0000007084 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30


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 June 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: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 – 556,974,059555,646,889 shares
(July 31, 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 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2019 2018 2019 20182020 2019 2020 2019
(In millions, except per share amounts)(In millions, except per share amounts)
              
Revenues$16,297
 $17,068
 $31,601
 $32,594
$16,281
 $16,297
 $31,251
 $31,601
Cost of products sold15,325
 15,887
 29,701
 30,524
15,173
 15,325
 29,192
 29,701
Gross Profit972
 1,181
 1,900
 2,070
1,108
 972
 2,059
 1,900
              
Selling, general, and administrative expenses602
 560
 1,261
 1,073
638
 602
 1,302
 1,261
Asset impairment, exit, and restructuring costs136
 24
 147
 40
16
 136
 57
 147
Interest expense109
 89
 210
 180
87
 109
 170
 210
Equity in (earnings) losses of unconsolidated affiliates(90) (100) (191) (247)(103) (90) (243) (191)
Interest income(46) (42) (95) (75)(15) (46) (55) (95)
Other (income) expense – net(13) (2) (21) (17)(67) (13) (99) (21)
Earnings Before Income Taxes274
 652
 589
 1,116
552
 274
 927
 589
              
Income taxes36
 86
 117
 154
Income tax (benefit) expense80
 36
 64
 117
Net Earnings Including Noncontrolling Interests238
 566
 472
 962
472
 238
 863
 472
              
Less: Net earnings attributable to noncontrolling interests3
 —
 4
 3
3
 3
 3
 4
              
Net Earnings Attributable to Controlling Interests$235
 $566
 $468
 $959
$469
 $235
 $860
 $468
              
Average number of shares outstanding – basic565
 564
 565
 564
561
 565
 562
 565
              
Average number of shares outstanding – diluted566
 567
 566
 566
562
 566
 563
 566
              
Basic earnings per common share$0.42
 $1.00
 $0.83
 $1.70
$0.84
 $0.42
 $1.53
 $0.83
              
Diluted earnings per common share$0.42
 $1.00
 $0.83
 $1.70
$0.84
 $0.42
 $1.53
 $0.83
              
Dividends per common share$0.35
 $0.335
 $0.70
 $0.67
$0.36
 $0.35
 $0.72
 $0.70

See notes to consolidated financial statements.







Archer-Daniels-Midland Company

Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended 
 June 30,		 Six Months Ended 
 June 30,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2019 2018 2019 20182020 2019 2020 2019
(In millions)(In millions)
              
Net earnings including noncontrolling interests$238
 $566
 $472
 $962
$472
 $238
 $863
 $472
Other comprehensive income (loss):              
Foreign currency translation adjustment94
 (402) 15
 (191)(34) 94
 (275) 15
Tax effect7
 (19) (3) (22)28
 7
 (14) (3)
Net of tax amount101
 (421) 12
 (213)(6) 101
 (289) 12
              
Pension and other postretirement benefit liabilities adjustment(4) 13
 3
 15
1
 (4) 5
 3
Tax effect2
 (1) 15
 (4)—
 2
 (12) 15
Net of tax amount(2) 12
 18
 11
1
 (2) (7) 18
              
Deferred gain (loss) on hedging activities14
 (64) (63) (89)81
 14
 (1) (63)
Tax effect(7) 15
 5
 21
(15) (7) (1) 5
Net of tax amount7
 (49) (58) (68)66
 7
 (2) (58)
              
Unrealized gain (loss) on investments7
 (2) 5
 (4)(3) 7
 3
 5
Tax effect(1) —
 (1) —
1
 (1) (1) (1)
Net of tax amount6
 (2) 4
 (4)(2) 6
 2
 4
Other comprehensive income (loss)112
 (460) (24) (274)59
 112
 (296) (24)
Comprehensive income (loss) including noncontrolling interests350
 106
 448
 688
531
 350
 567
 448
              
Less: Comprehensive income (loss) attributable to noncontrolling interests3
 —
 4
 3
3
 3
 7
 4
              
Comprehensive income (loss) attributable to controlling interests$347
 $106
 $444
 $685
$528
 $347
 $560
 $444

See notes to consolidated financial statements.








Archer-Daniels-Midland Company

Consolidated Balance Sheets
(In millions)June 30, 2019 December 31, 2018June 30, 2020 December 31, 2019
(Unaudited)  (Unaudited)  
Assets      
Current Assets      
Cash and cash equivalents$849
 $1,997
$1,203
 $852
Short-term marketable securities4
 6
Segregated cash and investments4,381
 4,506
5,045
 4,458
Trade receivables2,433
 2,233
2,583
 2,267
Inventories8,294
 8,813
7,626
 9,170
Other current assets3,587
 3,033
5,554
 4,600
Total Current Assets19,548
 20,588
22,011
 21,347
      
Investments and Other Assets 
  
 
  
Investments in and advances to affiliates5,449
 5,317
5,239
 5,132
Long-term marketable securities8
 7
Goodwill and other intangible assets5,545
 4,041
5,212
 5,476
Other assets1,821
 927
2,046
 1,936
Total Investments and Other Assets12,823
 10,292
12,497
 12,544
      
Property, Plant, and Equipment 
  
 
  
Land and land improvements587
 545
534
 592
Buildings5,455
 5,171
5,399
 5,381
Machinery and equipment18,768
 18,399
19,003
 19,005
Construction in progress1,028
 987
963
 1,021
25,838
 25,102
25,899
 25,999
Accumulated depreciation(15,593) (15,149)(16,066) (15,893)
Net Property, Plant, and Equipment10,245
 9,953
9,833
 10,106
Total Assets$42,616
 $40,833
$44,341
 $43,997
      
Liabilities, Temporary Equity, and Shareholders’ Equity 
  
 
  
Current Liabilities 
  
 
  
Short-term debt$1,699
 $108
$531
 $1,202
Trade payables3,067
 3,545
2,897
 3,746
Payables to brokerage customers4,696
 4,628
5,840
 5,022
Accrued expenses and other payables3,128
 2,913
3,531
 3,757
Current maturities of long-term debt12
 582
10
 7
Total Current Liabilities12,602
 11,776
12,809
 13,734
      
Long-Term Liabilities 
  
 
  
Long-term debt7,701
 7,698
8,632
 7,672
Deferred income taxes1,305
 1,067
1,347
 1,194
Other1,976
 1,247
2,157
 2,114
Total Long-Term Liabilities10,982
 10,012
12,136
 10,980
      
Temporary Equity - Redeemable noncontrolling interest53
 49
85
 58
      
Shareholders’ Equity 
  
 
  
Common stock2,588
 2,560
2,705
 2,655
Reinvested earnings18,497
 18,527
19,293
 18,958
Accumulated other comprehensive income (loss)(2,130) (2,106)(2,705) (2,405)
Noncontrolling interests24
 15
18
 17
Total Shareholders’ Equity18,979
 18,996
19,311
 19,225
Total Liabilities, Temporary Equity, and Shareholders’ Equity$42,616
 $40,833
$44,341
 $43,997
      
See notes to consolidated financial statements.




Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows
(Unaudited)
(In millions)Six Months Ended 
 June 30,		Six Months Ended
June 30,
2019 20182020 2019
Operating Activities      
Net earnings including noncontrolling interests$472
 $962
$863
 $472
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities 
  
 
  
Depreciation and amortization493
 474
489
 493
Asset impairment charges44
 33
47
 44
Deferred income taxes11
 (92)49
 11
Equity in earnings of affiliates, net of dividends(60) (84)(93) (60)
Stock compensation expense45
 63
75
 45
Loss on debt extinguishment14
 —
Deferred cash flow hedges(63) (90)(1) (63)
Gains on sales of assets and businesses(30) (12)(64) (30)
Other – net104
 (116)232
 104
Changes in operating assets and liabilities 
  
 
  
Segregated investments113
 729
570
 113
Trade receivables129
 (30)(364) 129
Inventories852
 1,156
1,439
 852
Deferred consideration in securitized receivables(3,613) (4,107)(2,456) (3,613)
Other current assets(467) (519)(1,058) (467)
Trade payables(742) (1,265)(819) (742)
Payables to brokerage customers71
 (664)881
 71
Accrued expenses and other payables(72) 383
(240) (72)
Total Operating Activities(2,713) (3,179)(436) (2,713)
      
Investing Activities 
  
 
  
Purchases of property, plant, and equipment(383) (379)(360) (383)
Proceeds from sales of business and assets23
 26
91
 23
Net assets of businesses acquired(1,944) —
(3) (1,944)
Purchases of marketable securities(2) (2)(3) (2)
Proceeds from sales of marketable securities67
 —
—
 67
Investments in and advances to affiliates(10) (132)(5) (10)
Investments in retained interest in securitized receivables(2,590) (2,184)(2,121) (2,590)
Proceeds from retained interest in securitized receivables6,203
 6,212
4,577
 6,203
Other – net(18) 7
(3) (18)
Total Investing Activities1,346
 3,548
2,173
 1,346
      
Financing Activities 
  
 
  
Long-term debt borrowings2
 —
1,478
 2
Long-term debt payments(611) (6)(525) (611)
Net borrowings (payments) under lines of credit agreements1,413
 196
(667) 1,413
Share repurchases(94) —
(112) (94)
Cash dividends(395) (379)(405) (395)
Other – net(42) 13
3
 (42)
Total Financing Activities273
 (176)(228) 273
      
Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents(1,094) 193
1,509
 (1,094)
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$2,749
 $2,051
$4,499
 $2,749
      
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets      
      
Cash and cash equivalents$849
 $851
$1,203
 $849
Restricted cash and restricted cash equivalents included in segregated cash and investments1,900
 1,200
3,296
 1,900
Total cash, cash equivalents, restricted cash, and restricted cash equivalents$2,749
 $2,051
$4,499
 $2,749
      
Supplemental Disclosure of Noncash Investing Activity:      
Retained interest in securitized receivables$3,662
 $3,978
$3,383
 $3,662

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, March 31, 2020555
 $2,690
 $19,026
 $(2,764) $24
 $18,976
Comprehensive income 
  
  
  
  
  
Net earnings   
 469
  
 3
  
Other comprehensive income (loss) 
  
  
 59
 —
  
Total comprehensive income 
  
  
  
  
 531
Dividends paid - $0.36 per share 
  
 (202)  
  
 (202)
Share repurchases—
   —
     —
Stock compensation expense1
 24
  
  
  
 24
Other—
 (9) —
 —
 (9) (18)
Balance, June 30, 2020556
 $2,705
 $19,293
 $(2,705) $18
 $19,311
           
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   
 860
  
 3
  
Other comprehensive income (loss) 
  
  
 (300) 4
  
Total comprehensive income 
  
  
  
  
 567
Dividends paid - $0.72 per share 
  
 (405)  
  
 (405)
Share repurchases(3)   (112)     (112)
Stock compensation expense2
 75
  
  
  
 75
Other


 (25) —
 


 (6) (31)
Balance, June 30, 2020556
 $2,705
 $19,293
 $(2,705) $18
 $19,311
           
           
Balance, March 31, 2019560
 $2,584
 $18,553
 $(2,242) $15
 $18,910
560
 $2,584
 $18,553
 $(2,242) $15
 $18,910
Comprehensive income 
  
  
  
  
  
 
  
  
  
  
  
Net earnings   
 235
  
 3
  
   
 235
  
 3
  
Other comprehensive income (loss) 
  
  
 112
 —
  
 
  
  
 112
 —
  
Total comprehensive income 
  
  
  
  
 350
 
  
  
  
  
 350
Dividends paid - $0.35 per share 
  
 (197)  
  
 (197) 
  
 (197)  
  
 (197)
Share repurchases(2)   (94)     (94)(2)   (94)     (94)
Stock compensation expense—
 2
  
  
  
 2
—
 2
    
  
 2
Other—
 2
 —
 —
 6
 8
—
 2
 —
 —
 6
 8
Balance, June 30, 2019558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
                      
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   
 468
  
 4
  
   
 468
  
 4
  
Other comprehensive income (loss) 
  
  
 (24) —
  
 
  
  
 (24) —
  
Total comprehensive income 
  
  
  
  
 448
 
  
  
  
  
 448
Dividends paid - $0.70 per share 
  
 (395)  
  
 (395) 
  
 (395)  
  
 (395)
Share repurchases(2)   (94)     (94)(2)   (94)     (94)
Stock compensation expense1
 45
  
  
  
 45
1
 45
  
  
  
 45
Other


 (17) (9) —
 5
 (21)—
 (17) (9) —
 5
 (21)
Balance, June 30, 2019558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
558
 $2,588
 $18,497
 $(2,130) $24
 $18,979
                      
Balance, March 31, 2018559
 $2,428
 $17,755
 $(1,451) $5
 $18,737
Comprehensive income 
  
  
  
  
  
Net earnings   
 566
  
 —
  
Other comprehensive income (loss) 
  
  
 (460) —
  
Total comprehensive income 
  
  
  
  
 106
Dividends paid - $0.335 per share 
  
 (189)  
  
 (189)
Stock compensation expense—
 34
  
  
  
 34
Other—
 27
 —
 —
 (3) 24
Balance, June 30, 2018559
 $2,489
 $18,132
 $(1,911) $2
 $18,712
           
Balance, December 31, 2017557
 $2,398
 $17,552
 $(1,637) $9
 $18,322
Comprehensive income 
  
  
  
  
  
Net earnings   
 959
  
 3
  
Other comprehensive income (loss) 
  
  
 (274) —
  
Total comprehensive income 
  
  
  
  
 688
Dividends paid - $0.67 per share 
  
 (379)  
  
 (379)
Stock compensation expense1
 63
  
  
  
 63
Other1
 28
 —
 —
 (10) 18
Balance, June 30, 2018559
 $2,489
 $18,132
 $(1,911) $2
 $18,712
           
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 six months ended June 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

Effective January 1, 2020, the Company started reporting its newly created dry mill ethanol subsidiary, Vantage Corn Processors (VCP), as a sub-segment within the Carbohydrate Solutions segment. VCP replaces the Bioproducts sub-segment which included the combined results of the Company’s corn dry and wet mill ethanol operations. The wet mill ethanol operations that were previously reported in Bioproducts are now included in the Starches and Sweeteners sub-segment. In addition to dry mill ethanol production, VCP will sell/broker ADM’s wet mill ethanol production as the sole marketer of ethanol produced at the Company’s facilities. The change does not have an impact on the total results of the Carbohydrate Solutions segment.

Effective July 1, 2019, the Company changed its segment reporting to reflect the creation of the combined Ag Services and Oilseeds segment. 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.

Prior period information 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 statement of cash flows.

