $(6) $83
$17
 $72
 $(6) $—
 $83
       
Three Months Ended September 30, 2018       
Consolidated Statement of Earnings$15,800
 $14,742
 $(25)  
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$(4) $12
 $(30)  
Commodity Contracts—
 84
 —
  
Total gain (loss) recognized in earnings$(4) $96
 $(30) $62
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.6.Derivative Instruments and Hedging Activities (Continued)

    Other expense (income) - net      Other expense (income) - net    
  Cost of products sold    Cost of Interest  
(In millions)Revenues Other expense (income) - net Revenues products sold expense  
Nine Months Ended September 30, 2020         
Consolidated Statement of Earnings$46,377
 $43,276
 $179
 270
  
         
Pre-tax gains (losses) on:         
Foreign Currency Contracts$54
 $(738) $(13) $—
  
Commodity Contracts—
 321
 55
 —
  
Debt Conversion Option—
 —
 —
 (15)  
Total gain (loss) recognized in earnings$54
 $(417) $42
 $(15) $(336)
         
Nine Months Ended September 30, 2019                
Consolidated Statement of Earnings$48,327
 $45,349
 $(39)  $48,327
 $45,349
 $(39) $307
  
                
Pre-tax gains (losses) on:                
Foreign Currency Contracts$15
 $(30) $(22)  $15
 $(30) $(22) $—
  
Commodity Contracts—
 142
 —
  —
 142
 —
 —
  
Total gain (loss) recognized in earnings$15
 $112
 $(22) $105
$15
 $112
 $(22) $—
 $105
       
Nine Months Ended September 30, 2018       
Consolidated Statement of Earnings$48,394
 $45,266
 $(42)  
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$21
 $(189) $(91)  
Commodity Contracts—
 163
 —
  
Total gain (loss) recognized in earnings$21
 $(26) $(91) $(96)

Changes in the market value of inventories of certain merchandisable agricultural commodities,product inventories, forward cash purchase and sales contracts, exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately as a component of cost of products sold.

Derivatives Designated as Cash Flow, Fair Value or Net Investment Hedging Strategies

As of September 30, 2019 and December 31, 2018, theThe Company had certain derivatives designated as cash flow and net investment hedges as of September 30, 2020 and cash flow, fair value, hedges.and net investment hedges as of December 31, 2019.

For derivative instruments that were designated and qualify as fair value hedges, changes in the fair value of the hedging instrument and changes in the fair value of the hedged item were recognized in the consolidated statement of earnings during the period.

The Company used interest rate swaps designated as fair value hedges to protect the fair value of $495 million in fixed-rate debt due to changes in interest rates. The terms of the interest rate swaps matched the terms of the underlying debt. At December 31, 2019, the Company had $3 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 net impact to earnings. In June 2020, the Company redeemed the debt and recorded a gain of $8 million from the termination of the swaps.

For derivative instruments that are designated and qualify as net investment hedges, foreign exchange gains and losses related to changes in foreign currency exchange rates are deferred in AOCI until the underlying investment is divested.

The Company uses cross-currency swaps and foreign exchange forwards designated as net investment hedges to protect the Company’s investment in a foreign subsidiary against changes in foreign currency exchange rates. The Company executed USD-fixed to Euro-fixed cross-currency swaps with an aggregate notional amount of $1.3 billion and $1.2 billion as of September 30, 2020 and December 31, 2019, respectively, and foreign exchange forwards with an aggregate notional amount of $1.8 billion as of September 30, 2020.

As of September 30, 2020 and December 31, 2019, the Company had after-tax losses of $80 million and after-tax gains of $6 million in AOCI, respectively, related to foreign exchange gains and losses from these net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 6.Derivative Instruments and Hedging Activities (Continued)

For derivative instruments that are designated and qualify as highly-effective cash flow hedges (i.e., hedging the exposure to variability in expected future cash flow that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (loss) (“AOCI”)(AOCI) and as an operating activity in the statement of cash flows and reclassified into earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings.  Hedge components excluded from the assessment of effectiveness and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.

The Company uses interest rate swaps designated as fair value hedges to protect the fair value of $496 million in 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. At September 30, 2019, the Company had $4 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 net impact to earnings.

The Company uses cross-currency swaps designated as net investment hedges to protect the Company’s investment in a foreign subsidiary against changes in foreign currency exchange rates. During the three months ended September 30, 2019, the Company executed USD-fixed to Euro-fixed cross-currency swaps maturing on various dates with an aggregate notional amount of $1.2 billion. As of September 30, 2019, the Company had after-tax gains of $30 million in AOCI related to foreign exchange gains and losses from the net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.Derivative Instruments and Hedging Activities (Continued)

The Company uses interest rate swaps designated as cash flow hedges to hedge the forecasted interest payments on certain letters of credit from banks. The terms of the interest rate swaps match the terms of the forecasted interest payments. The deferred gains and losses are recognized in other (income) expense - net over the period in which the related interest payments are paid to the banks. At

The Company also uses swap locks designated as cash flow hedges to hedge the changes in the forecasted interest payments due to changes in the benchmark rate leading up to future bond issuance dates. The terms of the swap locks match the terms of the forecasted interest payments. The deferred gains and losses will be recognized in interest expense over the period in which the related interest payments will be paid. During the nine months ended September 30, 2020, the Company executed swap locks maturing on various dates with an aggregate notional amount of $550 million.

As of September 30, 2020 and December 31, 2019, the Company had after-tax losses of $8 million and $43 million of losses in AOCI, respectively, related to thesethe interest rate swaps.swaps and the swap locks. The Company expects to recognize this amount in its consolidated statementstatements of earnings during the life of the instruments.

For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges.  Assuming normal market conditions, theThe 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/gains and losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable. As of September 30, 2020 and December 31, 2019, the Company had $7 million of after-tax losses of $41 million and $5 million in AOCI, respectively, related to gains and losses from commodity cash flow hedge transactions.these programs.  The Company expects to recognize $7$41 million of thesethe September 30, 2020 after-tax losses in its consolidated statementstatements of earnings during the next 12 months.

The Company uses futures or options contracts to hedge the purchase price of anticipated volumes of corn to be purchased and processed in a future month.  The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn.  The Company’s corn processing plants currentlynormally grind approximately 72 million bushels of corn per month. Due to the temporarily idled dry mill assets, the Company is currently grinding approximately 56 million bushels of corn per month.  During the past 12 months, the Company hedged between 19%20% and 95%60% of its monthly anticipated grind.  At September 30, 2019,2020, the Company had designated hedges representing between 4%11% and 60%34% of its anticipated monthly grind of corn for the next 12 months.

The Company, from time to time, also uses futures, options, and swaps to hedge the sales price of certain ethanol sales contracts.  The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol.  During the past 12 months, the Company hedged between 0 million and 121 million gallons of ethanol sales per month under these programs.  At September 30, 2019, the Company had designated hedges representing between 0 and 91 million gallons of ethanol sales per month over the next 12 months.under these programs. The Company had 0 hedges related to ethanol sales as of September 30, 2020.

The Company uses futures and options contracts to hedge the purchase price of anticipated volumes of soybeans to be purchased and processed in a future month for certain of its U.S. soybean crush facilities. The Company also uses futures or options contracts to hedge the sales prices of anticipated soybean meal and soybean oil sales proportionate to the soybean crushing process at these facilities. During the past 12 months, the Company hedged between 79%52% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. TheAt September 30, 2020, the Company hashad designated hedges representing between 0% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities over the next 12 months.

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 September 30, 20192020 and December 31, 20182019.

 September 30, 2019 December 31, 2018
 Assets Liabilities Assets Liabilities
 (In millions)
Foreign Currency Contracts$39
 $—
 $—
 $—
Interest Rate Contracts4
 43
 —
 20
Total$43
 $43
 $—
 $20








Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.Derivative Instruments and Hedging Activities (Continued)
 September 30, 2020 December 31, 2019
 Assets Liabilities Assets Liabilities
 (In millions)
Foreign Currency Contracts$16
 $0
 $13
 $5
Interest Rate Contracts32
 34
 3
 43
Total$48
 $34
 $16
 $48

The following tables settable 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 nine months ended September 30, 20192020 and 20182019.
 
   Cost of products sold Interest expense Other expense (income) - net  
(In millions)Revenues     
Three Months Ended September 30, 2019      
Consolidated Statement of Earnings$16,726
 $15,648
 $97
 $(18)  
          
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$3
 $1
 $—
 $—
  
Interest Contracts—
 —
 —
 (21)  
Total gain (loss) recognized in earnings$3
 $1
 $—
 $(21) $(17)
          
Three Months Ended September 30, 2018         
Consolidated Statement of Earnings$15,800
 $14,742
 $87
 $(25)  
          
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$15
 $(87) $—
 $—
  
Total gain (loss) recognized in earnings$15
 $(87) $—
 $—
 $(72)
  Cost of products sold Interest expense Other expense (income) - net    Cost of products sold Interest expense Other expense (income) - net  
(In millions)Revenues  Revenues  
Nine Months Ended September 30, 2019       
Three Months Ended September 30, 2020      
Consolidated Statement of Earnings$48,327
 $45,349
 $307
 $(39)  $15,126
 $14,084
 $100
 $278
  

                  
Effective amounts recognized in earnings
                 
Pre-tax gains (losses) on:

                 
Commodity Contracts$(5) $7
 $—
 $—
  $1
 $79
 $—
 $0
  
Interest Contracts—
 —
 —
 (29)  —
 —
 0
 (14)  
Total gain (loss) recognized in earnings$(5) $7
 $—
 $(29) $(27)$1
 $79
 $0
 $(14) $66
                  
Nine Months Ended September 30, 2018

        
Three Months Ended September 30, 2019         
Consolidated Statement of Earnings$48,394
 $45,266
 $267
 $(42)  $16,726
 $15,648
 $97
 $(18)  

                  
Effective amounts recognized in earnings                  
Pre-tax gains (losses) on:                  
Commodity Contracts$16
 $(115) $—
 $—
  $3
 $1
 $—
 $0
  
Interest Contracts—
 —
 1
 —
  —
 —
 0
 (21)  
Total gain (loss) recognized in earnings$16
 $(115) $1
 $—
 $(98)$3
 $1
 $0
 $(21) $(17)






Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.6.Derivative Instruments and Hedging Activities (Continued)

   Cost of products sold Interest expense Other expense (income) - net  
(In millions)Revenues     
Nine Months Ended September 30, 2020       
Consolidated Statement of Earnings$46,377
 $43,276
 $270
 $179
  

         
Effective amounts recognized in earnings
        
Pre-tax gains (losses) on:

        
Commodity Contracts$9
 $19
 $—
 $0
  
Interest Contracts—
 —
 (8) (55)  
Total gain (loss) recognized in earnings$9
 $19
 $(8) $(55) $(35)
          
Nine Months Ended September 30, 2019

        
Consolidated Statement of Earnings$48,327
 $45,349
 $307
 $(39)  

         
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$(5) $7
 $—
 $—
  
Interest Contracts—
 —
 0
 (29)  
Total gain (loss) recognized in earnings$(5) $7
 $0
 $(29) $(27)


Other Net Investment Hedging Strategies

The Company has designated €2.2€1.5 billion and €1.7 billion of its outstanding long-term debt and commercial paper borrowings and €1.1 billion of its outstanding long-term debt at September 30, 20192020 and December 31, 2018,2019, respectively, as hedges of its net investment in a foreign subsidiary. As of September 30, 20192020 and December 31, 2018,2019, the Company had after-tax losses of $29 million and after-tax gains of $63$7 million and losses of $26 million, respectively, in AOCI, respectively, related to foreign exchange gains and losses from thethese net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested.

Note 8.7.     Other Current Assets

The following table sets forth the items in other current assets:
September 30, December 31,September 30, December 31,
2019 20182020 2019
(In millions)(In millions)
Unrealized gains on derivative contracts$599
 $636
$1,798
 $619
Deferred receivables consideration330
 379
272
 446
Customer omnibus receivable743
 450
888
 1,014
Financing receivables - net (1)
507
 424
331
 395
Insurance premiums receivable53
 35
25
 41
Prepaid expenses248
 184
308
 318
Biodiesel tax credit89
 541
Tax receivables514
 379
665
 579
Non-trade receivables (2)
311
 323
296
 369
Other current assets210
 223
284
 278
$3,515
 $3,033
$4,956
 $4,600
      

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.     Other Current Assets (Continued)


(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 $4 million and $3 million at September 30, 20192020 and December 31, 2018.2019, respectively. Interest earned on financing receivables of $4 million and $15 million for the three and nine months ended September 30, 2020, respectively, and $5 million and $19 million for the three and nine months ended September 30, 2019, respectively, and $6 million and $18 million for the three and nine months ended September 30, 2018, respectively, is included in interest income in the consolidated statements of earnings.

(2) Non-trade receivables included $81$77 million and $84$81 million of reinsurance recoverables as of September 30, 20192020 and December 31, 2018,2019, respectively.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 9.8.     Accrued Expenses and Other Payables

The following table sets forth the items in accrued expenses and other payables:
September 30, December 31,September 30, December 31,
2019 20182020 2019
(In millions)(In millions)
Unrealized losses on derivative contracts$642
 $761
$1,969
 $742
Accrued compensation304
 337
349
 300
Income tax payable55
 —
61
 72
Other taxes payable107
 98
120
 120
Reinsurance premiums payable11
 15
Biodiesel tax credit payable17
 332
Insurance claims payable294
 277
277
 284
Contract liability319
 501
344
 604
Current maturities - operating leases186
 —
251
 215
Other accruals and payables1,009
 924
892
 1,088
$2,927
 $2,913
$4,280
 $3,757



Note 10.9.Debt and Financing Arrangements

On March 27, 2020, the Company issued $0.5 billion and $1.0 billion aggregate principal amounts of 2.75% Notes due in 2025 and 3.25% Notes due in 2030, respectively. Net proceeds before expenses for the 2.75% and 3.25% Notes were $492 million and $988 million, respectively.

During the second half of 2020, the global credit market stabilized with corporate credit spreads below pre-pandemic levels. Continued actions by central banks provided additional support in both the short-term and long-term funding markets further stabilizing corporate credit markets. Low benchmark yields and favorable credit spreads coupled with continued strong cash flow generation during the second half of the year presented opportunities for ADM to re-balance the company’s liability portfolio to pre-pandemic levels. Starting in June 2020, ADM began a series of liability management transactions including multiple early debt redemptions and the $0.7 billion debt tender in September 2020 to capitalize on all-time low interest rates:

In June 2020, the Company redeemed $495 million aggregate principal amount of 4.479% debentures due in 2021 and recognized a debt extinguishment charge of $14 million in the nine months ended September 30, 2020.

In September 2020, the Company redeemed $400 million aggregate principal amount of 3.375% notes due in 2022 and recognized a debt extinguishment charge of $19 million in the quarter ended September 30, 2020.






Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 9.    Debt and Financing Arrangements (Continued)

In September 2020, the Company repurchased $665 million aggregate principal amount of certain of its outstanding notes and debentures (the “Debentures”) validly tendered and not withdrawn. Pursuant to the terms of its cash tender offers, the Company paid aggregate total consideration of $933 million for the Debentures accepted for repurchase. The cash tender offers were partially financed by the proceeds of the exchangeable bonds issued by the Company's wholly-owned subsidiary, ADM Ag Holding Limited (“ADM Ag”), on August 26, 2020 as discussed below. The Company recognized a debt extinguishment charge of $374 million in the quarter ended September 30, 2020 which consisted of make-whole premiums and the write-off of debt issuance costs.

In September 2020, the Company’s wholly-owned subsidiary, ADM Germany GmbH, redeemed $100 million aggregate principal amount of private placement notes due in 2021 and 2024 and recognized a debt extinguishment charge of $3 million in the quarter ended September 30, 2020.

On August 26, 2020, ADM Ag issued $300 million aggregate principal amount of 0 coupon exchangeable bonds (the “Bonds”) due in 2023 to non-U.S. persons outside of the U.S. Subject to and upon compliance with the terms and conditions of the Bonds and any conditions, procedures, and certifications prescribed thereunder, the Bonds will be exchangeable for ordinary shares of Wilmar International Limited (“Wilmar”) currently held by the Company’s consolidated subsidiaries. Effective October 6, 2020, holders of the Bonds will be entitled to receive 50,597.0453 Wilmar shares (the “Exchange Property per Bond”) for each $200,000 principal amount of the Bonds, on the exercise of their exchange rights, subject to dividend adjustments. Effective February 26, 2022, ADM Ag has the option to call the outstanding Bonds at their principal amount if the value of the Exchange Property per Bond exceeds 120% of the principal amount for 20 consecutive trading days. The Company accounts for the Bond’s exchange feature as an equity-linked embedded derivative that is not clearly and closely related to the host debt instrument since it is indexed to Wilmar’s stock. As such, it does not qualify for the scope exception in ASC Topic 815, Derivatives and Hedging and is bifurcated and measured at fair value with changes in fair value recognized as interest expense. The fair value of the embedded derivative included in long-term debt as of September 30, 2020 was $32 million, valued with the assistance of a third-party pricing service (a level 3 measurement under applicable accounting standards). The Company unconditionally and irrevocably guarantees the payment of all sums payable and the performance of all of ADM Ag’s other obligations under the Bonds. In contemplation of the issuance of the Bonds, the Company's wholly-owned subsidiary, Archer Daniels Midland Asia-Pacific Limited, that holds shares in Wilmar, entered into a stock borrowing and lending agreement with Goldman Sachs International.

At September 30, 2019,2020, the fair value of the Company’s long-term debt exceeded the carrying value by $1.7$2.2 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).

At September 30, 2019,2020, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $8.5$10.7 billion, of which $5.5$9.1 billion was unused.  Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was $1.1 billion of0 commercial paper outstanding at September 30, 2019.2020.

The Company has accounts receivable securitization programs (the “Programs”). The Programs as amended, provide the Company with up to $1.8 billion in funding resulting from the sale of accounts receivable, of which $0.1$0.4 billion was unused as of September 30, 20192020 (see Note 1716 for more information about the Programs).

Note 11.10.Income Taxes

The Company’s effective tax raterates were a benefit of 13.0% and an expense of 3.4% for the three and nine months ended September 30, 2020, respectively, compared to an expense of 18.9% and 19.4% for the three and nine months ended September 30, 2019, was 18.9% and 19.4%, respectively, compared to 15.2% and 14.3%respectively. The change in rates for the three and nine months ended September 30, 2018, respectively.was due to a shift in the geographical mix of forecasted pretax earnings and significant transactions that occurred during the quarter, including the early debt retirement and the tax-free sale of a portion of the Company's shares in Wilmar, which resulted in a significant decrease in the previously forecasted 2020 effective tax rate. The change in rates was primarilyalso due to the impact of U.S. tax credits signed into law in December 2019, including a lower$73 million discrete tax benefit related to 45G railroad tax credits recognized in the quarter ended March 31, 2020. The 45G railroad tax credits have an offsetting expense in cost of products sold.



Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 10.     Income Taxes (Continued)

In March 2020, the Coronavirus Aid Relief and Economic Security Act (CARES Act) was signed into law in the United States. The Company continues to assess the effects of the provisions of the CARES Act and does not expect any income tax effects to have a material impact on the annual effective tax rate for the year ending December 31, 2020. The Company also continues to evaluate the effects of COVID-19 on its ability to indefinitely reinvest foreign earnings and does not expect any change in its assertion to have a material impact on the priorannual effective tax rate for the year that included the favorable impacts of both the 2017 retroactive biodiesel tax credit and certain favorable discrete tax items, and current year changes in the geographic mix of forecasted pretax earnings.ending December 31, 2020.

The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due.  These challenges include positions taken by the Company related to the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions.  In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect that the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 11.     Income Taxes (Continued)

The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (“ADM do Brasil”), received 3 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. These assessments totaled approximately $101 million in tax and $295 million in interest and penalties as of September 30, 2019 (adjusted for variation in currency exchange rates). The statute of limitations for tax years 2005 and 2008-2011 has expired. The Company does not expect to receive any additional tax assessments with respect to this issue.

ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculation 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.

The Company’s subsidiary in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011. As of September 30, 2019,2020, these assessments totaled $15$11 million in tax and $52$44 million in interest (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes that it has complied with all Argentine tax laws. To date, the Company has not received assessments for closed years subsequent to 2011. However, itWhile the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for these years subsequent to 2013, and estimates that these potential assessments could be approximately $33$34 million in tax and $43$25 million in interest (adjusted for variation in currency exchange rates as of September 30, 2019)2020).  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. In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for this assessment because it has concluded that it is more likely than not to prevail on the matter based upon its technical merits and because the taxing jurisdiction’s process does not provide a mechanism for settling at less than the full amount of the assessment. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2011.2013.
  
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.

In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization, which involved two of its subsidiary companies in the Netherlands. As of September 30, 2019,2020, this assessment was $88$95 million in tax and $32$38 million in interest (adjusted for variation in currency exchange rates). TheIn September 2019, the Company received an interim decision on its appeal at the end of the reporting period which directed the parties to work toward a settlement. If no agreement is reached,On April 23, 2020, the court will issue a final decision which could be basedissued an unfavorable ruling and in part on a valuation fromOctober 2020, assigned a third party expert.expert to establish a valuation by early 2021. Subsequent appeals may take an extended period of time and could result in additional financial impacts of up to the entire amount of the assessment. The Company has carefully evaluated the underlying transactions and has concluded that the amount of the gain recognized on the reorganization for tax purposes was appropriate. TheAs of September 30, 2020, the Company has accrued an amountits best estimate of what it believes will be the likely outcome of the litigation and will vigorously defend its position against the assessment.

During the quarter ended June 30, 2020, the ongoing litigation between the Company’s wholly-owned subsidiary, ADM do Brasil Ltda. and the Brazilian Federal Revenue Servicewas favorably resolved without any tax due. The litigation related to assessments received with respect to the tax deductibility of commodity hedging losses and related expenses. The Company does not expect to receive any additional tax assessments with respect to this issue.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.11.Leases

Lessee Accounting

The Company leases certain transportation equipment, plant equipment, office equipment, land, buildings, and storage facilities. Most leases include options to renew, with renewal terms that can extend the lease term from 1 month10 months to 49 years. Certain leases also include index and non-index escalation clauses and options to purchase the leased property. Leases accounted for as finance leases were immaterial at September 30, 2019.2020.

As an accounting policy election, the Company does not apply the recognition requirements of Topic 842 to short-term leases in all of its underlying asset categories. The Company recognizes short-term lease payments in earnings on a straight-line basis over the lease term, and variable lease payments in the period in which the obligation for those payments is incurred.

The following table sets forth the amounts relating to the Company’s total lease cost and other information.
Three Months EndedNine Months Ended
Three Months Ended
September 30, 2019		Nine Months Ended
September 30, 2019		Sep 30, 2020Sep 30, 2019Sep 30, 2020Sep 30, 2019
(In millions)(In millions)
Lease cost:  
Operating lease cost$51
$197
$84
$51
$231
$197
Short-term lease cost24
71
19
24
73
71
Total lease cost$75
$268
$103
$75
$304
$268
  
Other information:  
Operating lease liability principal payments
$149

$222
$149
Right-of-use assets obtained in exchange for new operating lease liabilities
$192

$244
$192
  
 September 30, 2019 Sep 30, 2020Dec 31, 2019
Weighted-average remaining lease term - operating leases (in years)

8




7
7
Weighted average discount rate - operating leases
4.7%


4.3%4.6%

Below is a tabular disclosure of the future annual undiscounted cash flows for operating lease liabilities.
UndiscountedUndiscounted
Cash FlowsCash Flows
(In millions)(In millions)
Remainder of 2019$59
2020209
Remainder of 2020$76
2021176
284
2022145
252
2023105
204
202458
144
202583
Thereafter244
250
Total996
1,293
  
Less interest (1)
165
(180)
Lease liability$831
$1,113
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 11.     Leases (Continued)


(1) Calculated using the implicit rate of the lease, if available, or the incremental borrowing rate that is appropriate for the tenor and geography of the lease.
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.     Leases (Continued)


As of September 30, 2020 and December 31, 2019, the Company had $810 million of right-of-use assets included in Other assets $186 million of $1.1 billion and $1.0 billion, respectively, current lease liabilities included in Accrued expenses and other payables of $251 million and $645$215 million, ofrespectively, and non-current lease liabilities included in Other long-term liabilities of $862 million and $781 million, respectively, in its consolidated balance sheet.sheets.

Note 13.12.     Accumulated Other Comprehensive Income

The following tables set forth the changes in AOCI by component for the three and nine months ended September 30, 20192020 and the reclassifications out of AOCI for the three and nine months ended September 30, 20192020 and 2018:2019:
Three months ended September 30, 2019Three months ended September 30, 2020
Foreign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments TotalForeign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments Total
(In millions)(In millions)
Balance at June 30, 2019$(1,950) $3
 $(202) $19
 $(2,130)
Balance at June 30, 2020$(2,445) $(14) $(275) $29
 $(2,705)
Other comprehensive income (loss) before reclassifications(250) (19) 4
 7
 (258)(155) 178
 (5) (28) (10)
Amounts reclassified from AOCI—
 17
 3
 —
 20
0
 (66) 0
 0
 (66)
Tax effect(35) 8
 —
 —
 (27)51
 (22) 3
 0
 32
Net of tax amount(285) 6
 7
 7
 (265)(104) 90
 (2) (28) (44)
Balance at September 30, 2019$(2,235) $9
 $(195) $26
 $(2,395)
Balance at September 30, 2020$(2,549) $76
 $(277) $1
 $(2,749)
                  
Nine months ended September 30, 2019Nine months ended September 30, 2020
Foreign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments TotalForeign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments Total
(In millions)(In millions)
Balance at December 31, 2018$(1,962) $61
 $(220) $15
 $(2,106)
Balance at December 31, 2019$(2,152) $(12) $(268) $27
 $(2,405)
Other comprehensive income (loss) before reclassifications(234) (92) 13
 12
 (301)(434) 76
 (5) (25) (388)
Amounts reclassified from AOCI(1) 27
 (3) —
 23
0
 35
 5
 0
 40
Tax effect(38) 13
 15
 (1) (11)37
 (23) (9) (1) 4
Net of tax amount(273) (52) 25
 11
 (289)(397) 88
 (9) (26) (344)
Balance at September 30, 2019$(2,235) $9
 $(195) $26
 $(2,395)
Balance at September 30, 2020$(2,549) $76
 $(277) $1
 $(2,749)



Archer-Daniels-Midland Company


Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.     Accumulated Other Comprehensive Income (Continued)

 Amount reclassified from AOCI 
 Three months ended September 30, Nine months ended September 30,Affected line item in the consolidated statements of earnings
Details about AOCI components20202019 20202019
 (In millions) 
Foreign currency translation adjustment     
 $0
$0
 $0
$(1)Other (income) expense-net
 0
0
 0
0
Tax
 $0
$0
 $0
$(1)Net of tax
       
Deferred loss (gain) on hedging activities      
 $(1)$(3) $(9)$5
Revenues
 (79)(1) (19)(7)Cost of products sold
 14
21
 55
29
Other (income) expense-net
 0
0
 8
0
Interest expense
 (66)17
 35
27
Total before tax
 19
4
 5
0
Tax
 $(47)$21
 $40
$27
Net of tax
       
Pension liability adjustment      
Amortization of defined benefit pension items:      
Prior service credit$(9)$0
 $(25)$(13)Other (income) expense-net
Actuarial losses9
3
 30
10
Other (income) expense-net
 0
3
 5
(3)Total before tax
 1
1
 (10)16
Tax
 $1
$4
 $(5)$13
Net of tax
       


The Company’s accounting policy is to release the income tax effects from AOCI when the individual units of account are sold, terminated, or extinguished.

Note 13.Other (Income) Expense - Net

The following table sets forth the items in other (income) expense:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2020 2019 2020 2019
 (In millions)
Gains on sales of assets$(68) $(7) $(132) $(37)
Early debt retirement charges396
 0
 410
 0
Other – net(50) (11) (99) (2)
Other (Income) Expense - Net$278
 $(18) $179
 $(39)





Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 13.     Accumulated Other Comprehensive Income(Income) Expense - Net (Continued)


 Amount reclassified from AOCI 
 Three months ended September 30, Nine months ended September 30,Affected line item in the consolidated statement
Details about AOCI components2019 2018 2019 2018of earnings
 (In millions) 
Foreign currency translation adjustment       
 $—
 $(1) $(1) $(1)Other (income) expense-net
 —
 —
 —
 —
Tax
 $—
 $(1) $(1) $(1)Net of tax
         
Deferred loss (gain) on hedging activities        
 $(3) $(15) $5
 $(16)Revenues
 (1) 87
 (7) 115
Cost of products sold
 21
 —
 29
 —
Other (income) expense-net
 —
 —
 —
 (1)Interest expense
 17
 72
 27
 98
Total before tax
 4
 (18) —
 (24)Tax
 $21
 $54
 $27
 $74
Net of tax
         
Pension liability adjustment        
Amortization of defined benefit pension items:        
Prior service credit$—
 $(8) $(13) $(25)Other (income) expense-net
Actuarial losses3
 16
 10
 48
Other (income) expense-net
 3
 8
 (3) 23
Total before tax
 1
 (3) 16
 (6)Tax
 $4
 $5
 $13
 $17
Net of tax


Note 14.Other (Income) Expense - Net

The following table sets forthGains on sales of assets in the itemsthree months ended September 30, 2020 included gains related to the sale of a portion of the Company's shares in Wilmar, which decreased the Company’s ownership interest from 24.8% as of December 31, 2019 to 22.1% as of September 30, 2020, and net gains on the sale of certain other (income) expense:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (In millions)
        
Gains on sales of assets$(7) $(33) $(37) $(45)
Other – net(11) 8
 (2) 3
Other (Income) Expense - Net$(18) $(25) $(39) $(42)


assets, and disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets in the nine months ended September 30, 2020 included gains on the sale of a portion of the Company's shares in Wilmar shares, an investment revaluation gain, net gains on the sale of certain assets, and disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets in the three months ended September 30, 2019 included gains on disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets in the nine months ended September 30, 2019 included gains on the sale of certain assets, step-up gains on equity investments, and gains on disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets

Early debt retirement charges in the three and nine months ended September 30, 2018 included gains on2020 related to multiple early debt redemptions and the sale of the Company’s oilseed operations$0.7 billion debt tender in Bolivia and an equity investment, and disposals of individually insignificant assets in the ordinary course of business.
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

September 2020 (see Note 14.     Other (Income) Expense - Net (Continued)

9 for more information).

