Edgar Filing: ARCHER DANIELS MIDLAND CO

adm10qfy12q3.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

o	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

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.)

4666 Faries Parkway Box 1470 Decatur, Illinois (Address of principal executive offices)	62525 (Zip Code)

(217) 424-5200
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x Accelerated Filer o

Non-accelerated Filer o Smaller reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.

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 – 658,525,757 shares

(April 30, 2012)

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Archer-Daniels-Midland Company

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended
	March 31,
	2012			2011
	(In millions, except
	per share amounts)

Net sales and other operating income	$	21,155		$	20,077
Cost of products sold		20,147			18,917
Gross Profit		1,008			1,160

Selling, general, and administrative expenses		402			395
Asset impairment, exit, and restructuring costs		85			–
Interest expense		116			121
Equity in earnings of unconsolidated affiliates		(115	)		(71	)
Interest income		(26	)		(32	)
Other (income) expense – net		(22	)		(44	)
Earnings Before Income Taxes		568			791

Income taxes		163			223
Net Earnings Including Noncontrolling Interests		405			568

Less: Net earnings (losses) attributable to noncontrolling interests		6			(10	)

Net Earnings Attributable to Controlling Interests	$	399		$	578

Average number of shares outstanding – basic		662			638

Average number of shares outstanding – diluted		663			684

Basic earnings per common share	$	0.60		$	0.91

Diluted earnings per common share	$	0.60		$	0.86

Dividends per common share	$	0.175		$	0.160

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Statements of Earnings

(Unaudited)

	Nine Months Ended
	March 31,
	2012			2011
	(In millions, except
	per share amounts)

Net sales and other operating income	$	66,363		$	57,806
Cost of products sold		63,508			54,604
Gross Profit		2,855			3,202

Selling, general, and administrative expenses		1,232			1,188
Asset impairment, exit, and restructuring costs		437			–
Interest expense		325			353
Equity in earnings of unconsolidated affiliates		(366	)		(334	)
Interest income		(88	)		(97	)
Other (income) expense – net		(34	)		(159	)
Earnings Before Income Taxes		1,349			2,251

Income taxes		400			612
Net Earnings Including Noncontrolling Interests		949			1,639

Less: Net earnings (losses) attributable to noncontrolling interests		10			(16	)

Net Earnings Attributable to Controlling Interests	$	939		$	1,655

Average number of shares outstanding – basic		667			639

Average number of shares outstanding – diluted		668			655

Basic earnings per common share	$	1.41		$	2.59

Diluted earnings per common share	$	1.41		$	2.55

Dividends per common share	$	0.51		$	0.46

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Balance Sheets

	(Unaudited)
	March 31,			June 30,
	2012			2011
	(In millions)

Assets
Current Assets
Cash and cash equivalents	$	818			$	615
Short-term marketable securities		428				739
Segregated cash and investments		3,542				3,396
Trade receivables		3,078				4,808
Inventories		13,232				12,055
Other current assets		6,117				5,891
Total Current Assets		27,215				27,504

Investments and Other Assets
Investments in and advances to affiliates		3,385				3,240
Long-term marketable securities		320				666
Goodwill		596				602
Other assets		542				681
Total Investments and Other Assets		4,843				5,189

Property, Plant, and Equipment
Land		325				305
Buildings		4,597				4,413
Machinery and equipment		16,705				16,245
Construction in progress		1,012				765
		22,639				21,728
Accumulated depreciation		(12,839	)			(12,228	)
Net Property, Plant, and Equipment		9,800				9,500
Total Assets	$	41,858			$	42,193

Liabilities and Shareholders’ Equity
Current Liabilities
Short-term debt	$	1,987			$	1,875
Trade payables		3,122				2,581
Accrued expenses and other payables		7,885				8,584
Current maturities of long-term debt		1,800				178
Total Current Liabilities		14,794				13,218

Long-Term Liabilities
Long-term debt		6,543				8,266
Deferred income taxes		873				859
Other		1,097				1,012
Total Long-Term Liabilities		8,513				10,137

Shareholders’ Equity
Common stock		6,170				6,636
Reinvested earnings		12,606				11,996
Accumulated other comprehensive income (loss)		(423	)			176
Noncontrolling interests		198				30
Total Shareholders’ Equity		18,551				18,838
Total Liabilities and Shareholders’ Equity	$	41,858			$	42,193

