Archer-Daniels-Midland Co 10-Q

ITEM 1. FINANCIAL STATEMENTS Archer-Daniels-Midland Company Consolidated Statements of Earnings (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions, except per share amounts) Revenues $ 24,683 $ 20,340 $ 75,617 $ 62,159 Cost of products sold 22,872 19,014 69,809 57,822 Gross Profit 1,811 1,326 5,808 4,337 Selling, general, and administrative expenses 818 720 2,461 2,208 Asset impairment, exit, and restructuring costs 28 2 30 84 Equity in earnings of unconsolidated affiliates ( 210 ) ( 110 ) ( 606 ) ( 398 ) Interest and investment income ( 85 ) ( 20 ) ( 176 ) ( 83 ) Interest expense 97 61 262 188 Other (income) expense – net ( 67 ) 20 ( 183 ) 36 Earnings Before Income Taxes 1,230 653 4,020 2,302 Income tax expense 193 120 679 364 Net Earnings Including Noncontrolling Interests 1,037 533 3,341 1,938 Less: Net earnings attributable to noncontrolling interests 6 7 20 11 Net Earnings Attributable to Controlling Interests $ 1,031 $ 526 $ 3,321 $ 1,927 Average number of shares outstanding – basic 561 564 565 564 Average number of shares outstanding – diluted 563 566 566 566 Basic earnings per common share $ 1.84 $ 0.93 $ 5.88 $ 3.42 Diluted earnings per common share $ 1.83 $ 0.93 $ 5.87 $ 3.41 Dividends per common share $ 0.40 $ 0.37 $ 1.20 $ 1.11 See notes to consolidated financial statements. 3 Archer-Daniels-Midland Company Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Net earnings including noncontrolling interests $ 1,037 $ 533 $ 3,341 $ 1,938 Other comprehensive income (loss): Foreign currency translation adjustment ( 221 ) ( 24 ) ( 79 ) 305 Tax effect ( 74 ) ( 30 ) ( 189 ) ( 78 ) Net of tax amount ( 295 ) ( 54 ) ( 268 ) 227 Pension and other postretirement benefit liabilities adjustment 8 13 45 102 Tax effect ( 2 ) 5 ( 13 ) ( 22 ) Net of tax amount 6 18 32 80 Deferred gain (loss) on hedging activities 43 75 245 258 Tax effect ( 5 ) ( 1 ) ( 50 ) ( 41 ) Net of tax amount 38 74 195 217 Unrealized gain (loss) on investments — 6 ( 13 ) 4 Tax effect 1 — 2 ( 1 ) Net of tax amount 1 6 ( 11 ) 3 Other comprehensive income (loss) ( 250 ) 44 ( 52 ) 527 Comprehensive income (loss) 787 577 3,289 2,465 Less: Comprehensive income (loss) attributable to noncontrolling interests 3 6 8 10 Comprehensive income (loss) attributable to controlling interests $ 784 $ 571 $ 3,281 $ 2,455 See notes to consolidated financial statements. 4 Archer-Daniels-Midland Company Consolidated Balance Sheets (In millions) September 30, 2022 December 31, 2021 (Unaudited) Assets Current Assets Cash and cash equivalents $ 1,099 $ 943 Segregated cash and investments 9,345 8,016 Trade receivables - net 4,679 3,311 Inventories 13,282 14,481 Other current assets 6,164 5,158 Total Current Assets 34,569 31,909 Investments and Other Assets Investments in affiliates 5,429 5,285 Goodwill and other intangible assets 6,364 6,747 Right of use assets 983 1,023 Other assets 1,354 1,369 Total Investments and Other Assets 14,130 14,424 Property, Plant, and Equipment Land and land improvements 500 554 Buildings 5,532 5,597 Machinery and equipment 18,941 19,112 Construction in progress 1,221 960 26,194 26,223 Accumulated depreciation ( 16,589 ) ( 16,420 ) Net Property, Plant, and Equipment 9,605 9,803 Total Assets $ 58,304 $ 56,136 Liabilities, Temporary Equity, and Shareholders’ Equity Current Liabilities Short-term debt $ 181 $ 958 Trade payables 6,543 6,388 Payables to brokerage customers 10,359 8,965 Accrued expenses and other payables 4,686 4,790 Current lease liabilities 279 277 Current maturities of long-term debt 888 570 Total Current Liabilities 22,936 21,948 Long-Term Liabilities Long-term debt 7,671 8,011 Deferred income taxes 1,639 1,412 Non-current lease liabilities 723 765 Other 1,016 1,233 Total Long-Term Liabilities 11,049 11,421 Temporary Equity - Redeemable noncontrolling interest 290 259 Shareholders’ Equity Common stock 3,110 2,994 Reinvested earnings 23,099 21,655 Accumulated other comprehensive income (loss) ( 2,212 ) ( 2,172 ) Noncontrolling interests 32 31 Total Shareholders’ Equity 24,029 22,508 Total Liabilities, Temporary Equity, and Shareholders’ Equity $ 58,304 $ 56,136 See notes to consolidated financial statements. 5 Archer-Daniels-Midland Company Consolidated Statements of Cash Flows (Unaudited) (In millions) Nine Months Ended September 30, 2022 2021 Operating Activities Net earnings including noncontrolling interests $ 3,341 $ 1,938 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities Depreciation and amortization 774 739 Asset impairment charges 20 54 Deferred income taxes ( 39 ) ( 95 ) Equity in earnings of affiliates, net of dividends ( 279 ) ( 36 ) Stock compensation expense 123 135 Loss on debt extinguishment — 36 Deferred cash flow hedges 245 258 Gains on sales of assets and businesses/investment revaluation ( 77 ) ( 95 ) Other – net 549 156 Changes in operating assets and liabilities, net of acquisitions and dispositions Segregated investments ( 1,452 ) 594 Trade receivables ( 1,613 ) ( 1,060 ) Inventories 590 405 Other current assets ( 929 ) 1,187 Trade payables 305 170 Payables to brokerage customers 1,706 2,236 Accrued expenses and other payables 84 ( 769 ) Total Operating Activities 3,348 5,853 Investing Activities Capital expenditures ( 841 ) ( 714 ) Net assets of businesses acquired — ( 501 ) Proceeds from sales of assets and businesses 51 73 Investments in affiliates ( 60 ) ( 7 ) Other – net ( 98 ) ( 138 ) Total Investing Activities ( 948 ) ( 1,287 ) Financing Activities Long-term debt borrowings 752 1,330 Long-term debt payments ( 482 ) ( 533 ) Net borrowings (payments) under lines of credit agreements ( 751 ) ( 1,726 ) Share repurchases ( 1,200 ) — Cash dividends ( 677 ) ( 626 ) Other – net ( 6 ) 1 Total Financing Activities ( 2,364 ) ( 1,554 ) Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 36 3,012 Cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period 7,454 4,646 Cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period $ 7,490 $ 7,658 Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the consolidated balance sheets Cash and cash equivalents $ 1,099 $ 1,083 Restricted cash and restricted cash equivalents included in segregated cash and investments 6,391 6,575 Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 7,490 $ 7,658 See notes to consolidated financial statements. 6 Archer-Daniels-Midland-Company Consolidated Statements of Shareholders’ Equity (Unaudited) Common Stock Reinvested Earnings Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total Shareholders’ Equity (In millions, except per share amounts) Shares Amount Balance, June 30, 2022 561 $ 3,066 $ 23,292 $ ( 1,965 ) $ 33 $ 24,426 Comprehensive income Net earnings 1,031 6 Other comprehensive income (loss) ( 247 ) ( 3 ) Total comprehensive income 787 Cash dividends paid - $ 0.40 per share ( 224 ) ( 224 ) Share repurchases ( 12 ) ( 1,000 ) ( 1,000 ) Stock compensation expense — 26 26 Stock option exercises net of taxes — 17 17 Other — 1 — — ( 4 ) ( 3 ) Balance, September 30, 2022 549 $ 3,110 $ 23,099 $ ( 2,212 ) $ 32 $ 24,029 Balance, December 31, 2021 560 $ 2,994 $ 21,655 $ ( 2,172 ) $ 31 $ 22,508 Comprehensive income Net earnings 3,321 20 Other comprehensive income (loss) ( 40 ) ( 12 ) Total comprehensive income 3,289 Cash dividends paid - $ 1.20 per share ( 677 ) ( 677 ) Share repurchases ( 14 ) ( 1,200 ) ( 1,200 ) Stock compensation expense 3 123 123 Stock option exercises net of taxes — ( 9 ) ( 9 ) Other — 2 — — ( 7 ) ( 5 ) Balance, September 30, 2022 549 $ 3,110 $ 23,099 $ ( 2,212 ) $ 32 $ 24,029 Balance, June 30, 2021 559 $ 2,941 $ 20,762 $ ( 2,121 ) $ 21 $ 21,603 Comprehensive income Net earnings 526 7 Other comprehensive income (loss) 45 ( 1 ) Total comprehensive income 577 Cash dividends paid - $ 0.37 per share ( 209 ) ( 209 ) Stock compensation expense — 21 21 Stock option exercises net of taxes — 1 1 Other — 1 2 — ( 6 ) ( 3 ) Balance, September 30, 2021 559 $ 2,964 $ 21,081 $ ( 2,076 ) $ 21 $ 21,990 Balance, December 31, 2020 556 $ 2,824 $ 19,780 $ ( 2,604 ) $ 22 $ 20,022 Comprehensive income Net earnings 1,927 11 Other comprehensive income (loss) 528 ( 1 ) Total comprehensive income 2,465 Cash dividends paid - $ 1.11 per share ( 626 ) ( 626 ) Stock compensation expense 3 135 135 Other — 5 — — ( 11 ) ( 6 ) Balance, September 30, 2021 559 $ 2,964 $ 21,081 $ ( 2,076 ) $ 21 $ 21,990 See notes to consolidated financial statements. 7 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 U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 for Archer-Daniels-Midland Company (the Company or ADM). 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 consolidated statements of cash flows. Receivables The Company records receivables at net realizable value in trade receivables, other current assets, and other assets. These amounts included allowances for estimated uncollectible accounts totaling $ 179 million and $ 122 million at September 30, 2022 and December 31, 2021, respectively, to reflect any loss anticipated on the accounts receivable balances including any accrued interest receivables thereon. Long-term receivables recorded in other assets were not material to the Company’s overall receivables portfolio. The Company recorded bad debt expense in selling, general, and administrative expenses of $ 29 million and $ 73 million in the three and nine months ended September 30, 2022, respectively, and $ 1 million and $ 9 million in the three and nine months ended September 30, 2021, respectively. Cost Method Investments Cost method investments of $ 465 million and $ 297 million as of September 30, 2022 and December 31, 2021, respectively, were included in Other Assets in the Company’s consolidated balance sheets. Revaluation gains of $ 37 million in the nine months ended September 30, 2022, and $ 9 million and $ 49 million in the three and nine months ended September 30, 2021, respectively, in connection with observable third-party transactions, were recorded in investment income in the Company's consolidated statements of earnings. There were no revaluation gains recorded in the three months ended September 30, 2022. 