Other - net in the three and nine months ended September 30, 20192020 included the non-service components of net pension benefit income of $7 million and 2018$28 million, respectively, and other income. Other - net in the nine months ended September 30, 2020 also included other income, partially offset byloss provisions related to the Company’s futures commission and brokerage business and foreign exchange losses. Other-net alsogains. Other - net in the three and nine months ended September 30, 2019 included the non-service components of net pension benefit income of $2 million and $10 million, in the threerespectively, and nine months ended September 30, 2019, respectively, compared to a net pension benefit expense of $1 million and another income, of $4 million in the three and nine months ended September 30, 2018, respectively.partially offset by foreign exchange losses.

Note 15.14.     Segment Information

In May 2019, the Company announced the creation of a new business unit. The former Origination and Oilseeds businesses were merged into a combined Ag Services and Oilseeds segment which enables the Company to better respond to market changes by integrating the supply and value chains and risk management, while delivering significant simplification and efficiency to the day-to-day business. As part of the Company’s efforts for a streamlined management structure, the combined segment is led by the former President of Oilseeds expanding his role to President of Ag Services and Oilseeds. Effective Julydiscussed in Note 1, 2019, the Company changed its segment reporting to reflect the creation of the combined Ag Services and Oilseeds segment.

Priorprior period results have been reclassified to conform to the current period segment presentation.

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities, products, and ingredients. The Company’s operations are organized, managed, and classified into 3 reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard, and are classified as Other.Other Business.

The Ag Services and Oilseeds segment includes global activities related to the origination, merchandising, transportation, and storage of agricultural raw materials, and the 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, in addition to the origination, transportation, and storage of agricultural commodities.meals. Oilseeds products produced and marketed by the Companysegment include ingredients for the food, feed, energy, and industrial products industries.customers. 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 and glycols 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. The Ag Services and Oilseeds segment is also a major supplier of peanuts, tree nuts, and peanut-derived ingredients to both the U.S. and export markets. In North America, cotton cellulose pulp is manufactured and sold to the chemical, paper, and other industrial markets. As adjuncts to its processing assets, the segment operates an extensive global network of grain elevator and transportation assets 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 Ag Services and Oilseeds segment's grain sourcing, handling, and transportation network (including barge, ocean-going vessel, truck, rail, and container freight services) provides reliable and efficient services to the Company's customers and agricultural processing operations. The Ag Services and Oilseeds segment also includes agricultural commodity and feed product import, export, and global distribution, activities,and structured trade finance andactivities. This segment also includes the Company’sCompany's share of the results of its equity investment in Wilmar International Limited (“Wilmar”) and its share of the results of its Pacificor, Stratas Foods LLC, Edible Oils Limited, Olenex Sarl, (“Olenex”), and PacificorSoyVen joint ventures. In February 2019,August 2020, the Company purchased the remaining 50%sold a portion of its shares in Wilmar, decreasing its ownership interest owned by InVivo Group in the Gleadell Agriculture Ltd. joint venture.from 24.8% as of December 31, 2019 to 22.1% as of September 30, 2020.









Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 14.Segment Information (Continued)

The Company’s Carbohydrate Solutions segment is engaged in corn and wheat wet and dry milling and other activities. The Carbohydrate Solutions segment converts corn and wheat into sweeteners, cornproducts and wheat starches, wheat flour, and bioproducts. Its products include ingredients used in the food and beverage industry including sweeteners, starch,corn and wheat starches, syrup, glucose, wheat flour, and dextrose. Dextrose and starch are used by the Carbohydrate Solutions segment as feedstocks for its bioproducts operations. By fermentation of dextrose, the Carbohydrate Solutions segment produces alcohol 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. 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. Other Carbohydrate Solutions products include citric acids which are used in various food and industrial products. This segment also includes the Company’s share of the results of its equity investments in Hungrana Ltd., Almidones Mexicanos S.A., and Red Star Yeast Company, LLC.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.Segment Information (Continued)
LLC, and Aston Foods and Food Ingredients.

The Nutrition segment serves customer needs for food, beverages, health and wellness, and more. The segment engages in the manufacturing, sale, and distribution of specialtya wide array of products from nature including plant-based proteins, natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products including probiotics, prebiotics, enzymes, and botanical extracts, and other specialty food and feed ingredients. The Nutrition segment includes the activities related to the procurement, processing, and distribution of edible beans. The Nutrition segment also includes activities related to the processing and distribution of formula feeds and animal health and nutrition products and the manufacture of contract and private label pet treats and foods. During the nine months ended September 30, 2019, the Company completed the acquisitions of Neovia,In January 2020, ADM acquired Yerbalatina, a French-based global provider of value-added animal nutrition solutions, with 72 production facilitiesnatural plant-based extracts and a presence in 25 countries; Florida Chemical Company, one of the world’s largest producers of citrus oils and ingredients; and The Ziegler Group, a leading European provider of natural citrus flavor ingredients.ingredients manufacturer.

Other Business includes the Company’s remaining operations, primarily its financial business units related to futures commission and insurance activities.

Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in operating profit for each segment is equity in earnings of affiliates based on the equity method of accounting. Specified items included in total segment operating profit and certain corporate items are not allocated to the Company’s individual business segments because operating performance of each business segment is evaluated by management exclusive of these items. Corporate results principally include the impact of LIFO-related adjustments, unallocated corporate expenses, interest cost net of investment income, the equity results of early-stage start-up companies that ADM Ventures has investments in, and the Company’s share of the results of its equity investment in Compagnie IndustrialleIndustrielle et Financiere des Produits Amylaces SA (Luxembourg) (“CIP”).










(CIP), which was sold in December 2019.
























Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.14.Segment Information (Continued)

Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
(In millions)2019 2018 2019 20182020 2019 2020 2019
Gross revenues              
Ag Services and Oilseeds$14,440
 $14,206
 $41,041
 $42,797
$13,415
 $14,440
 $40,196
 $41,041
Carbohydrate Solutions3,018
 2,909
 8,472
 8,625
2,335
 3,018
 7,102
 8,472
Nutrition1,481
 933
 4,322
 2,920
1,481
 1,481
 4,471
 4,322
Other88
 84
 273
 291
Other Business84
 88
 277
 273
Intersegment elimination(2,301) (2,332) (5,781) (6,239)(2,189) (2,301) (5,669) (5,781)
Total gross revenues$16,726
 $15,800
 $48,327
 $48,394
$15,126
 $16,726
 $46,377
 $48,327
              
Intersegment sales 
  
  
  
 
  
  
  
Ag Services and Oilseeds$1,824
 $1,946
 $4,659
 $5,366
$1,888
 $1,824
 $4,849
 $4,659
Carbohydrate Solutions453
 375
 1,063
 843
271
 453
 708
 1,063
Nutrition24
 11
 59
 30
30
 24
 112
 59
Total intersegment sales$2,301
 $2,332
 $5,781
 $6,239
$2,189
 $2,301
 $5,669
 $5,781
              
Revenues from external customers 
  
  
  
 
  
  
  
Ag Services and Oilseeds              
Ag Services$8,246
 $7,623
 $23,653
 $23,769
$7,352
 $8,246
 $22,930
 $23,653
Crushing2,465
 2,688
 7,130
 7,838
2,317
 2,465
 7,035
 7,130
Refined Products and Other1,905
 1,949
 5,599
 5,824
1,858
 1,905
 5,382
 5,599
Total Ag Services and Oilseeds12,616
 12,260
 36,382
 37,431
11,527
 12,616
 35,347
 36,382
Carbohydrate Solutions              
Starches and Sweeteners1,724
 1,706
 5,030
 5,048
1,574
 1,526
 4,769
 4,782
Bioproducts841
 828
 2,379
 2,734
Vantage Corn Processors490
 1,039
 1,625
 2,627
Total Carbohydrate Solutions2,565
 2,534
 7,409
 7,782
2,064
 2,565
 6,394
 7,409
Nutrition              
Wild Flavors and Specialty Ingredients703
 641
 2,105
 1,970
Human Nutrition719
 703
 2,161
 2,105
Animal Nutrition754
 281
 2,158
 920
732
 754
 2,198
 2,158
Total Nutrition1,457
 922
 4,263
 2,890
1,451
 1,457
 4,359
 4,263
              
Other88
 84
 273
 291
Other Business84
 88
 277
 273
Total revenues from external customers$16,726
 $15,800
 $48,327
 $48,394
$15,126
 $16,726
 $46,377
 $48,327
              
              
              
              
              
              
              
              
              
              

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.14.Segment Information (Continued)

Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
(In millions)2019 2018 2019 20182020 2019 2020 2019
Segment operating profit              
Ag Services and Oilseeds$417
 $478
 $1,196
 $1,405
$436
 $417
 $1,271
 $1,196
Carbohydrate Solutions182
 288
 470
 748
246
 182
 509
 470
Nutrition118
 67
 316
 277
147
 118
 447
 316
Other47
 28
 72
 72
Other Business20
 47
 69
 72
Specified Items:              
Gains (losses) on sales of assets and businesses(1)
—
 21
 12
 21
57
 0
 80
 12
Impairment, restructuring, and settlement charges(2)
(6) (1) (52) (36)(2) (6) (60) (52)
Total segment operating profit758
 881
 2,014
 2,487
904
 758
 2,316
 2,014
Corporate(255) (249) (922) (739)(704) (255) (1,189) (922)
Earnings before income taxes$503
 $632
 $1,092
 $1,748
$200
 $503
 $1,127
 $1,092
              


(1) Current quarter and year-to-date gain consisted of a gain on the sale of a portion of the Company’s shares in Wilmar and certain other assets. Prior year-to-date gains consisted of a gain on the sale of certain assets and a step-up gain on an equity investment. Prior quarter and year-to-date gains related to the sale of a business and an equity investment.

(2) Current quarter and year-to-date charges primarily related to the impairment of certain long-lived assets. Prior quarter charge related toassets, restructuring, and a settlement. Prior quarter and year-to-date charges consisted of impairment charges related to a long-term financing receivable and an equity investment, restructuring charges,the impairment of certain long-lived assets and a settlement charge.settlement.

Note 16.15.     Asset Impairment, Exit, and Restructuring Costs

Asset impairment, exit, and restructuring costs in the three months ended September 30, 2020 consisted of individually insignificant long-lived asset impairments of $3 million and restructuring charges of $1 million. Asset impairment, exit, and restructuring costs in the nine months ended September 30, 2020 consisted primarily of $50 million of impairments related to certain intangible and other long-lived assets and $11 million of restructuring charges.

Asset impairment, exit, and restructuring costs in the three and nine months ended September 30, 2019 consisted of $6 million and $50 million, respectively, of impairments related to certain long-lived assets presented as specified items within segment operating profit in the three and nine months ended September 30, 2019, respectively, and $47 million and $150 million, respectively, of restructuring and pension settlement and remeasurement charges in Corporate primarily related to early retirement and reorganization initiatives during the three and nine months ended September 30, 2019, respectively.initiatives.

AssetThe Company recorded a $35 million impairment exit, and restructuring costs in the three months ended September 30, 2018 consisted of $1 million of individually insignificant restructuring charges in Corporate. Asset impairment, exit, and restructuring costsrelated to a Company facility in the nine months ended September 30, 2018 consisted of $12 million of an equity investment impairment, $21 million of long-term receivable impairment, and $2 million of individually insignificant restructuring charges presented as specified items within segment operating profit, and $6 million of individually insignificant restructuring charges in Corporate.

A $35 million impairment reported in the nine months ended September 30, 2019, related to a Company facility and was based on the fair value of the asset determined using a third-party market participant’s offer to purchase the facility.

The $21 million impairmentIn April 2020, the Company temporarily idled ethanol production at its corn dry mill facilities in Cedar Rapids, Iowa, and Columbus, Nebraska. During the nine monthsquarter ended September 30, 2018 related to a long-term receivable included in other2020, the Company performed an impairment assessment on its corn processing business, which includes all assets in the accompanying balance sheet,where ethanol is produced, and determined that no impairment was required based on the fair valueCompany’s forecast of undiscounted cash flows. The Company currently expects that the collateral providedidled facilities will be restarted as securitydemand for ethanol improves within the advance. The fair value was determined using internal and external sources, including published information on Brazilian land values.next 12 months.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 17.16.     Sale of Accounts Receivable

The Company has an accounts receivable securitization program (the “Program”“First Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “First Purchasers”). Under the First Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables in turn transfers such purchased accounts receivable in their entirety to the First 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 $1.31.2 billion, as amended, and an additional amount upon the collection of the accounts receivable (deferred consideration). The First Program terminates on JuneMay 18, 2020,2021, unless extended.
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 16.     Sale of Accounts Receivable (Continued)

The Company also has an accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (“ADM(ADM Ireland Receivables”)Receivables). Prior to April 1, 2020, ADM Ireland Receivables in turn transferstransferred 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 receivesreceived a cash payment of up to $0.5 billion (€0.5 billion)a certain amount and an additional amount upon the collection of the accounts receivable (deferred consideration). On April 1, 2020, the Company restructured the Second Program from a deferred purchase price to a pledge structure. Under the new structure, ADM Ireland Receivables transfers a portion of the purchased accounts receivable together with an equally proportional security interest in all of its right, title, and interest in the remaining purchased accounts receivable to each of the Second Purchasers. In exchange, ADM Ireland Receivables receives a cash payment of up to $0.6 billion (€0.5 billion) for the accounts receivables transferred. The Second Program terminates on March 13, 2020,12, 2021, unless extended.

Under the ProgramFirst and Second ProgramPrograms (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the First Purchasers and Second Purchasers (collectively, the “Purchasers”) and other consideration, as applicable, to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables.

