Edgar Filing: ARCHER DANIELS MIDLAND CO

Document

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, 2019


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.)

77 West Wacker Drive, Suite 4600 Chicago, Illinois (Address of principal executive offices)	60601 (Zip Code)

(312) 634-8100
(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 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 x 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 x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
Emerging growth company o

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. 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 – 560,165,196 shares

(April 25, 2019)

PART I - FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Archer-Daniels-Midland Company

Consolidated Statements of Earnings

(Unaudited)



	Three Months Ended March 31,
	2019			2018
	(In millions, except per share amounts)

Revenues	$	15,304		$	15,526
Cost of products sold	14,376			14,637
Gross Profit	928			889

Selling, general, and administrative expenses	659			513
Asset impairment, exit, and restructuring costs	11			16
Interest expense	101			91
Equity in (earnings) losses of unconsolidated affiliates	(101		)	(147		)
Interest income	(49		)	(33		)
Other (income) expense – net	(8		)	(15		)
Earnings Before Income Taxes	315			464

Income taxes	81			68
Net Earnings Including Noncontrolling Interests	234			396

Less: Net earnings attributable to noncontrolling interests	1			3

Net Earnings Attributable to Controlling Interests	$	233		$	393

Average number of shares outstanding – basic	565			563

Average number of shares outstanding – diluted	566			565

Basic earnings per common share	$	0.41		$	0.70

Diluted earnings per common share	$	0.41		$	0.70

Dividends per common share	$	0.35		$	0.335

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
	(In millions)

Net earnings including noncontrolling interests	$	234		$	396
Other comprehensive income (loss):
Foreign currency translation adjustment	(79		)	211
Tax effect	(10		)	(3		)
Net of tax amount	(89		)	208

Pension and other postretirement benefit liabilities adjustment	7			2
Tax effect	13			(3		)
Net of tax amount	20			(1		)

Deferred gain (loss) on hedging activities	(77		)	(25		)
Tax effect	12			6
Net of tax amount	(65		)	(19		)

Unrealized gain (loss) on investments	(2		)	(2		)
Tax effect	—			—
Net of tax amount	(2		)	(2		)
Other comprehensive income (loss)	(136		)	186
Comprehensive income (loss) including noncontrolling interests	98			582

Less: Comprehensive income (loss) attributable to noncontrolling interests	1			3

Comprehensive income (loss) attributable to controlling interests	$	97		$	579

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Balance Sheets



(In millions)	March 31, 2019			December 31, 2018
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	926		$	1,997
Short-term marketable securities	9			6
Segregated cash and investments	4,241			4,506
Trade receivables	2,515			2,233
Inventories	8,946			8,813
Other current assets	3,625			3,033
Total Current Assets	20,262			20,588

Investments and Other Assets
Investments in and advances to affiliates	5,332			5,317
Long-term marketable securities	22			7
Goodwill and other intangible assets	5,459			4,041
Other assets	1,777			927
Total Investments and Other Assets	12,590			10,292

Property, Plant, and Equipment
Land and land improvements	586			545
Buildings	5,404			5,171
Machinery and equipment	18,534			18,399
Construction in progress	1,121			987
	25,645			25,102
Accumulated depreciation	(15,346		)	(15,149		)
Net Property, Plant, and Equipment	10,299			9,953
Total Assets	$	43,151		$	40,833

Liabilities, Temporary Equity, and Shareholders’ Equity
Current Liabilities
Short-term debt	$	1,595		$	108
Trade payables	3,538			3,545
Payables to brokerage customers	4,616			4,628
Accrued expenses and other payables	2,998			2,913
Current maturities of long-term debt	614			582
Total Current Liabilities	13,361			11,776

Long-Term Liabilities
Long-term debt	7,675			7,698
Deferred income taxes	1,250			1,067
Other	1,906			1,247
Total Long-Term Liabilities	10,831			10,012

Temporary Equity - Redeemable noncontrolling interest	49			49

Shareholders’ Equity
Common stock	2,584			2,560
Reinvested earnings	18,553			18,527
Accumulated other comprehensive income (loss)	(2,242		)	(2,106		)
Noncontrolling interests	15			15
Total Shareholders’ Equity	18,910			18,996
Total Liabilities, Temporary Equity, and Shareholders’ Equity	$	43,151		$	40,833

See notes to consolidated financial statements.

Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows

(Unaudited)



(In millions)	Three Months Ended March 31,
	2019			2018
Operating Activities
Net earnings including noncontrolling interests	$	234		$	396
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization	245			235
Asset impairment charges	9			12
Deferred income taxes	39			(21		)
Equity in earnings of affiliates, net of dividends	(4		)	(105		)
Stock compensation expense	43			29
Deferred cash flow hedges	(77		)	(25		)
Gains on sales of assets and businesses	(15		)	(6		)
Other – net	(8		)	38
Changes in operating assets and liabilities
Segregated investments	28			308
Trade receivables	34			(185		)
Inventories	166			(600		)
Deferred consideration in securitized receivables	(1,778		)	(2,450		)
Other current assets	(495		)	(432		)
Trade payables	(260		)	(567		)
Payables to brokerage customers	(27		)	(432		)
Accrued expenses and other payables	(169		)	231
Total Operating Activities	(2,035		)	(3,574		)

Investing Activities
Purchases of property, plant, and equipment	(198		)	(196		)
Proceeds from sales of business and assets	18			14
Net assets of businesses acquired	(1,876		)	—
Proceeds from sales of marketable securities	50			—
Investments in and advances to affiliates	(9		)	—
Investments in retained interest in securitized receivables	(1,313		)	(1,298		)
Proceeds from retained interest in securitized receivables	3,091			3,656
Other – net	(34		)	4
Total Investing Activities	(271		)	2,180

Financing Activities
Long-term debt payments	(4		)	(1		)
Net borrowings (payments) under lines of credit agreements	1,309			1,474
Cash dividends	(198		)	(190		)
Other – net	(42		)	(6		)
Total Financing Activities	1,065			1,277

Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	(1,241		)	(117		)
Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period	3,843			1,858
Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period	$	2,602		$	1,741

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets

Cash and cash equivalents	$	926		$	797
Restricted cash and restricted cash equivalents included in segregated cash and investments	1,676			944
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	2,602		$	1,741

Supplemental Disclosure of Noncash Investing Activity:
Retained interest in securitized receivables	$	1,831		$	2,368

See notes to consolidated financial statements.

Archer-Daniels-Midland-Company

Consolidated Statement of Shareholders’ Equity

(Unaudited)



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

Balance, December 31, 2017	557	$	2,398		$	17,552		$	(1,637	)	$	9		$	18,322
Comprehensive income
Net earnings					393						3
Other comprehensive income (loss)								186			—
Total comprehensive income														582
Dividends paid - $0.335 per share					(190		)							(190		)
Stock compensation expense	2	29												29
Other	—	1			—			—			(7		)	(6		)
Balance, March 31, 2018	559	$	2,428		$	17,755		$	(1,451	)	$	5		$	18,737

Balance, December 31, 2018	559	$	2,560		$	18,527		$	(2,106	)	$	15		$	18,996
Comprehensive income
Net earnings					233						1
Other comprehensive income (loss)								(136		)	—
Total comprehensive income														98
Dividends paid - $0.35 per share					(198		)							(198		)
Stock compensation expense	1	43												43
Other	—	(19		)	(9		)	—			(1		)	(29		)
Balance, March 31, 2019	560	$	2,584		$	18,553		$	(2,242	)	$	15		$	18,910

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 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 three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

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.

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-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


Note 2.	New Accounting Standards

Effective January 1, 2019, the Company adopted the new guidance of ASC Topic 842, Leases (Topic 842), which superseded ASC Topic 840, Leases. Topic 842 requires lessees to recognize assets and liabilities for all leases. The Company adopted Topic 842 using the optional transition method that allows entities to forgo the comparative reporting requirements 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 new guidance. The Company also elected to use the practical expedient that allows the combination of lease and non-lease contract 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, 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. For more information about the adoption of Topic 842, see Note 12.

Effective January 1, 2019, the Company adopted the amended guidance of ASC Topic 220, Income Statement - Reporting Comprehensive Income (Topic 220), which allows the reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Act”), eliminating the stranded tax effects resulting from the Act and improving the usefulness of information reported to financial statement users. In addition, the 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.


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 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-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


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) 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. 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).

Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for 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 $477 million and $501 million as of March 31, 2019 and December 31, 2018, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheet. Contract liabilities recognized as revenues for the three months ended March 31, 2019 and 2018 were $166 million and $326 million, respectively.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


Note 4.	Revenues (Continued)

Disaggregation of Revenues

The following tables present revenue disaggregated by timing of recognition and major product lines for the three months ended March 31, 2019 and 2018.



	Three Months Ended March 31, 2019
	Topic 606 Revenue						Topic 815⁽¹⁾		Total
	Point in Time		Over Time		Total		Revenue		Revenues
	(In millions)
Origination
Merchandising and Handling	$	592	$	49	$	641	$	5,417	$	6,058
Transportation	—		66		66		—		66
Total Origination	592		115		707		5,417		6,124
Oilseeds
Crushing and Origination	171		—		171		3,085		3,256
Refining, Packaging, Biodiesel, and Other	512		—		512		1,646		2,158
Total Oilseeds	683		—		683		4,731		5,414
Carbohydrate Solutions
Starches and Sweeteners	1,199		—		1,199		423		1,622
Bioproducts	781		—		781		—		781
Total Carbohydrate Solutions	1,980		—		1,980		423		2,403
Nutrition
Wild Flavors and Specialty Ingredients	674		—		674		—		674
Animal Nutrition	608		—		608		—		608
Total Nutrition	1,282		—		1,282		—		1,282

Other	81		—		81		—		81
Total Revenues	$	4,618	$	115	$	4,733	$	10,571	$	15,304

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


Note 4.	Revenues (Continued)