8 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 1. Basis of Presentation (Continued) Operations in Ukraine and Russia ADM employs approximately 650 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. Most of the facilities have been temporarily idled since February 24, 2022, some of which were brought back online during the quarter ended September 30, 2022, due in part to the opening of the Black Sea grain export corridor. The Company’s footprint in Russia is limited and operations have been scaled down to those related to the production and transport of essential food commodities and ingredients. As a result of the ongoing conflict in Ukraine, the Company reviewed the valuation of its assets and recorded immaterial charges in the three and nine months ended September 30, 2022 related to receivables and inventories. As of September 30, 2022, ADM concluded that 1) receivables, net of allowances, are deemed collectible; and 2) market inventories are valued appropriately. The temporarily idled property, plant, and equipment, which is immaterial, are not considered impaired. The Company also evaluated the impact of Russia’s recent announcement of its purported annexation of four Ukrainian regions on the valuation of ADM’s assets in those regions and concluded that the assets are appropriately valued. As the conflict in Ukraine evolves, the Company will continue to review the valuation of these assets and make any required adjustments, which are not expected to be material to the Company’s consolidated financial statements. Note 2. Pending Accounting Standards Through December 31, 2022, the Company has the option to adopt the amended guidance of Accounting Standards Codification (ASC) Topic 848, Reference Rate Reform , which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company plans to adopt the expedients and exceptions provided by the amended guidance before the December 31, 2022 expiry date and does not expect the adoption of the amended guidance to have an impact on its consolidated financial statements. Effective January 1, 2023, the Company will be required to adopt the amended guidance of ASC Topic 805, Business Combinations , which improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amended guidance requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers , (Topic 606). Early adoption is permitted. The Company does not expect the adoption of this amended guidance to have a significant impact on its consolidated financial statements. Effective January 1, 2023, the Company will be required to adopt the amended guidance of ASC Subtopic 405-50, Liabilities - Supplier Finance Programs , which enhances the transparency of supplier finance programs. The amended guidance requires an entity (buyer) in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. Early adoption is permitted. The adoption of this amended guidance will require the Company to provide disclosures about its supplier finance programs, if material, but is not expected to have an impact on its consolidated financial statements. 9 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 3. Revenues Revenue Recognition The Company principally generates revenue from merchandising and transporting agricultural commodities, and manufacturing products for use in food, beverages, feed, energy, and industrial applications, and ingredients and solutions for human and animal nutrition. Revenue is measured based on the consideration specified in the contract with a customer. 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 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 mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The Company recognized revenue from transportation service contracts of $ 227 million and $ 611 million for the three and nine months ended September 30, 2022, respectively, and $ 153 million and $ 408 million for the three and nine months ended September 30, 2021, respectively. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20). Shipping and Handling Costs Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in cost of products sold. Accordingly, amounts billed to customers for such costs are included as a component of revenues. Taxes Collected from Customers and Remitted to Governmental Authorities The Company does not include taxes assessed by governmental authorities that are (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers, in the measurement of transaction 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 $ 423 million and $ 581 million as of September 30, 2022 and December 31, 2021, respectively, were recorded in accrued expenses and other payables in the consolidated balance sheets. Contract liabilities recognized as revenues were $ 111 million and $ 581 million for the three and nine months ended September 30, 2022, respectively, and $ 128 million and $ 697 million for the three and nine months ended September 30, 2021, respectively. 10 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 3. Revenues (Continued) Disaggregation of Revenues The following tables present revenue disaggregated by timing of recognition and major product lines for the three and nine months ended September 30, 2022 and 2021. Three Months Ended September 30, 2022 Topic 606 Revenue Topic 815 (1) Total Point in Time Over Time Total Revenue Revenues (In millions) Ag Services and Oilseeds Ag Services $ 1,095 $ 227 $ 1,322 $ 11,215 $ 12,537 Crushing 202 — 202 3,018 3,220 Refined Products and Other 715 — 715 2,669 3,384 Total Ag Services and Oilseeds 2,012 227 2,239 16,902 19,141 Carbohydrate Solutions Starches and Sweeteners 1,994 — 1,994 686 2,680 Vantage Corn Processors 901 — 901 — 901 Total Carbohydrate Solutions 2,895 — 2,895 686 3,581 Nutrition Human Nutrition 906 — 906 — 906 Animal Nutrition 958 — 958 — 958 Total Nutrition 1,864 — 1,864 — 1,864 Other Business 97 — 97 — 97 Total Revenues $ 6,868 $ 227 $ 7,095 $ 17,588 $ 24,683 11 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 3. Revenues (Continued) Nine Months Ended September 30, 2022 Topic 606 Revenue Topic 815 (1) Total Point in Time Over Time Total Revenue Revenues (In millions) Ag Services and Oilseeds Ag Services $ 3,078 $ 611 $ 3,689 $ 35,028 $ 38,717 Crushing 455 — 455 9,349 9,804 Refined Products and Other 2,091 — 2,091 8,211 10,302 Total Ag Services and Oilseeds 5,624 611 6,235 52,588 58,823 Carbohydrate Solutions Starches and Sweeteners 5,813 — 5,813 1,884 7,697 Vantage Corn Processors 3,001 — 3,001 — 3,001 Total Carbohydrate Solutions 8,814 — 8,814 1,884 10,698 Nutrition Human Nutrition 2,884 — 2,884 — 2,884 Animal Nutrition 2,907 — 2,907 — 2,907 Total Nutrition 5,791 — 5,791 — 5,791 Other Business 305 — 305 — 305 Total Revenues $ 20,534 $ 611 $ 21,145 $ 54,472 $ 75,617 Three Months Ended September 30, 2021 Topic 606 Revenue Topic 815 (1) Total Point in Time Over Time Total Revenue Revenues (In millions) Ag Services and Oilseeds Ag Services $ 616 $ 153 $ 769 $ 9,130 $ 9,899 Crushing 119 — 119 2,723 2,842 Refined Products and Other 657 — 657 2,291 2,948 Total Ag Services and Oilseeds 1,392 153 1,545 14,144 15,689 Carbohydrate Solutions Starches and Sweeteners 1,516 — 1,516 456 1,972 Vantage Corn Processors 894 — 894 — 894 Total Carbohydrate Solutions 2,410 — 2,410 456 2,866 Nutrition Human Nutrition 808 — 808 — 808 Animal Nutrition 889 — 889 — 889 Total Nutrition 1,697 — 1,697 — 1,697 Other Business 88 — 88 — 88 Total Revenues $ 5,587 $ 153 $ 5,740 $ 14,600 $ 20,340 12 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 3. Revenues (Continued) Nine Months Ended September 30, 2021 Topic 606 Revenue Topic 815 (1) Total Point in Time Over Time Total Revenue Revenues (In millions) Ag Services and Oilseeds Ag Services $ 2,080 $ 408 $ 2,488 $ 30,372 $ 32,860 Crushing 335 — 335 8,076 8,411 Refined Products and Other 1,828 — 1,828 5,868 7,696 Total Ag Services and Oilseeds 4,243 408 4,651 44,316 48,967 Carbohydrate Solutions Starches and Sweeteners 4,326 — 4,326 1,237 5,563 Vantage Corn Processors 2,346 — 2,346 — 2,346 Total Carbohydrate Solutions 6,672 — 6,672 1,237 7,909 Nutrition Human Nutrition 2,410 — 2,410 — 2,410 Animal Nutrition 2,583 — 2,583 — 2,583 Total Nutrition 4,993 — 4,993 — 4,993 Other Business 290 — 290 — 290 Total Revenues $ 16,198 $ 408 $ 16,606 $ 45,553 $ 62,159 (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. Ag Services and Oilseeds The Ag Services and Oilseeds segment generates revenue from the sale of commodities, from service fees for the transportation of goods, from the sale of products manufactured in its global processing facilities, and from its structured trade finance activities. Revenue is measured based on the consideration specified in the contract. Revenue is recognized when a performance obligation is satisfied by transferring control over a product or providing service to a customer. For transportation service contracts, the Company recognizes revenue over time as the mode of transportation moves towards its destination in accordance with the transfer of control guidance of Topic 606. The amount of revenue recognized follows the contractually specified price, which may include freight or other contractually specified cost components. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20. Carbohydrate Solutions The Carbohydrate Solutions segment generates revenue from the sale of products manufactured at the Company’s global corn and wheat milling facilities around the world. Revenue is recognized when control over products is transferred to the customer. Products are shipped to customers from the Company’s various facilities and from its network of storage terminals. The amount of revenue recognized is based on the consideration specified in the contract, which could include freight and other costs depending on the specific shipping terms of each contract. For physically settled derivative sales contracts that are outside the scope of Topic 606, the Company recognizes revenue when control of the inventory is transferred within the meaning of Topic 606 as required by Topic 610-20. 13 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 3. Revenues (Continued) Nutrition The Nutrition segment sells ingredients and solutions including plant-based proteins, natural flavors, flavor systems, natural colors, emulsifiers, soluble fiber, polyols, hydrocolloids, probiotics, prebiotics, enzymes, botanical extracts, edible beans, formula feeds, animal health and nutrition products, pet food and treats, and other specialty food and feed ingredients. Revenue is recognized when control over products is transferred to the customer. The amount of revenue recognized follows the contracted price or the mutually agreed price of the product. Freight and shipping are recognized as a component of revenue at the same time control transfers to the customer. Other Business Other Business includes the Company’s futures commission business whose primary sources of revenue are commissions and brokerage income generated from executing orders and clearing futures contracts and options on futures contracts on behalf of its customers. Commissions and brokerage revenue are recognized on the date the transaction is executed. Other Business also includes the Company’s captive insurance business, which generates third party revenue through its proportionate share of premiums from third-party reinsurance pools. Reinsurance premiums are recognized on a straight-line basis over the period underlying the policy. Note 4. Fair Value Measurements The following tables set forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2022 and December 31, 2021. Fair Value Measurements at September 30, 2022 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 $ — $ 4,539 $ 3,086 $ 7,625 Unrealized derivative gains: Commodity contracts — 757 702 1,459 Foreign currency contracts — 751 — 751 Interest rate contracts — 105 — 105 Cash equivalents 436 — — 436 Segregated investments 1,332 — — 1,332 Total Assets $ 1,768 $ 6,152 $ 3,788 $ 11,708 Liabilities: Unrealized derivative losses: Commodity contracts $ — $ 681 $ 709 $ 1,390 Foreign currency contracts — 337 — 337 Debt conversion option — — 3 3 Inventory-related payables — 902 220 1,122 Total Liabilities $ — $ 1,920 $ 932 $ 2,852 14 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) Fair Value Measurements at December 31, 2021 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 $ — $ 6,765 $ 3,004 $ 9,769 Unrealized derivative gains: Commodity contracts — 902 460 1,362 Foreign currency contracts — 238 — 238 Interest rate contracts — 46 — 46 Cash equivalents 448 — — 448 Segregated investments 1,338 — — 1,338 Total Assets $ 1,786 $ 7,951 $ 3,464 $ 13,201 Liabilities: Unrealized derivative losses: Commodity contracts $ — $ 944 $ 815 $ 1,759 Foreign currency contracts — 191 — 191 Debt conversion option — — 15 15 Inventory-related payables — 859 106 965 Total Liabilities $ — $ 1,994 $ 936 $ 2,930 Estimated fair values for inventories and inventory-related payables carried at market are based on exchange-quoted prices, adjusted for differences in local markets and quality, referred to as basis. Market valuations for the Company’s inventories are adjusted for location and quality (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using the inputs from competitor and broker quotations or market transactions in either the listed or over the counter (OTC) markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When unobservable inputs have a significant impact (more than 10%) 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. 15 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. 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. Market valuations for the Company’s forward commodity purchase and sale contracts are adjusted for location (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The basis adjustments are generally determined using inputs from competitor and broker quotations or market transactions in either the listed or OTC markets and are considered observable. In some cases, the basis adjustments are unobservable because they are supported by little to no market activity. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact (more than 10%) on the measurement of fair value, the contract is classified in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of revenues, cost of products sold, or other (income) expense - net, depending upon the purpose of the contract. The changes in the fair value of derivatives designated as effective cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) 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 in Level 1. 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 debt conversion option is the equity-linked embedded derivative related to the exchangeable bonds issued in August 2020. The fair value of the embedded derivative is included in long-term debt, with changes in fair value recognized as interest, and is valued with the assistance of a third-party pricing service (a level 3 measurement). The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2022. Level 3 Fair Value Asset Measurements at September 30, 2022 Inventories Carried at Market Commodity Derivative Contracts Gains Total Assets (In millions) Balance, June 30, 2022 $ 3,245 $ 880 $ 4,125 Total increase (decrease) in net realized/unrealized gains included in cost of products sold* 315 345 660 Purchases 13,294 — 13,294 Sales ( 13,931 ) — ( 13,931 ) Settlements — ( 456 ) ( 456 ) Transfers into Level 3 384 49 433 Transfers out of Level 3 ( 221 ) ( 116 ) ( 337 ) Ending balance, September 30, 2022 $ 3,086 $ 702 $ 3,788 * Includes increase in unrealized gains of $ 481 million relating to Level 3 assets still held at September 30, 2022. 16 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2022. Level 3 Fair Value Liability Measurements at September 30, 2022 Inventory- related Payables Commodity Derivative Contracts Losses Debt Conversion Option Total Liabilities (In millions) Balance, June 30, 2022 $ 55 $ 960 $ 11 $ 1,026 Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* 3 391 ( 8 ) 386 Purchases 167 — — 167 Sales ( 5 ) — — ( 5 ) Settlements — ( 634 ) — ( 634 ) Transfers into Level 3 — 57 — 57 Transfers out of Level 3 — ( 65 ) — ( 65 ) Ending balance, September 30, 2022 $ 220 $ 709 $ 3 $ 932 * Includes increase in unrealized losses of $ 394 million relating to Level 3 liabilities still held at September 30, 2022. The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2021. Level 3 Fair Value Asset Measurements at September 30, 2021 Inventories Carried at Market Commodity Derivative Contracts Gains Total Assets (In millions) Balance, June 30, 2021 $ 2,824 $ 551 $ 3,375 Total increase (decrease) in net realized/unrealized gains included in cost of products sold* 70 288 358 Purchases 7,351 — 7,351 Sales ( 7,346 ) — ( 7,346 ) Settlements — ( 311 ) ( 311 ) Transfers into Level 3 205 34 239 Transfers out of Level 3 ( 602 ) ( 77 ) ( 679 ) Ending balance, September 30, 2021 $ 2,502 $ 485 $ 2,987 * Includes increase in unrealized gains of $ 435 million relating to Level 3 assets still held at September 30, 2021. 17 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2021. Level 3 Fair Value Liability Measurements at September 30, 2021 Inventory- related Payables Commodity Derivative Contracts Losses Debt Conversion Option Total Liabilities (In millions) Balance, June 30, 2021 $ 38 $ 1,037 $ 24 $ 1,099 Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* 3 310 ( 7 ) 306 Purchases 1 — — 1 Sales ( 27 ) — — ( 27 ) Settlements — ( 654 ) — ( 654 ) Transfers into Level 3 — 60 — 60 Transfers out of Level 3 — ( 50 ) — ( 50 ) Ending balance, September 30, 2021 $ 15 $ 703 $ 17 $ 735 * Includes increase in unrealized losses of $ 313 million relating to Level 3 liabilities still held at September 30, 2021. The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2022. Level 3 Fair Value Asset Measurements at September 30, 2022 Inventories Carried at Market Commodity Derivative Contracts Gains Total Assets (In millions) Balance, December 31, 2021 $ 3,004 $ 460 $ 3,464 Total increase (decrease) in net realized/unrealized gains included in cost of products sold* 746 1,297 2,043 Purchases 34,524 — 34,524 Sales ( 35,239 ) — ( 35,239 ) Settlements — ( 1,227 ) ( 1,227 ) Transfers into Level 3 933 365 1,298 Transfers out of Level 3 ( 882 ) ( 193 ) ( 1,075 ) Ending balance, September 30, 2022 $ 3,086 $ 702 $ 3,788 * Includes increase in unrealized gains of $ 2.2 billion relating to Level 3 assets still held at September 30, 2022. 