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	March 31,
	2012			2011
	(In millions)
Operating Activities
Net earnings including noncontrolling interests	$	949		$	1,639
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization		628			665
Asset impairment charges		366			–
Deferred income taxes		48			185
Equity in earnings of affiliates, net of dividends		(208	)		(222	)
Gain on Golden Peanut revaluation		–			(71	)
Stock compensation expense		41			41
Pension and postretirement accruals, net		125			69
Deferred cash flow hedges		(33	)		(13	)
Other – net		13			(72	)
Changes in operating assets and liabilities, net of businesses acquired
Segregated cash and investments		(145	)		(691	)
Trade receivables		1,429			(876	)
Inventories		(1,109	)		(5,121	)
Other current assets		(396	)		(2,914	)
Trade payables		474			1,102
Accrued expenses and other payables		76			1,530
Total Operating Activities		2,258			(4,749	)

Investing Activities
Purchases of property, plant, and equipment		(1,193	)		(913	)
Proceeds from sales of property, plant, and equipment		39			52
Net assets of businesses acquired		(239	)		(206	)
Cash divested from deconsolidation		(130	)		–
Purchases of marketable securities		(1,130	)		(1,874	)
Proceeds from sales of marketable securities		1,526			1,370
Other – net		30			(16	)
Total Investing Activities		(1,097	)		(1,587	)

Financing Activities
Long-term debt borrowings		95			1,563
Long-term debt payments		(224	)		(306	)
Net borrowings (payments) under lines of credit agreements		36			5,259
Debt exchange premiums		(32	)		–
Purchases of treasury stock		(483	)		(94	)
Cash dividends		(339	)		(293	)
Acquisition of noncontrolling interest		(19	)		–
Other – net		8			19
Total Financing Activities		(958	)		6,148

Increase (decrease) in cash and cash equivalents		203			(188	)
Cash and cash equivalents beginning of period		615			1,046

Cash and cash equivalents end of period	$	818		$	858

See notes to consolidated financial statements.

Archer-Daniels-Midland-Company

Consolidated Statement of Shareholders’ Equity

(Unaudited)

										Accumulated
										Other						Total
	Common Stock						Reinvested			Comprehensive			Noncontrolling			Shareholders’
	Shares			Amount			Earnings			Income (Loss)			Interests			Equity
										(In millions)

Balance June 30, 2011		676		$	6,636		$	11,996		$	176		$	30		$	18,838

Comprehensive income
Net earnings								939						10
Other comprehensive income											(599	)		2
Total comprehensive income																	352
Cash dividends paid- $0.51 per share								(339	)								(339	)
Treasury stock purchases		(17	)		(483	)											(483	)
Stock compensation expense					41												41
Noncontrolling interests previously associated with mandatorily redeemable instruments								10						174			184
Acquisition of noncontrolling interests					(5	)								(14	)		(19	)
Other		1			(19	)								(4	)		(23	)
Balance March 31, 2012		660		$	6,170		$	12,606		$	(423	)	$	198		$	18,551

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 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 complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending June 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2011.

Principles of Consolidation

On September 30, 2011, the Company finalized the sale of the majority ownership interest of Hickory Point Bank and Trust Company, fsb (Bank), a previously wholly-owned subsidiary. As a result, the accounts of the Bank were deconsolidated with no material effect to after-tax earnings for the nine months ended March 31, 2012. The Company accounts for its remaining ownership interest in the Bank under the equity method.

Prior to December 31, 2011, the Company consolidated certain less than wholly-owned subsidiaries for which the minority interest was subject to a put option and considered mandatorily redeemable. On December 31, 2011, the put option expired and as a result, the Company reclassified $174 million of minority interest from other long-term liabilities to noncontrolling interests in shareholders’ equity at that date.

Adoption of New Accounting Standards

Effective July 1, 2011, the Company adopted the second phase of the amended guidance in Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis, separate for assets and liabilities. The adoption of this amended guidance requires expanded disclosure in the notes to the Company’s consolidated financial statements but does not impact financial results (see Note 4 for the disclosures required by this guidance).