Last-in, First-out (LIFO) Inventories

Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels.  Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventories at interim periods may vary significantly from management’s estimates of year-end inventory levels.


Archer-Daniels-MidlandArcher-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 1.Basis of Presentation (Continued)

Receivables

The 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 $113 million and $110 million at June 30, 2020 and December 31, 2019, respectively, to reflect any loss anticipated on the accounts receivable balances including any accrued interest receivables thereon. Long-term receivables recorded in other assets were not material to the Company’s overall receivables portfolio.

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 $14 million and $25 million in the three and six months ended June 30, 2020, respectively, and $7 million in the three and six months ended June 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 $1 million ($1 million after tax, equal to $0.00 per diluted share) in the three months ended June 30, 2020 and a reduction in cost of goods sold of $43 million ($33 million after tax, equal to $0.06 per diluted share) in the six months ended June 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 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 forgoincludes 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 accumulated other comprehensive income; (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 has made a policy election to not release income tax effects from accumulated comprehensive income, including 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 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating its current accounting policy of recording allowance for doubtful accounts for short-term and long-term receivables for compliance with the amended guidance. Based on that evaluation, the Company does not expect the adoption of this amended guidance to have a significant impact on the Company’s financial results.

Effective January 1, 2020, the Company will be required to adopt the amended guidance of ASC Topic 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 $106 million and $223 million for the three and six months ended June 30, 2020, respectively, and $128 million and $243 million for the three and six months ended June 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 $367 million and $501 million as of June 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 $160 million and $326 million for the three and six months ended June 30, 2019, respectively and $183 million and $509 million for the three and six months ended June 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 $286 million and $604 million as of June 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 six months ended June 30, 2020 were $339 million and $621 million, respectively, and $160 million and $326 million for the three and six months ended June 30, 2019, respectively.

Disaggregation of Revenues

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

 Three Months Ended June 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Origination     
Merchandising and Handling$809
$65
$874
$5,544
$6,418
Transportation—
63
63
—
63
Total Origination809
128
937
5,544
6,481
Oilseeds     
Crushing and Origination200
—
200
3,413
3,613
Refining, Packaging, Biodiesel, and Other525
—
525
1,609
2,134
Total Oilseeds725
—
725
5,022
5,747
Carbohydrate Solutions     
Starches and Sweeteners1,260
—
1,260
424
1,684
Bioproducts757
—
757
—
757
Total Carbohydrate Solutions2,017
—
2,017
424
2,441
Nutrition     
Wild Flavors and Specialty Ingredients728
—
728
—
728
Animal Nutrition796
—
796
—
796
Total Nutrition1,524
—
1,524
—
1,524
      
Other104
—
104
—
104
Total Revenues$5,179
$128
$5,307
$10,990
$16,297
 Three Months Ended June 30, 2020
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$877
$106
$983
$7,669
$8,652
Crushing200
—
200
2,205
2,405
Refined Products and Other521
—
521
1,163
1,684
Total Ag Services and Oilseeds1,598
106
1,704
11,037
12,741
Carbohydrate Solutions     
Starches and Sweeteners1,137
—
1,137
408
1,545
Vantage Corn Processors469
—
469
—
469
Total Carbohydrate Solutions1,606
—
1,606
408
2,014
Nutrition     
Human Nutrition723
—
723
—
723
Animal Nutrition714
—
714
—
714
Total Nutrition1,437
—
1,437
—
1,437
      
Other Business89
—
89
—
89
Total Revenues$4,730
$106
$4,836
$11,445
$16,281

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


 Six Months Ended June 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Origination     
Merchandising and Handling$1,140
$114
$1,254
$11,222
$12,476
Transportation—
129
129
—
129
Total Origination1,140
243
1,383
11,222
12,605
Oilseeds     
Crushing and Origination371
—
371
6,498
6,869
Refining, Packaging, Biodiesel, and Other1,037
—
1,037
3,255
4,292
Total Oilseeds1,408
—
1,408
9,753
11,161
Carbohydrate Solutions     
Starches and Sweeteners2,459
—
2,459
847
3,306
Bioproducts1,538
—
1,538
—
1,538
Total Carbohydrate Solutions3,997
—
3,997
847
4,844
Nutrition     
Wild Flavors and Specialty Ingredients1,402
—
1,402
—
1,402
Animal Nutrition1,404
—
1,404
—
1,404
Total Nutrition2,806
—
2,806
—
2,806
      
Other185
—
185
—
185
Total Revenues$9,536
$243
$9,779
$21,822
$31,601








 Six Months Ended June 30, 2020
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$1,728
$223
$1,951
$13,627
$15,578
Crushing380
—
380
4,338
4,718
Refined Products and Other1,039
—
1,039
2,485
3,524
Total Ag Services and Oilseeds3,147
223
3,370
20,450
23,820
Carbohydrate Solutions     
Starches and Sweeteners2,377
—
2,377
818
3,195
Vantage Corn Processors1,135
—
1,135
—
1,135
Total Carbohydrate Solutions3,512
—
3,512
818
4,330
Nutrition     
Human Nutrition1,442
—
1,442
—
1,442
Animal Nutrition1,466
—
1,466
—
1,466
Total Nutrition2,908
—
2,908
—
2,908
      
Other Business193
—
193
—
193
Total Revenues$9,760
$223
$9,983
$21,268
$31,251










Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


 Three Months Ended June 30, 2018
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Origination     
Merchandising and Handling$561
$60
$621
$5,956
$6,577
Transportation—
63
63
—
63
Total Origination561
123
684
5,956
6,640
Oilseeds     
Crushing and Origination131
—
131
4,243
4,374
Refining, Packaging, Biodiesel, and Other581
—
581
1,707
2,288
Total Oilseeds712
—
712
5,950
6,662
Carbohydrate Solutions     
Starches and Sweeteners1,281
—
1,281
423
1,704
Bioproducts943
—
943
—
943
Total Carbohydrate Solutions2,224
—
2,224
423
2,647
Nutrition     
Wild Flavors and Specialty Ingredients693
—
693
—
693
Animal Nutrition325
—
325
—
325
Total Nutrition1,018
—
1,018
—
1,018
      
Other101
—
101
—
101
Total Revenues$4,616
$123
$4,739
$12,329
$17,068
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


 Three Months Ended June 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$810
$128
$938
$7,092
$8,030
Crushing201
—
201
2,115
2,316
Refined Products and Other523
—
523
1,359
1,882
Total Ag Services and Oilseeds1,534
128
1,662
10,566
12,228
Carbohydrate Solutions     
Starches and Sweeteners1,260
—
1,260
424
1,684
Vantage Corn Processors757
—
757
—
757
Total Carbohydrate Solutions2,017
—
2,017
424
2,441
Nutrition     
Human Nutrition728
—
728
—
728
Animal Nutrition796
—
796
—
796
Total Nutrition1,524
—
1,524
—
1,524
      
Other Business104
—
104
—
104
Total Revenues$5,179
$128
$5,307
$10,990
$16,297
 Six Months Ended June 30, 2018
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Origination     
Merchandising and Handling$1,232
$122
$1,354
$11,435
$12,789
Transportation—
118
118
—
118
Total Origination1,232
240
1,472
11,435
12,907
Oilseeds     
Crushing and Origination317
—
317
7,342
7,659
Refining, Packaging, Biodiesel, and Other1,108
—
1,108
3,497
4,605
Total Oilseeds1,425
—
1,425
10,839
12,264
Carbohydrate Solutions     
Starches and Sweeteners2,438
—
2,438
904
3,342
Bioproducts1,906
—
1,906
—
1,906
Total Carbohydrate Solutions4,344
—
4,344
904
5,248
Nutrition     
Wild Flavors and Specialty Ingredients1,329
—
1,329
—
1,329
Animal Nutrition639
—
639
—
639
Total Nutrition1,968
—
1,968
—
1,968
      
Other207
—
207
—
207
Total Revenues$9,176
$240
$9,416
$23,178
$32,594
 Six Months Ended June 30, 2019
 Topic 606 Revenue
Topic 815(1)
Total
 Point in TimeOver TimeTotalRevenueRevenues
 (In millions)
Ag Services and Oilseeds     
Ag Services$1,141
$243
$1,384
$14,023
$15,407
Crushing372
—
372
4,293
4,665
Refined Products and Other1,035
—
1,035
2,659
3,694
Total Ag Services and Oilseeds2,548
243
2,791
20,975
23,766
Carbohydrate Solutions     
Starches and Sweeteners2,459
—
2,459
847
3,306
Vantage Corn Processors1,538
—
1,538
—
1,538
Total Carbohydrate Solutions3,997
—
3,997
847
4,844
Nutrition     
Human Nutrition1,402
—
1,402
—
1,402
Animal Nutrition1,404
—
1,404
—
1,404
Total Nutrition2,806
—
2,806
—
2,806
      
Other Business185
—
185
—
185
Total Revenues$9,536
$243
$9,779
$21,822
$31,601

(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.

Origination
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


Ag Services and Oilseeds

The OriginationAg Services and Oilseeds segment generates revenue from the sale of commodities, and from service fees for the transportation of goods.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, in Transportation, 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. 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.

Oilseeds

The Oilseeds segment generates revenue primarily from the sale of products manufactured in its global processing facilities.  The segment also generates revenue from the sale of raw commodities in its South American grain origination business and from the sale of peanuts, tree nuts, and peanut-derived ingredients.  Revenue is recognized when a performance obligation is satisfied by transferring control over a product. 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.


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 4.Revenues (Continued)


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 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

The Company acquired Neovia SAS (Neovia), Florida Chemical Company (FCC), and the Ziegler Group (Ziegler) in January 2019, March 2019, and May 2019, respectively. These 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 Neovia, FCC, and Ziegler are reported in the Nutrition segment.

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

In millionsNeoviaFCCZieglerGleadellTotal
Working capital$103
$40
$20
$(6)$157
Property, plant, and equipment405
17
3
13
438
Goodwill731
90
27
10
858
Other intangible assets659
23
24
—
706
Other long-term assets82
—
1
9
92
Long-term liabilities(289)—
(7)(11)(307)
Aggregate cash consideration, net of cash acquired, plus acquisition-date fair value of previously held equity interest$1,691
$170
$68
$15
$1,944

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 $858 million preliminarily allocated to goodwill, $90 million is expected to be deductible for tax purposes.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 5.Acquisitions (Continued)


The Company recognized pre-tax gains of $3 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$215
$7
$3
$225
Customer lists10to20306
12
5
323
Developed technology6to11138
4
16
158
Total other intangible assets acquired   $659
$23
$24
$706


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 June 30, 20192020 and December 31, 20182019.
Fair Value Measurements at June 30, 2019Fair Value Measurements at June 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$—
 $2,600
 $1,388
 $3,988
$—
 $3,183
 $1,399
 $4,582
Unrealized derivative gains:              
Commodity contracts—
 302
 159
 461
—
 304
 442
 746
Foreign currency contracts—
 160
 —
 160
—
 309
 —
 309
Interest rate contracts—
 3
 —
 3
—
 10
 —
 10
Cash equivalents429
 —
 —
 429
498
 —
 —
 498
Marketable securities11
 1
 —
 12
3
 —
 —
 3
Segregated investments925
 —
 —
 925
1,061
 —
 —
 1,061
Deferred receivables consideration—
 447
 —
 447
—
 1,149
 —
 1,149
Total Assets$1,365
 $3,513
 $1,547
 $6,425
$1,562
 $4,955
 $1,841
 $8,358
              
Liabilities:              
Unrealized derivative losses:              
Commodity contracts$—
 $393
 $216
 $609
$—
 $321
 $363
 $684
Foreign currency contracts—
 113
 —
 113
—
 391
 —
 391
Interest rate contracts—
 46
 —
 46
—
 46
 —
 46
Inventory-related payables—
 740
 22
 762
—
 629
 14
 643
Total Liabilities$—
 $1,292
 $238
 $1,530
$—
 $1,387
 $377
 $1,764
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
$—
 $3,227
 $1,477
 $4,704
Unrealized derivative gains:              
Commodity contracts—
 306
 155
 461
—
 277
 201
 478
Foreign currency contracts—
 175
 —
 175
—
 138
 —
 138
Interest rate contracts—
 3
 —
 3
Cash equivalents1,288
 —
 —
 1,288
505
 —
 —
 505
Marketable securities12
 1
 —
 13
5
 —
 —
 5
Segregated investments1,044
 —
 —
 1,044
628
 —
 —
 628
Deferred receivables consideration—
 379
 —
 379
—
 446
 —
 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
$—
 $375
 $199
 $574
Foreign currency contracts—
 152
 —
 152
—
 125
 —
 125
Interest rate contracts—
 20
 —
 20
—
 43
 —
 43
Inventory-related payables—
 579
 18
 597
—
 702
 27
 729
Total Liabilities$—
 $1,095
 $263
 $1,358
$—
 $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 statementsstatement 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 statementsstatement 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 statementsstatement 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 sheetssheet as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.

The Company’s cash equivalents are comprised of money market funds valued using quoted market prices and are classified as Level 1.

The Company’s marketable securities are comprised of 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 sheet (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 June 30, 2020.

 Level 3 Fair Value Asset Measurements at
 June 30, 2020
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, March 31, 2020$1,938
 $391
 $2,329
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*279
 229
 508
Purchases3,012
 —
 3,012
Sales(3,625) —
 (3,625)
Settlements—
 (190) (190)
Transfers into Level 3306
 23
 329
Transfers out of Level 3(511) (11) (522)
Ending balance, June 30, 2020$1,399
 $442
 $1,841

* Includes increase in unrealized gains of $422 million relating to Level 3 assets still held at June 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 June 30, 2020.

 Level 3 Fair Value Liability Measurements at
 June 30, 2020
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 (In millions)
      
Balance, March 31, 2020$20
 $309
 $329
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*1
 247
 248
Purchases2
 —
 2
Sales(9) —
 (9)
Settlements—
 (211) (211)
Transfers into Level 3—
 19
 19
Transfers out of Level 3—
 (1) (1)
Ending balance, June 30, 2020$14
 $363
 $377

* Includes increase in unrealized losses of $253 million relating to Level 3 liabilities still held at June 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 June 30, 2019.

Level 3 Fair Value Asset Measurements atLevel 3 Fair Value Asset Measurements at
June 30, 2019June 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, March 31, 2019$1,511
 $212
 $1,723
$1,511
 $212
 $1,723
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*237
 84
 321
237
 84
 321
Purchases2,657
 —
 2,657
2,657
 —
 2,657
Sales(2,958) —
 (2,958)(2,958) —
 (2,958)
Settlements—
 (137) (137)—
 (137) (137)
Transfers into Level 3232
 10
 242
232
 10
 242
Transfers out of Level 3(291) (10) (301)(291) (10) (301)
Ending balance, June 30, 2019$1,388
 $159
 $1,547
$1,388
 $159
 $1,547

* Includes increase in unrealized gains of $280$280 million relating to Level 3 assets still held at June 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 June 30, 2019.