18 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2022. Level 3 Fair Value Liability Measurements at September 30, 2022 Inventory- related Payables Commodity Derivative Contracts Losses Debt Conversion Option Total Liabilities (In millions) Balance, December 31, 2021 $ 106 $ 815 $ 15 $ 936 Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* ( 1 ) 2,060 ( 12 ) 2,047 Purchase 176 — — 176 Sales ( 61 ) — — ( 61 ) Settlements — ( 2,363 ) — ( 2,363 ) Transfers into Level 3 — 379 — 379 Transfers out of Level 3 — ( 182 ) — ( 182 ) Ending balance, September 30, 2022 $ 220 $ 709 $ 3 $ 932 * Includes increase in unrealized losses of $ 2.1 billion relating to Level 3 liabilities still held at September 30, 2022. The following table presents a rollforward of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2021. Level 3 Fair Value Asset Measurements at September 30, 2021 Inventories Carried at Market Commodity Derivative Contracts Gains Total Assets (In millions) Balance, December 31, 2020 $ 2,183 $ 859 $ 3,042 Total increase (decrease) in net realized/unrealized gains included in cost of products sold* 875 804 1,679 Purchases 20,899 — 20,899 Sales ( 21,334 ) — ( 21,334 ) Settlements — ( 1,134 ) ( 1,134 ) Transfers into Level 3 1,131 79 1,210 Transfers out of Level 3 ( 1,252 ) ( 123 ) ( 1,375 ) Ending balance, September 30, 2021 $ 2,502 $ 485 $ 2,987 * Includes increase in unrealized gains of $ 1.7 billion relating to Level 3 assets still held at September 30, 2021. 19 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) The following table presents a rollforward of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2021. Level 3 Fair Value Liability Measurements at September 30, 2021 Inventory- related Payables Commodity Derivative Contracts Losses Debt Conversion Option Total Liabilities (In millions) Balance, December 31, 2020 $ 11 $ 918 $ 34 $ 963 Total increase (decrease) in net realized/unrealized losses included in cost of products sold and interest expense* 3 1,372 ( 17 ) 1,358 Purchases 30 — — 30 Sales ( 29 ) — — ( 29 ) Settlements — ( 1,667 ) — ( 1,667 ) Transfers into Level 3 — 284 — 284 Transfers out of Level 3 — ( 204 ) — ( 204 ) Ending balance, September 30, 2021 $ 15 $ 703 $ 17 $ 735 * Includes increase in unrealized losses of $ 1.4 billion relating to Level 3 liabilities still held at September 30, 2021. 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. In some cases, the price components that result in differences between exchange-traded prices and local prices for inventories and commodity purchase and sale contracts are observable based upon available quotations for these pricing components, and in some cases, the differences are unobservable. These price components primarily include transportation costs and other adjustments required due to location, quality, or other contract terms. In the table below, these other adjustments are referred to as basis. The changes in unobservable price components are determined by specific local supply and demand characteristics at each facility and the overall market. Factors such as substitute products, weather, fuel costs, contract terms, and futures prices also impact the movement of these unobservable price components. 20 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 4. Fair Value Measurements (Continued) The following table sets forth the weighted average percentage of the unobservable price components included in the Company’s Level 3 valuations as of September 30, 2022 and December 31, 2021. The Company’s Level 3 measurements may include basis only, transportation cost only, or both price components. As an example, for Level 3 inventories with basis, the unobservable component as of September 30, 2022 is a weighted average 27.9 % of the total price for assets and 18.1 % of the total price for liabilities. Weighted Average % of Total Price September 30, 2022 December 31, 2021 Component Type Assets Liabilities Assets Liabilities Inventories and Related Payables Basis 27.9 % 18.1 % 28.7 % 13.1 % Transportation cost 2.9 % — % 13.0 % — % Commodity Derivative Contracts Basis 29.9 % 22.8 % 30.0 % 27.1 % Transportation cost 7.0 % 17.0 % 8.1 % 0.7 % In certain of the Company’s principal markets, the Company relies on price quotes from third parties to value its inventories and physical commodity purchase and sale contracts. These price quotes are generally not further adjusted by the Company in determining the applicable market price. In some cases, availability of third-party quotes is limited to only one or two independent sources. In these situations, absent other corroborating evidence, the Company considers these price quotes as 100% unobservable and, therefore, the fair value of these items is reported in Level 3. Note 5. Derivative Instruments and Hedging Activities Derivatives Not Designated as Hedging Instruments The majority of the Company’s derivative instruments have not been designated as hedging instruments. The Company uses exchange-traded futures and exchange-traded and OTC options contracts to manage its net position of merchandisable agricultural product inventories and forward cash purchase and sales contracts to reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the correlation between the value of exchange-traded commodities futures contracts and the value of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Derivatives, including exchange-traded contracts and forward commodity purchase or sale contracts, and inventories of certain merchandisable agricultural products, which include amounts acquired under deferred pricing contracts, are stated at fair value or market value. Inventory is not a derivative and therefore fair values of and changes in fair values of inventories are not included in the tables below. The following table sets forth the fair value of derivatives not designated as hedging instruments as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Assets Liabilities Assets Liabilities (In millions) Foreign Currency Contracts $ 380 $ 337 $ 217 $ 116 Commodity Contracts 1,373 1,390 1,276 1,759 Debt Conversion Option — 3 — 15 Total $ 1,753 $ 1,730 $ 1,493 $ 1,890 21 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 pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statements of earnings for the three and nine months ended September 30, 2022 and 2021. Other expense (income) - net Cost of Interest (In millions) Revenues products sold expense Three Months Ended September 30, 2022 Consolidated Statement of Earnings $ 24,683 $ 22,872 $ ( 67 ) $ 97 Pre-tax gains (losses) on: Foreign Currency Contracts $ ( 5 ) $ 6 $ 151 $ — Commodity Contracts — 134 — — Debt Conversion Option — — — 8 Total gain (loss) recognized in earnings $ ( 5 ) $ 140 $ 151 $ 8 $ 294 Three Months Ended September 30, 2021 Consolidated Statement of Earnings $ 20,340 $ 19,014 $ 20 $ 61 Pre-tax gains (losses) on: Foreign Currency Contracts $ 13 $ ( 92 ) $ 62 $ — Commodity Contracts — 214 — — Debt Conversion Option — — — 7 Total gain (loss) recognized in earnings $ 13 $ 122 $ 62 $ 7 $ 204 Other expense (income) - net Cost of Interest (In millions) Revenues products sold expense Nine Months Ended September 30, 2022 Consolidated Statement of Earnings $ 75,617 $ 69,809 $ ( 183 ) $ 262 Pre-tax gains (losses) on: Foreign Currency Contracts $ ( 30 ) $ 354 $ 414 $ — Commodity Contracts — 95 — — Debt Conversion Option — — — 12 Total gain (loss) recognized in earnings $ ( 30 ) $ 449 $ 414 $ 12 $ 845 Nine Months Ended September 30, 2021 Consolidated Statement of Earnings $ 62,159 $ 57,822 $ 36 $ 188 Pre-tax gains (losses) on: Foreign Currency Contracts $ — $ ( 140 ) $ 137 $ — Commodity Contracts — ( 1,241 ) — — Debt Conversion Option — — — 17 Total gain (loss) recognized in earnings $ — $ ( 1,381 ) $ 137 $ 17 $ ( 1,227 ) 22 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 5. Derivative Instruments and Hedging Activities (Continued) 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 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, and other (income) expense - net depending on the purpose of the contract. Derivatives Designated as Cash Flow and Net Investment Hedging Strategies The Company had certain derivatives designated as cash flow and net investment hedges as of September 30, 2022 and December 31, 2021. For derivative instruments that are designated and qualify as net investment hedges, foreign exchange gains and losses related to changes in foreign currency exchange rates are deferred in AOCI until the underlying investment is divested. The Company uses cross-currency swaps and foreign exchange forwards designated as net investment hedges to protect the Company’s investment in a foreign subsidiary against changes in foreign currency exchange rates. The Company executed USD-fixed to Euro-fixed cross-currency swaps with an aggregate notional amount of $ 0.7 billion and $ 1.2 billion as of September 30, 2022 and December 31, 2021, respectively, and foreign exchange forwards with an aggregate notional amount of $ 2.3 billion and $ 2.6 billion as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $ 283 million and after-tax losses of $ 44 million in AOCI, respectively, related to foreign exchange gains and losses from these net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested. For derivative instruments that are designated and qualify as highly-effective cash flow hedges (i.e., hedging the exposure to variability in expected future cash flow that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of AOCI and as an operating activity in the statement of cash flows, and is reclassified into earnings in the same line item affected by the hedged transaction in the