Effective March 31, 2012, the Company adopted the amended guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The adoption of this amended guidance requires expanded disclosure in the notes to the Company’s consolidated financial statements but does not impact financial results (see Note 4 for the disclosures required by this guidance).

Reclassifications

Other (income) expense – net in prior year’s consolidated statement of earnings has been reclassified to conform to the current year’s presentation with corresponding changes to certain prior year items in Notes 5 and 13. These reclassifications had no impact to net earnings attributable to controlling interests. In addition, receivables and accounts payable in the prior year consolidated balance sheet have been reclassified to conform to the current year’s presentation where trade receivables and trade payables are now shown separately from other receivables and other payables, respectively. Other receivables and other payables are now included in other current assets and accrued expenses and other payables, respectively. These changes are also reflected in the prior year consolidated statement of cash flows with no impact to total cash provided by (used in) operating, investing, or financing activities.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 1.

Basis of Presentation (Continued)

Last-in, First-out (LIFO) Inventories

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

Note 2.

Pending Accounting Standards

Effective July 1, 2012, the Company will be required to adopt the amended guidance of ASC Topic 220, Comprehensive Income, which requires the Company to present total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amended guidance eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity. The Company will be required to apply the presentation and disclosure requirements of the amended guidance retrospectively. The adoption of this amended guidance will change financial statement presentation and require expanded disclosures in the Company’s consolidated financial statements but will not impact financial results.

Effective July 1, 2012, the Company will be required to adopt the amended guidance of ASC Topic 350, Intangibles – Goodwill and Other, which changes the process for how entities test goodwill for impairment. The amended guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Early adoption of this amended guidance is permitted. The Company does not expect any impact on its financial results as a result of the adoption of this amended guidance.

Note 3.

Acquisitions

During the nine months ended March 31, 2012, the Company acquired eight businesses for a total cost of $239 million and recorded a preliminary allocation of the purchase price related to these acquisitions.

The net cash purchase price for the eight acquisitions of $239 million was allocated to working capital, property, plant, and equipment, goodwill, other long-term assets, and long-term liabilities for $(12) million, $201 million, $40 million, $13 million and $3 million, respectively.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements

The Company determines the fair value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels established in the guidance of ASC Topic 820, Fair Value Measurements and Disclosures. Three levels are established within the hierarchy that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange-traded derivative contracts, U.S. treasury securities and certain publicly traded equity securities.

Level 2: Observable inputs, including Level 1 prices that have been adjusted; quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be substantially corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity or a limited number of third- party quotes and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Level 3 amounts can include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of input that is a significant component of the fair value measurement determines the placement of the entire fair value measurement in the hierarchy. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment that may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

The Company’s policy regarding the timing of transfers between levels, including both transfers into and transfers out of Level 3, is to measure and record the transfers at the end of the reporting period. For the period ended March 31, 2012, 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 4.

Fair Value Measurements (Continued)

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 March 31, 2012 and June 30, 2011.

	Fair Value Measurements at March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)

Assets:
Inventories carried at market	$	–	$	5,604	$	1,725	$	7,329
Unrealized derivative gains:
Commodity contracts		1,270		1,006		232		2,508
Foreign exchange contracts		–		180		–		180
Marketable securities		1,936		50		–		1,986
Deferred receivables consideration		–		710		–		710
Total Assets	$	3,206	$	7,550	$	1,957	$	12,713

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	1,511	$	845	$	184	$	2,540
Foreign exchange contracts		–		188		–		188
Inventory-related payables		–		311		137		448
Total Liabilities	$	1,511	$	1,344	$	321	$	3,176

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

	Fair Value Measurements at June 30, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)

Assets:
Inventories carried at market	$	–	$	5,153	$	762	$	5,915
Unrealized derivative gains:
Commodity contracts		1,198		1,457		112		2,767
Foreign exchange contracts		–		237		–		237
Interest rate contracts		–		3		–		3
Marketable securities		1,628		328		–		1,956
Total Assets	$	2,826	$	7,178	$	874	$	10,878

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	1,317	$	1,193	$	44	$	2,554
Foreign exchange contracts		–		178		–		178
Inventory-related payables		–		278		45		323
Total Liabilities	$	1,317	$	1,649	$	89	$	3,055