	Three Months Ended March 31, 2018
	Topic 606 Revenue						Topic 815⁽¹⁾		Total
	Point in Time		Over Time		Total		Revenue		Revenues
	(In millions)
Origination
Merchandising and Handling	$	671	$	62	$	733	$	5,479	$	6,212
Transportation	—		55		55		—		55
Total Origination	671		117		788		5,479		6,267
Oilseeds
Crushing and Origination	186		—		186		3,099		3,285
Refining, Packaging, Biodiesel, and Other	527		—		527		1,790		2,317
Total Oilseeds	713		—		713		4,889		5,602
Carbohydrate Solutions
Starches and Sweeteners	1,157		—		1,157		481		1,638
Bioproducts	963		—		963		—		963
Total Carbohydrate Solutions	2,120		—		2,120		481		2,601
Nutrition
Wild Flavors and Specialty Ingredients	636		—		636		—		636
Animal Nutrition	314		—		314		—		314
Total Nutrition	950		—		950		—		950

Other	106		—		106		—		106
Total Revenues	$	4,560	$	117	$	4,677	$	10,849	$	15,526

⁽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

The Origination segment generates revenue from the sale of commodities and from service fees for the transportation of goods. 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 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

Other 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) and Florida Chemical Company (FCC) in January 2019 and March 2019, respectively. Both 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 and FCC, which were not material, are reported in the Nutrition segment.

During the three months ended March 31, 2019, the Company acquired Neovia, FCC, and the remaining 50% interest in Gleadell Agriculture Ltd (Gleadell), for an aggregate consideration of $1,953 million in cash. The aggregate consideration of these acquisitions, net of $91 million in cash acquired, plus the acquisition-date value of the Company’s previously held equity interest in Gleadell of $14 million, were preliminarily allocated as follows:



In millions	Neovia			FCC		Gleadell			Total
Working capital	$	102		$	40	$	(6	)	$	136
Property, plant, and equipment	409			17		13			439
Goodwill	784			90		10			884
Other intangible assets	583			23		—			606
Other long-term assets	87			—		—			87
Long-term liabilities	(274		)	—		(2		)	(276		)
Aggregate cash consideration, net of cash acquired, plus acquisition-date fair value of previously held equity interest	$	1,691		$	170	$	15		$	1,876

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 $884 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 Life	Neovia		FCC		Total
	(In years)	(In millions)
Trademarks/brands	5 to 13	$	166	$	7	$	173
Customer lists	10 to 20	289		12		301
Developed technology	6 to 11	128		4		132
Total other intangible assets acquired		$	583	$	23	$	606


Note 6.	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 March 31, 2019 and December 31, 2018.



	Fair Value Measurements at March 31, 2019
	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	$	—	$	3,000	$	1,511	$	4,511
Unrealized derivative gains:
Commodity contracts	—		257		212		469
Foreign currency contracts	—		191		—		191
Cash equivalents	432		—		—		432
Marketable securities	30		1		—		31
Segregated investments	1,073		—		—		1,073
Deferred receivables consideration	—		430		—		430
Total Assets	$	1,535	$	3,879	$	1,723	$	7,137

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	291	$	143	$	434
Foreign currency contracts	—		155		—		155
Interest rate contracts	—		32		—		32
Inventory-related payables	—		1,123		16		1,139
Total Liabilities	$	—	$	1,601	$	159	$	1,760

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


Note 6.	Fair Value Measurements (Continued)



	Fair Value Measurements at December 31, 2018
	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	$	—	$	3,032	$	1,515	$	4,547
Unrealized derivative gains:
Commodity contracts	—		306		155		461
Foreign currency contracts	—		175		—		175
Cash equivalents	1,288		—		—		1,288
Marketable securities	12		1		—		13
Segregated investments	1,044		—		—		1,044
Deferred receivables consideration	—		379		—		379
Total Assets	$	2,344	$	3,893	$	1,670	$	7,907

Liabilities:
Unrealized derivative losses:
Commodity contracts	$	—	$	344	$	245	$	589
Foreign currency contracts	—		152		—		152
Interest rate contracts	—		20		—		20
Inventory-related payables	—		579		18		597
Total Liabilities	$	—	$	1,095	$	263	$	1,358

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. When unobservable inputs have a significant impact on the measurement of fair value, the inventory is classified in Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)


Note 6.	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 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 (more than 10%) on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, or other (income) expense - net depending upon the purpose of the contract. The changes in the fair value of derivatives designated as 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 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 programs (the “Programs”) which represents notes receivable from the purchasers under the Programs (see Note 17 for more information). This amount is reflected in other current assets on the consolidated balance sheet (see Note 8 for more information). 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 Programs, which have historically been insignificant.

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 three months ended March 31, 2019.



	Level 3 Fair Value Asset Measurements at
	March 31, 2019
	Inventories Carried at Market			Commodity Derivative Contracts Gains		Total Assets
	(In millions)

Balance, December 31, 2018	$	1,515		$	155	$	1,670
Total increase (decrease) in net realized/unrealized gains included in cost of products sold*	(27		)	144		117
Purchases	2,689			—		2,689
Sales	(2,824		)