Level 3 Fair Value Liability Measurements atLevel 3 Fair Value Liability Measurements at
June 30, 2019June 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, March 31, 2019$16
 $143
 $159
$16
 $143
 $159
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*1
 154
 155
1
 154
 155
Purchases11
 —
 11
11
 —
 11
Sales(6) —
 (6)(6) —
 (6)
Settlements—
 (88) (88)—
 (88) (88)
Transfers into Level 3—
 17
 17
—
 17
 17
Transfers out of Level 3—
 (10) (10)—
 (10) (10)
Ending balance, June 30, 2019$22
 $216
 $238
$22
 $216
 $238

* Includes increase in unrealized losses of $157$157 million relating to Level 3 liabilities still held at June 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 threesix months ended June 30, 20182020.
 Level 3 Fair Value Asset Measurements at
 June 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*396
 446
 842
Purchases6,419
 —
 6,419
Sales(7,135) —
 (7,135)
Settlements—
 (235) (235)
Transfers into Level 3306
 44
 350
Transfers out of Level 3(64) (14) (78)
Ending balance, June 30, 2020$1,399
 $442
 $1,841
 Level 3 Fair Value Asset Measurements at
 June 30, 2018
 
Inventories
 Carried at
 Market
 
Commodity
Derivative
Contracts
Gains
 
 
Total 
Assets
 (In millions)
      
Balance, March 31, 2018$1,829
 $116
 $1,945
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*(11) 125
 114
Purchases2,133
 —
 2,133
Sales(2,832) —
 (2,832)
Settlements—
 (78) (78)
Transfers into Level 3340
 57
 397
Transfers out of Level 3(81) (12) (93)
Ending balance, June 30, 2018$1,378
 $208
 $1,586


* Includes increase in unrealized gains of $105$804 million relating to Level 3 assets still held at June 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 threesix months ended June 30, 20182020.
 Level 3 Fair Value Liability Measurements at
 June 30, 2020
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 (In millions)
      
Balance, December 31, 2019$27
 $199
 $226
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*4
 452
 456
Purchases8
 —
 8
Sales(25) —
 (25)
Settlements—
 (333) (333)
Transfers into Level 3—
 55
 55
Transfers out of Level 3—
 (10) (10)
Ending balance, June 30, 2020$14
 $363
 $377
 Level 3 Fair Value Liability Measurements at
 June 30, 2018
 
Inventory-
 related
 Payables
 
Commodity
Derivative
Contracts
Losses
 
 
Total 
Liabilities
 (In millions)
      
Balance, March 31, 2018$75
 $291
 $366
Total increase (decrease) in net realized/unrealized losses included in cost of products sold*(9) 48
 39
Purchases3
 —
 3
Sales(47) —
 (47)
Settlements—
 (161) (161)
Transfers into Level 3—
 41
 41
Transfers out of Level 3—
 (19) (19)
Ending balance, June 30, 2018$22
 $200
 $222


* Includes increase in unrealized losses of $48$463 million relating to Level 3 liabilities still held at June 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 six months ended June 30, 2019.
Level 3 Fair Value Asset Measurements atLevel 3 Fair Value Asset Measurements at
June 30, 2019June 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*216
 228
 444
216
 228
 444
Purchases5,346
 —
 5,346
5,346
 —
 5,346
Sales(5,782) —
 (5,782)(5,782) —
 (5,782)
Settlements—
 (240) (240)—
 (240) (240)
Transfers into Level 3232
 33
 265
232
 33
 265
Transfers out of Level 3(139) (17) (156)(139) (17) (156)
Ending balance, June 30, 2019$1,388
 $159
 $1,547
$1,388
 $159
 $1,547


* Includes increase in unrealized gains of $491 million relating to Level 3 assets still held at June 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 six months ended June 30, 2019.

Level 3 Fair Value Liability Measurements atLevel 3 Fair Value Liability Measurements at
June 30, 2019June 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*1
 172
 173
1
 172
 173
Purchases15
 —
 15
15
 —
 15
Sales(12) —
 (12)(12) —
 (12)
Settlements—
 (187) (187)—
 (187) (187)
Transfers into Level 3—
 24
 24
—
 24
 24
Transfers out of Level 3—
 (38) (38)—
 (38) (38)
Ending balance, June 30, 2019$22
 $216
 $238
$22
 $216
 $238


* Includes increase in unrealized losses of $177 million relating to Level 3 liabilities still held at June 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 six months ended June 30, 2018.
 Level 3 Fair Value Asset Measurements at
 June 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*269
 172
 441
Purchases4,372
 —
 4,372
Sales(4,982) —
 (4,982)
Settlements—
 (144) (144)
Transfers into Level 3340
 85
 425
Transfers out of Level 3(107) (16) (123)
Ending balance, June 30, 2018$1,378
 $208
 $1,586


* Includes increase in unrealized gains of $280 million relating to Level 3 assets still held at June 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 six months ended June 30, 2018.
 Level 3 Fair Value Liability Measurements at
 June 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*8
 246
 254
Purchases24
 —
 24
Sales(49) —
 (49)
Settlements—
 (218) (218)
Transfers into Level 3—
 106
 106
Transfers out of Level 3—
 (37) (37)
Ending balance, June 30, 2018$22
 $200
 $222


* Includes increase in unrealized losses of $246 million relating to Level 3 liabilities still held at June 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 June 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 June 30, 20192020 is a weighted average 40.8%17.5% of the total price for assets and 29.6%13.5% of the total price for liabilities.

Weighted Average % of Total PriceWeighted Average % of Total Price
June 30, 2019 December 31, 2018June 30, 2020 December 31, 2019
Component TypeAssets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities
Inventories and Related Payables              
Basis40.8% 29.6% 18.5% 125.0%17.5% 13.5% 28.2% 14.7%
Transportation cost31.5% 25.0% 25.9% 39.4%16.4% —% 24.7% —%
              
Commodity Derivative Contracts              
Basis27.9% 22.6% 21.6% 19.1%13.4% 19.2% 16.0% 20.2%
Transportation cost32.3% 43.0% 29.5% 35.1%6.1% 6.0% 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 June 30, 20192020 and December 31, 20182019.

June 30, 2019 December 31, 2018June 30, 2020 December 31, 2019
Assets Liabilities Assets LiabilitiesAssets Liabilities Assets Liabilities
(In millions)(In millions)
              
Foreign Currency Contracts$160
 $113
 $175
 $152
$239
 $391
 $125
 $120
Commodity Contracts461
 609
 461
 589
746
 684
 478
 574
Total$621
 $722
 $636
 $741
$985
 $1,075
 $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 six months ended June 30, 20192020 and 20182019.
    Other expense (income) - net      Other expense (income) - net  
  Cost of products sold    Cost of products sold  
(In millions)Revenues Other expense (income) - net Revenues Other expense (income) - net 
Three Months Ended June 30, 2020  
  
Consolidated Statement of Earnings$16,281
 $15,173
 $(67) 
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$11
 $(76) $(52)  
Commodity Contracts—
 (29) —
  
Total gain (loss) recognized in earnings$11
 $(105) $(52) $(146)
       
Three Months Ended June 30, 2019  
           
Consolidated Statement of Earnings$16,297
 $15,325
 $(13)  $16,297
 $15,325
 $(13)  
              
Pre-tax gains (losses) on:              
Foreign Currency Contracts$(10) $51
 $14
  $(10) $51
 $14
  
Commodity Contracts—
 (131) —
  —
 (131) —
  
Total gain (loss) recognized in earnings$(10) $(80) $14
 $(76)$(10) $(80) $14
 $(76)
       
Three Months Ended June 30, 2018       
Consolidated Statement of Earnings$17,068
 $15,887
 $(2)  
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$28
 $(186) $(126)  
Commodity Contracts—
 392
 —
  
Total gain (loss) recognized in earnings$28
 $206
 $(126) $108
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 products sold  
(In millions)Revenues Other expense (income) - net Revenues Other expense (income) - net 
Six Months Ended June 30, 2020     
Consolidated Statement of Earnings$31,251
 $29,192
 $(99) 
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$46
 $(661) $72
  
Commodity Contracts—
 593
 55
  
Total gain (loss) recognized in earnings$46
 $(68) $127
 $105
       
Six Months Ended June 30, 2019              
Consolidated Statement of Earnings$31,601
 $29,701
 $(21)  $31,601
 $29,701
 $(21)  
              
Pre-tax gains (losses) on:              
Foreign Currency Contracts$(2) $51
 $(16)  $(2) $51
 $(16)  
Commodity Contracts—
 (11) —
  —
 (11) —
  
Total gain (loss) recognized in earnings$(2) $40
 $(16) $22
$(2) $40
 $(16) $22
       
Six Months Ended June 30, 2018       
Consolidated Statement of Earnings$32,594
 $30,524
 $(17)  
       
Pre-tax gains (losses) on:       
Foreign Currency Contracts$25
 $(201) $(61)  
Commodity Contracts—
 79
 —
  
Total gain (loss) recognized in earnings$25
 $(122) $(61) $(158)

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, or Fair Value or Net Investment Hedging Strategies

As of June 30, 2019 and December 31, 2018, theThe Company had certain derivatives designated as cash flow and net investment hedges as of June 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 $1.2 billion as of June 30, 2020 and December 31, 2019, and foreign exchange forwards with an aggregate notional amount of $1.6 billion as of June 30, 2020.

As of June 30, 2020 and December 31, 2019, the Company had after-tax gains of $12 million and $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 June 30, 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.

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 six months ended June 30, 2020, the Company executed swap locks maturing on various dates with an aggregate notional amount of $550 million.

As of June 30, 2020 and December 31, 2019, the Company had $46after-tax losses of $38 million of lossesand $43 million in AOCI, respectively, related to thesethe interest rate swaps.swaps and the swap locks. The Company expects to recognize this amount in its consolidated statement of earnings during the next 12 months.life of the instruments.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.Derivative Instruments and Hedging Activities (Continued)

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 June 30, 2020 and December 31, 2019, the Company had $15after-tax losses of $2 million of after-tax gainsand $5 million in AOCI, respectively, related to gains and losses from commodity cash flow hedge transactions.these programs.  The Company expects to recognize $15$2 million of thesethe June 30, 2020 after-tax gainslosses in its consolidated statement 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 currently grind approximately 72 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 June 30, 20192020, the Company had designated hedges representing between 1%2% and 32%30% 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 12191 million gallons of ethanol sales per month under these programs.  At June 30, 2019,2020, the Company had designated hedges representing between 0 million and 1 million gallons of ethanol sales per month over the next 3 months.

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 99%79% and 100% of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. TheAt June 30, 2020, the Company hashad designated hedges representing between 0%4% 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 June 30, 20192020 and December 31, 20182019.

 June 30, 2019 December 31, 2018
 Assets Liabilities Assets Liabilities
 (In millions)
Interest Rate Contracts$3
 $46
 $—
 $20
Total$3
 $46
 $—
 $20















Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 7.Derivative Instruments and Hedging Activities (Continued)
 June 30, 2020 December 31, 2019
 Assets Liabilities Assets Liabilities
 (In millions)
Foreign Currency Contracts$70
 $—
 $13
 $5
Interest Rate Contracts10
 46
 3
 43
Total$80
 $46
 $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 six months ended June 30, 20192020 and 20182019.
 
   Cost of products sold Interest expense Other expense (income) - net  
(In millions)Revenues     
Three Months Ended June 30, 2019      
Consolidated Statement of Earnings$16,297
 $15,325
 $109
 $(13)  
          
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$5
 $1
 $—
 $—
  
Interest Contracts—
 —
 —
 (6)  
Total gain (loss) recognized in earnings$5
 $1
 $—
 $(6) $—
          
Three Months Ended June 30, 2018         
Consolidated Statement of Earnings$17,068
 $15,887
 $89
 $(2)  
          
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$(1) $(34) $—
 $—
  
Interest Contracts—
 —
 1
 —
  
Total gain (loss) recognized in earnings$(1) $(34) $1
 $—
 $(34)
  Cost of products sold Interest expense Other expense (income) - net    Cost of products sold Interest expense Other expense (income) - net  
(In millions)Revenues   Revenues  
Six Months Ended June 30, 2019       
Three Months Ended June 30, 2020      
Consolidated Statement of Earnings$31,601
 $29,701
 $210
 $(21)  $16,281
 $15,173
 $87
 $(67)  

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

                 
Commodity Contracts$(8) $6
 $—
 $—
  $3
 $(36) $—
 $—
  
Interest Contracts—
 —
 —
 (8)  —
 —
 (8) (16)  
Total gain (loss) recognized in earnings$(8) $6
 $—
 $(8) $(10)$3
 $(36) $(8) $(16) $(57)
                  
Six Months Ended June 30, 2018

        
Three Months Ended June 30, 2019         
Consolidated Statement of Earnings$32,594
 $30,524
 $180
 $(17)  $16,297
 $15,325
 $109
 $(13)  

                  
Effective amounts recognized in earnings                  
Pre-tax gains (losses) on:                  
Commodity Contracts$1
 $(28) $—
 $—
  $5
 $1
 $—
 $—
  
Interest Contracts—
 —
 1
 —
  —
 —
 —
 (6)  
Total gain (loss) recognized in earnings$1
 $(28) $1
 $—
 $(26)$5
 $1
 $—
 $(6) $—





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     
Six Months Ended June 30, 2020       
Consolidated Statement of Earnings$31,251
 $29,192
 $170
 $(99)  

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

        
Commodity Contracts$8
 $(60) $—
 $—
  
Interest Contracts—
 —
 (8) (41)  
Total gain (loss) recognized in earnings$8
 $(60) $(8) $(41) $(101)
          
Six Months Ended June 30, 2019

        
Consolidated Statement of Earnings$31,601
 $29,701
 $210
 $(21)  

         
Effective amounts recognized in earnings         
Pre-tax gains (losses) on:         
Commodity Contracts$(8) $6
 $—
 $—
  
Interest Contracts—
 —
 —
 (8)  
Total gain (loss) recognized in earnings$(8) $6
 $—
 $(8) $(10)


Other Net Investment Hedging Strategies

The Company issued €500 million aggregate principal amount of Floating Rate Notes and €600 million aggregate principal amount of 1.75% Notes on June 24, 2015, €650 million aggregate principal amount of 1.0% Notes on September 12, 2018, and €1.1 billion of commercial paper in June 2019 (collectively, the “Notes”). The €500 million Floating Rate Notes matured in June 2019. The Company has designated €2.3€1.3 billion and €1.7 billion of theits outstanding Noteslong-term debt and commercial paper borrowings at June 30, 2020 and December 31, 2019, respectively, as a hedgehedges of its net investment in a foreign subsidiary. As of June 30, 20192020 and December 31, 2018,2019, the Company had after-tax lossesgains of $25$21 million and $26$7 million respectively, in AOCI, respectively, related to foreign exchange gains and losses from thethese net investment hedge transaction.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:

June 30, December 31,
2019 2018June 30, December 31,
(In millions)2020 2019
   (In millions)
Unrealized gains on derivative contracts$624
 $636
$1,065
 $619
Deferred receivables consideration447
 379
1,149
 446
Customer omnibus receivable593
 450
1,086
 1,014
Financing receivables - net (1)
514
 424
551
 395
Insurance premiums receivable68
 35
66
 41
Prepaid expenses286
 184
337
 318
Biodiesel tax credit134
 541
Tax receivables462
 379
606
 579
Non-trade receivables (2)
344
 323
297
 369
Other current assets249
 223
263
 278
$3,587
 $3,033
$5,554
 $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$5 million and $3 million at June 30, 20192020 and December 31, 2018,2019, respectively. Interest earned on financing receivables of $3 million and $11 million for the three and six months ended June 30, 2020, respectively and $6 million and $14 million for the three and six months ended June 30, 2019, respectively, and $5 million and $12 million for the three and six months ended June 30, 2018, respectively, is included in interest income in the consolidated statements of earnings.