The Company uses the market approach valuation technique to measure the majority of its assets and liabilities carried at fair value. Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets, broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) markets. Market valuations for the Company’s inventories are adjusted for location and quality because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. Generally, the valuations are based on price information that is observable by market participants, or rely only on insignificant unobservable information. In such cases, the inventory is classified in Level 2. Certain inventories may require management judgment or estimation for a more significant component of the fair value amount. For these inventories, the availability of sufficient third-party information is limited. In such cases, the inventory is classified as Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

The Company’s derivative contracts that are measured at fair value include forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to agricultural commodities, ocean freight, 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 the fair value tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Based on historical experience with the Company’s suppliers and customers, the Company’s own credit risk and knowledge of current market conditions, the Company does not view nonperformance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. However, in certain cases, if the Company believes the nonperformance risk to be a significant input, the Company records estimated fair value adjustments, and classifies the contract in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense – net. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur.

The Company’s marketable securities are comprised of U.S. Treasury securities, obligations of U.S. government agencies, corporate and municipal debt securities, and equity investments. U.S. Treasury securities and certain publicly traded equity investments are valued using quoted market prices and are classified in Level 1. U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are valued using third-party pricing services and substantially all are classified in Level 2. Security values that are determined using pricing models are classified in Level 3. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings.

The Company has deferred consideration under its accounts receivable securitization program (the “Program”) which represents a note receivable from the purchasers under the Program. This amount is reflected in other current assets on the consolidated balance sheet (see Note 16). The Company carries the deferred consideration at fair value determined by calculating the expected amount of cash to be received. The fair value is principally based on observable inputs (a Level 2 measurement) consisting mainly of the face amount of the receivables adjusted for anticipated credit losses and discounted at the appropriate market rate. Payment of deferred consideration is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred under the program which have historically been insignificant.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.

	Level 3 Fair Value Asset Measurements at March 31, 2012
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, December 31, 2011	$	1,624		$	198		$	1,822
Total increase (decrease) in unrealized gains included in cost of products sold		41			165			206
Purchases		1,286			–			1,286
Sales		(285	)		–			(285	)
Settlements		–			(100	)		(100	)
Transfers into Level 3		72			19			91
Transfers out of Level 3		(1,013	)		(50	)		(1,063	)
Ending balance, March 31, 2012	$	1,725		$	232		$	1,957

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2012.

	Level 3 Fair Value Liability Measurements at March 31, 2012
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, December 31, 2011	$	196		$	192		$	388
Total increase (decrease) in unrealized losses included in cost of products sold		–			159			159
Purchases		(1	)		–			(1	)
Sales		82			–			82
Settlements		–			(141	)		(141	)
Transfers into Level 3		–			12			12
Transfers out of Level 3		(140	)		(38	)		(178	)
Ending balance, March 31, 2012	$	137		$	184		$	321

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2011.

	Level 3 Fair Value Measurements at March 31, 2011
	Inventories Carried at Market, Net			Commodity Derivative Contracts, Net			Total
	(In millions)

Balance, December 31, 2010	$	306		$	92		$	398
Total gains (losses), realized or unrealized, included in earnings before income taxes*		236			4			240
Purchases, issuances and settlements		(46	)		(4	)		(50	)
Transfers into Level 3		142			13			155
Transfers out of Level 3		–			(10	)		(10	)
Ending balance, March 31, 2011	$	638		$	95		$	733

*Includes gains of $79 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2011.

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2012.

	Level 3 Fair Value Asset Measurements at March 31, 2012
	Inventories Carried at Market			Commodity Derivative Contracts Gains			Total Assets
	(In millions)

Balance, June 30, 2011	$	762		$	112		$	874
Total increase (decrease) in unrealized gains included in cost of products sold		23			500			523
Purchases		2,381			4			2,385
Sales		(1,509	)		–			(1,509	)
Settlements		–			(344	)		(344	)
Transfers into Level 3		1,145			103			1,248
Transfers out of Level 3		(1,077	)		(143	)		(1,220	)
Ending balance, March 31, 2012	$	1,725		$	232		$	1,957

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2012.