The Company accounts for these transfers as sales. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred consideration.consideration under the First Program. At September 30, 20192020 and December 31, 20182019, 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 September 30, 20192020 and December 31, 2018,2019, the fair value of trade receivables transferred to the Purchasers under the Programs and derecognized from the Company’s consolidated balance sheetsheets was $2.01.7 billion and $1.9 billion, respectively. In exchange for the transfers as of September 30, 20192020 and December 31, 2018,2019, the Company received cash of $1.71.4 billion and $1.5$1.4 billion, respectively, and recorded a receivable for deferred consideration included in other current assets of $330 million0.3 billion and $379 million,$0.4 billion, respectively. Cash collections from customers on receivables sold were $25.124.2 billion and $26.325.1 billion for the nine months ended September 30, 20192020 and 20182019, respectively. Of this amount, $9.5$6.7 billion and $8.8$9.5 billion were cash collections on the deferred receivables consideration reflected as cash inflows from investing activities for the nine months ended September 30, 20192020 and 20182019., respectively. Deferred receivables consideration is paid to the Company in cash on behalf of the First Purchasers as receivables are collected; however, as this is a revolving facility, cash collected from the Company’s customers is reinvested by the First Purchasers daily in new receivable purchases under the Programs.First Program.

The Company’s risk of loss following the transfer of accounts receivable under the ProgramsFirst Program is limited to the deferred receivables consideration outstanding. The Company carries the deferred receivables 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 receivables consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the ProgramsFirst Program which have historically been insignificant.

Transfers of receivables under the Programs resulted in an expense for the loss on sale of $5$2 million and $4$5 million for the three months ended September 30, 2020 and 2019, respectively, and 2018, respectively,$7 million and $14 million for the nine months ended September 30, 2020 and 2019, and 2018,respectively, which is classified as selling, general, and administrative expenses in the consolidated statements of earnings.
  
In accordance with the amended guidance of Topic 230, the Company reflects cash flows related to the deferred receivables consideration of the Programs as investing activities in its consolidated statements of cash flows. All other cash flows are classified as operating activities because the cash received from the Purchasers upon both the sale and collection of the receivables is not subject to significant interest rate risk given the short-term nature of the Company’s trade receivables.



Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 17.16.     Sale of Accounts Receivable (Continued)

TheOn October 1, 2020, the Company also sells certainrestructured the First Program from a deferred purchase price to a pledge structure. Under the new structure, ADM Receivables transfers a portion of the purchased accounts receivable together with an equally proportional security interest in all of its right, title, and interest in the remaining purchased accounts receivable to each of the First Purchasers. In exchange, ADM Receivables receives a cash payment for the accounts receivables in their entirety to independent third-party institutions without recourse and no continuing involvement.  The sold receivables are considered a true sale for accounting purposes, and therefore, are not reflected on the Company’s consolidated balance sheet.transferred.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements.

The CompanyADM is principally engageda global leader in procuring, transporting, storing,human and animal nutrition and one of the world’s premier agricultural origination and processing companies. It is one of the world’s leading producers of ingredients for human and merchandising agricultural commodities,animal nutrition, and other products and ingredients.made from nature. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in more than 170190 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemical and energy uses. In addition, theThe Company also engages in the manufacturing, sale, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for itsour shareholders, principally from margins earned on these activities.

In May 2019,Effective January 1, 2020, the Company announcedstarted reporting its newly created dry mill ethanol subsidiary, Vantage Corn Processors (VCP), as a sub-segment within the creation of a new business unit. The former Origination and Oilseeds businesses were merged into aCarbohydrate Solutions segment. VCP replaces the Bioproducts sub-segment which included the combined Ag Services and Oilseeds segment which enables the Company to better respond to market changes by integrating the supply and value chains and risk management, while delivering significant simplification and efficiency to the day-to-day business. As partresults of the Company’s efforts for a streamlined management structure,corn dry and wet mill ethanol operations. The wet mill ethanol operations that were previously reported in Bioproducts are now included in the combined segment is led byStarches and Sweeteners sub-segment. In addition to dry mill ethanol production, VCP sells/brokers ADM’s wet mill ethanol production as the former Presidentsole marketer of Oilseeds expanding his role to President of Ag Services and Oilseeds. Effective July 1, 2019,ethanol produced at the Company changed its segment reporting to reflectCompany’s facilities. The change does not have an impact on the creationtotal results of the combined Ag Services and OilseedsCarbohydrate Solutions segment. The Company’s review of its strategic options related to VCP is ongoing.

Prior period results have been reclassified to conform to the current period segment presentation.

The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other.Other Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 1514 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements”.

The Company’s recent significant portfolio actions and announcements include:

the acquisition in January 20192020 of Neovia,Yerbalatina, a French-based global provider of value-added animal nutrition solutions, with 72 production facilitiesnatural plant-based extracts and a presenceingredients manufacturer in 25 countries;Brazil;
the purchasetemporary idling in February 2019April 2020 of ethanol production at the corn dry mill facilities in Cedar Rapids, Iowa, and Columbus, Nebraska due to reduced demand. To better align production with current demand, the Company has also reduced the ethanol grind at its corn wet mill plants and rebalanced grind to produce more industrial alcohol for the sanitizer market and industrial starches for the container board market;
the sale in August 2020 of a portion of the remaining 50% interest owned by InVivo GroupCompany’s shares in Wilmar and the Gleadell Agriculture Ltd. joint venture;issuance of $300 million aggregate principal amount of zero-coupon bonds, exchangeable into Wilmar shares;
the acquisitionrepurchase and redemption in March 2019September 2020 of Florida Chemical Company,$1.2 billion aggregate principal amount of debentures and notes;
the announcement in October 2020 of an agreement with Spiber Inc. (Spiber) to expand the production of Spiber’s innovative Brewed Protein™ polymers for use in apparel and other consumer products;
the announcement in October 2020 of the Company’s plan to construct a new, state-of-the-art facility in Valencia, Spain, that will expand its capabilities to meet growing demand for microbiome solutions; and


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

the announcement in October 2020 of the launch of PlantPlus Foods, a 30% joint venture with Marfrig, one of the world’s leading beef producers and the world’s largest producers of citrus oils and ingredients;
the formal launch in March 2019 of GrainBridge LLC, a 50% joint venture with Cargillbeef patty producer, that will develop digital tools to helpoffer a wide range of finished plant-based food products across North American farmers consolidate information on production economics and grain marketing activities into a single digital platform; and
the acquisition in May 2019 of The Ziegler Group, a leading European provider of natural citrus flavor ingredients.South America

The Company executes its strategic vision through three pillars: Optimize the Core, Drive Efficiencies, and Expand Strategically, all supported by its Readiness effort. During 2018, theThe Company launched Readiness to drive new efficiencies and improve the customer experience in the Company’s existing businesses through a combination of data analytics, process simplification and standardization, and behavioral and cultural change, building upon its earlier 1ADM and operational excellence programs. Readiness will also support the execution of the Company’s growth strategies across its five key growth platforms: Taste, Nutrition, Animal Nutrition, Health and Wellness, and Carbohydrates.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Performance Indicators

The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Item 1A, “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.

The Company’s Ag Services and Oilseeds operations are principally agricultural commodity-based businesses where changes in
selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore,As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Thus,Therefore, changes in revenues of these businesses do not necessarily correspond to the changes in margins or gross profit. Thus, gross margins per volume or metric ton are more meaningful than gross margins as percentage of revenues.

The Company’s Carbohydrate Solutions operations and Nutrition businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these businesses,operations, agricultural commodity market price changes do not necessarily correlate to changes in cost of products sold. Thus,Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margin rates are more meaningful as a performance indicator in these businesses.

The Company has consolidated subsidiaries in more than 8070 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except certain significant subsidiaries in Switzerland where
Euro is the functional currency, and Brazil and Argentina where U.S. dollar is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil and Argentina, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require remeasurement to the functional currency. Changes in revenues are expected to correlatebe correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar.

The Company measures its performance using key financial metrics including net earnings, gross margins, segment operating profit, return on invested capital, EBITDA, economic value added, manufacturing expenses, and selling, general, and administrative expenses. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, trade policies, changes in global demand, general global economic conditions, changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Market Factors Influencing Operations or Results in the Three Months Ended September 30, 20192020

The Company is subject to a variety of market factors which affect the Company's operating results. In Ag ServicesNorth American grain and Oilseeds, sales volumesoilseeds export demand was strong with good buying from China and margins were impacted by the continuing global trade tensions with China. Handling volumes in North America were impacted by the late harvest due to weather conditions that delayed planting. Continued good global meal demand resulted in strong global crushing volumes and stable margins. South American origination benefited from strong farmer selling in Brazil driven by the devaluationrest of the Real and higher volumes in Argentina due to a larger crop.world. Global demandcrushing margins and margins for refined oil and biodiesel remained solid. In Carbohydrate Solutions, demandin South America strengthened due to the increasingly tight soybean supplies in South America. Margins for starches and prices for sweeteners and starcheswheat flour remained solid in North America while co-product prices were stable. Although ethanol demand was seasonably highersoft due to the impacts of COVID-19 in North America,the food service sector. ADM and many ethanol producers have idled some capacity due to low current demand. Ethanol margins were positive during the quarter and demand for USP-grade industrial alcohol for hand sanitizer remained pressured as U.S. industry ethanol production and stocks remained at high levels and U.S. exports to China were limited.strong. Nutrition benefited from growing demand for flavors, flavors systems, andpet food, feed for livestock, plant-based proteins, but wasand probiotics. Lower out-of-home consumption caused by COVID-19 lockdown measures negatively impacted by the African swine fever in Asia Pacific, which also resulted in pricing pressuresflavors volumes especially in the global lysine market.food service channel.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Net earnings attributable to controlling interests decreased $129 million to $407 million. Segment operating profit decreased $123 million to $758 million. Included in segment operating profit in the current quarter was a charge of $6 million consisting of asset impairment charges. Included in segment operating profit in the prior year quarter was a net gain of $20 million consisting of gains on sales of a business and an asset and a settlement charge. Adjusted segment operating profit decreased $97 million to $764 million due to lower results in Crushing and Carbohydrate Solutions and lower equity earnings from the Wilmar investment, partially offset by higher results in Refined Products and Other and Nutrition. Corporate results were a net charge of $255 million in the current quarter compared to $249 million in the prior year quarter. Corporate results in the current quarter included restructuring and pension settlement charges of $47 million related to early retirement and reorganization initiatives. Also included in Corporate results in the current quarter is a credit of $16 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves, compared to a charge of $7 million in the prior year quarter.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net earnings attributable to controlling interests decreased $182 million from $407 million to $225 million. Segment operating profit increased $146 million from $758 million to $904 million. Included in segment operating profit in the current quarter was net income of $55 million consisting of gains on the sale of a portion of the Company’s shares in Wilmar and certain other assets partially offset by asset impairment, restructuring, and settlement charges. Included in segment operating profit in the prior year quarter were asset impairment charges of $6 million. Adjusted segment operating profit increased $85 million to $849 million due primarily to higher results in Refined Products and Other, Starches and Sweeteners, Vantage Corn Processors, Human and Animal Nutrition, and higher equity earnings from the Wilmar investment, partially offset by lower results in Ag Services, Crushing, and Other Business. Corporate results were a net charge of $704 million in the current quarter compared to $255 million in the prior year quarter. Corporate results in the current quarter included early debt retirement charges of $396 million, a mark-to-market loss of $15 million on the conversion option of the exchangeable bonds issued in August 2020, and an impairment charge of $6 million. Corporate results in the prior year quarter included restructuring and pension settlement charges of $47 million related to early retirement and reorganization initiatives and a credit of $16 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves.

Income taxestax expense decreased $121 million to a benefit of $95 million decreased $1$26 million. The Company’s effective tax rate for the quarter ended September 30, 20192020 was 18.9%(13.0)% compared to 15.2%18.9% for the quarter ended September 30, 2018.2019. The change in the rate was primarily due to a lowershift in the geographical mix of forecasted pretax earnings and significant transactions that occurred during the quarter, including the early debt retirement and the tax-free sale of a portion of the Company’s shares in Wilmar, which resulted in a significant decrease in the previously forecasted 2020 effective tax rate. The impact of U.S. tax credits, primarily the biodiesel and railroad tax credits, also contributed significantly to the decreased rate.

In March 2020, the CARES Act was signed into law in the United States. The Company does not expect the provisions of the CARES Act to have a material impact on the annual effective tax rate infor the prior year that included the favorable impacts of both the 2017 retroactive biodiesel tax credit and certain favorable discrete tax items, and current year changes in the geographic mix of forecasted pretax earnings.ending December 31, 2020.

Analysis of Statements of Earnings

Processed volumes by product for the quarter are as follows (in metric tons):
Three Months Ended Three Months Ended 
September 30,  September 30,  
(In thousands)2019 2018 Change2020 2019 Change
Oilseeds9,062
 9,181
 (119)8,970
 9,062
 (92)
Corn5,619
 5,599
 20
4,084
 5,619
 (1,535)
Total14,681
 14,780
 (99)13,054
 14,681
 (1,627)

The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to the current margin environment and seasonal local supply and demand conditions. The overall decrease in corn processed is primarily related to the idling of two dry mill facilities in response to the current low ethanol demand. The Company currently expects that the idled facilities will be restarted as demand for ethanol improves within the next 12 months.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Revenues by segment for the quarter are as follows:
Three Months Ended  Three Months Ended  
September 30,  September 30,  
2019 2018 Change2020 2019 Change
(In millions)(In millions)
Ag Services and Oilseeds          
Ag Services$8,246
 $7,623
 $623
$7,352
 $8,246
 $(894)
Crushing2,465
 2,688
 (223)2,317
 2,465
 (148)
Refined Products and Other1,905
 1,949
 (44)1,858
 1,905
 (47)
Total Ag Services and Oilseeds12,616
 12,260
 356
11,527
 12,616
 (1,089)
          
Carbohydrate Solutions 
  
  
 
  
  
Starches and Sweeteners1,724
 1,706
 18
1,574
 1,526
 48
Bioproducts841
 828
 13
Vantage Corn Processors490
 1,039
 (549)
Total Carbohydrate Solutions2,565
 2,534
 31
2,064
 2,565
 (501)
          
Nutrition          
Wild Flavors and Specialty Ingredients703
 641
 62
Human Nutrition719
 703
 16
Animal Nutrition754
 281
 473
732
 754
 (22)
Total Nutrition1,457
 922
 535
1,451
 1,457
 (6)
          
Other88
 84
 4
Other Business84
 88
 (4)
Total$16,726
 $15,800
 $926
$15,126
 $16,726
 $(1,600)

Revenues and cost of products sold in a commodity merchandising and processing business are significantly correlated to the underlying commodity prices and volumes. During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins sincebecause both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues decreased $1.6 billion to $15.1 billion. Lower sales volumes of rice, ethanol, oils, soybeans, and wheat were partially offset by higher sales prices of oils and soybeans. Ag Services and Oilseeds revenues decreased 9% to $11.5 billion due to lower sales volumes ($1.4 billion), partially offset by higher sales prices ($0.3 billion). Carbohydrate Solutions revenues decreased 20% to $2.1 billion due primarily to lower sales volumes of ethanol ($0.5 billion). Nutrition revenues of $1.5 billion were comparable to the prior year quarter.

