10-QPeriod: Q3 FY2002

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 12, 2002For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported a decrease in net earnings for the three months ended September 30, 2002, compared to the same period in 2001. This decline was primarily driven by the absence of a significant gain on marketable securities in the prior year, specifically from the sale of IBP, Inc. shares. Despite this, the company saw a substantial increase in net sales, largely due to the inclusion of recently acquired operations in its Corn Processing and Agricultural Services segments, alongside higher sales volumes and pricing in some areas. Operationally, ADM experienced improved results in its domestic country elevator and international grain operations. The company also adopted new accounting standards, notably SFAS 142, which eliminated goodwill amortization, positively impacting net earnings. A key strategic move during the quarter was the acquisition of Minnesota Corn Processors, LLC (MCP), which is expected to contribute to future earnings, though it also increased short-term borrowings. Investors should note the ongoing legal proceedings, particularly antitrust litigation, although the company has made provisions for some settlements.

Key Highlights

  • 1Net sales increased significantly by 33% to $6.94 billion for the quarter, primarily driven by acquisitions and higher volumes/prices.
  • 2Net earnings decreased by 18% to $108.1 million compared to the prior year, largely due to the absence of a $56 million gain on marketable securities in the prior year.
  • 3The company acquired Minnesota Corn Processors, LLC (MCP) for approximately $382 million plus assumption of $233 million in debt, adding to its Corn Processing segment.
  • 4ADM adopted SFAS 142, eliminating goodwill amortization, which positively impacted net earnings by $7 million for the quarter.
  • 5Selling, general, and administrative expenses increased by $32 million, primarily due to newly acquired operations.
  • 6The Agricultural Services segment saw the most substantial sales growth, up 82% to $3.0 billion, bolstered by the acquisition of A.C. Toepfer International.
  • 7The company maintained substantial liquidity with working capital of $2.3 billion and a current ratio of 1.4.

Frequently Asked Questions

The primary reason for the decrease in net earnings was the absence of a significant gain on marketable securities transactions in the current quarter, which totaled $56 million in the prior year, primarily from the sale of IBP, Inc. shares. Without this one-time gain, operating results showed improvements in certain areas.

The adoption of SFAS 142, which mandates that goodwill no longer be amortized, resulted in an increase in net earnings of $7 million for the quarter ended September 30, 2002. This change also reduced the company's effective tax rate.

The acquisition of MCP, completed on September 6, 2002, for approximately $382 million plus assumption of $233 million in debt, is a strategic move to bolster ADM's Corn Processing segment. Its operating results are now included in the company's earnings from that date forward.

ADM is involved in numerous antitrust lawsuits concerning products like lysine, citric acid, and high fructose corn syrup, as well as environmental proceedings. While the company has made provisions for some settlements and expects to vigorously defend itself, the ultimate outcome and materiality of certain ongoing matters, particularly the high fructose corn syrup litigation, cannot presently be determined. The company believes these proceedings, individually or in aggregate, will not have a material adverse effect on its financial condition or results of operations, though substantial legal costs are incurred.