	Level 3 Fair Value Liability Measurements at March 31, 2012
	Inventory- related Payables			Commodity Derivative Contracts Losses			Total Liabilities
	(In millions)

Balance, June 30, 2011	$	45		$	44		$	89
Total increase (decrease) in unrealized losses included in cost of products sold		4			465			469
Purchases		(3	)		1			(2	)
Sales		78			–			78
Settlements		–			(280	)		(280	)
Transfers into Level 3		153			31			184
Transfers out of Level 3		(140	)		(77	)		(217	)
Ending balance, March 31, 2012	$	137		$	184		$	321

The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2011.

	Level 3 Fair Value Measurements at March 31, 2011
	Inventories Carried at Market, Net			Derivative Contracts, Net			Total
	(In millions)

Balance, June 30, 2010	$	427		$	13		$	440
Total gains (losses), realized or unrealized, included in earnings before income taxes*		240			102			342
Purchases, issuances and settlements		68			(1	)		67
Transfers into Level 3		150			13			163
Transfers out of Level 3		(247	)		(32	)		(279	)
Ending balance, March 31, 2011	$	638		$	95		$	733

* Includes gains of $248 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at March 31, 2011.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Fair Value Measurements (Continued)

Fair values for inventories and commodity purchase and sale contracts are generally estimated based on observable, exchange-quoted futures prices adjusted as needed to arrive at prices in local markets. Exchange-quoted futures prices represent quotes for contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. In some cases, the price components that result in differences between the exchange-traded prices and the local prices 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 will be 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 will 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 March 31, 2012. The Company’s Level 3 measurements may include Basis only, transportation cost only, or both price components. As an example, for Level 3 commodity derivative contracts with Basis, the unobservable component is a weighted average 15.1% of the total price for assets and 24.1% for liabilities.

	Weighted Average % of Total Price
Component Type	Assets			Liabilities

Commodity Derivative Contracts
Basis		15.1	%		24.1	%
Transportation cost		9.7	%		12.1	%

Inventories
Basis		10.5	%		4.8	%
Transportation cost		6.2	%		9.1	%

In certain of the Company’ 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, the Company considers these price quotes as 100 percent unobservable and, therefore, the fair value of these items is reported in Level 3.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Derivative Instruments and Hedging Activities

The Company recognizes all of its derivative instruments as either assets or liabilities at fair value in its consolidated balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. The majority of the Company’s derivatives have not been designated as hedging instruments. For those derivative instruments that are designated and qualify as hedging instruments, a reporting entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. As of March 31, 2012 and June 30, 2011, the Company has certain derivatives designated as cash flow hedges. Within the Note 5 tables, zeros represent minimal amounts.

Derivatives Not Designated as Hedging Instruments

The Company generally follows a policy of using exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of exchange-traded commodities futures contracts and the cash prices of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Exchange-traded futures, exchange-traded and OTC options contracts, and forward cash purchase and sales contracts of certain merchandisable agricultural commodities accounted for as derivatives are stated at fair value. Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Inventory is not a derivative and therefore is not included in the tables below. Changes in the market value of inventories of certain merchandisable agricultural commodities, forward cash purchase and sales contracts, exchange-traded futures, and exchange-traded and OTC options contracts are recognized in earnings immediately. Unrealized gains and unrealized losses on forward cash purchase contracts, forward foreign currency exchange (FX) contracts, forward cash sales contracts, and exchange-traded and OTC options contracts represent the fair value of such instruments and are classified on the Company’s consolidated balance sheets as other current assets and accrued expenses and other payables, respectively.

At March 31, 2010, the Company de-designated and discontinued hedge accounting treatment for certain interest rate swaps, which were related to the anticipated remarketing of certain long-term debt. At the date of de-designation of these hedges, $21 million of after-tax gains were deferred in AOCI. In March 2011, these interest rate swaps were terminated upon the remarketing of the long-term debt. The $21 million gains deferred in AOCI are being amortized over 30 years. The Company recognized in earnings pre-tax gains from these interest rate swaps of $6 million and $30 million during the quarter and nine months ended March 31, 2011, respectively.

The following table sets forth the fair value of derivatives not designated as hedging instruments as of March 31, 2012 and June 30, 2011.