(2) Non-trade receivables included $82$74 million and $84$81 million of reinsurance recoverables as of June 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:
June 30, December 31,
2019 2018June 30, December 31,
(In millions)2020 2019
   (In millions)
Unrealized losses on derivative contracts$768
 $761
$1,121
 $742
Accrued compensation306
 337
307
 300
Income tax payable38
 —
106
 72
Other taxes payable105
 98
128
 120
Reinsurance premiums payable13
 15
Biodiesel tax credit payable63
 332
Insurance claims payable300
 277
292
 284
Contract liability367
 501
286
 604
Current maturities - operating leases239
 215
Other accruals and payables1,231
 924
989
 1,088
$3,128
 $2,913
$3,531
 $3,757



Note 10.9.Debt and Financing Arrangements

In June 2020, the Company redeemed $495 million aggregate principal amount of 4.479% debentures and incurred $14 million in early debt repayment expenses related to the indenture agreement’s make-whole call provision.

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.

At June 30, 2019,2020, the fair value of the Company’s long-term debt exceeded the carrying value by $1.4$2.4 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards).

At June 30, 2019,2020, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $8.9$10.9 billion, of which $5.8$9.7 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 $1.5 billion of U.S. and European0 commercial paper outstanding at June 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 $0.4$1.2 billion was unused as of June 30, 20192020 (see Note 1716 for more information about the Programs).


Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 11.10.Income Taxes

The Company’s effective tax raterates for the three and six months ended June 30, 2020 were 14.5% and 6.9%, respectively, compared to 13.1% and 19.9% for the three and six months ended June 30, 2019, was 13.1% and 19.9%, respectively, compared to 13.2% and 13.8% for the three and six months ended June 30, 2018, respectively. The change in the ratesrate for the three months was driven primarily by an unfavorable change in discrete tax items during the quarter compared to the prior year, partially offset by the favorable impact of U.S. tax credits signed into law in December 2019. The change in the rate for the six months was primarily due to the impact of U.S. tax credits signed into law in December 2019, including a $73 million discrete tax benefit related to 45G railroad credits recognized in the six months ended June 30, 20192020, which are now reflected in the 2020 projected effective tax rate. The prior period rate also included unfavorable discrete tax items primarily related to U.S. tax reform transition tax adjustments.

In March 2020, the Coronavirus Aid Relief and  Economic Security Act (CARES Act) was primarily duesigned into law in the United States. The Company continues to assess the absenceeffects of the 2017 biodieselprovisions of the CARES Act and does not expect any income tax crediteffects 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 a favorable discrete tax item recorded in 2018 due to a lawdoes not expect any change in Brazil relatedits assertion to certain value addedhave a material impact on the annual effective tax items.rate for the year 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)

TheDuring the second quarter, the ongoing litigation between the Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM(“ADM do Brasil)Brasil”), received three separate tax assessments fromand the Brazilian Federal Revenue Service (BFRS)(“BFRS”) challengingwas favorably resolved without any tax due. The litigation related to assessments received totaling approximately $77 million in tax and $228 million in interest and penalties as of June 30, 2020 (adjusted for variation in currency exchange rates), with respect to the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006, and 2007. These assessments totaled approximately $110 million in tax and $317 million in interest and penalties as of June 30, 2019 (adjusted for variation in currency exchange rates). The statute of limitations for tax years 2005 and 2008 to 2011 has expired. The Company does not expect to receive any additional tax assessments 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 June 30, 2019,2020, these assessments totaled $20$12 million in tax and $69$47 million in interest and penalties (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 $56$37 million in tax and $53$23 million in interest (adjusted for variation in currency exchange rates as of June 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
Archer-Daniels-Midland Company has not recorded an uncertain tax liability for these assessments because it has concluded that it is more likely than not

Notes 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.Consolidated Financial Statements (Continued)
(Unaudited)

Note 10.     Income Taxes (Continued)

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 June 30, 2019,2020, this assessment was $92$91 million in tax and $33$36 million in interest (adjusted for variation in currency exchange rates). TheIn September 2019, the Company has appealedreceived an interim decision on its appeal which directed the assessmentparties to work toward a settlement. On April 23, 2020, the court issued an unfavorable ruling and directed the parties to explore the possibility of settling, noting that any unresolved valuation questions may be assigned to a hearing was held in the first quarter of 2019. The Company expectsthird party expert to receiveestablish a decision in the second half of 2019. Furthervaluation. 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 June 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.


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 June 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 EndedSix Months Ended
Three Months Ended 
 June 30, 2019		Six Months Ended 
 June 30, 2019		June 30, 2020June 30, 2019June 30, 2020June 30, 2019
(In millions)(In millions)
Lease cost:  
Operating lease cost$73
$146
$75
$73
$147
$146
Short-term lease cost24
47
25
24
54
47
Total lease cost$97
$193
$100
$97
$201
$193
  
Other information:  
Operating lease liability principal payments
$98

$142
$98
Right-of-use assets obtained in exchange for new operating lease liabilities
$168

$169
$168
  
 June 30, 2019June 30, 2020June 30, 2019 
Weighted-average remaining lease term - operating leases (in years)

8
7
8
 
Weighted average discount rate - operating leases
4.7%4.5%4.7% 







Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 11.     Leases (Continued)



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$116
2020200
Remainder of 2020$145
2021167
264
2022138
232
2023101
186
202458
126
202571
Thereafter260
241
Total1,040
1,265
  
Less interest (1)
183
(181)
Lease liability$857
$1,084

(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.
As of June 30, 2020 and December 31, 2019, the Company had right-of-use assets included in Other assets of $1.1 billion and $1.0 billion, respectively, current lease liabilities included in Accrued expenses and other payables of $239 million and $215 million, respectively, and non-current lease liabilities included in Other long-term liabilities of $846 million and $781 million, respectively, in its consolidated balance sheets.
Archer-Daniels-Midland

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 12.     Leases (Continued)


As of June 30, 2019, the Company had $837 million of right-of-use assets included in Other assets, $189 million of current lease liabilities included in Accrued expenses and other payables, and $668 million of non-current lease liabilities included in Other long-term liabilities in its consolidated balance sheet.

Note 13.     Accumulated Other Comprehensive Income (AOCI)

The following tables set forth the changes in AOCI by component for the three and six months ended June 30, 20192020 and the reclassifications out of AOCI for the three and six months ended June 30, 20192020 and 2018:2019:
Three months ended June 30, 2019Three months ended June 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 March 31, 2019$(2,051) $(4) $(200) $13
 $(2,242)
Balance at March 31, 2020$(2,439) $(80) $(276) $31
 $(2,764)
Other comprehensive income (loss) before reclassifications94
 14
 (1) 7
 114
(34) 24
 (4) (3) (17)
Amounts reclassified from AOCI—
 —
 (3) —
 (3)—
 57
 5
 —
 62
Tax effect7
 (7) 2
 (1) 1
28
 (15) —
 1
 14
Net of tax amount101
 7
 (2) 6
 112
(6) 66
 1
 (2) 59
Balance at June 30, 2019$(1,950) $3
 $(202) $19
 $(2,130)
Balance at June 30, 2020$(2,445) $(14) $(275) $29
 $(2,705)
                  
Six months ended June 30, 2019Six months ended June 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
 $(2,405)
Other comprehensive income (loss) before reclassifications16
 (73) 9
 5
 (43)(279) (102) —
 3
 (378)
Amounts reclassified from AOCI(1) 10
 (6) —
 3
—
 101
 5
 —
 106
Tax effect(3) 5
 15
 (1) 16
(14) (1) (12) (1) (28)
Net of tax amount12
 (58) 18
 4
 (24)(293) (2) (7) 2
 (300)
Balance at June 30, 2019$(1,950) $3
 $(202) $19
 $(2,130)
Balance at June 30, 2020$(2,445) $(14) $(275) $29
 $(2,705)











Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 13.12.     Accumulated Other Comprehensive Income (AOCI) (Continued)

Amount reclassified from AOCI Amount reclassified from AOCI 
Three months ended June 30, Six months ended June 30,Affected line item in the consolidated statementThree months ended June 30, Six months ended June 30,Affected line item in the consolidated statement of earnings
Details about AOCI components2019 2018 2019 2018of earnings20202019 20202019
(In millions) 
Foreign currency translation adjustment       
$—
 $—
 $(1) $—
Other (income) expense-net
—
 —
 —
 —
Tax
$—
 $—
 $(1) $—
Net of tax
        (In millions) 
Deferred loss (gain) on hedging activities            
$(5) $1
 $8
 $(1)Revenues$(3)$(5) $(8)$8
Revenues
(1) 34
 (6) 28
Cost of products sold36
(1) 60
(6)Cost of products sold
6
 —
 8
 —
Other (income) expense-net16
6
 41
8
Other (income) expense-net
—
 (1) —
 (1)Interest expense8
—
 8
—
Interest expense
—
 34
 10
 26
Total before tax57
—
 101
10
Total before tax
2
 (8) —
 (6)Tax(10)2
 (14)—
Tax
$2
 $26
 $10
 $20
Net of tax$47
$2
 $87
$10
Net of tax
            
Pension liability adjustment            
Amortization of defined benefit pension items:            
Prior service credit$(9) $(9) $(13) $(17)Other (income) expense-net$(8)$(9) $(16)$(13)Other (income) expense-net
Actuarial losses6
 16
 7
 32
Other (income) expense-net13
6
 21
7
Other (income) expense-net
(3) 7
 (6) 15
Total before tax5
(3) 5
(6)Total before tax
1
 1
 15
 (3)Tax—
1
 (11)15
Tax
$(2) $8
 $9
 $12
Net of tax$5
$(2) $(6)$9
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 14.13.Other (Income) Expense - Net

The following table sets forth the items in other (income) expense:
Three Months Ended Six Months Ended
June 30, June 30,Three Months Ended Six Months Ended
2019 2018 2019 2018June 30, June 30,
(In millions)2020 2019 2020 2019
       (In millions)
Gains on sales of assets$(15) $(6) $(30) $(12)$(64) $(15) $(64) $(30)
Other – net2
 4
 9
 (5)(3) 2
 (35) 9
Other (Income) Expense - Net$(13) $(2) $(21) $(17)$(67) $(13) $(99) $(21)


Gains on sales of assets in the three months ended June 30, 2019 and the three and six months ended June 30, 20182020 included gains on the sale of certain assets, an investment revaluation gain, and disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets in the three months ended June 30, 2019 included gains on disposals of individually insignificant assets in the ordinary course of business. Gains on sales of assets in the six months ended June 30, 2019 also 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.

Other - net in the three and six months ended June 30, 20192020 included the non-service components of net pension benefit income of $8 million and $21 million, respectively, foreign exchange gains, and other income, partially offset by expenses related to the threeearly repayment of debt and other expenses. Other - net in the six months ended June 30, 20182020 also included loss provisions related to the Company’s futures commission and brokerage business. Other - net in the three and six months ended June 30, 2019 included foreign exchange losses, partially offset by other income. Other-net in the six months ended June 30, 2018 included other income partially offset
Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 14.     Other (Income) Expense - Net (Continued)


by foreign exchange losses. Other-net also includedand the non-service components of net pension benefit income of $6 million and $8 million, in the three and six months ended June 30, 2019, respectively, compared to $2 million and $5 million in the three and six months ended June 30, 2018, respectively.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.14.     Segment Information

The Company is principally engagedAs discussed in procuring, transporting, storing, processing, and merchandising agricultural commodities, products, and ingredients. Note 1, prior period results have been reclassified to conform to the current period segment presentation.

The Company’s operations are organized, managed, and classified into four3 reportable business segments: Origination,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 Origination segment utilizes its extensive global grain elevatorAg Services and transportation networks and port operations to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry. The Origination segment includes international agricultural commodities merchandising and handling activities managed through a global trade desk based in Rolle, Switzerland. The Origination segment’s grain sourcing, handling, and transportation network provides reliable and efficient services to the Company’s customers and agricultural processing operations. The Origination segment’s transportation network capabilities include barge, ocean-going vessel, truck, rail, and container freight services. The Origination segment also includes the activities related to structured trade finance, the import and distribution of agricultural feed products, and the Company’s share of the results of its Pacificor joint venture. In February 2019, the Company purchased the remaining 50% interest owned by InVivo Group in the Gleadell Agriculture Ltd. joint venture.

The 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. 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. In South America, theThe Ag Services and Oilseeds segment includes origination and merchandising activities as adjuncts to its oilseeds processing assets. These activities include a network of grain elevators, port facilities, and transportation assets used to buy, store, clean, and transport grains and oilseeds. The Oilseeds 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, cottonseed flour is produced and sold primarily to the pharmaceutical industry, and cotton cellulose pulp is manufactured and sold to the chemical, paper, and other industrial markets. The 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, and structured trade finance activities. 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, and Olenex Sarl, (Olenex)and SoyVen joint ventures.

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 six months ended June 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 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.






Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 14.Segment Information (Continued)

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, and the Company’s share of the results of its equity investment in Compagnie Industrialle et Financiere des Produits Amylaces SA (Luxembourg) (CIP).

In May 2019, the Company announced the creation of a new business unit called Ag Services & Oilseeds,, which combines the Origination and Oilseeds business operations into a single reporting structure effective July 1,was sold in December 2019.































Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.Segment Information (Continued)

Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
(In millions)2019 2018 2019 20182020 2019 2020 2019
Gross revenues              
Origination$7,193
 $7,757
 $14,168
 $14,936
Oilseeds7,547
 8,251
 13,956
 15,086
Ag Services and Oilseeds$14,431
 $13,728
 $26,781
 $26,601
Carbohydrate Solutions2,878
 2,906
 5,454
 5,718
2,213
 2,878
 4,767
 5,454
Nutrition1,541
 1,029
 2,841
 1,987
1,474
 1,541
 2,990
 2,841
Other104
 101
 185
 207
Other Business89
 104
 193
 185
Intersegment elimination(2,966) (2,976) (5,003) (5,340)(1,926) (1,954) (3,480) (3,480)
Total gross revenues$16,297
 $17,068
 $31,601
 $32,594
$16,281
 $16,297
 $31,251
 $31,601
              
Intersegment sales 
  
  
  
 
  
  
  
Origination$712
 $1,117
 $1,563
 $2,029
Oilseeds1,800
 1,589
 2,795
 2,822
Ag Services and Oilseeds$1,690
 $1,500
 $2,961
 $2,835
Carbohydrate Solutions437
 259
 610
 470
199
 437
 437
 610
Nutrition17
 11
 35
 19
37
 17
 82
 35
Total intersegment sales$2,966
 $2,976
 $5,003
 $5,340
$1,926
 $1,954
 $3,480
 $3,480
              
Revenues from external customers 
  
  
  
 
  
  
  
Origination       
Merchandising and Handling$6,418
 $6,577
 $12,476
 $12,789
Transportation63
 63
 129
 118
Total Origination6,481
 6,640
 12,605
 12,907
Oilseeds       
Crushing and Origination3,613
 4,374
 6,869
 7,659
Refining, Packaging, Biodiesel, and Other2,134
 2,288
 4,292
 4,605
Total Oilseeds5,747
 6,662
 11,161
 12,264
Ag Services and Oilseeds       
Ag Services$8,652
 $8,030
 $15,578
 $15,407
Crushing2,405
 2,316
 4,718
 4,665
Refined Products and Other1,684
 1,882
 3,524
 3,694
Total Ag Services and Oilseeds12,741
 12,228
 23,820
 23,766
Carbohydrate Solutions              
Starches and Sweeteners1,684
 1,704
 3,306
 3,342
1,545
 1,684
 3,195
 3,306
Bioproducts757
 943
 1,538
 1,906
Vantage Corn Processors469
 757
 1,135
 1,538
Total Carbohydrate Solutions2,441
 2,647
 4,844
 5,248
2,014
 2,441
 4,330
 4,844
Nutrition              
Wild Flavors and Specialty Ingredients728
 693
 1,402
 1,329
Human Nutrition723
 728
 1,442
 1,402
Animal Nutrition796
 325
 1,404
 639
714
 796
 1,466
 1,404
Total Nutrition1,524
 1,018
 2,806
 1,968
1,437
 1,524
 2,908
 2,806
              
Other104
 101
 185
 207
Other Business89
 104
 193
 185
Total revenues from external customers$16,297
 $17,068
 $31,601
 $32,594
$16,281
 $16,297
 $31,251
 $31,601
              
              
              
              
       

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)
(Unaudited)

Note 15.14.Segment Information (Continued)

Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
(In millions)2019 2018 2019 20182020 2019 2020 2019
Segment operating profit              
Origination$71
 $191
 $147
 $237
Oilseeds291
 341
 632
 690
Ag Services and Oilseeds$413
 $362
 $835
 $779
Carbohydrate Solutions192
 247
 288
 460
195
 192
 263
 288
Nutrition117
 114
 198
 210
158
 117
 300
 198
Other11
 31
 25
 44
Other Business38
 11
 49
 25
Specified Items:              
Gains (losses) on sales of assets and businesses(1)
—
 —
 12
 —
23
 —
 23
 12
Impairment, restructuring, and settlement charges(2)
(37) (22) (46) (35)(14) (37) (58) (46)
Total segment operating profit645
 902
 1,256
 1,606
813
 645
 1,412
 1,256
Corporate(371) (250) (667) (490)(261) (371) (485) (667)
Earnings before income taxes$274
 $652
 $589
 $1,116
$552
 $274
 $927
 $589
              


(1) Current quarter and year-to-date gain consisted of a gain on the sale of certain assets. Prior year-to-date gains consisted of a gain on the sale of certain assets and a step-upstep up gain on an equity investment.

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

Note 16.15.     Asset Impairment, Exit, and Restructuring Costs

Asset impairment, exit, and restructuring costs in the three months ended June 30, 2020 consisted of individually insignificant long-lived asset impairments of $3 million and restructuring charges of $13 million. Asset impairment, exit, and restructuring costs in the six months ended June 30, 2020 consisted primarily of $47 million of impairments related to certain intangible and other long-lived assets and $10 million of restructuring charges.

Asset impairment, exit, and restructuring costs in the three and six months ended June 30, 2019 consisted of $35 million and $44 million, respectively, of impairments related to certain long-lived assets presented as specified items within segment operating profit in the three and six months ended June 30, 2019, respectively, and $101 million and $103 million, respectively, of restructuring and pension remeasurement charges in Corporate primarily related to early retirement and reorganization initiatives during the three and six months ended June 30, 2019, respectively.initiatives.

Asset impairment, exit, and restructuring costs in the three months ended June 30, 2018 consisted of $21 million of long-term receivable impairment and $1 million of individually insignificant restructuring charges presented as separate items within segment operating profit, and $2 million of individually insignificant restructuring charges in Corporate. Asset impairment, exit, and restructuring costs in the six months ended June 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 $5 million of individually insignificant restructuring charges in Corporate.

The $35 million impairment in the three months ended June 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 impairment in the three and six ended June 30, 2018 related to a long-term receivable included in other assets in the accompanying balance sheet, and was based on the fair value of the collateral provided as security for the advance. The fair value was determined using internal and external sources, including published information on Brazilian land values.

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 $1.2 billion, as amended, and an additional amount upon the collection of the accounts receivable (deferred consideration). The First Program terminates on JuneSeptember 18, 2020, 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 Ireland 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 $0.6 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 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 June 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 June 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 $1.81.7 billion and $1.9 billion, respectively. In exchange for the transfers as of June 30, 20192020 and December 31, 2018,2019, the Company received cash of $1.40.6 billion and $1.5$1.4 billion, respectively, and recorded a receivable for deferred consideration included in other current assets of $447 million1.1 billion and $379 million,$0.4 billion, respectively. Cash collections from customers on receivables sold were $16.516.4 billion and $17.916.5 billion for the six months ended June 30, 20192020 and 20182019, respectively. Of this amount, $4.6 billion and $6.2 billion were cash collections on the deferred receivables consideration reflected as cash inflows from investing activities for the six months ended June 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 $4$3 million and $5$4 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,$5 million and $9 million for the six months ended June 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.     Sale of Accounts Receivable (Continued)

The Company also sells certain of its 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.


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.

Effective January 1, 2020, the Company started reporting its newly created dry mill ethanol subsidiary, Vantage Corn Processors (VCP), as a sub-segment within the Carbohydrate Solutions segment. VCP replaces the Bioproducts sub-segment which included the combined results of the Company’s corn dry and wet mill ethanol operations. The wet mill ethanol operations that were previously reported in Bioproducts are now included in the Starches and Sweeteners sub-segment. In addition to dry mill ethanol production, VCP will sell/broker ADM’s wet mill ethanol production as the sole marketer of ethanol produced at the Company’s facilities. The change does not have an impact on the total results of the Carbohydrate Solutions segment.

Effective July 1, 2019, the Company changed its segment reporting to reflect the creation of the combined Ag Services and Oilseeds segment. 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.

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

The Company’s operations are organized, managed, and classified into fourthree reportable business segments: Origination,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”.

In May 2019, the Company announced the creation of a new business unit called Ag Services & Oilseeds, which combines the Origination and Oilseeds business operations into a single reporting structure effective July 1, 2019.

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 purchaseannouncement in February 2019May 2020 of the remaining 50% interest owned by InVivo Group in the Gleadell Agriculture Ltd.an agreement to create PlantPlus Foods, a 30% joint venture;
the acquisition in March 2019 of Florida Chemical Company,venture with Marfrig, one of the world’s leading beef producers and the world’s largest producers of citrus oilsbeef patty producer, to sell plant-based food products across the South American and ingredients;
the formal launch in March 2019 of GrainBridge LLC, a 50% joint venture with Cargill that will develop digital tools to help North American farmers consolidate information on production economics and grain marketing activities into a single digital platform;markets; and
the acquisitiontemporary idling in May 2019April 2020 of Ziegler Group,ethanol production at the corn dry mill facilities in Cedar Rapids, Iowa, and Columbus, Nebraska, for a leading European providerperiod of natural citrus flavor ingredients.four months subject to market conditions. 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 Company executes its strategic vision through three pillars: Optimize the Core, Drive Efficiencies, and Expand Strategically, all supported by its Readiness effort. During 2018, the Company launched an effort called 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 supportsupports 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 OriginationAg 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.


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 June 30, 20192020

As an agricultural commodity-based business, theThe Company is subject to a variety of market factors which affect the Company's operating results. In Origination, sales volumesAg Services and Oilseeds, North American crushing margins were impacted by high water conditions in the Mississippi river systemcompressed due to slow farmer selling and the continuing global trade tensions with China. In Oilseeds, continued good globalCOVID-19 impacts on demand for meal demand resulted in strong global crushing volumes and stable margins.oil. South AmericanAmerica saw record origination volumes were impactedas it benefited from strong farmer selling in Brazil driven by softer Chinese demand and slower farming selling due to lower soybean prices. Global demandthe devaluation of the Brazilian Real. Demand and margins for refined oil and biodiesel remained solid.solid in North and South America, but were challenging in Europe, Middle East, Africa, and India (“EMEAI”) due in part to the impact of COVID-19. In Carbohydrate Solutions, demand for starches and prices for sweeteners was soft early in the quarter due to the impacts of COVID-19 while margins remained solid. Wheat flour demand and starches remained solidmargins in North America while co-product prices were stable. Althoughremained strong. Ethanol margins improved throughout the quarter on lower stock levels as ADM and many ethanol demand was seasonably higher in North America, margins remained pressured as U.S. industry ethanol production and stocks remained at high levels and U.S. exports to China were limited. In addition, severe weather conditions in North America adversely impacted operations in the Origination, Oilseeds, and Carbohydrate Solutions business units.producers idled some capacity. Nutrition benefited from improved margins in flavors and growing demand for pet food, feed for livestock, plant-based proteins, and probiotics. Lower out-of-home consumption caused by COVID-19 lock down measures negatively impacted flavors volumes especially in the food service channel, and other food ingredients.demand for aqua feed.

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

Net earnings attributable to controlling interests decreased $331 million to $235 million. Segment operating profit decreased $257 million to $645 million. Included in segment operating profit in the current quarter was a charge of $37 million consisting of asset impairment and settlement charges. Included in segment operating profit in the prior year quarter was a charge of $22 million related to asset impairment and restructuring. Adjusted segment operating profit decreased $242 million to $682 million due to lower operating results in Merchandising and Handling, Crushing and Origination, and Bioproducts. Corporate results were a net charge of $371 million in the current quarter compared to $250 million in the prior year quarter. Corporate results in the current quarter included restructuring and pension remeasurement charges of $101 million related to early retirement and reorganization initiatives. Also included in Corporate results in the current quarter is a charge of $25 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves, compared to a credit of $13 million in the prior year quarter.

Income taxes of $36 million decreased $50 million due to lower earnings before income taxes. The Company’s effective tax rate for the quarter ended June 30, 2019 was 13.1% compared to 13.2% for the quarter ended June 30, 2018.






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

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

Net earnings attributable to controlling interests increased $234 million from $235 million to $469 million. Segment operating profit increased $168 million from $645 million to $813 million. Included in segment operating profit in the current quarter was a net income of $9 million consisting of a gain on the sale of certain assets partially offset by asset impairment and restructuring charges. Included in segment operating profit in the prior year quarter were asset impairment charges of $37 million. Adjusted segment operating profit increased $122 million to $804 million due primarily to higher results in Ag Services, Vantage Corn Processors, Nutrition, and Other Business, partially offset by lower results in Starches and Sweeteners and Crushing and lower equity earnings from the Wilmar investment. Corporate results were a net charge of $261 million in the current quarter compared to $371 million in the prior year quarter. Corporate results in the current quarter included early debt repayment expenses of $14 million. Corporate results in the prior year quarter included restructuring charges of $101 million and a charge of $25 million from changes in agricultural commodity prices on LIFO inventory valuation reserves.

Income tax expense increased $44 million to $80 million. The Company’s effective tax rate for the quarter ended June 30, 2020 was 14.5% compared to 13.1% for the quarter ended June 30, 2019. The increase in rate was driven primarily by an unfavorable change in discrete tax items during the quarter compared to the prior year, partially offset by the favorable impact of U.S. tax credits signed into law in December 2019.

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 for the year 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 
June 30,  June 30,  
(In thousands)2019 2018 Change2020 2019 Change
Oilseeds8,773
 9,075
 (302)9,103
 8,773
 330
Corn5,545
 5,518
 27
4,099
 5,545
 (1,446)
Total14,318
 14,593
 (275)13,202
 14,318
 (1,116)

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.issues. The overall decrease in corn is primarily related to the idling of two dry mill facilities in response to the current challenging operating environment.