same period or periods during which the hedged transaction affects earnings. Hedge components excluded from the assessment of effectiveness and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period. The Company’s structured trade finance programs use interest rate swaps designated as cash flow hedges to hedge the forecasted interest payments on certain letters of credit from banks. The terms of the interest rate swaps match the terms of the forecasted interest payments. The deferred gains and losses are recognized in revenues over the period in which the related interest payments are paid to the banks. The amounts are recorded in revenues as the related results are also recorded in revenues. As of September 30, 2022 and December 31, 2021, the Company had interest rate swaps maturing on various dates with aggregate notional amounts of $ 0.5 billion and $ 1.0 billion, respectively. The Company also uses swap locks designated as cash flow hedges to hedge the changes in the forecasted interest payments due to changes in the benchmark rate leading up to future bond issuance dates. The terms of the swap locks match the terms of the forecasted interest payments. The deferred gains and losses will be recognized in interest expense over the period in which the related interest payments will be paid. As of September 30, 2022 and December 31, 2021, the Company executed swap locks maturing on various dates with an aggregate notional amount of $ 400 million. As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $ 80 million and $ 35 million in AOCI, respectively, related to the interest rate swaps and swap locks. The Company expects to recognize amounts deferred in AOCI in its consolidated statement of earnings during the life of the debt instruments. 23 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 5. Derivative Instruments and Hedging Activities (Continued) For each of the 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 and losses arising from the hedge are reclassified from AOCI to either revenues or cost of products sold, as applicable. As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $ 270 million and $ 161 million in AOCI, respectively, related to gains and losses from these programs. The Company expects to recognize $ 270 million of the September 30, 2022 after-tax gains in its consolidated statement of earnings during the next 12 months. The Company uses futures or options contracts to hedge the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants normally grind approximately 65 million bushels of corn per month. During the past 12 months, the Company hedged between 17 % and 32 % of its monthly grind. At September 30, 2022, the Company had designated hedges representing between 5 % and 33 % of its anticipated monthly grind of corn for the next 12 months. The Company, from time to time, also uses futures, options, and swaps to hedge the sales price of certain ethanol sales contracts. The Company has established hedging programs for ethanol sales contracts that are indexed to unleaded gasoline prices and to various exchange-traded ethanol contracts. The objective of these hedging programs is to reduce the variability of cash flows associated with the Company’s sales of ethanol. During the past 12 months and as of September 30, 2022, the Company had no hedges related to ethanol sales under these programs. The Company uses futures and options contracts to hedge the purchase price of the anticipated volumes of soybeans to be purchased and processed in a future month for certain of its U.S. soybean crush facilities, subject to certain program limits. The Company also uses futures or options contracts to hedge the sales prices of anticipated soybean meal and soybean oil sales proportionate to the soybean crushing process at these facilities, subject to certain program limits. During the past 12 months, the Company hedged between 85 % and 100 % of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities. At September 30, 2022, the Company had designated hedges representing between 0 % and 100 % of the anticipated monthly soybean crush for soybean purchases and soybean meal and oil sales at the designated facilities over the next 12 months. The Company uses futures and OTC swaps to hedge the purchase price of anticipated volumes of natural gas consumption in a future month for certain of its facilities in North America and Europe, subject to certain program limits. During the past 12 months, the Company hedged between 0 % and 121 % of the anticipated monthly natural gas consumption at the designated facilities. At September 30, 2022, the Company had designated hedges representing between 0 % and 89 % of the anticipated monthly natural gas consumption over the next 12 months. The following table sets forth the fair value of derivatives designated as hedging instruments as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Assets Liabilities Assets Liabilities (In millions) Commodity Contracts $ 86 $ — $ 86 $ — Foreign Currency Contracts 371 — 21 $ 75 Interest Rate Contracts 105 — 46 — Total $ 562 $ — $ 153 $ 75 24 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 designated as hedging instruments that have been included in the consolidated statements of earnings for the three and nine months ended September 30, 2022 and 2021. Cost of products sold (In millions) Revenues Three Months Ended September 30, 2022 Consolidated Statement of Earnings $ 24,683 $ 22,872 Effective amounts recognized in earnings Pre-tax gains (losses) on: Commodity Contracts $ — $ 117 Interest Contracts 1 — Total gain (loss) recognized in earnings $ 1 $ 117 $ 118 Three Months Ended September 30, 2021 Consolidated Statement of Earnings $ 20,340 $ 19,014 Effective amounts recognized in earnings Pre-tax gains (losses) on: Commodity Contracts $ — $ 122 Interest Contracts — — Total gain (loss) recognized in earnings $ — $ 122 $ 122 Cost of products sold (In millions) Revenues Nine Months Ended September 30, 2022 Consolidated Statement of Earnings $ 75,617 $ 69,809 Effective amounts recognized in earnings Pre-tax gains (losses) on: Commodity Contracts $ — $ 365 Interest Contracts 1 — Total gain (loss) recognized in earnings $ 1 $ 365 $ 366 Nine Months Ended September 30, 2021 Consolidated Statement of Earnings $ 62,159 $ 57,822 Effective amounts recognized in earnings Pre-tax gains (losses) on: Commodity Contracts $ — $ 450 Interest Contracts ( 15 ) — Total gain (loss) recognized in earnings $ ( 15 ) $ 450 $ 435 25 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 5. Derivative Instruments and Hedging Activities (Continued) Other Net Investment Hedging Strategies The Company has designated € 1.3 billion and € 1.8 billion of its outstanding long-term debt and commercial paper borrowings at September 30, 2022 and December 31, 2021, respectively, as hedges of its net investment in a foreign subsidiary. As of September 30, 2022 and December 31, 2021, the Company had after-tax gains of $ 311 million and $ 55 million in AOCI, respectively, related to foreign exchange gains and losses from net investment hedge transactions. The amount is deferred in AOCI until the underlying investment is divested. Note 6. Other Current Assets The following table sets forth the items in other current assets: September 30, December 31, 2022 2021 (In millions) Unrealized gains on derivative contracts $ 2,315 $ 1,646 Margin deposits and grain accounts 858 600 Customer omnibus receivable 1,328 1,179 Financing receivables - net (1) 202 189 Insurance premiums receivable 38 20 Prepaid expenses 473 370 Biodiesel tax credit 54 79 Tax receivables 527 708 Non-trade receivables (2) 316 285 Other current assets 53 82 $ 6,164 $ 5,158 (1) The Company provides financing to certain suppliers, primarily Brazilian farmers, to finance a portion of the suppliers’ production costs. The amounts are reported net of allowances of $ 3 million and $ 4 million at September 30, 2022 and December 31, 2021, respectively. Interest earned on financing receivables of $ 3 million and $ 11 million for the three and nine months ended September 30, 2022, respectively and $ 2 million and $ 8 million for the three and nine months ended September 30, 2021, respectively, is included in interest and investment income in the consolidated statements of earnings. (2) Non-trade receivables included $ 18 million and $ 27 million of reinsurance recoverables as of September 30, 2022 and December 31, 2021, respectively. 