	March 31, 2012				June 30, 2011
	Assets		Liabilities		Assets		Liabilities
	(In millions)				(In millions)

FX Contracts	$	180	$	188	$	237	$	178
Interest Contracts		–		–		3		–
Commodity Contracts		2,508		2,540		2,766		2,553
Total	$	2,688	$	2,728	$	3,006	$	2,731

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Derivative Instruments and Hedging Activities (Continued)

The following table sets forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and nine months ended March 31, 2012 and 2011.

	Three months ended March 31,
	2012			2011
	(In millions)
Interest Contracts
Interest expense	$	0		$	0
Other income (expense) – net		–			6

FX Contracts
Net sales and other operating income	$	9		$	(11	)
Cost of products sold		30			41
Other income (expense) – net		141			35

Commodity Contracts
Cost of products sold	$	(232	)	$	(104	)
Total gain (loss) recognized in earnings	$	(52	)	$	(33	)

	Nine months ended March 31,
	2012			2011
	(In millions)
Interest Contracts
Interest expense	$	0		$	0
Other income (expense) – net		–			30

FX Contracts
Net sales and other operating income	$	42		$	(18	)
Cost of products sold		(86	)		105
Other income (expense) – net		72			67

Commodity Contracts
Cost of products sold	$	(236	)	$	(1,911	)
Total gain (loss) recognized in earnings	$	(208	)	$	(1,727	)

Derivatives Designated as Cash Flow Hedging Strategies

For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI 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. The remaining gain or loss on the derivative instrument that is in excess of the cumulative change in the cash flows of the hedged item, if any (i.e., the ineffective portion), 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.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Derivative Instruments and Hedging Activities (Continued)

For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge will be reclassified from AOCI to either net sales and other operating income, cost of products sold, interest expense or other income (expense) – net, as applicable. As of March 31, 2012, the Company has $20 million of after-tax losses in AOCI related to gains and losses from commodity cash flow hedge transactions. The Company expects to recognize $19 million of these after-tax losses in its consolidated statement of earnings during the next 12 months.

The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants currently grind approximately 76 million bushels of corn per month. During the past 12 months, the Company hedged between 1% and 100% of its monthly anticipated grind. At March 31, 2012, the Company has designated hedges representing between 1% and 26% of its anticipated monthly grind of corn for the next 21 months.

The Company, from time to time, also uses futures, options, and swaps to fix the purchase price of the Company’s anticipated natural gas requirements for certain production facilities. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of natural gas. These production facilities use approximately 3.75 million MMbtus of natural gas per month. During the past 12 months, the Company hedged between 21% and 50% of the quantity of its anticipated monthly natural gas purchases. At March 31, 2012, the Company has designated hedges representing between 5% and 19% of its anticipated monthly natural gas purchases for the next 9 months.

The Company, from time to time, also uses futures, options, and swaps to fix the sales price of certain ethanol sales contracts. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s sales of ethanol under sales contracts that are indexed to unleaded gasoline prices. During the past 12 months, the Company hedged between 10 million to 19 million gallons of ethanol per month under this program. At March 31, 2012, the Company has designated hedges representing between 3 million to 16 million gallons of contracted ethanol sales per month over the next 9 months.

To protect against fluctuations in cash flows due to foreign currency exchange rates, the Company from time to time will use forward foreign exchange contracts as cash flow hedges. Certain production facilities have manufacturing expenses and equipment purchases denominated in non-functional currencies. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currencies, the Company will hedge some portion of the forecasted foreign currency expenditures. At March 31, 2012, the Company has $1 million of after-tax losses in AOCI related to foreign exchange contracts designated as cash flow hedging instruments. The Company will recognize the $1 million of losses in its consolidated statement of earnings over the life of the hedged transactions.

The Company, from time to time, uses treasury-lock agreements and interest rate swaps in order to lock in the Company’s interest rate prior to the issuance or remarketing of its long-term debt. Both the treasury-lock agreements and interest rate swaps were designated as cash flow hedges of the risk of changes in the future interest payments attributable to changes in the benchmark interest rate. The objective of the treasury-lock agreements and interest rate swaps was to protect the Company from changes in the benchmark rate from the date of hedge designation to the date when the debt was actually issued. At March 31, 2012, AOCI included $22 million of after-tax gains related to treasury-lock agreements and interest rate swaps, of which, $20 million relates to the interest swaps that were de-designated at March 31, 2010 as discussed earlier in Note 5.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Derivative Instruments and Hedging Activities (Continued)

The Company will recognize the $22 million of gains in its consolidated statement of earnings over the terms of the hedged items, which range from 10 to 30 years.