Revenues by segment for the quarter are as follows:

 Three Months Ended  
 June 30,  
 2019 2018 Change
 (In millions)
Origination     
Merchandising and Handling$6,418
 $6,577
 $(159)
Transportation63
 63
 —
Total Origination6,481
 6,640
 (159)
      
Oilseeds 
  
  
Crushing and Origination3,613
 4,374
 (761)
Refining, Packaging, Biodiesel, and Other2,134
 2,288
 (154)
Total Oilseeds5,747
 6,662
 (915)
      
Carbohydrate Solutions 
  
  
Starches and Sweeteners1,684
 1,704
 (20)
Bioproducts757
 943
 (186)
Total Carbohydrate Solutions2,441
 2,647
 (206)
      
Nutrition     
Wild Flavors and Specialty Ingredients728
 693
 35
Animal Nutrition796
 325
 471
Total Nutrition1,524
 1,018
 506
      
Other104
 101
 3
Total$16,297
 $17,068
 $(771)

















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  
 June 30,  
 2020 2019 Change
 (In millions)
Ag Services and Oilseeds     
Ag Services$8,652
 $8,030
 $622
Crushing2,405
 2,316
 89
Refined Products and Other1,684
 1,882
 (198)
Total Ag Services and Oilseeds12,741
 12,228
 513
      
Carbohydrate Solutions 
  
  
Starches and Sweeteners1,545
 1,684
 (139)
Vantage Corn Processors469
 757
 (288)
Total Carbohydrate Solutions2,014
 2,441
 (427)
      
Nutrition     
Human Nutrition723
 728
 (5)
Animal Nutrition714
 796
 (82)
Total Nutrition1,437
 1,524
 (87)
      
Other Business89
 104
 (15)
Total$16,281
 $16,297
 $(16)

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 OilseedsAg Services and Origination,Oilseeds, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues were comparable at $16.3 billion. Lower sales prices of biodiesel and alcohol and lower sales volumes of alcohol and oils, were offset by higher sales volumes of soybeans, corn, and meal. Ag Services and Oilseeds revenues increased 4% to $12.7 billion due to higher sales volumes ($0.6 billion), partially offset by lower sales prices ($0.1 billion). Carbohydrate Solutions revenues decreased $0.8 billion17% to $16.3$2.0 billion due to lower sales pricesvolumes ($0.3 billion) and to a lesser extent, overall lower sales volumes. The decrease in sales prices was due principally to soybeans, meal, and oils. Origination($0.1 billion). Nutrition revenues decreased 2%6% to $6.5$1.4 billion due to lower sales volumes ($0.2 billion). Oilseeds revenues decreased 14% to $5.7 billion due to lower, partially offset by higher sales prices ($0.60.1 billion) and lower sales volumes ($0.3 billion). Carbohydrate Solutions revenues decreased 8% to $2.4 billion due to lower sales volumes ($0.2 billion). Nutrition revenues increased 50% to $1.5 billion due to higher sales volumes ($0.5 billion) primarily related to acquisitions.

Cost of products sold decreased $562 million$0.2 billion to $15.3$15.2 billion due principally to lower prices of commodities, and to a lesser extent, overall lower sales volumes.manufacturing expenses. Included in cost of products sold in the currentprior quarter was a charge of $25 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $13 million in the prior year quarter.reserves. Manufacturing expenses increaseddecreased $0.1 billion to $1.4$1.3 billion primarily due principally to recent acquisitionslower energy and individually insignificant increases in certain expense categories.labor costs and maintenance expenses.

Foreign currency translation impacts decreased both revenues and cost of products sold by $0.2$0.3 billion.

Gross profit decreased $209 millionincreased $0.1 billion or 14%, to $972 million. Lower$1.1 billion. Higher results in Origination, Oilseeds,Human and Carbohydrate SolutionsAnimal Nutrition ($25143 million), Ag Services ($100 million), and Vantage Corn Processors ($38 million) were partially offset by higherlower results in NutritionCrushing ($9542 million) and Starches and Sweeteners ($34 million). These factors are explained in the segment operating profit discussion on page 45.44. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a negative impact on gross profit of $25 million in the currentprior year quarter compared to a positiveno impact of $13 million in the priorcurrent year quarter.due to the discontinuation of LIFO effective January 1, 2020.



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

Selling, general, and administrative expenses increased $42$36 million to $602$638 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.

Asset impairment, exit, and restructuring costs increased $112decreased $120 million to $136$16 million. Charges in the current quarter consisted of individually insignificant long-lived asset impairments and restructuring charges. Charges in the prior year quarter consisted of $35 million of impairments related to certain long-lived assets presented as specified items within the segment operating profit and $101 million of restructuring and pension remeasurement charges in Corporate related to early retirement and reorganization initiatives. Charges in the prior year quarter consisted of $21 million of long-term receivable impairment and $1 million of individually insignificant restructuring charges presented as specified items within segment operating profit, and $2 million of individually insignificant restructuring charges in Corporate.

Interest expense increased $20decreased $22 million to $109$87 million due principally to higher borrowings to fund acquisitions.lower interest rates and net interest savings from cross currency swaps.

Equity in earnings of unconsolidated affiliates decreased $10increased $13 million to $90$103 million due to lossesa loss in the prior year quarter from the Company’s investmentsinvestment in CIP which was sold in December 2019 and Olenex,higher earnings from the Company’s investment in Soyven, partially offset by higherlower earnings from the Company’s investment in Wilmar.

Other income - net increased $11$54 million to $13$67 million. Income in the current quarter included gains on the sale of certain assets and disposals of individually insignificant assets in the ordinary course of business, foreign exchange gains, the non-service components of net pension benefit income, and other income, partially offset by expenses related to the early repayment of debt. Income in the prior year quartersquarter included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, 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  
June 30,  June 30,  
Segment Operating Profit (Loss)2019 2018 Change2020 2019 Change
(In millions)(In millions)
Origination     
Merchandising and Handling$68
 $160
 $(92)
Transportation3
 31
 (28)
Total Origination71
 191
 (120)
     
Oilseeds 
  
  
Crushing and Origination150
 195
 (45)
Refining, Packaging, Biodiesel, and Other79
 94
 (15)
Asia62
 52
 10
Total Oilseeds291
 341
 (50)
Ag Services and Oilseeds     
Ag Services$171
 $90
 $81
Crushing113
 139
 (26)
Refined Products and Other78
 71
 7
Wilmar51
 62
 (11)
Total Ag Services and Oilseeds413
 362
 51
          
Carbohydrate Solutions 
  
  
 
  
  
Starches and Sweeteners218
 238
 (20)177
 215
 (38)
Bioproducts(26) 9
 (35)
Vantage Corn Processors18
 (23) 41
Total Carbohydrate Solutions192
 247
 (55)195
 192
 3
          
Nutrition          
Wild Flavors and Specialty Ingredients103
 106
 (3)
Human Nutrition131
 103
 28
Animal Nutrition14
 8
 6
27
 14
 13
Total Nutrition117
 114
 3
158
 117
 41
          
Other11
 31
 (20)
Other Business38
 11
 27
          
Specified Items:          
Asset impairment, restructuring, and settlement charges(37) (22) (15)
Gains (losses) on sales of assets and businesses23
 —
 23
Asset impairment and settlement charges(14) (37) 23
Total Specified Items(37) (22) (15)9
 (37) 46
          
Total Segment Operating Profit$645
 $902
 $(257)$813
 $645
 $168
          
Adjusted Segment Operating Profit(1)
$682
 $924
 $(242)$804
 $682
 $122
          
Segment Operating Profit$645
 $902
 $(257)$813
 $645
 $168
Corporate(371) (250) (121)(261) (371) 110
Earnings Before Income Taxes$274
 $652
 $(378)$552
 $274
 $278

(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)

OriginationAg Services and Oilseeds operating profit decreased 63%increased 14%. Merchandising and HandlingAg Services results were lower when comparedsubstantially higher year-over-year on strong execution in South America which helped deliver record quarterly origination and export volumes in a significantly improved margin environment, driven by a weaker Brazilian Real and strong farmer selling. Global trade also contributed to improved results as countries looked to secure stable supplies of food amid the strongpandemic. Lower interior grain margins impacted results fromin North America. In North America crushing, margins were impacted by COVID-19 effects on customers. South America crushing delivered significantly higher year-over-year results in an environment of solid domestic meal demand and the second quarter of 2018, when the drought in Argentina and increased purchases of U.S. crops by China in anticipation of tariffs drove strongweaker Brazilian Real. In EMEAI, crush volumes and margins. Despite solid execution, current quartermargins remained solid. Refined Products and Other results were higher year-over-year on improved biodiesel volumes and margins in North and South America were impacted by continued high water conditions on U.S. rivers, which limited river asset utilization, and the competitiveness of U.S. crops, particularly corn, in export markets. Transportation was down year-over-year, as the unfavorable river conditions throughout the quarter limited bargewell as strong volumes and margins.

Oilseeds operating profit decreased 15%. Crushing and Origination results were solid but lower than the strong results from the second quarter of 2018. Strong domestic industry demand supported crush margins in refined and packaged oils in South America, partially offset by lower demand for biodiesel in EMEAI, and edible oils in both EMEAI and North America and EMEA. South American crushing and origination margins were down on bean prices and slow China demand during the quarter. In North America, crush volumes were down primarily due to production outages caused by weather-related logistical challenges at the Company’s Quincy, Illinois facility. Refining, Packaging, Biodiesel, and OtherAmerica. Wilmar results were lower than the prior year quarter,driven by weaker margins in South America and some timing impacts in EMEA. Asia was up due to higher earnings from the Company’s investment in Wilmar.year-over-year.

Carbohydrate Solutions operating profit decreased 22%increased 2%. Starches and Sweeteners was down compared to the second quarter of 2018 due to lingering high water impacts at the Company’s Columbus, Nebraska facility,results were lower year-over-year, impacted by lower food service demand in North America and mark-to-market losses on corn oil contracts, partially offset by lower net raw material costs and strong risk management results. Wheat milling had another strong quarter, as solid salesretail demand and margins in North America. Results in EMEA were pressured by lower margins duefootprint optimization initiatives continued to low sugar prices and the Turkish quota on starch-based sweeteners. Bioproductsdrive results. Vantage Corn Processors results were significantly lowerhigher than the prior year quarter driven by gains on continued negative ethanolinventory ownership and supported by favorable risk management and strong demand for industrial ethanol. While average industry margins caused by amplewere down against the prior year quarter, prices and margins improved throughout the quarter as lower production, including two idled ADM dry mills, and some recovery in driving miles led to falling industry inventory and lower U.S. exports.stocks.

Nutrition operating profit increased 3%35%. Wild Flavors and Specialty Ingredients results were slightly lower than the second quarter of 2018. Wild Flavors demonstrated very strong sales and margin growth in North America but was partially offset by changes in customer order patterns in EMEAI and lower sales in APAC. Specialty Ingredients was lower due to isolated production shortfalls. Health and Wellness continued on its growth trajectory, driven both by contributions from acquisitions as well as organic sales and margin improvements. AnimalHuman Nutrition results were higher than the secondprior year quarter of 2018 primarily relatedas flavors continued to thedeliver solid results on good sales mix and margin expansion in North America, partially offset by some softness in EMEAI. Strong execution to meet rising customer demand for plant-based proteins and edible beans drove higher results in Specialty Ingredients. Health & Wellness delivered higher performance on strong sales for probiotics, improved volumes and margins in fiber, and additional fermentation income. Animal Nutrition was higher year-over-year on continued execution on Neovia acquisition.synergies, robust demand for pet food and treats, and improvement in amino acids drove improved results, despite impacts from COVID-19 on demand in some regions.

Other Business operating profit decreased 65% primarily due to increased 245%. Improvements in underwriting performance at the captive insurance underwriting lossesoperations were partially offset by higher earningslower results from the Company’s futures commission and brokerage business.

Corporate results for the quarter are as follows:
 Three Months Ended  
 June 30,  
 2019 2018 Change
 (In millions)
LIFO credit (charge)$(25) $13
 $(38)
Interest expense - net(101) (73) (28)
Unallocated corporate costs(132) (180) 48
Restructuring charges(101) (2) (99)
Other charges(12) (8) (4)
Total Corporate$(371) $(250) $(121)
 Three Months Ended  
 June 30,  
 2020 2019 Change
 (In millions)
LIFO adjustment$—
 $(25) $25
Interest expense-net(86) (101) 15
Unallocated corporate costs(194) (132) (62)
Early debt repayment expenses(14) —
 (14)
Impairment and restructuring charges(2) (101) 99
Other income (charges)35
 (12) 47
Total Corporate$(261) $(371) $110

Corporate results were a net charge of $371$261 million in the current quarter compared to $250$371 million in the prior year quarter. The effect of changes in agricultural commodity prices on LIFO inventory valuation reservesreserve resulted in a charge of $25 million in the current quarter compared to a credit of $13 million in the prior year quarter. Interest expense - net increased $28 million due principally to higher borrowings and the absence of a tax credit received in 2018. Unallocated corporate costsexpense-net decreased $48$15 million due principally to lower interest rates and net interest savings from cross currency swaps. Unallocated corporate costs increased $62 million due to higher variable performance-related and stock compensation expenses, partially offset by higher spending on IT, growth-related investments, Readiness-related projects,expense accruals and costs transferred in from the business unitsbusinesses related to the centralization of certain activities. Early debt repayment expenses were related to the make-whole call provision on a bond. Restructuring charges in the prior quarter, which includeincluded pension remeasurement charges, increased duerelated to early retirement and reorganization initiativesinitiatives. Other income in the current quarter.quarter included foreign exchange gains, an investment revaluation gain, and the non-service components of net pension benefit income. Other charges in the prior quarter included foreign exchange losses and a loss from the Company’s equity investment in CIP, which was sold in December 2019.