26 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 7. Accrued Expenses and Other Payables The following table sets forth the items in accrued expenses and other payables: September 30, December 31, 2022 2021 (In millions) Unrealized losses on derivative contracts $ 1,727 $ 1,950 Accrued compensation 423 445 Income tax payable 211 132 Other taxes payable 141 168 Insurance claims payable 229 220 Contract liability 423 581 Other accruals and payables 1,532 1,294 $ 4,686 $ 4,790 Note 8. Debt and Financing Arrangements On February 28, 2022 , the Company issued its first sustainability bond of $ 750 million aggregate principal amount of 2.900 % notes due March 1, 2032 . Net proceeds before expenses were $ 748 million. The Company expects to apply an amount equal to the net proceeds to finance or refinance eligible green projects and/or eligible social projects. During the quarter ended September 30, 2022, the Company redeemed € 500 million aggregate principal amount of Fixed-to-Floating Rate Senior Notes due 2022 issued in a private placement on March 25, 2021. On September 29, 2022, Archer Daniels Midland Singapore, Pte. Ltd., a wholly-owned subsidiary of the Company, closed on a $ 500 million revolving credit facility at an interest rate of SOFR plus 45 basis points . The facility will be used to finance working capital requirements of ADM entities in the Asia Pacific region and general corporate purposes. At September 30, 2022, the fair value of the Company’s long-term debt was below the carrying value by $ 0.3 billion, as estimated using quoted market prices (a Level 2 measurement under applicable accounting standards). At September 30, 2022, the Company had lines of credit, including the accounts receivable securitization programs described below, totaling $ 12.2 billion, of which $ 10.1 billion was unused. Of the Company’s total lines of credit, $ 5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was no commercial paper outstanding at September 30, 2022. The Company has accounts receivable securitization programs (the “Programs”). The Programs provide the Company with up to $ 2.6 billion in funding resulting from the sale of accounts receivable with $ 0.6 billion unused capacity as of September 30, 2022 (see Note 14 for more information about the Programs). Note 9. Income Taxes The Company’s effective tax rates were 15.7 % and 16.9 % for the three and nine months ended September 30, 2022, respectively, compared to 18.4 % and 15.8 % for the three and nine months ended September 30, 2021, respectively. The change in the rate was primarily due to changes in the geographic mix of earnings and the impact of discrete tax items. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“Inflation Act”), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15 % minimum tax based on “adjusted financial statement income,” and a one percent excise tax on net repurchases of stock for tax years beginning after December 31, 2022. While the Inflation Act has no immediate impact and is not expected to have a material adverse effect on ADM’s results of operations going forward, the Company will continue to evaluate its impact as further information becomes available. 27 A rcher-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 9. Income Taxes (Continued) The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax jurisdictions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect that the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period. The Company’s subsidiary in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011 and 2014. As of September 30, 2022, these assessments totaled $ 6 million in tax and up to $ 29 million in interest (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes that it has complied with all Argentine tax laws. Currently the Company is under audit for fiscal years 2015 to 2017. While the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2014, and estimates that these potential assessments could be approximately $ 78 million in tax and $ 49 million in interest (adjusted for variation in currency exchange rates as of September 30, 2022). The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments. In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for this assessment because it has concluded that it is more likely than not to prevail on the matter based upon its technical merits and because the taxing jurisdiction’s process does not provide a mechanism for settling at less than the full amount of the assessment. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2014. In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization, which involved two of its subsidiary companies in the Netherlands. As of September 30, 2022, this assessment was $ 80 million in tax and $ 28 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the court issued an unfavorable ruling and in October 2020, assigned a third party expert to establish a valuation. During the second quarter of 2021, the third party expert issued a final valuation. On September 30, 2022, the court issued a ruling consistent with the valuation report, and the Dutch tax authorities have six weeks to file an appeal. Subsequent appeals may take an extended period of time and could result in financial impacts of up to the entire amount of the assessment. As of September 30, 2022, the Company has accrued its best estimate of what it believes will be the likely outcome of the litigation. 28 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 10. Accumulated Other Comprehensive Income The following tables set forth the changes in AOCI by component for the three and nine months ended September 30, 2022 and the reclassifications out of AOCI for the three and nine months ended September 30, 2022 and 2021: Three months ended September 30, 2022 Foreign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments Total (In millions) Balance at June 30, 2022 $ ( 2,212 ) $ 382 $ ( 121 ) $ ( 14 ) $ ( 1,965 ) Other comprehensive income (loss) before reclassifications ( 536 ) 161 8 — ( 367 ) Gain (loss) on net investment hedges 318 — — — 318 Amounts reclassified from AOCI — ( 118 ) — — ( 118 ) Tax effect ( 74 ) ( 5 ) ( 2 ) 1 ( 80 ) Net of tax amount ( 292 ) 38 6 1 ( 247 ) Balance at September 30, 2022 $ ( 2,504 ) $ 420 $ ( 115 ) $ ( 13 ) $ ( 2,212 ) Nine months ended September 30, 2022 Foreign Currency Translation Adjustment Deferred Gain (Loss) on Hedging Activities Pension Liability Adjustment Unrealized Gain (Loss) on Investments Total (In millions) Balance at December 31, 2021 $ ( 2,248 ) $ 225 $ ( 147 ) $ ( 2 ) $ ( 2,172 ) Other comprehensive income (loss) before reclassifications ( 844 ) 611 22 ( 13 ) ( 224 ) Gain (loss) on net investment hedges 777 — — — 777 Amounts reclassified from AOCI — ( 366 ) 23 — ( 343 ) Tax effect ( 189 ) ( 50 ) ( 13 ) 2 ( 250 ) Net of tax amount ( 256 ) 195 32 ( 11 ) ( 40 ) Balance at September 30, 2022 $ ( 2,504 ) $ 420 $ ( 115 ) $ ( 13 ) $ ( 2,212 ) 29 A rcher-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 10. Accumulated Other Comprehensive Income (Continued) Amount reclassified from AOCI Three months ended September 30, Nine months ended September 30, Affected line item in the consolidated statements of earnings Details about AOCI components 2022 2021 2022 2021 (In millions) Deferred loss (gain) on hedging activities $ ( 1 ) $ — $ ( 1 ) $ 15 Revenues ( 117 ) ( 122 ) ( 365 ) ( 450 ) Cost of products sold ( 118 ) ( 122 ) ( 366 ) ( 435 ) Total before tax 17 29 69 108 Tax $ ( 101 ) $ ( 93 ) $ ( 297 ) $ ( 327 ) Net of tax Pension liability adjustment Amortization of defined benefit pension items: Prior service loss (credit) $ ( 10 ) $ ( 4 ) $ ( 114 ) $ ( 71 ) Other (income) expense-net Actuarial losses 10 12 137 161 Other (income) expense-net — 8 23 90 Total before tax — 6 ( 8 ) ( 20 ) Tax $ — $ 14 $ 15 $ 70 Net of tax The Company’s accounting policy is to release the income tax effects from AOCI when the individual units of account are sold, terminated, or extinguished. Note 11. Other (Income) Expense - Net The following table sets forth the items in other (income) expense: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 (In millions) Gains on sales of assets $ ( 35 ) $ ( 7 ) $ ( 40 ) $ ( 46 ) Debt extinguishment charges — 36 — 36 Pension settlement — 1 — 83 Other – net ( 32 ) ( 10 ) ( 143 ) ( 37 ) Other (Income) Expense - Net $ ( 67 ) $ 20 $ ( 183 ) $ 36 Gains on sales of assets in the three and nine months ended September 30, 2022 and 2021 consisted of gains on sales of certain assets and disposals of individually insignificant assets in the ordinary course of business. Debt extinguishment charges in the three and nine months ended September 30, 2021 were related to the early redemption of $ 500 million aggregate principal amount of 2.750 % notes due in March 2025. Pension settlement in the three and nine months ended September 30, 2021 was related to the purchase of group annuity contracts that irrevocably transferred the future benefit obligations and annuity administration for certain salaried and hourly retirees and terminated vested participants under the Company’s ADM Retirement Plan and ADM Pension Plan for Hourly-Wage Employees to independent third parties. 30 Archer-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 11. Other (Income) Expense - Net (Continued) Other - net in the three and nine months ended September 30, 2022 included the non-service components of net pension benefit income of $ 7 million and $ 19 million, respectively, foreign exchange gains from hedge activity, and other income. Other - net in the nine months ended September 30, 2022 also included a $ 50 million one-time payment from the USDA Biofuel Producer Recovery Program. Other - net in the three and nine months ended September 30, 2021 included the non-service components of net pension benefit income of $ 1 million and $ 12 million, respectively, foreign exchange gains from hedge activity, and other income and expense. Note 12. Segment Information The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable segments, as defined by the applicable accounting standard , and are classified as Other Business. Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses. Also included in operating profit for each segment is equity in earnings of affiliates based on the equity method of accounting. Specified items included in total segment operating profit and certain corporate items are not allocated to the Company’s individual business segments because operating performance of each business segment is evaluated by management exclusive of these items. Corporate results principally include unallocated corporate expenses and interest expense net of interest income. Corporate results also include revaluation gains and losses on cost method investments and the share of the results of equity investments in early-stage start-up companies that ADM Ventures has investments in. For more information about the Company’s business segments, refer to Note 17 of “Notes to Consolidated Financial Statements” included in Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 31 A rcher-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 12. Segment Information (Continued) Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2022 2021 2022 2021 Gross revenues Ag Services and Oilseeds $ 20,238 $ 16,410 $ 61,838 $ 51,148 Carbohydrate Solutions 4,070 3,227 12,750 9,132 Nutrition 1,900 1,755 5,921 5,172 Other Business 97 88 305 290 Intersegment elimination ( 1,622 ) ( 1,140 ) ( 5,197 ) ( 3,583 ) Total gross revenues $ 24,683 $ 20,340 $ 75,617 $ 62,159 Intersegment sales Ag Services and Oilseeds $ 1,097 $ 721 $ 3,015 $ 2,181 Carbohydrate Solutions 489 361 2,052 1,223 Nutrition 36 58 130 179 Total intersegment sales $ 1,622 $ 1,140 $ 5,197 $ 3,583 Revenues from external customers Ag Services and Oilseeds Ag Services $ 12,537 $ 9,899 $ 38,717 $ 32,860 Crushing 3,220 2,842 9,804 8,411 Refined Products and Other 3,384 2,948 10,302 7,696 Total Ag Services and Oilseeds 19,141 15,689 58,823 48,967 Carbohydrate Solutions Starches and Sweeteners 2,680 1,972 7,697 5,563 Vantage Corn Processors 901 894 3,001 2,346 Total Carbohydrate Solutions 3,581 2,866 10,698 7,909 Nutrition Human Nutrition 906 808 2,884 2,410 Animal Nutrition 958 889 2,907 2,583 Total Nutrition 1,864 1,697 5,791 4,993 Other Business 97 88 305 290 Total revenues from external customers $ 24,683 $ 20,340 $ 75,617 $ 62,159 32 A rcher-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 12. Segment Information (Continued) Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2022 2021 2022 2021 Segment operating profit Ag Services and Oilseeds $ 1,075 $ 618 $ 3,202 $ 1,965 Carbohydrate Solutions 309 213 1,099 855 Nutrition 177 176 605 531 Other Business 18 ( 5 ) 78 10 Specified Items: Gains on sales of assets and businesses (1) 29 — 30 22 Impairment, restructuring, and settlement charges (2) ( 49 ) ( 2 ) ( 76 ) ( 133 ) Total segment operating profit 1,559 1,000 4,938 3,250 Corporate ( 329 ) ( 347 ) ( 918 ) ( 948 ) Earnings before income taxes $ 1,230 $ 653 $ 4,020 $ 2,302 (1) Consists of gains on the sale of certain assets in all periods presented. (2) Current quarter and year-to-date charges related primarily to the impairment of certain assets, restructuring, and a contingency/settlement. Prior quarter charges were related to restructuring. Prior year-to-date charges were related to the impairment of certain long-lived assets, restructuring, and a contingency/settlement. Note 13. Asset Impairment, Exit, and Restructuring Costs Asset impairment, exit, and restructuring costs in the three months ended September 30, 2022 consisted of $ 16 million of impairments related to certain long-lived assets and $ 12 million of restructuring charges, presented as specified items within segment operating profit. Asset impairment, exit, and restructuring costs in the nine months ended September 30, 2022 consisted of $ 20 million of impairments related to certain long-lived assets and $ 12 million of restructuring charges, presented as specified items within segment operating profit, and $ 2 million of restructuring adjustment in Corporate. Asset impairment, exit, and restructuring costs in the three months ended September 30, 2021 consisted of $ 2 million of restructuring charges, presented as a specified item within segment operating profit. Asset impairment, exit, and restructuring costs in the nine months ended September 30, 2021 consisted of $ 54 million of impairments related to certain long-lived assets and $ 26 million of restructuring charges, presented as specified items within segment operating profit, and $ 4 million of restructuring charges in Corporate. Note 14. Sale of Accounts Receivable The Company has an accounts receivable securitization program (the “First Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “First Purchasers”). Under the First Program, certain U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Receivables, LLC (“ADM Receivables”). ADM Receivables transfers certain of the purchased accounts receivable to each of the First Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Receivables receives a cash payment of up to $ 1.8 billion for the accounts receivable transferred. The First Program terminates on November 18, 2022, unless extended. The Company also has an accounts receivable securitization program (the “Second Program”) with certain commercial paper conduit purchasers and committed purchasers (collectively, the “Second Purchasers”). Under the Second Program, certain non-U.S.-originated trade accounts receivable are sold to a wholly-owned bankruptcy-remote entity, ADM Ireland Receivables Company (ADM Ireland Receivables). ADM Ireland Receivables transfers certain of the purchased accounts receivable to each of the Second Purchasers together with a security interest in all of its right, title, and interest in the remaining purchased accounts receivable. In exchange, ADM Ireland Receivables receives a cash payment of up to $ 0.8 billion (€ 0.8 billion) for the accounts receivables transferred. The Second Program terminates on February 16, 2023, unless extended. 33 A rcher-Daniels-Midland Company Notes to Consolidated Financial Statements (Continued) (Unaudited) Note 14. Sale of Accounts Receivable (Continued) Under the First and Second Programs (collectively, the “Programs”), ADM Receivables and ADM Ireland Receivables use the cash proceeds from the transfer of receivables to the First Purchasers and Second Purchasers (collectively, the “Purchasers”) and other consideration, as applicable, to finance the purchase of receivables from the Company and the ADM subsidiaries originating the receivables. The Company accounts for these transfers as sales. The Company acts as a servicer for the transferred receivables. At September 30, 2022 and December 31, 2021, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions, and its cost of servicing the receivables sold. As of September 30, 2022 and December 31, 2021, the fair value of trade receivables transferred to the Purchasers under the Programs and derecognized from the Company’s consolidated balance sheets was $ 2.0 billion and $ 2.2 billion, respectively. Total receivables sold were $ 42.9 billion and $ 36.7 billion for the nine months ended September 30, 2022 and 2021, respectively. Cash collections from customers on receivables sold were $ 42.1 billion and $ 34.2 billion for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, receivables pledged as collateral to the Purchasers were $ 1.3 billion and $ 0.5 billion, respectively. Transfers of receivables under the Programs resulted in an expense for the loss on sale of $ 4 million and $ 12 million for the three and nine months ended September 30, 2022, respectively, and $ 2 million and $ 8 million for the three and nine months ended September 30, 2021, respectively, which is classified as selling, general, and administrative expenses in the consolidated statements of earnings. All cash flows under the Programs are classified as operating activities because the cash received from the Purchasers upon both the sale and collection of the receivables is not subject to significant interest rate risk given the short-term nature of the Company’s trade receivables. 34 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements. ADM is a global leader in human and animal nutrition and one of the world’s premier agricultural origination and processing companies. It is one of the world’s leading producers of ingredients for human and animal nutrition, and other products made from nature. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in 200 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, industrial, and energy uses. The Company also engages in the manufacturing, sale, and distribution of specialty products including natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for our shareholders, principally from margins earned on these activities. The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 12 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements”. ADM’s recent significant portfolio actions and announcements include: • the acquisition in February 2022 of Comhan, a leading South African flavor distributor; • the announcement in April 2022 of a growth investment in the Company’s oilseed facility in Mainz, Germany, which is expected to be completed in the third quarter of 2023; • the announcement in April 2022 of a $300 million investment in Decatur, Illinois to expand alternative protein production and the opening of a new, state-of-the-art protein innovation center, which is expected to be completed in the first quarter of 2025; • the announcement in April 2022 of a commitment to achieve 100% deforestation-free supply chains by 2025, five years earlier than previously targeted; • the announcement in May 2022 to significantly expand starch production at the Company’s Marshall, Minnesota facility, which is expected to be completed in the second half of 2023; • the announcement in May 2022 of five projects funded with support from ADM, in partnership with the U.S. Department of Agriculture’s Natural Resources Conservation Service, to provide farmers with technical and financial resources to help plant cover