The following tables set forth the fair value of derivatives designated as hedging instruments as of March 31, 2012 and June 30, 2011.

	March 31, 2012				June 30, 2011
	Assets		Liabilities		Assets		Liabilities
	(In millions)				(In millions)

Commodity Contracts	$	0	$	0	$	1	$	1
Total	$	0	$	0	$	1	$	1

The following table sets forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statements of earnings for the three and nine months ended March 31, 2012 and 2011.

		Three months ended
	Consolidated Statement of	March 31,
	Earnings Locations	2012			2011
		(In millions)
Effective amounts recognized in earnings
FX Contracts	Other income/expense – net	$	0		$	0
Interest Contracts	Interest expense		0			0
Commodity Contracts	Cost of products sold		(3	)		112
	Net sales and other operating income		(10	)		(12	)
Ineffective amount recognized in earnings
Interest Contracts	Other income/expense – net		–			1
Commodity Contracts	Cost of products sold		(27	)		8
Total amount recognized in earnings		$	(40	)	$	109

		Nine months ended
	Consolidated Statement of	March 31,
	Earnings Locations	2012			2011
		(In millions)
Effective amounts recognized in earnings
FX Contracts	Other income/expense – net	$	(1	)	$	0
Interest Contracts	Interest expense		1			0
Commodity Contracts	Cost of products sold		8			333
	Net sales and other operating income		(2	)		(8	)
Ineffective amount recognized in earnings
Interest Contracts	Other income/expense – net		–			1
Commodity Contracts	Cost of products sold		12			41
Total amount recognized in earnings		$	18		$	367

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Derivative Instruments and Hedging Activities (Continued)

The following tables set forth the changes in AOCI related to derivatives gains (losses) for the three and nine months ended March 31, 2012 and 2011.

	Three months ended
	March 31,
	2012			2011
	(In millions)
Balance at December 31, 2011 and 2010	$	30		$	43
Unrealized gains (losses)		(54	)		61
Losses (gains) reclassified to earnings		13			(101	)
Tax effect		15			16
Balance at March 31, 2012 and 2011	$	4		$	19

	Nine months ended
	March 31
	2012			2011
	(In millions)
Balance at June 30, 2011 and 2010	$	29		$	30
Unrealized gains (losses)		(32	)		308
Losses (gains) reclassified to earnings		(6	)		(326	)
Tax effect		13			7
Balance at March 31, 2012 and 2011	$	4		$	19

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6.

Marketable Securities and Cash Equivalents

				Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
	(In millions)
March 31, 2012

United States government obligations
Maturity less than 1 year		$	438	$	–	$	–		$	438
Maturity 1 to 5 years			91		–		–			91
Government–sponsored enterprise obligations
Maturity 1 to 5 years			1		–		–			1
Corporate debt securities
Maturity 1 to 5 years			48		–		–			48
Other debt securities
Maturity less than 1 year			422		–		–			422
Maturity 1 to 5 years			3		–		–			3
Equity securities
Available-for-sale			136		19		(4	)		151
Trading			26		–		–			26
		$	1,165	$	19	$	(4	)	$	1,180

				Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
		(In millions)
June 30, 2011

United States government obligations
Maturity less than 1 year		$	753	$	–	$	–		$	753
Maturity 1 to 5 years			72		1		–			73
Government–sponsored enterprise obligations
Maturity less than 1 year			20		–		–			20
Maturity 1 to 5 years			54		–		–			54
Maturity 5 to 10 years			5		–		–			5
Maturity greater than 10 years			218		8		–			226
Corporate debt securities
Maturity less than 1 year			1		–		–			1
Maturity 1 to 5 years			35		1		–			36
Other debt securities
Maturity less than 1 year			215		–		–			215
Maturity 1 to 5 years			3		–		–			3
Maturity 5 to 10 years			7		–		–			7
Equity securities
Available-for-sale			159		83		(4	)		238
Trading			24		–		–			24
		$	1,566	$	93	$	(4	)	$	1,655

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6.