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

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 June 30, 20192020 and 2018.2019.
Three months ended June 30,Three months ended June 30,
2019 20182020 2019
In millions Per share In millions Per shareIn millions Per share In millions Per share
Average number of shares outstanding - diluted566
   567
  562
   566
  
              
Net earnings and reported EPS (fully diluted)$235
 $0.42
 $566
 $1.00
$469
 $0.84
 $235
 $0.42
Adjustments:              
LIFO charge (credit) - net of tax of $6 million in 2019 and $3 million in 2018 (1)
19
 0.03
 (10) (0.02)
Asset impairment, restructuring, and settlement charges - net of tax of $33 million in 2019 and $8 million in 2018 (2)
105
 0.18
 16
 0.03
LIFO adjustment - net of tax of $6 million in 2019 (1)
—
 —
 19
 0.03
(Gains) losses on sales of assets and businesses - net of tax of $5 million in 2020 (2)
(18) (0.03) —
 —
Asset impairment, restructuring, and settlement charges - net of tax of $4 million in 2020 and $33 million in 2019 (2)
12
 0.02
 105
 0.18
Early debt repayment expenses - net of tax of $3 million in 2020 (2)
11
 0.02
 —
 —
Certain discrete tax adjustments(19) (0.03) 7
 0.01
1
 —
 (19) (0.03)
Total adjustments105
 0.18
 13
 0.02
6
 0.01
 105
 0.18
Adjusted net earnings and adjusted EPS$340
 $0.60
 $579
 $1.02
$475
 $0.85
 $340
 $0.60

(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 June 30, 20192020 and 2018.2019.
Three months ended  Three months ended  
June 30,  June 30,  
(In millions)2019 2018 Change2020 2019 Change
Earnings before income taxes$274
 $652
 $(378)$552
 $274
 $278
Interest expense109
 89
 20
87
 109
 (22)
Depreciation and amortization248
 239
 9
244
 248
 (4)
LIFO25
 (13) 38
—
 25
 (25)
(Gains) losses on sales of assets and businesses(23) —
 (23)
Early debt repayment expenses14
 —
 14
Asset impairment, restructuring, and settlement charges138
 24
 114
16
 138
 (122)
Adjusted EBITDA$794
 $991
 $(197)$890
 $794
 $96
          
Three months ended  Three months ended  
June 30,  June 30,  
(In millions)2019 2018 Change2020 2019 Change
Origination$113
 $234
 $(121)
Oilseeds344
 399
 (55)
Ag Services and Oilseeds$502
 $457
 $45
Carbohydrate Solutions274
 333
 (59)274
 274
 —
Nutrition173
 151
 22
217
 173
 44
Other18
 39
 (21)
Other Business39
 18
 21
Corporate(128) (165) 37
(142) (128) (14)
Adjusted EBITDA$794
 $991
 $(197)$890
 $794
 $96



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

Market Factors Influencing Operations or Results in the Six Months Ended June 30, 20192020

As an agricultural commodity-based business, theThe Company is subject to a variety of market factors which affect the Company's operating results. In Origination, sales volumesAg Services and Oilseeds, North American crushing margins were impacted by high water conditions in the Mississippi river systemcompressed due to slow farmer selling and the continuing global trade tensions with China. In Oilseeds, continued good globalCOVID-19 impacts on demand for meal demand resulted in strong global crushing volumes and stable margins.oil. South AmericanAmerica saw record origination volumes were impactedas it benefited from strong farmer selling in Brazil driven by softer Chinese demand and slower farming selling due to lower soybean prices. Global demandthe devaluation of the Brazilian Real. Demand and margins for refined oil and biodiesel remained solid.solid in North and South America but were challenging in EMEAI. In Carbohydrate Solutions, demand for starches and prices for sweeteners was soft early in the first half of the year due to the impacts of COVID-19 while margins remained solid. Wheat flour demand and starches remained solidmargins in North America while co-product prices were stable. Although ethanol demand remained steady in North America,strong. 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 Origination, Oilseeds,year but improved throughout the second quarter on lower stock levels as ADM and Carbohydrate Solutions business units.many ethanol producers idled some capacity. Nutrition benefited from growingimproved mix and margins in flavors and robust demand for pet food, feed for livestock, plant-based proteins, and probiotics. Lower out-of-home consumption caused by COVID-19 lock down measures negatively impacted flavors volumes especially in the food service channel, and other food ingredients.demand for aqua feed.

Six Months Ended June 30, 20192020 Compared to Six Months Ended June 30, 20182019

Net earnings attributable to controlling interests decreased $491 millionincreased $0.4 billion to $468 million.$0.9 billion. Segment operating profit decreased $0.4increased $0.2 billion to $1.3$1.4 billion. Included in segment operating profit in the current period was a net charge of $35 million consisting of asset impairment and restructuring charges and a gain on the sale of certain assets. Included in segment operating profit in the prior period was a net charge of $34 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 charge of $35 million related to asset impairment and restructuring. Adjusted segment operating profit decreased $0.4increased $0.2 billion to $1.3$1.4 billion due primarily to the absence of the 2017 biodiesel tax credit recorded in the first quarter of 2018, lower margins in Carbohydrate Solutions, lowerhigher results in the AnimalAg Services, Nutrition business, and lowerVantage Corn Processors, and higher equity earnings from the Wilmar investment, partially offset by higher marginslower results in Crushing and Origination, MerchandisingStarches and Handling, and Wild Flavors and Specialty Ingredients.Sweeteners. Corporate results were a net charge of $667$485 million for the six months compared to $490$667 million 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, and early debt repayment expenses of $14 million for the six months, includedcompared to restructuring and pension remeasurement charges of $103 million primarily related to early retirement and reorganization initiatives. Also included in Corporate results in the current period is a charge of $26 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $21 million the same period last year.

Income taxes of $117$64 million decreased $37$53 million. The Company’s effective tax rate for the six months ended June 30, 20192020 was 19.9%6.9% compared to 13.8%19.9% for the six months ended June 30, 2018.2019. The higherchange in the rate for the current period was primarily due to the absenceimpact of U.S. tax credits signed into law in December 2019, including a $73 million discrete tax benefit related to 45G railroad credits recognized in the six months ended June 30, 2020, which are now reflected in the 2020 projected effective tax rate.

In March 2020, the CARES Act was signed into law in the United States. The Company does not expect the provisions of the 2017 biodieselCARES Act to have a material impact on the annual effective tax credit and a favorable discrete tax item recorded in 2018 due to a law change in Brazil related to certain value added tax items.rate for the year ending December 31, 2020.
 
Analysis of Statements of Earnings

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

Six Months Ended Six Months Ended 
June 30,  June 30,  
(In thousands)2019 2018 Change2020 2019 Change
Oilseeds17,940
 18,122
 (182)18,266
 17,940
 326
Corn10,678
 11,109
 (431)9,633
 10,678
 (1,045)
Total28,618
 29,231
 (613)27,899
 28,618
 (719)

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.issues. The overall decrease in Corncorn is primarily related to production disruptionsthe idling of two dry mill facilities in the Columbus, Nebraska corn processing plant duesecond quarter in response to flooding and production issues in the Decatur, Illinois corn complex.current challenging operating environment.




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


Revenues by segment for the six months are as follows:

 Six Months Ended  
 June 30,  
 2019 2018 Change
 (In millions)
Origination 
  
  
Merchandising and Handling$12,476
 $12,789
 $(313)
Transportation129
 118
 11
Total Origination12,605
 12,907
 (302)
     
Oilseeds     
Crushing and Origination6,869
 7,659
 (790)
Refining, Packaging, Biodiesel, and Other4,292
 4,605
 (313)
Total Oilseeds11,161
 12,264
 (1,103)
      
Carbohydrate Solutions     
Starches and Sweeteners3,306
 3,342
 (36)
Bioproducts1,538
 1,906
 (368)
Total Carbohydrate Solutions4,844
 5,248
 (404)
     

Nutrition     
Wild Flavors and Specialty Ingredients1,402
 1,329
 73
Animal Nutrition1,404
 639
 765
Total Nutrition2,806
 1,968
 838
     
Other185
 207
 (22)
Total$31,601
 $32,594
 $(993)
      
 Six Months Ended  
 June 30,  
 2020 2019 Change
 (In millions)
Ag Services and Oilseeds     
Ag Services$15,578
 $15,407
 $171
Crushing4,718
 4,665
 53
Refined Products and Other3,524
 3,694
 (170)
Total Ag Services and Oilseeds23,820
 23,766
 54
      
Carbohydrate Solutions     
Starches and Sweeteners3,195
 3,306
 (111)
Vantage Corn Processors1,135
 1,538
 (403)
Total Carbohydrate Solutions4,330
 4,844
 (514)
     

Nutrition     
Human Nutrition1,442
 1,402
 40
Animal Nutrition1,466
 1,404
 62
Total Nutrition2,908
 2,806
 102
     
Other Business193
 185
 8
Total$31,251
 $31,601
 $(350)
      

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 OilseedsAg Services and Origination,Oilseeds, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues decreased $1.0$0.4 billion to $31.6$31.3 billion due to lower sales prices and to a lesser extent, overallvolumes. Lower sales prices of wheat and biodiesel and lower sales volumes. The decrease involumes of soybeans, alcohol, rice, and oils, were partially offset by higher sales prices was due principally to soybeans, meal,of oils and alcohol. Originationhigher sales volumes of wheat, corn, and meal. Ag Services and Oilseeds revenues increased $0.1 billion due to higher sales volumes ($0.2 billion) partially offset by lower sales prices ($0.1 billion). Carbohydrate Solutions revenues decreased 2%11% to $12.6$4.3 billion due to lower sales volumes ($0.40.3 billion), partially offset by and lower sales prices ($0.2 billion). Nutrition revenues increased 4% to $2.9 billion due to higher sales prices ($0.1 billion). Oilseeds revenues decreased 9% to $11.2 billion due to lower sales prices ($0.9 billion) and lower sales volumes ($0.2 billion). Carbohydrate Solutions revenues decreased 8% to $4.8 billion due to lower sales volumes ($0.4 billion). Nutrition revenues increased 43% to $2.8 billion due to higher sales volumes ($0.8 billion) primarily related to acquisitions.
 
Cost of products sold decreased $0.8$0.5 billion to $29.7$29.2 billion due principally to lower prices of commodities, and to a lesser extent, overall lower sales 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 wascompared to a charge of $26 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $21 million in the prior year’s period. Manufacturing expenses increased $0.2decreased $0.1 billion to $2.9$2.8 billion primarily due principally to recent acquisitionslower energy and individually insignificant increases in certain expense categories.labor costs 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.





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

Foreign currency translation impacts decreased both revenues and cost of products sold by $0.6 billion.

Gross profit decreasedincreased $0.2 billion or 8% to $1.9$2.1 billion. LowerHigher results in Refining, Packaging, Biodiesel,Human and OtherAnimal Nutrition ($125118 million), Ag Services ($182 million), and Carbohydrate SolutionsVantage Corn Processors ($16143 million) were partially offset by higherlower results in Crushing ($203 million) and OriginationStarches and Sweeteners ($107 million) and Wild Flavors and Specialty Ingredients ($2875 million). These factors are explained in the segment operating profit discussion on page 52.51. The effectelimination of the LIFO reserve in connection with the accounting change effective January 1, 2020 had a positive impact on gross profit of $91 million in the current period compared to the negative impact of $26 million from changes in agricultural commodity prices on LIFO inventory valuation reserves had a negative impact on gross profit of $26 million in the current period compared to a positive impact of $21 million in the prior period.
 
Selling, general, and administrative expenses increased 18%3% to $1.3 billion due principally to new acquisitions and higher spending on IT, growth-related investments, and Readiness-related projects,variable performance-related compensation expense accruals, partially offset by lower variable performance-related and stock compensation expenses.

Asset impairment, exit, and restructuring costs increased $107decreased $90 million to $147$57 million. CurrentCharges in the current period consisted primarily of impairments related to certain intangible and other long-lived assets and individually insignificant restructuring charges. Prior period charges consisted of $44 million of impairments related to certain long-lived assets presented as specified items within segment operating profit, and $103 million of restructuring and pension 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 $5 million of individually insignificant restructuring charges in Corporate.

Interest expense increased $30decreased $40 million to $210$170 million due principally to higher borrowings to fund acquisitions.lower interest rates and net interest savings from cross currency swaps.

Equity in earnings of unconsolidated affiliates decreased $56increased $52 million to $191$243 million primarily due to lowerhigher earnings from the Company’s investments in Wilmar and SoyVen and a loss in the prior period from the Company’s investment in Wilmar.CIP which was sold in December 2019, partially offset by a loss in the current period from the Company’s investment in Olenex.

Other income - net increased $4$78 million to $21$99 million. Current period income included included foreign exchange gains, the non-service components of net pension benefit income, and other income, partially offset by loss provisions related to the Company’s futures commission and brokerage business and expenses related to the early repayment of debt. 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 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 six months are as follows:

Six Months Ended  Six Months Ended  
June 30,  June 30,  
Segment Operating Profit (Loss)2019 2018 Change2020 2019 Change
(In millions)(In millions)
Origination 
  
  
Merchandising and Handling$129
 $203
 $(74)
Transportation18
 34
 (16)
Total Origination147
 237
 (90)
    
Oilseeds     
Crushing and Origination361
 255
 106
Refining, Packaging, Biodiesel, and Other155
 274
 (119)
Asia116
 161
 (45)
Total Oilseeds632
 690
 (58)
Ag Services and Oilseeds    

Ag Services$335
 $165
 $170
Crushing183
 355
 (172)
Refined Products and Other159
 143
 16
Wilmar158
 116
 42
Total Ag Services and Oilseeds835
 779
 56
          
Carbohydrate Solutions

   



   

Starches and Sweeteners388
 454
 (66)276
 350
 (74)
Bioproducts(100) 6
 (106)
Vantage Corn Processors(13) (62) 49
Total Carbohydrate Solutions288
 460
 (172)263
 288
 (25)
          
Nutrition          
Wild Flavors and Specialty Ingredients191
 179
 12
Human Nutrition244
 191
 53
Animal Nutrition7
 31
 (24)56
 7
 49
Total Nutrition198
 210
 (12)300
 198
 102
    

    

Other25
 44
 (19)
Other Business49
 25
 24
          
Specified Items:          
Gains (losses) on sales of assets and businesses12
 —
 12
23
 12
 11
Asset impairment, restructuring, and settlement charges(46) (35) (11)(58) (46) (12)
Total Specified Items(34) (35) 1
(35) (34) (1)
          
Total Segment Operating Profit$1,256
 $1,606
 $(350)$1,412
 $1,256
 $156
          
Adjusted Segment Operating Profit(1)
$1,290
 $1,641
 $(351)$1,447
 $1,290
 $157
          
Segment Operating Profit$1,256
 $1,606
 $(350)$1,412
 $1,256
 $156
Corporate(667) (490) (177)(485) (667) 182
Earnings Before Income Taxes$589
 $1,116
 $(527)$927
 $589
 $338

(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)

OriginationAg Services and Oilseeds operating profit decreased 38%increased 7%. Merchandising and HandlingAg Services results were lowermore than doubled compared to the first half of 2018 due to weaker margins and lower volumes in North American grain. Results in the currentprior period, which were also negatively impacted by high water conditions which limited grain movement and sales in North America. TransportationStrong performance in global trade was driven by strong results were down due to lower overall average bargein destination marketing and structured trade finance. Robust farmer selling in Brazil drove higher origination volumes caused by unfavorable river conditions.

Oilseeds operating profit decreased 8%. Crushing and Origination resultsmargins, which were up compared to the first half of 2018, which included significant negative timing effects. Higher executed crush margins around the globe and favorable timing effects from hedges entered in the prior year drove improved results, partially offset by the impacts of slow farmer selling and lower Chinese demand on South American origination. Refining, Packaging, Biodiesel, and Otherweaker results in North America. 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 2018, which included the 2017 biodiesel tax credit. Asia was down2019. The prior year period also benefited from positive timing effects. Refined Products and Other results were higher due to improved biodiesel margins in both North and South America, partially offset by lower earnings from the Company’s investmentbiodiesel margins in Wilmar.EMEAI. Wilmar results were higher year-over-year.

Carbohydrate Solutions operating profit decreased 37%9%. 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 weak industry environment.increased demand for industrial ethanol.

Nutrition operating profit decreased 6%increased 52%. 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 than the first half of 2018. Wild Flavors demonstrated veryIngredients. Additional fermentation revenue and strong sales for probiotics and margin growthfiber drove higher performance in North America but wasHealth & Wellness. Flavors continued to deliver solid results. Animal Nutrition results improved year-over-year driven by strong performance from Neovia, good volumes and margins in feed additives, and solid sales in pet care. Amino acids were negatively impacted by a decline in the global pricing environment.