crop on half a million acres; • the announcement in June 2022 of the signing of a memorandum of understanding with Bayer, a global enterprise with core competencies in the life science fields of healthcare and agriculture, to build and implement a sustainable crop protection model to soybean farmers in India; • the announcement in July 2022 of the signing of an agreement with Farmers Business Network (FBN) to expand availability of FBN’s leading-edge digital farm business management platform, Gradable, to ADM’s network of farmers across North America, offering 55,000 growers a comprehensive digital solution to manage their businesses and measure sustainable production data; • the announcement in August 2022 of the official inauguration of ScaleUp Bio, a joint venture with Nurasa (formerly Asia Sustainable Foods Platform), a company focused on accelerating the commercialization of sustainable foods in Asia. ScaleUp Bio is the first company in Singapore to provide contract development and manufacturing organization services for precision fermentation for food applications; • the announcement in August 2022 of a long-term strategic partnership with Benson Hill, Inc., a food tech company unlocking the natural genetic diversity of plants, to scale innovative high-protein soy ingredients that will help meet the rapidly growing demand for plant-based proteins; • the announcement in August 2022 of the launch of two joint ventures, GreenWise Lactic and LG Chem Illinois Biochem, with LG Chem, a leading global diversified chemical company, for the U.S. production of lactic acid and polylactic acid to meet growing demand for a wide variety of plant-based products, including bioplastics; • the announcement in August 2022 of a strategic partnership with New Culture, a pioneering animal-free dairy company, to accelerate the development and commercialization of alternative dairy products; 35 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) • the opening in September 2022 of the Company’s first Science and Technology Center in China that will leverage its unparalleled research and development, technology, and product innovation capabilities to spur high-quality development in the nutrition and health industry and meet growing and evolving needs in China and Asia Pacific; • the announcement in September 2022 of a seven-and-a-half-year strategic commercial agreement with PepsiCo to collaborate closely on projects that aim to significantly expand regenerative agriculture across their shared North American supply chains; and • the opening in September 2022 of a new extrusion facility in Serbia that will further expand ADM’s footprint in Europe, extending its production of non-GMO textured soy to include vital origination and extrusion capabilities. Sustainability is a key driver in ADM’s expanding portfolio of environmentally responsible, plant-derived products. Consumers today increasingly expect their food and drink to come from sustainable ingredients, produced by companies that share their values, and ADM is continually finding new ways to meet those needs through its portfolio actions. The current phase of the Company’s strategic transformation is focused on two strategic pillars: Productivity and Innovation. The Productivity pillar includes (1) advancing the roles of the Company’s Centers of Excellence in procurement, supply chain, and operations to deliver additional efficiencies across the enterprise; (2) continued roll out of the 1ADM business transformation program and implementation of improved standardized business processes; and (3) increased use of technology, analytics, and automation at production facilities, in offices, and with customers. Innovation activities include expansions and investments in (1) improving the customer experience, including leveraging producer relationships and enhancing the use of state-of-the-art digital technology to help customers grow; (2) sustainability-driven innovation, which encompasses the full range of products, solutions, capabilities, and commitments to serve customers’ needs; and (3) growth initiatives, including organic growth to support additional capacity and meet growing demand, and targeted mergers and acquisitions. ADM will support both pillars with investments in science and technology, which include expanding digital capabilities and investing further in product research and development. All of these efforts will continue to be strengthened by the Company’s ongoing commitment to Readiness. Environmental and Social Responsibility The Company’s policy to protect forests, biodiversity, and communities includes provisions that promote conservation of water resources and biodiversity in agricultural landscapes, promote solutions to reduce climate change and greenhouse gas emissions, and support agriculture as a means to advance sustainable development by reducing poverty and increasing food security. Additionally, the policy confirms ADM’s commitment to protect human rights defenders, whistleblowers, complainants, and community spokespersons; ADM’s aspiration to cooperate with all parties necessary to enable access to fair and just remediation; and the Company’s non-compliance protocol for suppliers. By the end of 2022, the Company expects to achieve full traceability of its direct and indirect sourcing throughout its soy supply chains in Brazil, Paraguay, and Argentina. ADM aims to eliminate deforestation from all of the Company’s supply chains by 2025. In 2020, ADM announced its environmental stewardship goals, collectively called “Strive 35” – an ambitious plan to, by 2035, reduce absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 25 percent from a 2019 baseline, reduce energy intensity by 15 percent, reduce water intensity by 10 percent, and achieve a 90 percent landfill diversion rate. In 2021, ADM added 5-year interim targets to ensure the Company stays on track to meet its 2035 goals. By 2025, the Company aims to reduce absolute GHG emissions by 1.5%, reduce energy and water intensity by 6% and 5%, respectively, and achieve 87% of its waste diverted from landfill. In 2021, the Company announced its Scope 3 GHG reduction goal, focused upon the five most material Scope 3 categories for the Company; purchased goods and services; fuel and energy related emissions; upstream transportation and distribution; waste; and processing of solid products/goods. ADM aims to reduce its absolute Scope 3 emissions by 25% from a 2019 baseline by 2035. 36 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating Performance Indicators The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Part I Item 1A, “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II Item 1A “Risk Factors” on page 56. The Company’s Ag Services and Oilseeds operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Therefore, changes in revenues of these businesses do not necessarily correspond to changes in margins or gross profit. Thus, gross margins per volume or metric ton are more meaningful than gross margins as percentage of revenues. The Company’s Carbohydrate Solutions operations and Nutrition businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily correlate to changes in cost of products sold. Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margin rates are more meaningful as a performance indicator in these businesses. The Company has consolidated subsidiaries in more than 70 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except for certain significant subsidiaries in Switzerland where Euro is the functional currency, and Brazil and Argentina where U.S. dollar is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil and Argentina, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require remeasurement to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar. Effective April 1, 2022, the Company changed the functional currency of its Turkish entities to the U.S. dollar which did not and is not expected to have a material impact on the Company’s consolidated financial statements. The Company measures its performance using key financial metrics including net earnings, gross margins, constant currency revenue and operating profit, segment operating profit, adjusted segment operating profit, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, manufacturing expenses, selling, general, and administrative expenses, return on invested capital, economic value added, and operating cash flows before working capital. Some of these metrics are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. For more information, see “Non-GAAP Financial Measures” on pages 43 and 50. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, trade policies, changes in global demand, general global economic conditions, changes in standards of living, global production of similar and competitive crops, and geopolitical developments. Due to the unpredictable nature of these and other factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Operations in Ukraine and Russia ADM employs approximately 650 people in Ukraine and operates an oilseeds crushing plant, a grain port terminal, inland and river silos, and a trading office. Most of the facilities have been temporarily idled since February 24, 2022, some of which were brought back online during the quarter ended September 30, 2022, due in part to the opening of the Black Sea grain export corridor. The Company’s footprint in Russia is limited and operations have been scaled down to those related to the production and transport of essential food commodities and ingredients. 37