Marketable Securities and Cash Equivalents (Continued)

All of the $4 million in unrealized losses at March 31, 2012 arose within the last 12 months and are related to the Company’s investment in one security. The market value of the available-for-sale equity security that has been in an unrealized loss position for less than 12 months is $30 million. The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of the impairment. Based on that evaluation and the Company’s ability and intent to hold this investment for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider this investment to be other-than-temporarily impaired at March 31, 2012.

In December 2011, the Company recorded a $13 million other-than-temporary impairment related to its available-for-sale equity security investment in Metabolix, Inc. (see Note 15 for additional information). The impairment charge is included in asset impairment, exit, and restructuring costs in the consolidated statements of earnings.

Note 7.

Other Current Assets

The following table sets forth the items in other current assets:

	March 31,		June 30,
	2012		2011
	(In millions)

Unrealized gains on derivative contracts	$	2,688	$	3,007
Deferred receivables consideration		710		–
Other current assets		2,719		2,884
	$	6,117	$	5,891

Note 8.

Accrued Expenses and Other Payables

The following table sets forth the items in accrued expenses and other payables:

	March 31,		June 30,
	2012		2011
	(In millions)

Unrealized losses on derivative contracts	$	2,728	$	2,732
Accrued expenses and other payables		5,157		5,852
	$	7,885	$	8,584

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 9.

Debt and Financing Arrangements

The Company has outstanding $1.15 billion principal amount of convertible senior notes (the Notes) due in 2014. As of March 31, 2012, none of the conditions permitting conversion of the Notes had been satisfied. Therefore, no share amounts related to the conversion of the Notes or exercise of the warrants sold in connection with the issuance of the Notes were included in diluted average shares outstanding. For further information on the Notes, refer to Note 8 “Debt and Financing Arrangements” in the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended June 30, 2011.

The Company also has outstanding $1.4 billion principal amount of floating rate notes due on August 13, 2012. Interest on the notes accrues at a floating rate three-month LIBOR reset quarterly plus 0.16% and is paid quarterly. As of March 31, 2012, the interest rate on the notes was 0.67%.

On September 26, 2011, the Company issued $528 million of 4.535% senior Debentures due in 2042 (the New Debentures) in exchange for $404 million of its previously issued and outstanding 6.45%, 6.625%, 6.75%, 6.95%, 7% and 7.5% debentures. The Company paid $32 million of debt premium to certain bondholders associated with these exchanges. The discount on the New Debentures is being amortized over the life of the New Debentures using the effective interest method.

At March 31, 2012, the fair value of the Company’s long-term debt exceeded the carrying value by $1.3 billion, as estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

At March 31, 2012, the Company had lines of credit totaling $6.7 billion, of which $4.7 billion was unused. Of the Company’s total lines of credit, $4.3 billion support a commercial paper borrowing facility, against which $1.2 billion of commercial paper was outstanding at March 31, 2012.

On March 27, 2012, the Company entered into an amendment of its accounts receivable securitization program (the “Program”). The Program provides the Company with up to $1.0 billion in funding resulting from the sale of accounts receivable. As of March 31, 2012, the Company utilized all of its $1.0 billion facility under the Program (see Note 16 for more information on the Program).

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10.

Earnings Per Share

The computation of basic and diluted earnings per share is as follows:

	Three months ended				Nine months ended
	March 31,				March 31,
	2012		2011		2012		2011
	(In millions, except per share amounts)

Net earnings attributable to controlling interests	$	399	$	578	$	939	$	1,655
Average shares outstanding		662		638		667		639

Basic earnings per share	$	0.60	$	0.91	$	1.41	$	2.59


Net earnings attributable to controlling interests	$	399	$	578	$	939	$	1,655
Plus: After-tax interest on 4.7% debentures related to $1.75 billion equity units		–		13		–		13
Adjusted net earnings attributable to controlling interests	$	399	$	591	$	939	$	1,668

Average shares outstanding		662		638		667		639
Plus: Incremental shares
Share-based compensation awards		1		2		1		2
Shares assumed issued related to $1.75 billion equity units		–		44		–		14