Other Business operating profit increased 96%. Improvements in underwriting performance at the captive insurance operations were partially offset by changes in customer order patterns in EMEAI. Specialty Ingredients was lower due to isolated production shortfalls. Health and Wellness continued on its growth trajectory, driven both by contributions from acquisitions as well as organic sales and margin improvements. Animal Nutrition results were lower than the first half of 2018, which benefited from temporary industry effects on vitamin additives. Additional upfront costsloss provisions related to inventory revaluation of newly-acquired Neovia, weaker lysine sales volumes, and higher costs also contributed to the current period results.

Other operating profit decreased 43% due to increased captive insurance underwriting losses partially offset by improved results from the Company’s futures commission and brokerage business.
 
Corporate results for the six months are as follows:
Six Months Ended  Six Months Ended  
June 30,  June 30,  
2019 2018 Change2020 2019 Change
(In millions)(In millions)
LIFO credit (charge)$(26) $21
 $(47)$91
 $(26) $117
Interest expense - net(191) (156) (35)
Interest expense-net(163) (191) 28
Unallocated corporate costs(315) (326) 11
(383) (315) (68)
Acquisition-related transaction expenses(14) —
 (14)
Restructuring charges(103) (5) (98)
Expenses related to acquisitions—
 (14) 14
Early debt repayment expenses(14) —
 (14)
Impairment and restructuring adjustments (charges)1
 (103) 104
Other charges(18) (24) 6
(17) (18) 1
Total Corporate$(667) $(490) $(177)$(485) $(667) $182

Corporate results were a net charge of $667$485 million in the current period compared to $490$667 million 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 $26$91 million in the current period compared to a creditLIFO charge of $21$26 million in the prior period. Interest expense -expense-net decreased $28 million due principally to lower interest rates and net interest savings from cross currency swaps. Unallocated corporate costs increased $35$68 million due principally to higher borrowings and absence of a tax credit received in 2018. Unallocated corporate costs decreased $11 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,expense accruals and costs transferred in from the business unitsbusinesses related to the centralization of certain activities. Acquisition expensesExpenses related to acquisitions in the currentprior period related to the Neovia acquisition. Early debt repayment expenses were related to the make-whole call provision on a bond. Restructuring charges in the prior period, which includeincluded pension remeasurement charges, increased duerelated to early retirement and reorganization initiativesinitiatives. Other charges in the current period.period included railroad maintenance expenses of $73 million that had an offsetting benefit in income tax expense, partially offset by foreign exchange gains, an investment revaluation gain, and the non-service components of net pension benefit income. Other charges in the prior period included foreign exchange losses and a loss from the Company’s equity investment in CIP, which was sold in December 2019.


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 six months ended June 30, 20192020 and 2018.2019.
Six months ended June 30,Six months ended June 30,
2019 20182020 2019
In millions Per share In millions Per shareIn millions Per share In millions Per share
Average number of shares outstanding - diluted566
   566
  563
   566
  
              
Net earnings and reported EPS (fully diluted)$468
 $0.83
 $959
 $1.70
$860
 $1.53
 $468
 $0.83
Adjustments:              
LIFO charge (credit) - net of tax of $6 million in 2019 and $5 million in 2018 (1)
20
 0.03
 (16) (0.03)
(Gains) losses on sales of assets and businesses - net of tax of $3 million in 2019 (2)
(9) (0.02) —
 —
Asset impairment, restructuring, and settlement charges - net of tax of $34 million in 2019 and $12 million in 2018 (2)
115
 0.20
 28
 0.05
LIFO charge (credit) - net of tax of $22 million in 2020 and $6 million in 2019 (1)
(69) (0.12) 20
 0.03
(Gains) losses on sales of assets and businesses - net of tax of $5 million in 2020 and $3 million in 2019 (2)
(18) (0.03) (9) (0.02)
Asset impairment, restructuring, and settlement charges - net of tax of $13 million in 2020 and $34 million in 2019 (2)
44
 0.08
 115
 0.20
Expenses related to acquisitions - net of tax of $5 million in 2019 (2)
—
 —
 9
 0.02
Early debt repayment expenses - net of tax of $3 million(1)
11
 0.02
 —
 —
Certain discrete tax adjustments(2) —
 (7) (0.02)8
 0.01
 (2) —
Acquisition-related transaction expenses - net of tax of $5 million (2)
9
 0.02
 —
 —
Total adjustments133
 0.23
 5
 —
(24) (0.04) 133
 0.23
Adjusted net earnings and adjusted EPS$601
 $1.06
 $964
 $1.70
$836
 $1.49
 $601
 $1.06
              
(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 six months ended June 30, 20192020 and 2018.2019.
Six months ended  Six months ended  
June 30,  June 30,  
(In millions)2019 2018 Change2020 2019 Change
Earnings before income taxes$589
 $1,116
 $(527)$927
 $589
 $338
Interest expense210
 180
 30
170
 210
 (40)
Depreciation and amortization493
 474
 19
489
 493
 (4)
LIFO26
 (21) 47
(91) 26
 (117)
(Gains) losses on sales of assets and businesses(12) —
 (12)(23) (12) (11)
Acquisition-related transaction expenses14
 —
 14
Early debt repayment expenses14
 —
 14
Expenses related to acquisitions—
 14
 (14)
Railroad maintenance expenses73
 —
 73
Asset impairment, restructuring, and settlement charges149
 40
 109
57
 149
 (92)
Adjusted EBITDA$1,469
 $1,789
 $(320)$1,616
 $1,469
 $147
          
          
Six months ended  Six months ended  
June 30,  June 30,  
(In millions)2019 2018 Change2020 2019 Change
Origination$229
 $324
 $(95)
Oilseeds738
 802
 (64)
Ag Services and Oilseeds$1,016
 $967
 $49
Carbohydrate Solutions452
 630
 (178)422
 452
 (30)
Nutrition307
 284
 23
416
 307
 109
Other42
 58
 (16)54
 42
 12
Corporate(299) (309) 10
(292) (299) 7
Adjusted EBITDA$1,469
 $1,789
 $(320)$1,616
 $1,469
 $147




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

Liquidity and Capital Resources

A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of a capital intensive agricultural commodity-based business.  The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of 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 $2.7$0.4 billion for the six months compared to $3.2$2.7 billion for the same period last year. Working capital changes, including the increase in deferred consideration, decreased cash by $3.7$2.0 billion for the six months compared to $4.3$3.7 billion for the same period last year. Inventories decreased approximately $0.9$1.4 billion primarily due to lower inventory quantities, partially offset by higher prices. Trade payables declined approximately $0.7$0.8 billion principally reflecting seasonal cash payments for North American harvest-related grain purchases.

Increase in deferred consideration in securitized receivables of $3.6$2.5 billion and $4.1$3.6 billion for the six months and the same period last year, respectively, was offset by $3.6$2.5 billion and $4.0$3.6 billion of net consideration received for beneficial interest obtained for selling trade receivables for the six months and the same period last year, respectively.

Cash provided by investing activities was $1.3$2.2 billion for the six months compared $3.5to $1.3 billion for the same period last year. Capital expenditures were $0.4 billion for the six months andof $0.4 billion were comparable to the same period last year. Net assets of businesses acquired were $1.9 billion$3 million for the six months compared to no acquisitions$1.9 billion for the same period last year.year due to the acquisition of Neovia in 2019. Net consideration received for beneficial interest obtained for selling trade receivables was $3.6$2.5 billion for the six months compared to $4.0$3.6 billion the same period last year.

Cash provided byused in financing activities was $0.3$0.2 billion for the six months compared to a usecash provided of $0.2$0.3 billion for the same period last year. Long-term debt borrowings for the six months of $1.5 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 compared to long-term borrowings of $2 million for the same period last year. Commercial paper net payments for the six months were $0.7 billion compared to net borrowings of $1.4 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 six months of $0.5 billion related to the early redemption of the $0.5 billion aggregate principal amount of 4.479% debentures due in 2021 compared to $0.6 billion for the same period last year which primarily related to the €500 million€0.5 billion Floating Rate Notes that matured in June 2019. Commercial paper borrowings for the six months were $1.4 billion compared to commercial paper borrowings of $0.2 billion for the same period last year. Share repurchases for the six months wereof $0.1 billion compared to an insignificant amount for the same period last year. Dividends wereand dividends of $0.4 billion for the six months andwere comparable to the same period last year.

At June 30, 2019,2020, the Company had $0.9$1.2 billion of cash, cash equivalents, and short-term marketable securities and a current ratio, defined as current assets divided by current liabilities, of 1.61.7 to 1. Included in working capital was $4.9$4.6 billion of readily marketable commodity inventories. At June 30, 2019,2020, the Company’s capital resources included shareholders’ equity of $19.0$19.3 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $8.9$10.9 billion, of which $5.8$9.7 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 31% and 29% at June 30, 20192020 and 29% at December 31, 2018.2019, respectively. The Company uses this ratio as a measure of the Company’s long-term indebtedness and an indicator of financial flexibility. The Company’s ratio of net debt (the sum of short-term debt, 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 31%29% at June 30, 20192020 and 25% at December 31, 2018.2019. 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 $1.5 billion of U.S. and Europeanno commercial paper outstanding at June 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.

As of June 30, 2019,2020, the Company had $0.8$1.2 billion of cash and cash equivalents, $0.3$0.5 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 $3.7$7.0 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.

The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs 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 June 30, 2019,2020, the Company utilized $1.4$0.6 billion of its facility under the Programs.



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

For the six months ended June 30, 2019,2020, the Company spent approximately $0.4 billion in capital expenditures, and $0.4 billion in dividends.dividends, and $0.1 billion in share repurchases. The Company has a stock repurchase program. Under the program, the Company acquired 2.43.8 million shares for the six months ended June 30, 2019,2020, and has 9.7105 million shares remaining that may be repurchased until December 31, 2019.2024.
 
The Company expects capital expenditures of approximately $0.8 billion, to $0.9 billion, dividends of $0.8 billion, and share repurchases of about $0.1 billion to $0.2 billion during 2019.2020.

Contractual Obligations and Commercial Commitments

The Company’s purchase obligations as of June 30, 20192020 and December 31, 20182019 were $13.4$13.2 billion and $11.8$12.2 billion, respectively.  The increase is primarily related to energy commitments and obligations to purchase higher quantities of agricultural commodity inventories, obligations from new acquisitions, and new commitments.inventories. As of June 30, 2019,2020, the Company expects to make payments related to purchase obligations of $12.5$12.2 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended June 30, 20192020.

Off Balance Sheet Arrangements

In June 2020, the Company extended its accounts receivable securitization program (the “First Program”) with certain commercial and conduit purchases and committed purchasers (collectively, the “First Purchasers”) and decreased its facility from $1.3 billion to $1.2 billion. The First Program terminates on September 18, 2020 unless extended (see Note 16 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures on the Programs.

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

Critical Accounting Policies

There were no material changes in the Company’s critical accounting policies during the quarter ended June 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 June 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.



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


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.

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:
  



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


 Six months ended Year ended Six months ended Year ended
 June 30, 2019 December 31, 2018 June 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 $348
 $35
 $434
 $43
 $400
 $40
 $576
 $58
Lowest position (83) (8) 25
 2
 (595) (60) (83) (8)
Average position 154
 15
 237
 24
 (185) (19) 280
 28

The change in fair value of the average position was the result of a decrease in prices and a decrease in average quantities underlying the weekly commodity position.position partially offset by an increase in prices.

ITEM 4.CONTROLS AND PROCEDURES

As of June 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.

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, during the quarter, 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 beenOn September 4, 2019, AOT Holding AG (“AOT”) filed 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, inputative class action under the U.S. First,Commodities Exchange Act in federal district court in Urbana, Illinois, alleging that the Company broughtsought 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 stateresult of the Company’s alleged actions. In May 2020, the court actiongranted in Louisiana against Syngentapart and denied in 2014, alleging Syngenta was negligent in commercializing its products beforepart 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 agreedCompany’s motion to dismiss, all of these third-party claims againstand the Company. Third, farmers and other parties have sued the Company and other grain companiesare engaged in numerous individual and purporteddiscovery. On July 14, 2020, a putative class action suitslawsuit, alleging substantially the same operative facts, was filed 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 Nebraska by Green Plains Inc. and its related entities, 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 Southern District of Illinois dismissed, subject to appeal, all ofsame operative facts and asserting claims under 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.Sherman Act. 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 ofactions. As these actions are in pretrial proceedings. At this time,proceedings, the Company is unable at this time 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 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. In May 2020, the court denied the Company’s motion to dismiss, and the 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 June 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 June 30, 2020.

The Company faces risks related to health epidemics, pandemics, and similar outbreaks.
ADM is monitoring the global outbreak of the novel coronavirus (COVID-19) 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. In such circumstances, ADM may be unable to perform fully on its contracts, supply chain may be affected, and costs may increase. These cost increases may not be fully recoverable or adequately covered by insurance. In addition, a prolonged outbreak of COVID-19 or a resurgence of the virus in the future may have a material impact on demand for certain products that ADM produces, particularly biofuels and ingredients that go into food and beverages that service the food services channels. 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)
April 1, 2019 to        
April 30, 2019 1,563
 $42.040
 347
 12,062,945
         
May 1, 2019 to  
  
  
  
May 31, 2019 735,392
 39.510
 734,258
 11,328,687
         
June 1, 2019 to  
  
    
June 30, 2019 1,623,607
 39.925
 1,623,346
 9,705,341
Total 2,360,562
 $39.797
 2,357,951
 9,705,341
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)
April 1, 2020 to        
April 30, 2020 4,652
 $35.193
 49
 104,962,001
         
May 1, 2020 to  
  
  
  
May 31, 2020 1,236
 37.695
 161
 104,961,840
         
June 1, 2020 to  
  
    
June 30, 2020 1,090
 40.185
 180
 104,961,660
Total 6,978
 $36.416
 390
 104,961,660

(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 June 30, 2019,2020, there were 2,6116,588 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,August 7, 2019, the Company’s Board of Directors approved athe extension of the stock repurchase program authorizingthrough December 31, 2024 and the Company to repurchase of up to an additional 100,000,000 shares ofunder the Company’s common stock during the period commencing January 1, 2015 and ending December 31, 2019.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)).
(10.1)
Form of Performance Share Unit Award Agreement under the Company’s 2020 Incentive Compensation Plan
(10.2)
Form of Restricted Stock Unit Award Agreement under the Company’s 2020 Incentive Compensation Plan
   
(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 File
   
(104)Cover Page Interactive Data File (formatted as Inline XBRL and incorporated by reference to Exhibit 101)





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: August 1, 2019July 30, 2020

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