10-QPeriod: Q3 FY2002

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Dec 31, 2002

Filed February 13, 2003For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported its financial results for the second quarter and first half of fiscal year 2003, ending December 31, 2002. The company experienced a significant increase in net sales compared to the prior year, driven largely by acquisitions, particularly Minnesota Corn Processors (MCP) and A.C. Toepfer International, as well as improved performance in its Corn Processing and Agricultural Services segments. However, net earnings for both the quarter and the six-month period declined year-over-year. This decline was primarily attributed to reduced results in North American Oilseed Processing due to lower crush volumes and margins, and poor crop conditions impacting grain origination. Despite the earnings dip, ADM maintained strong liquidity with a working capital of $3.0 billion and a current ratio of 1.5.

Key Highlights

  • 1Net sales surged by 43% in the quarter and 38% for the six-month period, largely due to recent acquisitions and increased volumes/pricing in several segments.
  • 2Net earnings for the three months ended December 31, 2002, decreased to $131.2 million from $150.0 million in the prior year period.
  • 3Net earnings for the six months ended December 31, 2002, decreased to $239.3 million from $281.6 million in the prior year period.
  • 4The company adopted SFAS 142, ceasing amortization of goodwill, which increased net earnings by $7 million and $15 million for the quarter and six months, respectively.
  • 5ADM completed the acquisition of Minnesota Corn Processors (MCP) for approximately $382 million, consolidating its results from September 6, 2002.
  • 6Total current assets significantly increased due to higher receivables and inventories, reflecting business growth and operational demands.
  • 7Short-term debt increased substantially, primarily driven by the MCP acquisition and working capital requirements.

Frequently Asked Questions

The decrease in net earnings for both the quarter and the six-month period ending December 31, 2002, was primarily due to reduced operating results in the North American Oilseed Processing segment, impacted by lower crush volumes and margins, and adverse crop conditions affecting grain origination. These factors were partially offset by improvements in Corn Processing and Cocoa operations.

The adoption of SFAS 142, which requires goodwill to be tested for impairment rather than amortized, resulted in an increase in reported net earnings. Specifically, it increased net earnings by $7 million for the three months ended December 31, 2002, and by $15 million for the six months ended December 31, 2002, as amortization expense related to goodwill was eliminated.

The acquisition of MCP, completed on September 6, 2002, is accounted for as a purchase. MCP's operating results have been included in ADM's consolidated net earnings from that date. The acquisition contributed to the significant increase in net sales and total assets, particularly within the Corn Processing segment, but also resulted in increased debt and goodwill on the balance sheet.

ADM is involved in numerous antitrust investigations and litigation concerning products like lysine, citric acid, and high fructose corn syrup, primarily in the US and Europe. While some matters have been settled or dismissed, others, including ongoing European Commission investigations and US class-action lawsuits regarding high fructose corn syrup, are still pending. The company has made provisions for some fines and settlements but states that the ultimate outcome of other proceedings cannot be determined and reserves judgment on their materiality.