Cost of products sold decreased $1.6 billion to $14.1 billion due principally to lower volumes. Included in cost of products sold in the prior quarter was a credit of $16 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves. Manufacturing expenses of $1.4 billion were comparable to the prior year quarter.

Foreign currency translation impacts had an immaterial impact on both revenues and cost of products sold.

Gross profit decreased $36 million or 3%, to $1.0 billion. Lower results in Crushing ($70 million) and Ag Services ($66 million) were offset by higher results in Starches and Sweeteners ($59 million), Refined Products and Other ($48 million), and Human Nutrition ($36 million). These factors are explained in the segment operating profit discussion on page 45. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a positive impact on gross profit of $16 million in the prior year quarter compared to no impact in the current quarter due to the discontinuation of LIFO effective January 1, 2020. Railroad maintenance expenses in Corporate of $28 million in the current quarter also contributed to the decrease in gross profit.



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Revenues increased $0.9 billion to $16.7 billion due to overall higher sales volumes, partially offset by lower sales prices. The increase in sales volumes was due principally to soybeans, barley, corn, wheat, and higher sales volumes of feed ingredients related to acquisitions. The decrease in sales prices was due principally to meal, wheat, and soybeans. Ag Services and Oilseeds revenues increased 3% to $12.6 billion due to higher sales volumes ($1.0 billion) partially offset by lower sales prices ($0.6 billion). Carbohydrate Solutions revenues increased 1% to $2.6 billion due to higher sales volumes ($0.1 billion) offset by lower sales prices ($0.1 billion). Nutrition revenues increased 58% to $1.5 billion due to higher sales volumes ($0.5 billion) primarily related to acquisitions.
Cost of products sold increased $0.9 billion to $15.6 billion due to overall higher sales volumes, partially offset by lower prices of commodities. Included in cost of products sold in the current quarter was a credit of $16 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a charge of $7 million in the prior year quarter. Manufacturing expenses of $1.4 billion were comparable to the prior period. Increases related to acquisitions were offset by lower energy costs and reclassifications.

Foreign currency translation impacts decreased both revenues and cost of products sold by $0.1 billion.

Gross profit of $1.1 billion was comparable to the prior period. Lower results in Ag Services and Oilseeds ($37 million) and Carbohydrate Solutions ($95 million), were offset by higher results in Nutrition ($126 million). These factors are explained in the segment operating profit discussion on page 44. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a positive impact on gross profit of $16 million in the current quarter compared to a negative impact of $7 million in the prior year quarter.

Selling, general, and administrative expenses increased $44$58 million to $578$636 million due principally to new acquisitions and higher spending on IT, growth-related investments, and Readiness-related projects, partially offset by lower variable performance-related and stock compensation expenses.expense accruals which were low in the prior-year quarter.

Asset impairment, exit, and restructuring costs increased $52decreased $49 million to $53$4 million. Charges in the current quarter consisted of individually insignificant long-lived asset impairments of $3 million and restructuring charges of $1 million. Charges in the prior year quarter consisted of $6 million of impairments related to certain long-lived assets presented as specified items within segment operating profit and $47 million of restructuring and pension settlement charges in Corporate related to early retirement and reorganization initiatives. Charges in the prior year quarter consisted of $1 million of individually insignificant restructuring charges in Corporate.

Interest expense increased $10$3 million to $97$100 million due to higher borrowingsthe mark-to-market loss adjustment related to fund recent acquisitions.the conversion option of the exchangeable bonds issued in August 2020, partially offset by net interest savings from cross currency swaps and lower interest rates and short-term debt balances.

Equity in earnings of unconsolidated affiliates decreased $43increased $72 million to $88$160 million due to lowerhigher earnings from the Company’s investments in Wilmar and CIP, partially offset by higher earnings from the Company’s investment in Olenex.Pacificor.

Other incomeexpense - net decreased $7increased $296 million to $18$278 million. IncomeExpense in the current quarter included gains on disposalscharges of individually insignificant assets$396 million related to multiple early debt redemptions and the $0.7 billion debt tender in the ordinary course of business and other income,September 2020, partially offset by foreign exchange losses.a $58 million gain on the sale of a portion of the Company’s shares in Wilmar, gains on the sales of certain other assets, the non-service components of net pension benefit income, and other income. Income in the prior year quarter included gains on the saledisposals of the Company’s oilseeds operations in Bolivia, an equity investment, and individually insignificant assets in the ordinary course of business and other income, partially offset by foreign exchange losses.



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Segment operating profit (loss), adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the quarter are as follows:

Three Months Ended  Three Months Ended  
September 30,  September 30,  
Segment Operating Profit (Loss)2019 2018 Change2020 2019 Change
(In millions)(In millions)
Ag Services and Oilseeds          
Ag Services$161
 $157
 $4
$147
 $161
 $(14)
Crushing138
 197
 (59)66
 138
 (72)
Refined Products and Other80
 44
 36
127
 80
 47
Wilmar38
 80
 (42)96
 38
 58
Total Ag Services and Oilseeds417
 478
 (61)436
 417
 19
          
Carbohydrate Solutions 
  
  
 
  
  
Starches and Sweeteners207
 245
 (38)257
 197
 60
Bioproducts(25) 43
 (68)
Vantage Corn Processors(11) (15) 4
Total Carbohydrate Solutions182
 288
 (106)246
 182
 64
          
Nutrition          
Wild Flavors and Specialty Ingredients102
 80
 22
Human Nutrition128
 102
 26
Animal Nutrition16
 (13) 29
19
 16
 3
Total Nutrition118
 67
 51
147
 118
 29
          
Other47
 28
 19
Other Business20
 47
 (27)
          
Specified Items:          
Gains (losses) on sales of assets and businesses—
 21
 (21)57
 —
 57
Asset impairment and settlement charges(6) (1) (5)
Asset impairment, restructuring, and settlement charges(2) (6) 4
Total Specified Items(6) 20
 (26)55
 (6) 61
          
Total Segment Operating Profit$758
 $881
 $(123)$904
 $758
 $146
          
Adjusted Segment Operating Profit(1)
$764
 $861
 $(97)$849
 $764
 $85
          
Segment Operating Profit$758
 $881
 $(123)$904
 $758
 $146
Corporate(255) (249) (6)(704) (255) (449)
Earnings Before Income Taxes$503
 $632
 $(129)$200
 $503
 $(303)

(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.









ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Ag Services and Oilseeds operating profit decreased 13%increased 5%. Ag Services results were in line with the prior-year quarter on improved origination margins in Brazil, increased export volumes from Argentina, and improved merchandising results from favorable ownership positionslower year-over-year. Strong execution in North America which helpeddrove higher year-over-year export margins and volumes were offset a continued challenging volume and margin environment for U.S. exports. Crushing resultsby negative timing impacts which are expected to reverse in the coming quarters. Results were lower year-over-yearin South America, driven by slower Brazilian farmer selling following the aggressive selling in the first half of the year. Global Trade’s continued focus on serving customers contributed significantly to results as did a $54 million settlement related to U.S. high water insurance claims in 2019. Crushing was lower versus the prior-year period driven largely by negative timing impacts which are expected to reverse in the coming quarters. Strong execution in an environment of tighter soybean supplies and solid global crushdemand for meal and oil supported improved execution margins that were substantially below the record high levels seen in 2018, though still solid in North America and EMEA. In South America, partially offset by lower year-over-year margins were pressured by continued strong exports of soybeans to China. Global crush margins benefited from positive net timing effects of approximately $50 million during the quarter.in EMEAI. Refined Products and Other results weredelivered significantly higher thanyear-over year results, driven by improved biodiesel margins around the globe and contributions from packaged oils in South America. Equity earnings from Wilmar were substantially higher versus the prior-year quarter, largely driven by significant improvements in the peanut shelling business. Wilmar results were lower year-over-year.quarter.

Carbohydrate Solutions operating profit decreased 37%increased 35%. Starches and Sweeteners results were downsubstantially higher versus the third quarter of 2019. In North America, balanced ethanol industry supply and demand drove improved wet mill ethanol margins versus the prior-year quarter. ResultsDemand for starches in North America werewas substantially stronger than earlier in the year, and higher than the prior-year quarter. Reduced food service demand affected by highersweetener and flour volumes though retail demand for flour remained solid. Strong risk management and improved net corn costs contributed positively to results. EMEAI delivered improved results on higher demand and reduced manufacturing and raw material costs. Vantage Corn Processors results were higher driven by distribution gains on wet mill ethanol and significantly improved year-over-year industry ethanol margins, partially offset by lower manufacturingfixed costs which included improvements atfrom the Decatur, IL corn complex. EMEA results were impacted by lower selling pricestwo temporarily idled dry mills. Increased volumes and continued pressure from Turkish sweetener quotas. Additionally, an increase in volumes in the wheat milling business was more than offset by lower margins due to limited wheat procurement opportunities. Bioproducts results were significantly lower, driven by a continued unfavorable ethanol industry margin environment.of USP-grade industrial alcohol for hand sanitizer also supported improved performance.

Nutrition operating profit increased 76%25%. Wild Flavors and Specialty IngredientsHuman Nutrition results were significantlysubstantially higher thanversus the prior-year quarter, on higher saleswith improved results across the business portfolio. Flavors delivered another exceptional quarter, driven by increased revenue globally and marginsimproved mix and margins. Plant-based proteins helped drive a solid performance in Wild Flavors globally, continued expansionSpecialty Ingredients. Sales growth in the protein business amid the growing consumer market for alternative proteins,probiotics and continued contributionsenzymes, along with income from growth investmentsfermentation, contributed to strong results in bioactives and fibers.Health & Wellness. Animal Nutrition results were uphigher year-over-year. Continued delivery of Neovia synergies, strength in livestock feed, and year-over-year driven largelyimprovement in amino acids were partially offset by contributions from Neovia. Improvements in vitamin additives also helped contribute to positive results. Lysine production improved, though pricing was negatively impacted by lower global demand.softer aquaculture feed demand as well as negative foreign currency impacts.

Other Business operating profit increased 68% driven by higher earningsdecreased 57% due to lower results from the Company’s futures commission and brokerage business and lower underwriting results from the captive insurance operations, which included a $17 million settlement for the high water claims in Ag Services and futures commission brokerage businesses.Oilseeds.

Corporate results for the quarter are as follows:
 Three Months Ended  
 September 30,  
 2019 2018 Change
 (In millions)
LIFO credit (charge)$16
 $(7) $23
Interest expense-net(85) (80) (5)
Unallocated corporate costs(139) (161) 22
Adjustments related to acquisitions—
 4
 (4)
Restructuring charges(47) (1) (46)
Other charges—
 (4) 4
Total Corporate$(255) $(249) $(6)
 Three Months Ended  
 September 30,  
 2020 2019 Change
 (In millions)
LIFO adjustment$—
 $16
 $(16)
Interest expense-net(83) (85) 2
Unallocated corporate costs(196) (139) (57)
Early debt retirement charges(396) —
 (396)
Loss on debt conversion option(15) —
 (15)
Impairment and restructuring charges(6) (47) 41
Other income (charges)(8) —
 (8)
Total Corporate$(704) $(255) $(449)

Corporate results were a net charge of $255 million in the current quarter compared to $249 million in the prior year quarter. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves resulted in a credit of $16 million in the current quarter compared to a charge of $7 million in the prior year quarter. Interest expense-net increased $5 million due principally to higher borrowings to fund recent acquisitions. Unallocated corporate costs decreased $22 million due principally to lower variable performance-related and stock compensation expenses, partially offset by higher spending on IT, growth-related investments, Readiness-related projects, and costs transferred in from the business units related to the centralization of certain activities. Adjustments related to acquisitions in the prior year quarter consisted of net gains on foreign exchange derivative contracts entered into to economically hedge certain acquisitions. Restructuring charges, which included pension settlement charges, increased due to early retirement and reorganization initiatives in the current quarter.








ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Corporate results were a net charge of $704 million in the current quarter compared to $255 million in the prior year quarter. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserve resulted in a credit of $16 million in the prior quarter. Interest expense-net decreased $2 million due principally to lower short-term debt balances and net interest savings from cross currency swaps. Unallocated corporate costs increased $57 million due to higher variable performance-related compensation expense accruals. Early debt retirement charges were related to multiple early debt redemptions and the $0.7 billion debt tender in September 2020. Loss on debt conversion option was related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Restructuring charges in the prior quarter, which included pension settlement charges, were related to early retirement and reorganization initiatives. Other charges in the current quarter included railroad maintenance expenses of $28 million, partially offset by the non-service components of net pension benefit income and other income.

Non-GAAP Financial Measures

The Company uses adjusted earnings per share (“EPS”)(EPS), adjusted earnings before taxes, interest, and depreciation and amortization (“EBITDA”)(EBITDA), and adjusted segment operating profit, non-GAAP financial measures as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.

Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.

Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.

The table below provides a reconciliation of diluted EPS to adjusted EPS for the three months ended September 30, 20192020 and 2018.2019.
Three months ended September 30,Three months ended September 30,
2019 20182020 2019
In millions Per share In millions Per shareIn millions Per share In millions Per share
Average number of shares outstanding - diluted563
   568
  562
   563
  
              
Net earnings and reported EPS (fully diluted)$407
 $0.72
 $536
 $0.94
$225
 $0.40
 $407
 $0.72
Adjustments:              
LIFO charge (credit) - net of tax of $4 million in 2019 and $2 million in 2018 (1)
(12) (0.02) 5
 0.01
(Gains) losses on sales of assets and businesses - net of tax of $1 million in 2018 (2)
—
 —
 (20) (0.04)
Asset impairment, restructuring, and settlement charges - net of tax of $12 million in 2019 and $0 million in 2018 (2)
41
 0.08
 2
 —
Adjustments related to acquisitions - net of tax of $1 million (2)
—
 —
 (3) —
LIFO adjustment - net of tax of $4 million (1)
—
 —
 (12) (0.02)
(Gains) losses on sales of assets and businesses - net of tax of $3 million(2)
(54) (0.10) —
 —
Early debt retirement charges - net of tax of $96 million (2)
300
 0.53
 —
 —
Loss on debt conversion option - net of tax of $0 (1)
15
 0.03
 —
 —
Asset impairment, restructuring, and settlement charges - net of tax of $3 million in 2020 and $12 million in 2019 (2)
5
 0.01
 41
 0.08
Certain discrete tax adjustments(5) (0.01) 3
 0.01
8
 0.02
 (5) (0.01)
Total adjustments24
 0.05
 (13) (0.02)274
 0.49
 24
 0.05
Adjusted net earnings and adjusted EPS$431
 $0.77
 $523
 $0.92
$499
 $0.89
 $431
 $0.77

(1) Tax effected using the Company’s U.S. tax rate. LIFO accounting was discontinued effective January 1, 2020.
(2) Tax effected using the U.S. and other applicable tax rates.













ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the three months ended September 30, 20192020 and 2018.2019.
Three months ended  Three months ended  
September 30,  September 30,  
(In millions)2019 2018 Change2020 2019 Change
Earnings before income taxes$503
 $632
 $(129)$200
 $503
 $(303)
Interest expense97
 87
 10
100
 97
 3
Depreciation and amortization249
 232
 17
238
 249
 (11)
LIFO(16) 7
 (23)—
 (16) 16
(Gains) losses on sales of assets and businesses—
 (21) 21
(57) —
 (57)
Adjustments related to acquisitions—
 (4) 4
Early debt retirement charges396
 —
 396
Railroad maintenance expenses28
 —
 28
Asset impairment, restructuring, and settlement charges53
 2
 51
8
 53
 (45)
Adjusted EBITDA$886
 $935
 $(49)$913
 $886
 $27
          
Three months ended  Three months ended  
September 30,  September 30,  
(In millions)2019 2018 Change2020 2019 Change
Ag Services and Oilseeds$511
 $580
 $(69)$527
 $511
 $16
Carbohydrate Solutions264
 364
 (100)323
 264
 59
Nutrition175
 103
 72
201
 175
 26
Other55
 37
 18
Other Business21
 55
 (34)
Corporate(119) (149) 30
(159) (119) (40)
Adjusted EBITDA$886
 $935
 $(49)$913
 $886
 $27



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Market Factors Influencing Operations or Results in the Nine Months Ended September 30, 20192020

The Company is subject to a variety of market factors which affect the Company's operating results. In Ag Services and Oilseeds, sales volumes andNorth American crushing margins were impacted by high water conditionsvolatile due to slow farmer selling and COVID-19 impacts on demand for meal and oil earlier in the Mississippi river systemyear but strengthened in the third quarter due to the increasingly tight soybean stocks in South America. South America saw record origination volumes in the first half of the year and the continuing global trade tensions with China. Handling volumesas it benefited from strong farmer selling in North America were impactedBrazil driven by the late harvest as planting was delayed due todevaluation of the spring flooding. Continued good global meal demand resulted in strong global crushing volumes and stable margins. South American origination volumes were impacted by softer Chinese demand and intermittent farmer selling. Global demandBrazilian Real. Demand and margins for refined oil and biodiesel remained solid. In Carbohydrate Solutions, demand and prices for sweeteners and starches remained solid in North Americaand South America. Margins for starches and sweeteners and wheat flour remained solid while co-product prices were stable. Although ethanol demand remained steadywas soft due to the impacts of COVID-19 in North America,the food service sector. Ethanol margins were pressuredmixed as U.S. industry ethanol production exceeded demand and stocksinventories remained at high levels and U.S. exports to China were limited. In addition, severe weather conditions in North America adversely impacted operationsearly in the Ag Servicesyear, but improved in the second and Oilseedsthird quarters as ADM and Carbohydrate Solutions business units.many ethanol producers idled some capacity due to the low demand. Nutrition benefited from growing demand for flavors, flavors systems, andpet food, feed for livestock, plant-based proteins, butand probiotics. Lower out-of-home consumption caused by COVID-19 lockdown measures negatively impacted flavors volumes, especially in the food service channel, and demand for aqua feed and amino acids. Global demand for amino acids was also negatively impacted by thelower livestock counts following an African swine fever in Asia Pacific, which also resulted in pricing pressures in the global lysine market.outbreak.

Nine Months Ended September 30, 20192020 Compared to Nine Months Ended September 30, 20182019

Net earnings attributable to controlling interests decreased $0.6increased $0.2 billion to $0.9$1.1 billion. Segment operating profit decreased $0.5increased $0.3 billion to $2.0$2.3 billion. Included in segment operating profit in the current period was net income of $20 million consisting of gains on the sale of a portion of the Company’s shares in Wilmar and certain other assets, partially offset by asset impairment, restructuring, and settlement charges. Included in segment operating profit in the prior period was a net charge of $40 million consisting of asset impairment and settlement charges, a gain on the sale of certain assets, and a step-up gain on an equity investment. Included in segment operating profit in the prior period was a net charge of $15 million consisting of asset impairment, restructuring and settlement charges and gains on sales of a business and an asset. Adjusted segment operating profit decreased $0.4increased $0.2 billion to $2.1$2.3 billion due primarily to the absence of the 2017 biodiesel tax credit recorded in the first quarter of 2018, lowerhigher results in Ag Services, Refined Products and Other, Vantage Corn Processors, Human and Carbohydrate SolutionsAnimal Nutrition, and lowerhigher equity earnings from the Wilmar investment, partially offset by higherlower results in Crushing, Starches and Nutrition.Sweeteners, and Other Business. Corporate results were a net charge of $922$1.2 billion for the nine months compared to $0.9 billion the same period last year. Corporate results included a credit of $91 million from the elimination of the LIFO reserve in connection with the accounting change effective January 1, 2020, early debt retirement charges of $410 million, a mark-to-market loss of $15 million on the conversion option of the exchangeable bonds issued in August 2020, and an impairment charge of $5 million for the nine months, compared to $739 million the same period last year. Corporate results for the nine months included restructuring and pension settlement and remeasurement charges of $150 million primarily related to early retirement and reorganization initiatives. Also included in Corporate results in the current period isinitiatives and a charge of $10 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $14 millionduring the same period last year.

Income taxes of $212$38 million decreased $38$174 million. The Company’s effective tax rate for the nine months ended September 30, 20192020 was 19.4%3.4% compared to 14.3%19.4% for the nine months ended September 30, 2018.2019. The change in rate was due primarily due to the impact of U.S. tax credits signed into law in December 2019, including a lower$73 million discrete tax benefit related to 45G railroad tax credits recognized in the quarter ended March 31, 2020. The 45G railroad tax credits have an offsetting expense in cost of products sold.

In March 2020, the CARES Act was signed into law in the United States. The Company does not expect the provisions of the CARES Act to have a material impact on the annual effective tax rate infor the prior year that included the favorable impacts of both the 2017 retroactive biodiesel tax credit and certain favorable discrete tax items, and current year changes in the geographic mix of forecasted pretax earnings.ending December 31, 2020.
 
Analysis of Statements of Earnings

Processed volumes by product for the nine months are as follows (in metric tons):

Nine Months Ended Nine Months Ended 
September 30,  September 30,  
(In thousands)2019 2018 Change2020 2019 Change
Oilseeds27,002
 27,303
 (301)27,236
 27,002
 234
Corn16,297
 16,708
 (411)13,717
 16,297
 (2,580)
Total43,299
 44,011
 (712)40,953
 43,299
 (2,346)



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to the current margin environment and seasonal local supply and demand conditions. Processed volumes ofThe overall increase in oilseeds decreased from the high prior year levels primarilyis due to extendedincreased capacity utilization at new plants combined with downtime in the Quincy, Illinois facility caused byprior year due to weather-related logistical challenges and weak meal demand.issues. The overall decrease in Corncorn processed is primarily related to production disruptionsthe idling of two dry mill facilities in the Columbus, Nebraska corn processing plantsecond quarter due to flooding and production issues in the Decatur, Illinois corn complex.




ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
current low ethanol demand. The Company currently expects that the idled facilities will be restarted as demand for ethanol improves within the next 12 months.

Revenues by segment for the nine months are as follows:

Nine Months Ended  Nine Months Ended  
September 30,  September 30,  
2019 2018 Change2020 2019 Change
(In millions)(In millions)
Ag Services and Oilseeds          
Ag Services$23,653
 $23,769
 $(116)$22,930
 $23,653
 $(723)
Crushing7,130
 7,838
 (708)7,035
 7,130
 (95)
Refined Products and Other5,599
 5,824
 (225)5,382
 5,599
 (217)
Total Ag Services and Oilseeds36,382
 37,431
 (1,049)35,347
 36,382
 (1,035)
          
Carbohydrate Solutions          
Starches and Sweeteners5,030
 5,048
 (18)4,769
 4,782
 (13)
Bioproducts2,379
 2,734
 (355)
Vantage Corn Processors1,625
 2,627
 (1,002)
Total Carbohydrate Solutions7,409
 7,782
 (373)6,394
 7,409
 (1,015)
    

    

Nutrition          
Wild Flavors and Specialty Ingredients2,105
 1,970
 135
Human Nutrition2,161
 2,105
 56
Animal Nutrition2,158
 920
 1,238
2,198
 2,158
 40
Total Nutrition4,263
 2,890
 1,373
4,359
 4,263
 96
    
    
Other273
 291
 (18)
Other Business277
 273
 4
Total$48,327
 $48,394
 $(67)$46,377
 $48,327
 $(1,950)
          

Revenues and cost of products sold in a commodity merchandising and processing business are affected bysignificantly correlated to the underlying commodity prices and volumes. During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins sincebecause both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues decreased $0.1$2.0 billion to $48.3$46.4 billion due to lower sales prices,volumes, partially offset by overall higher sales volumes. The decrease inprices. Lower sales volumes of rice, alcohol, oils, and soybeans and lower sales prices was due principally to soybeans, meal,of biodiesel and oils. The increase in sales volumes was due principally to soybeans, wheat, cotton, andcorn, were partially offset by higher sales volumes of feed ingredients related to acquisitions.biodiesel and corn and higher sales prices of oils and soybeans. Ag Services and Oilseeds revenues decreased 3% to $36.4 billion due to lower sales prices ($2.0 billion) partially offset by higher sales volumes ($0.9 billion). Carbohydrate Solutions revenues decreased 5% to $7.4$35.3 billion due to lower sales volumes ($0.11.3 billion), partially offset by higher sales prices ($0.3 billion). Carbohydrate Solutions revenues decreased 14% to $6.4 billion due to lower sales volumes ($0.8 billion) and lower sales prices ($0.30.2 billion). Nutrition revenues increased 48%2% to $4.3$4.4 billion due to higher sales volumes ($1.3 billion), primarily related to acquisitions, and higher sales prices ($0.1 billion).prices.
 
Cost of products sold increased $0.1 billion to $45.3 billion due to overall higher sales volumes, partially offset by lower prices of commodities. Included in cost of products sold in the current period was a charge of $10 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $14 million in the prior year’s period. Manufacturing expenses increased $0.3 billion to $4.3 billion due principally to new acquisitions and individually insignificant increases in certain expense categories.

Foreign currency translation impacts decreased both revenues and cost of products sold by $0.7 billion.





ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Cost of products sold decreased $2.1 billion to $43.3 billion due to principally to lower volumes. Included in cost of products sold was a credit of $91 million from the effect of the elimination of the LIFO reserve in connection with the accounting change in the current period compared to a charge of $10 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves in the prior period. Manufacturing expenses decreased $0.1 billion to $4.2 billion due principally to lower energy costs and decreased operating supplies and maintenance expenses, partially offset by railroad maintenance expenses.
Foreign currency translation impacts decreased both revenues and cost of products sold by $0.4 billion.

Gross profit decreased $0.2increased $0.1 billion or 4% to $3.0$3.1 billion. LowerHigher results in Human and Animal Nutrition ($154 million), Ag Services ($117 million), Refined Products and OilseedsOther ($13774 million), and Carbohydrate SolutionsVantage Corn Processors ($25542 million), were partially offset by higherlower results in NutritionCrushing ($272273 million) and Starches and Sweeteners ($15 million). These factors are explained in the segment operating profit discussion on page 51. The effect52. In Corporate, the positive period over period impact from LIFO of $101 million due to the elimination of the LIFO reserve in connection with the accounting change effective January 1, 2020 and the changes in agricultural commodity prices on LIFO inventory valuation reserves had a negative impact on gross profit of $10 million in the current period compared to a positive impact of $14 million in the prior period.period were offset by railroad maintenance expenses of $101 million.
 
Selling, general, and administrative expenses increased 14%$0.1 billion to $1.8$1.9 billion due principally to new acquisitions and higher spending on IT, growth-related investments, and Readiness-related projects, partially offset by lower variable performance-related and stock compensation expenses.expense accruals compared to lower accruals in the prior period.

Asset impairment, exit, and restructuring costs increased $159decreased $139 million to $200$61 million. CurrentCharges in the current period consisted primarily of $50 million of impairments related to certain intangible and other long-lived assets and $11 million of restructuring charges. Prior period charges consisted of $50 million of impairments related to certain long-lived assets presented as specified items within segment operating profit, and $150 million of restructuring and pension settlement and remeasurement charges in Corporate primarily related to early retirement and reorganization initiatives. Prior period charges consisted of $12 million of an equity investment impairment, $21 million of asset impairment related to a financing receivable, and $2 million of individually insignificant restructuring charges presented as specified items within segment operating profit, and $6 million of individually insignificant restructuring charges in Corporate.

Interest expense increased $40decreased $37 million to $307$270 million due to higher borrowingslower interest rates and net interest savings from cross currency swaps, partially offset by the mark-to-market loss adjustment related to fund recent acquisitions.the conversion option of the exchangeable bonds issued in August 2020.

Equity in earnings of unconsolidated affiliates decreased $99increased $124 million to $279$403 million due to lowerhigher earnings from the Company’s investments in Wilmar and CIP,Pacificor, partially offset by higher earningsa loss in the current period from the Company’s investment in Olenex.

Other incomeexpense - net decreased $3increased $218 million to $39$179 million. Current period expense included charges of $410 million related to related to multiple early debt redemptions and the $0.7 billion debt tender in September 2020 and loss provisions related to the Company’s futures commission and brokerage business, partially offset by gains related to the sale of a portion of the Company’s shares in Wilmar and certain other assets, the non-service components of net pension benefit income, foreign exchange gains, and other income. Prior period income included gains on the sale of certain assets, step-up gains on equity investments, gains on disposals of individually insignificant assets in the ordinary course of business, and other income, partially offset by foreign exchange losses. Prior period income included gains on disposals of a business, an equity investment, and individually insignificant assets in the ordinary course of business and other income, partially offset by foreign exchange losses.










ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Segment operating profit, adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the nine months are as follows:

Nine Months Ended  Nine Months Ended  
September 30,  September 30,  
Segment Operating Profit (Loss)2019 2018 Change2020 2019 Change
(In millions)(In millions)
Ag Services and Oilseeds    

    

Ag Services$326
 $473
 $(147)$482
 $326
 $156
Crushing493
 393
 100
249
 493
 (244)
Refined Products and Other223
 298
 (75)286
 223
 63
Wilmar154
 241
 (87)254
 154
 100
Total Ag Services and Oilseeds1,196
 1,405
 (209)1,271
 1,196
 75
          
Carbohydrate Solutions

   



   

Starches and Sweeteners595
 699
 (104)533
 547
 (14)
Bioproducts(125) 49
 (174)
Vantage Corn Processors(24) (77) 53
Total Carbohydrate Solutions470
 748
 (278)509
 470
 39
          
Nutrition          
Wild Flavors and Specialty Ingredients293
 259
 34
Human Nutrition372
 293
 79
Animal Nutrition23
 18
 5
75
 23
 52
Total Nutrition316
 277
 39
447
 316
 131
    

    

Other72
 72
 —
Other Business69
 72
 (3)
          
Specified Items:          
Gains (losses) on sales of assets and businesses12
 21
 (9)80
 12
 68
Asset impairment, restructuring, and settlement charges(52) (36) (16)(60) (52) (8)
Total Specified Items(40) (15) (25)20
 (40) 60
          
Total Segment Operating Profit$2,014
 $2,487
 $(473)$2,316
 $2,014
 $302
          
Adjusted Segment Operating Profit(1)
$2,054
 $2,502
 $(448)$2,296
 $2,054
 $242
          
Segment Operating Profit$2,014
 $2,487
 $(473)$2,316
 $2,014
 $302
Corporate(922) (739) (183)(1,189) (922) (267)
Earnings Before Income Taxes$1,092
 $1,748
 $(656)$1,127
 $1,092
 $35

(1) Adjusted segment operating profit is segment operating profit excluding the above specified items.
  







ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Ag Services and Oilseeds operating profit decreased 15%increased 6%. Ag Services results were lower due to weaker margins and lower volumes in North American grain. Results inhigher than the currentprior period, which were also negatively impacted by high water conditions in North America. Strong performance in global trade was driven by strong results in destination marketing and structured trade finance. Robust farmer selling in Brazil drove higher origination margins, which were partially offset by weaker results in North America. Current period results also included a $54 million settlement related to U.S. high water insurance claims in 2019. Crushing results were lower than the prior year period. Volumes were strong and execution margins were solid although below the high realized margins in the first half of the year, which limited grain movement and sales in North America. Slow farmer selling and lower Chinese demand on South American origination in part due the African swine fever2019. Negative timing impacts also impacted results. Crushing results were up comparedcontributed to the prior period, which included significant negative timing effects. Higher executed crush margins around the globe and favorable timing effects of approximately $107 million from hedges enteredlower results in the prior year drove improved results.current period. Refined Products and Other results were down comparedhigher due to the prior period, which included the 2017improved biodiesel tax credit.margins in both North and South America. Equity earnings from Wilmar results were lower year over year.higher year-over-year.

Carbohydrate Solutions operating profit decreased 37%increased 8%. Starches and Sweeteners results were down driven largely by negative mark-to-market timing effects on forward sales of corn oil. Absent those impacts, results were higher due to higher manufacturing costsbetter operating performance at the Decatur IL complexfacility, strong results in wheat milling, and weaker marginsimproved conditions in flour milling. Results in EMEA were pressured by lower marginsEMEAI. VCP results improved from the prior period due to low sugar priceseffective risk management and the Turkish quota on starch-based sweeteners. Bioproducts results were down due to significantly lower ethanol margins amid a continued unfavorable ethanol industry margin environment.increased demand for industrial ethanol.

Nutrition operating profit increased 14%41%. Wild FlavorsHuman Nutrition delivered strong performance and growth across its broad portfolio. Strong execution to meet rising customer demand for plant-based proteins and edible beans drove higher results in Specialty Ingredients results were higher year over year onIngredients. Additional income from fermentation and strong sales for probiotics and margin growthfiber drove higher performance in North America and EMEAI and contributions from acquisitions.Health & Wellness. Flavors continued to deliver solid results. Animal Nutrition results were upimproved year-over-year driven largely by contributionsstrong performance from Neovia, partially offset by additional upfront costs related to inventory valuation of newly-acquired Neoviagood margins in commercial and weaker lysine results.livestock premix, and solid sales in pet care.

Other Business operating profit was comparabledecreased 4%. Lower results, including loss provisions related to the prior period. Improved results from the Company’s futures commission and brokerage business, waswere partially offset by increasedimprovements in underwriting performance at the captive insurance underwriting losses.operations.
 
Corporate results for the nine months are as follows:
Nine Months Ended  Nine Months Ended  
September 30,  September 30,  
2019 2018 Change2020 2019 Change
(In millions)(In millions)
LIFO credit (charge)$(10) $14
 $(24)$91
 $(10) $101
Interest expense-net(276) (236) (40)(246) (276) 30
Unallocated corporate costs(454) (487) 33
(579) (454) (125)
Adjustments related to acquisitions(14) 4
 (18)
Restructuring charges(150) (6) (144)
Expenses related to acquisitions—
 (14) 14
Early debt retirement charges(410) —
 (410)
Loss on debt conversion option(15) —
 (15)
Impairment and restructuring charges(5) (150) 145
Other charges(18) (28) 10
(25) (18) (7)
Total Corporate$(922) $(739) $(183)$(1,189) $(922) $(252)

Corporate results were a net charge of $922 million$1.2 billion in the current period compared to $739 million$0.9 billion in the prior period. The effectelimination of changesthe LIFO reserve in agricultural commodity prices on LIFO inventory valuation reservesconnection with the accounting change effective January 1, 2020 resulted in a chargecredit of $10$91 million in the current period compared to a creditLIFO charge of $14$10 million in the prior period. Interest expense-net decreased $30 million due principally to lower interest rates and net interest savings from cross currency swaps. Unallocated corporate costs increased $40$125 million due principally to higher borrowings to fund recent acquisitions. Unallocated corporate costs decreased $33 million due principally to lower variable performance-related and stock compensation expense accruals. Acquisition expenses partially offset by higher spending on IT, growth-related investments, Readiness-related projects, and costs transferred in from the business units related to the centralization of certain activities. Currentprior period adjustments related to acquisitions consisted of expenseswere related to the Neovia acquisition comparedacquisition. Early debt retirement charges were related to prior period’s net gainsmultiple early debt redemptions and the $0.7 billion debt tender in September 2020. Loss on foreign exchange derivative contracts entered intodebt conversion option was related to economically hedge certain acquisitions.the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Restructuring charges in the prior period, which includeincluded pension settlement and remeasurement charges, increased duewere related to early retirement and reorganization initiativesinitiatives. Other charges in the current period.period included railroad maintenance expenses of $101 million, partially offset by foreign exchange gains, an investment revaluation gain, and the non-service components of net pension benefit income. Other charges decreased due to lowerin the prior period included foreign exchange losses, partially offset by decreased earnings from the Company’s equity investment in CIP.non-service components of net pension benefit income.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Non-GAAP Financial Measures

The Company uses adjusted EPS, adjusted EBITDA, and adjusted segment operating profit, non-GAAP financial measures as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.

Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.

Management believes that adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to diluted EPS, earnings before income taxes, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.

The table below provides a reconciliation of diluted EPS to adjusted EPS for the nine months ended September 30, 20192020 and 2018.2019.
Nine months ended September 30,Nine months ended September 30,
2019 20182020 2019
In millions Per share In millions Per shareIn millions Per share In millions Per share
Average number of shares outstanding - diluted565
   567
  563
   565
  
              
Net earnings and reported EPS (fully diluted)$875
 $1.55
 $1,495
 $2.64
$1,085
 $1.93
 $875
 $1.55
Adjustments:              
LIFO charge (credit) - net of tax of $2 million in 2019 and $3 million in 2018 (1)
8
 0.01
 (11) (0.02)
(Gains) losses on sales of assets and businesses - net of tax of $3 million in 2019 and $1 million in 2018 (2)
(9) (0.02) (20) (0.04)
Asset impairment, restructuring, and settlement charges - net of tax of $46 million in 2019 and $12 million in 2018 (2)
156
 0.28
 30
 0.05
LIFO charge (credit) - net of tax of $22 million in 2020 and $2 million in 2019 (1)
(69) (0.12) 8
 0.01
(Gains) losses on sales of assets and businesses - net of tax of $8 million in 2020 and $3 million in 2019 (2)
(72) (0.13) (9) (0.02)
Asset impairment, restructuring, and settlement charges - net of tax of $16 million in 2020 and $46 million in 2019 (2)
49
 0.09
 156
 0.28
Expenses related to acquisitions - net of tax of $5 million (2)
—
 —
 9
 0.02
Early debt retirement charges - net of tax of $99 million (2)
311
 0.55
 —
 —
Loss on debt conversion option - net of tax of $0 (1)
15
 0.03
 —
 —
Certain discrete tax adjustments(7) (0.01) (4) (0.01)16
 0.03
 (7) (0.01)
Adjustments related to acquisitions - net of tax of $5 million in 2019 and $1 million in 2018 (2)
9
 0.02
 (3) —
Total adjustments157
 0.28
 (8) (0.02)250
 0.45
 157
 0.28
Adjusted net earnings and adjusted EPS$1,032
 $1.83
 $1,487
 $2.62
$1,335
 $2.38
 $1,032
 $1.83
              
(1) Tax effected using the Company’s U.S. tax rate. LIFO accounting was discontinued effective January 1, 2020.
(2) Tax effected using the applicable tax rates.















ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The tables below provide a reconciliation of earnings before income taxes to adjusted EBITDA and adjusted EBITDA by segment for the nine months ended September 30, 20192020 and 2018.2019.
Nine months ended  Nine months ended  
September 30,  September 30,  
(In millions)2019 2018 Change2020 2019 Change
Earnings before income taxes$1,092
 $1,748
 $(656)$1,127
 $1,092
 $35
Interest expense307
 267
 40
270
 307
 (37)
Depreciation and amortization742
 706
 36
727
 742
 (15)
LIFO10
 (14) 24
(91) 10
 (101)
(Gains) losses on sales of assets and businesses(12) (21) 9
(80) (12) (68)
Adjustments related to acquisitions14
 (4) 18
Early debt retirement charges410
 —
 410
Expenses related to acquisitions—
 14
 (14)
Railroad maintenance expenses101
 —
 101
Asset impairment, restructuring, and settlement charges202
 42
 160
65
 202
 (137)
Adjusted EBITDA$2,355
 $2,724
 $(369)$2,529
 $2,355
 $174
          
          
Nine months ended  Nine months ended  
September 30,  September 30,  
(In millions)2019 2018 Change2020 2019 Change
Ag Services and Oilseeds$1,478
 $1,699
 $(221)$1,543
 $1,478
 $65
Carbohydrate Solutions716
 1,001
 (285)745
 716
 29
Nutrition482
 387
 95
617
 482
 135
Other97
 95
 2
Other Business75
 97
 (22)
Corporate(418) (458) 40
(451) (418) (33)
Adjusted EBITDA$2,355
 $2,724
 $(369)$2,529
 $2,355
 $174




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 intensivecapital-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 the Company’sADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance the Company’sADM’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.facility and accounts receivable securitization programs.  In addition, the Company believes it has access to funds from public and private equity and debt capital markets in both U.S. and international markets.

Cash used in operating activities was $3.6$1.5 billion for the nine months compared to $3.7$3.6 billion for the same period last year. Working capital changes, including the increase in deferred consideration, decreased cash by $5.3$3.8 billion for the nine months compared to $5.6$5.3 billion for the same period last year. Inventories decreased approximately $1.0$0.4 billion primarily due to lower inventory quantities.quantities, partially offset by higher prices. Trade payables declined approximately $0.8$0.4 billion principally reflecting seasonal cash payments for North American harvest-related grain purchases.

Increase in deferred consideration in securitized receivables of $5.7$4.6 billion and $5.4$5.7 billion for the nine months and the same period last year, respectively, was offset by $5.7$4.6 billion and $5.4$5.7 billion of net consideration received for beneficial interest obtained for selling trade receivables for the nine months and the same period last year, respectively.

Cash provided by investing activities was $3.3$4.7 billion for the nine months compared to $4.6$3.3 billion for the same period last year. Capital expenditures of $0.6 billion for the nine months of $0.6 billion were comparable to the same period last year. Net assets of businesses acquired were $1.9 billion$3 million for the nine months compared to $0.3$1.9 billion for the same period last year due to the acquisition of Neovia in 2019. Proceeds from sales of business and assets for the nine months of $0.7 billion related to the sale of a portion of the Company shares in Wilmar and certain other assets compared to $43 million for the same period last year. Net consideration received for beneficial interest obtained for selling trade receivables was $5.7$4.6 billion for the nine months compared to $5.4$5.7 billion the same period last year.

Cash used in financing activities was $0.4$1.9 billion for the nine months compared to $0.1$0.4 billion for the same period last year. Long-term debt borrowings for the nine months wereof $1.8 billion consisted of the $0.5 billion and $1.0 billion aggregate principal amounts of 2.75% Notes due in 2025 and 3.25% Notes due in 2030, respectively, issued on March 27, 2020 and the $0.3 billion aggregate principal amount of zero coupon exchangeable bonds due in 2023 issued on August 26, 2020, compared to long-term borrowings of $3 million for the same period last year. Commercial paper net payments for the nine months were $1.0 billion compared to $762 millionnet borrowings of $1.0 billion for the same period last year. Proceeds from the borrowings in the current period will be used for general corporate purposes, including the reduction of short-term debt. Long-term debt payments for the nine months of $2.0 billion related to the early redemption of the $0.5 billion and $0.4 billion aggregate principal amounts of 4.479% due in 2021 and 3.375% debentures due in 2022, respectively, the repurchase of $0.7 billion aggregate principal amount of Debentures, and the redemption of $0.1 billion aggregate principal amount of private placement notes due in 2021 and 2024, compared to $0.6 billion for the same period last year which primarily related to the €650 million ($754 million as of September 30, 2018) aggregate principal amount of 1.0% Notes issued on September 12, 2018. Long-term debt payments for the nine months of $615 million primarily related to the €500 million€0.5 billion Floating Rate Notes that matured in June 2019, compared to $13 million for the same period last year. Commercial paper borrowings for the nine months were $1.0 billion compared to commercial paper borrowings of $0.3 billion for the same period last year.2019. Share repurchases for the nine months were $0.2$0.1 billion compared to an insignificant amount$0.2 billion for the same period last year. Dividends of $0.6 billion for the nine months were comparable to the same period last year.

At September 30, 2019,2020, the Company had $1.0$0.9 billion of cash, cash equivalents, and short-term marketable securities and a current ratio, defined as current assets divided by current liabilities, of 1.6 to 1. Included in working capital was $4.7$5.6 billion of readily marketable commodity inventories. At September 30, 2019,2020, the Company’s capital resources included shareholders’ equity of $18.9$19.3 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $8.5$10.7 billion, of which $5.5$9.1 billion was unused. The Company’s ratio of long-term debt to total capital (the sum of the Company’s long-term debt and shareholders’ equity) was 29% at September 30, 20192020 and December 31, 2018.2019. 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, current maturities of long-term debt, and long-term debt less the sum of cash and cash equivalents and short-term marketable securities) to capital (the sum of net debt and shareholders’ equity) was 30%27% and 29% at September 30, 20192020 and 25% at December 31, 2018.2019, 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 $1.1 billion of U.S. and Europeanno commercial paper outstanding at September 30, 2019.2020.





ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

COVID-19 has not significantly impacted ADM’s capital and financial resources, and pricing on its revolving credit facility remains unchanged. However, in line with the overall markets, COVID-19 has created dislocations in the credit markets during certain periods in the first half of 2020 with corporate spreads increasing, partially offset by a decline in benchmark yields. The Company has utilized its diversified sources of liquidity, including its inventory financing and bilateral bank facilities, to ensure it has ample cash and is prepared for possible unexpected credit market disruptions. Additionally, ADM has been accepted into the Federal Reserve’s Commercial Paper Financing Facility and the Bank of England’s COVID Corporate Financing Facility ensuring uninterrupted access to both the U.S. and European commercial paper markets.  To date, the Company has not utilized these facilities.

