What drove the increase in ADM's earnings for fiscal 2002?

Net earnings rose to $511 million from $383 million. The main drivers were improved oilseed crush margins, a $147 million pre-tax gain from a partial settlement of vitamin antitrust litigation, and better results in agricultural services and wheat processing. These were partly offset by an $83 million asset write-down and weaker cocoa and ethanol operations.

Why did reported sales grow so much, and is that growth organic?

Sales grew 17% to $23.5 billion, but much of the increase was not organic. It came from recently acquired grain, feed, oilseeds and cocoa businesses, and from consolidating A.C. Toepfer International, which contributed about $1.3 billion in Q4 sales after ADM raised its stake to 80%. Agricultural Services sales rose 47% largely for this reason.

How exposed is ADM to antitrust liability?

The exposure is material. ADM faces dozens of class actions over high fructose corn syrup, lysine, citric acid, sodium gluconate and monosodium glutamate, and European Commission fines have been imposed in several of these matters, all under appeal. No provision has been made for the high fructose corn syrup cases because their outcome cannot yet be determined, so future charges are possible.

Is ADM's balance sheet strong enough to fund its growth and shareholder returns?

Yes. Working capital was $2.6 billion, long-term debt to capital fell to 32%, and shareholders' equity reached $6.8 billion. The company had $1.5 billion of unused credit lines and $979 million of cash and short-term securities. Dividends were $130 million, share repurchases were $185 million, and the $382 million MCP acquisition was planned.

What major transactions or changes did ADM disclose that affect future results?

ADM agreed to buy the outstanding Class A units of Minnesota Corn Processors for $2.90 per unit, about $382 million, which closed September 6, 2002. ADM also began consolidating ACTI in Q4 2002. Under SFAS 142, goodwill amortization ends in fiscal 2003, which the company estimated would add about $28 million ($0.04 per share) to net income.

ADM 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed September 20, 2002. Cited figures are marked; the original filing is the authoritative source.

Archer-Daniels-Midland's fiscal 2002 10-K (year ended June 30, 2002) shows a company growing sharply in top-line terms and improving profitability.

Net sales and other operating income rose 17% to $23.5 billion^a, driven largely by recently acquired grain, feed, oilseeds and cocoa operations and by consolidation of A.C. Toepfer International (ACTI), which was brought onto the balance sheet in Q4 2002. Net earnings climbed 33% to $511 million, or $0.78 per share, up from $0.58 in fiscal 2001.

Management attributed the improvement mainly to better oilseed crush margins, a $147 million^b gain from a partial settlement of vitamin antitrust litigation, and better agricultural services and wheat processing results, partly offset by an $83 million asset write-down and weaker cocoa and ethanol operations. Balance sheet and liquidity remained strong. Working capital was $2.6 billion with a current ratio of 1.6, cash and short-term securities were $979 million, and operating cash flow rose to $1.5 billion from $872 million.

Long-term debt to total capital fell to 32% from 35%, and shareholders' equity reached $6.8 billion^c. Capital allocation included $185 million in share repurchases, $130 million in dividends, and the planned $382 million cash-for-stock purchase of the remaining Class A units of Minnesota Corn Processors, which closed in September 2002. Investors should weigh the company's sizable antitrust exposure.

ADM is a defendant in numerous lawsuits and foreign investigations covering high fructose corn syrup, lysine, citric acid, sodium gluconate and monosodium glutamate, and it has paid or been assessed significant European fines, some of which are under appeal. The high fructose corn syrup litigation is ongoing, and the company has not recorded a provision for it. Those outcomes are the main source of uncertainty around the reported earnings base.

02—Key points

Key Highlights

Net sales and other operating income rose 17% to $23.45 billion (FY2001: $20.05 billion), largely from acquisitions and the Q4 consolidation of A.C. Toepfer International.
Net earnings grew 33% to $511 million, or $0.78 per share, versus $383 million ($0.58) in FY2001.
A $147 million pre-tax gain from a partial settlement of vitamin antitrust litigation boosted results; an $83 million asset abandonment and write-down partially offset it.
Oilseeds Processing operating profit rose 49% to $388 million on improved crush margins and strong demand for protein meal.
Operating cash flow nearly doubled to $1.52 billion, and long-term debt to total capital improved to 32% from 35%.
Working capital of $2.6 billion and a current ratio of 1.6 provide substantial liquidity; S&P rates commercial paper A-1 and long-term debt A+.
Significant antitrust exposure remains: high fructose corn syrup class actions survived summary judgment on appeal, and no provision has been recorded for them.

03—Questions

Frequently Asked Questions

What drove the increase in ADM's earnings for fiscal 2002?
Net earnings rose to $511 million from $383 million. The main drivers were improved oilseed crush margins, a $147 million pre-tax gain from a partial settlement of vitamin antitrust litigation, and better results in agricultural services and wheat processing. These were partly offset by an $83 million asset write-down and weaker cocoa and ethanol operations.
Why did reported sales grow so much, and is that growth organic?
Sales grew 17% to $23.5 billion, but much of the increase was not organic. It came from recently acquired grain, feed, oilseeds and cocoa businesses, and from consolidating A.C. Toepfer International, which contributed about $1.3 billion in Q4 sales after ADM raised its stake to 80%. Agricultural Services sales rose 47% largely for this reason.
How exposed is ADM to antitrust liability?
The exposure is material. ADM faces dozens of class actions over high fructose corn syrup, lysine, citric acid, sodium gluconate and monosodium glutamate, and European Commission fines have been imposed in several of these matters, all under appeal. No provision has been made for the high fructose corn syrup cases because their outcome cannot yet be determined, so future charges are possible.
Is ADM's balance sheet strong enough to fund its growth and shareholder returns?
Yes. Working capital was $2.6 billion, long-term debt to capital fell to 32%, and shareholders' equity reached $6.8 billion. The company had $1.5 billion of unused credit lines and $979 million of cash and short-term securities. Dividends were $130 million, share repurchases were $185 million, and the $382 million MCP acquisition was planned.
What major transactions or changes did ADM disclose that affect future results?
ADM agreed to buy the outstanding Class A units of Minnesota Corn Processors for $2.90 per unit, about $382 million, which closed September 6, 2002. ADM also began consolidating ACTI in Q4 2002. Under SFAS 142, goodwill amortization ends in fiscal 2003, which the company estimated would add about $28 million ($0.04 per share) to net income.

04—Continue

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