During the second half of 2020, the global credit market stabilized with corporate credit spreads below pre-pandemic levels. Continued actions by central banks provided additional support in both the short-term and long-term funding markets further stabilizing corporate credit markets. Low benchmark yields and favorable credit spreads coupled with continued strong cash flow generation during the second half of the year presented opportunities for ADM to re-balance the company’s liability portfolio to pre-pandemic levels. Starting in June 2020, ADM began a series of liability management transactions including multiple early debt redemptions and the $0.7 billion debt tender in September 2020 to capitalize on all-time low interest rates.

As of September 30, 2019,2020, the Company had $0.9 billion of cash and cash equivalents, $0.4 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 $3.9$6.2 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.





ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs as amended, provide the Company with up to $1.8 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 1716 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures on the Programs). As of September 30, 2019,2020, the Company utilized $1.7$1.4 billion of its facility under the Programs.

For the nine months ended September 30, 2019,2020, the Company spent approximately $0.6 billion in capital expenditures, and $0.6 billion in dividends.dividends, and $0.1 billion in share repurchases. The Company has a stock repurchase program. Under the program, the Company acquired 3.73.5 million shares for the nine months ended September 30, 2019,2020, and has 108.3104.9 million shares remaining that may be repurchased until December 31, 2019. On August 7, 2019, the Company’s Board of Directors approved the extension of the stock repurchase program through December 31, 2024 and the repurchase of up to an additional 100,000,000 shares under the extended program.2024.
 
The Company expects capital expenditures of approximately $0.8 billion, to $0.9 billion, dividends of $0.8 billion, and share repurchases of about $150 million$0.1 billion during 2019.2020.

Contractual Obligations and Commercial Commitments

The Company’s purchase obligations as of September 30, 20192020 and December 31, 20182019 were $13.0$19.5 billion and $11.8$12.2 billion, respectively.  The increase is primarily related to obligations to purchase higher quantities of agricultural commodity inventories, obligations from new acquisitions, and new commitments.inventories. As of September 30, 2019,2020, the Company expects to make payments related to purchase obligations of $12.1$18.1 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended September 30, 20192020.

Off Balance Sheet Arrangements

In September 2019,On October 1, 2020, the Company amended itsrestructured the First Program from a deferred purchase price to a pledge structure. Under the new structure, ADM Receivables transfers a portion of the purchased accounts receivable securitization program (the “Program”)together with certain commercial paper conduit purchasersan equally proportional security interest in all of its right, title, and committed purchasers (collectively,interest in the “First Purchasers”) and increased its facility from $1.2 billionremaining purchased accounts receivable to $1.3 billion. The program terminates on June 18, 2020 unless extended (seeeach of the First Purchasers. In exchange, ADM Receivables receives a cash payment for the accounts receivables transferred. See Note 1716 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures onabout the Programs).First Program.

There were no other material changes in the Company’s off balance sheet arrangements during the quarter ended September 30, 20192020.

Critical Accounting Policies

There were no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2019.

2020.

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 September 30, 20192020 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 for the year ended December 31, 20182019.

Commodities

The availability and prices of agricultural commodities are subject to wide fluctuations due to factors such as changes in weather conditions, crop disease, plantings, government programs and policies, competition, changes in global demand, changes in customer preferences and standards of living, and global production of similar and competitive crops.




ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)


The fair value of the Company’s commodity position is a summation of the fair values calculated for each commodity by valuing all of the commodity positions at quoted market prices for the period, where available, or utilizing a close proxy. The Company has established metrics to monitor the amount of market risk exposure, which consist of volumetric limits and value-at-risk (“VaR”)(VaR) limits. VaR measures the potential loss, at a 95% confidence level, that could be incurred over a one-year period. Volumetric limits are monitored daily and VaR calculations and sensitivity analysis are monitored weekly.

In addition to measuring the hypothetical loss resulting from an adverse two standard deviation move in market prices (assuming no correlations) over a one-year period using VaR, sensitivity analysis is performed measuring the potential loss in fair value resulting from a hypothetical 10% adverse change in market prices. The highest, lowest, and average weekly position together with the market risk from a hypothetical 10% adverse price change is as follows:
  
 Nine months ended Year ended Nine months ended Year ended
 September 30, 2019 December 31, 2018 September 30, 2020 December 31, 2019
Long/(Short) (In millions)
 Fair Value Market Risk Fair Value Market Risk Fair Value Market Risk Fair Value Market Risk
Highest position $549
 $55
 $434
 $43
 $668
 $67
 $576
 $58
Lowest position (83) (8) 25
 2
 (842) (84) (83) (8)
Average position 241
 24
 237
 24
 (131) (13) 280
 28

The change in fair value of the average position was the result of an increasedue to a decrease in average quantities and, to a lesser extent, a decrease in price underlying the weekly commodity position offset by a decrease in prices.position.

ITEM 4.CONTROLS AND PROCEDURES

As of September 30, 20192020, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. There was no change in the Company’s internal controls over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.




ITEM 4.CONTROLS AND PROCEDURES (Continued)


During 2018, the Company launched Readiness to drive new efficiencies and improve the customer experience in the Company’s existing businesses through a combination of data analytics, process simplification and standardization, and behavioral and cultural change, building upon its earlier 1ADM and operational excellence programs. As part of this transformation, the Company is implementing a new enterprise resource planning (“ERP”)(ERP) system on a worldwide basis, which is expected to occur in phases over the next several years. The Company continues to consider these changes in its design of and testing for effectiveness of internal controls over financial reporting and concluded, as part of the evaluation described in the above paragraph, that the implementation of the new ERP in these circumstances has not materially affected its internal control over financial reporting.

In January 2019, the Company completed the acquisition of Neovia. As a result of the acquisition, the Company is in the process of reviewing its internal control structure and, if necessary, will make appropriate changes as the Company incorporates its controls and procedures into the acquired business. In addition, the Company added certain controls related to the adoption of Topic 842 with no material effect to its internal control over financial reporting.



PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The Company is routinely involved in a number of actual or threatened legal actions, including those involving alleged personal injuries, employment law, product liability, intellectual property, environmental issues, alleged tax liability (see Note 1110 for information on income tax matters), and class actions. The Company also routinely receives inquiries from regulators and other government authorities relating to various aspects of our business, and at any given time, the Company has matters at various stages of resolution with the applicable government authorities.resolution. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. In some actions, claimants seek damages, as well as other relief including injunctive relief, that could require significant expenditures or result in lost revenues. In accordance with applicable accounting standards, the Company records a liability in its consolidated financial statements for material loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a material loss contingency is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, disgorgement, or punitive damages; or could result in a change in business practice.

The Company has been a party to numerous lawsuits pending in various U.S. state and federal courts arising out of Syngenta Corporation’s (“Syngenta”) marketing and distribution of genetically modified corn products, Agrisure Viptera and Agrisure Duracade, in the U.S. First, the Company brought a state court action in Louisiana against Syngenta in 2014, alleging Syngenta was negligent in commercializing its products before the products were approved in China. In December 2017, the Company and Syngenta reached a confidential settlement of this action. Second, Syngenta brought third-party claims against the Company in 2015 in a federal multidistrict litigation (“MDL”) in Kansas City, Kansas, a state court MDL in Minneapolis, Minnesota, and other courts, seeking contribution in the event Syngenta is held liable in class actions by farmers and other parties. In the December 2017 settlement, Syngenta agreed to dismiss all of these third-party claims against the Company. Third, farmers and other parties have sued the Company and other grain companies in numerous individual and purported class action suits in Illinois state and federal courts beginning in the fourth quarter of 2015, alleging the Company and other grain companies were negligent in failing to screen for genetically modified corn. On January 4, 2017, a federal court in the Southern District of Illinois dismissed, subject to appeal, all of the pending federal complaints against the Company, and thus the Company remains a defendant only in certain Illinois state court actions by farmers and other parties, which actions the Company has moved to dismiss as well. The Company denies liability in all of the actions in which it has been named as a third-party defendant or defendant and is vigorously defending itself in these cases. All of these actions are in pretrial proceedings. At this time, the Company is unable to predict the final outcome of this matter with any reasonable degree of certainty, but believes the outcome will not have a material adverse effect on its financial condition, results of operations, or cash flows.

On September 4, 2019, AOT Holding AG (“AOT”)(AOT) filed a putative class action under the U.S. Commodities Exchange Act in federal district court in Urbana, Illinois, alleging that the Company sought to manipulate the benchmark price used to price and settle ethanol derivatives traded on futures exchanges. AOT alleges that members of the putative class suffered “hundreds of millions of dollars in damages” as a result of the Company’s alleged actions. In May 2020, the court granted in part and denied in part the Company’s motion to dismiss, and the parties are engaged in discovery. On July 14, 2020, Green Plains Inc. and its related entities filed a putative class action lawsuit, alleging substantially the same operative facts, in federal court in Nebraska, seeking to represent all sellers of ethanol. On July 23, 2020, Midwest Renewable Energy, LLC filed a putative class action in federal court in Illinois alleging substantially the same operative facts and asserting claims under the Sherman Act. The Company denies liability, and is vigorously defending itself in this action.these actions. As this action isthese actions are in pretrial proceedings, the Company is unable at this time to predict the final outcome with any reasonable degree of certainty, but believes the outcome will not have a material adverse effect on its financial condition, results of operations, or cash flows.

On September 5, 2019, D&M Farms, Mark Hasty, and Dustin Land filed a putative class action on behalf of a purported class of peanut farmers under the U.S. federal antitrust laws in federal court in Norfolk, Virginia, alleging that the Company’s subsidiary, Golden Peanut, and another peanut shelling company, conspired to fix the price they paid to farmers for raw peanuts. The Company filed aIn May 2020, the court denied the Company’s motion to dismiss, this suit on October 21, 2019, and that motion is awaiting decision by the court. parties are engaged in discovery.The Company denies liability and is vigorously defending itself, in this action. As this action is in pretrial proceedings, the Company is unable at this time to predict the final outcome with any reasonable degree of certainty, but believes the outcome will not have a material adverse effect on its financial condition, results of operations, or cash flows.

The Company is not currently a party to any legal proceeding or environmental claim that it believes would have a material adverse effect on its financial position, results of operations, or liquidity.




ITEM 1A.RISK FACTORS

There were no significant changesThe information presented below updates, and should be read in conjunction with, the Company’s risk factors during the quarter ended September 30, 2019. For further information about the Company’s risk factors, refer toin Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. Except as presented below, there were no other significant changes in the Company’s risk factors during the quarter ended September 30, 2020.

The Company faces risks related to health epidemics, pandemics, and similar outbreaks.
ADM is monitoring the novel coronavirus (COVID-19) global pandemic and taking steps to mitigate the potential risks posed by its spread, including working with its customers, employees, suppliers, local communities, and other stakeholders. COVID-19 or other health epidemics, pandemics, or similar outbreaks could impact the Company’s operations if significant portions of its workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, or other restrictions. Additionally, third party service providers, suppliers, joint ventures, customers, and other business partners may not be able fulfill their commitments creating additional disruptions for the Company. In such circumstances, ADM may be unable to perform fully on its contractual obligations, critical global supply chain and logistical networks may be affected, and costs and working capital may increase. These cost increases may not be fully recoverable or adequately covered by insurance. In addition, demand for certain products that ADM produces, particularly biofuels and ingredients that go into food and beverages that support the food services channels, may be materially impacted from a prolonged outbreak of COVID-19 or significant local resurgences of the virus, leading to additional government lockdowns, quarantines, or other restrictions. The Company cannot at this time predict the impact of the COVID-19 pandemic on its future financial or operational results, but the impact could potentially be material over time.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Period 
Total Number of Shares Purchased(1)
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of a Publicly Announced Program(2)
 
Number of Shares Remaining that May be Purchased Under the Program(2)
July 1, 2019 to        
July 31, 2019 977,512
 $40.706
 972,639
 8,732,702
         
August 1, 2019 to  
  
  
  
August 31, 2019 418,627
 39.847
 417,145
 108,315,557
         
September 1, 2019 to  
  
    
September 30, 2019 509
 39.735
 15
 108,315,542
Total 1,396,648
 $40.448
 1,389,799
 108,315,542
Period 
Total Number of Shares Purchased(1)
 Average Price Paid per Share 
Total Number of Shares Purchased as Part of a Publicly Announced Program(2)
 
Number of Shares Remaining that May be Purchased Under the Program(2)
July 1, 2020 to        
July 31, 2020 1,579
 $41.767
 102
 104,961,558
         
August 1, 2020 to  
  
  
  
August 31, 2020 109,219
 43.528
 106,337
 104,855,221
         
September 1, 2020 to  
  
    
September 30, 2020 12,930
 47.610
 172
 104,855,049
Total 123,728
 $43.932
 106,611
 104,855,049

(1)Total shares purchased represents those shares purchased in the open market as part of the Company’s publicly announced share repurchase program described below, shares received as payment for the exercise price of stock option exercises, and shares received as payment for the withholding taxes on vested restricted stock awards. During the three-month period ended September 30, 2019,2020, there were 6,84917,117 shares received as payments for the minimum withholding taxes on vested restricted stock awards and for the exercise price of stock option exercises.

(2)On November 5, 2014, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 100,000,000 shares of the Company’s common stock during the period commencing January 1, 2015 and ending December 31, 2019. On August 7, 2019, the Company’s Board of Directors approved the extension of the stock repurchase program through December 31, 2024 and the repurchase of up to an additional 100,000,000 shares under the extended program.
 




ITEM 6.EXHIBITS
(3)(i) 
Composite Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(i) to the Company’s Form 10-Q for the quarter ended September 30, 2001 (File No. 1-44)).
   
(3)(ii) 
Bylaws, as amended through May 1, 2019 (incorporated by reference to Exhibit 3(ii) to the Company’s Form 8-K filed on May 7, 2019 (File No. 1-44)).
   
(31.1) 
Certification of Chief Executive Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a) of the Securities Exchange Act, as amended.
   
(31.2) 
Certification of Chief Financial Officer pursuant to Rule 13a–14(a) and Rule 15d–14(a) of the Securities Exchange Act, as amended.
   
(32.1) 
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
(32.2) 
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
(101) Interactive Data FileInline XBRL file set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
   
(104) Cover Page Interactive Data File (formatted as Inline XBRL and incorporated by reference tofor the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101)101 Inline XBRL file set.





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 ARCHER-DANIELS-MIDLAND COMPANY
  
  
  
 /s/ R. G. Young
 R. G. Young
 Executive Vice President and Chief Financial Officer
  
  
  
 /s/ D. C. Findlay
 D. C. Findlay
 Senior Vice President, General Counsel, and Secretary

Dated: October 31, 201930, 2020

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