-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjkSEHnyP8PQowYMESwsxmGla22MalH8zixc5otLmhAk4YOikTTICb3XgOpfst62 SN09dbAarQcJhTdMMm7lxQ== 0000821026-96-000006.txt : 19960401 0000821026-96-000006.hdr.sgml : 19960401 ACCESSION NUMBER: 0000821026-96-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDERSONS INC CENTRAL INDEX KEY: 0000821026 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 341562374 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-20557 FILM NUMBER: 96540500 BUSINESS ADDRESS: STREET 1: 1200 DUSSEL DRIVE CITY: MAUMEE STATE: OH ZIP: 43537 BUSINESS PHONE: 4198935050 FORMER COMPANY: FORMER CONFORMED NAME: ANDERSONS MANAGEMENT CORP DATE OF NAME CHANGE: 19931119 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________________to______________ Commission file number 000-20557 (Previously 33-16936) THE ANDERSONS, INC. (FORMERLY THE ANDERSONS MANAGEMENT CORP.) (Exact name of registrant as specified in its charter) OHIO 34-1562374 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 480 W. Dussel Dr., Maumee, Ohio 43537 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (419) 893-5050 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Shares Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the registrant's voting stock which may be voted by persons other than affiliates of the registrant was $78,501,277 on February 29, 1996, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq National Market. The registrant had 8,430,286 Common Shares outstanding, no par value, at February 29, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report of The Andersons, Inc. and Proxy Statement for the Annual Meeting of Shareholders to be held on May 23, 1996, are incorporated by reference into Parts II (Items 6, 7 and 8), III (Items 10, 11 and 12) and IV of this Annual Report on Form 10-K. The Proxy Statement will be filed with the commission approximately April 15, 1996. PART I Item 1. Business (a) General Development of Business The Andersons Management Corp., (the "Corporation") was formed in August 1987, principally for the purpose of providing management services to The Andersons, a limited partnership (the "Partnership") and to act as the Partnership's sole general partner. On January 2, 1996, the Partnership merged with and into the Corporation (the "Merger") and the Corporation changed its name to The Andersons, Inc. (the "Company"). See Note 1 to the consolidated financial statements of The Andersons, Inc. for further discussion of the Merger. Unless the context otherwise requires, references herein to the "Company" shall mean the combination of the Partnership and the Corporation prior to the Merger and The Andersons, Inc. after the Merger. References herein to the "Corporation" and the "Partnership" shall mean the separate entities prior to the Merger. (b) Financial Information about Industry Segments See Note 14 to the consolidated financial statements of The Andersons, Inc. for information regarding the Company's business segments. (c) Narrative Description of Business General The Company is engaged in grain merchandising and operates grain elevator facilities located in Ohio, Michigan, Indiana and Illinois. The Company is also engaged in the distribution of agricultural products such as fertilizers, seeds and farm supplies. The Company operates retail general stores; produces, distributes and markets lawn care products and corncob products; and repairs and leases rail cars. Agriculture Group The agriculture group consists of grain operations, wholesale fertilizer operations and retail farm centers. The Company's grain operations involve merchandising grain and operating terminal grain elevator facilities, which includes purchasing, handling, processing and conditioning grain, storing grain purchased by the Company as well as grain owned by others, and selling grain. The principal grains sold by the Company are yellow corn, yellow soybeans and soft red and white wheat. The Company's total grain storage capacity was approximately 67 million bushels at December 31, 1995. Virtually all grain merchandised by the Company is grown in the Midwestern part of the United States and is acquired from country elevators, dealers and producers. The Company effects grain purchases at prices referenced to Chicago Board of Trade quotations. The Company competes for the purchase of grain with grain processors and feeders, as well as with other grain merchandisers. The Company's grain business may be adversely affected by unfavorable weather conditions, disease, insect damage, the total acreage planted by farmers, government regulations and policies, and commodity price levels as they affect grower incentive or a supplier's decision when to deliver grain for sale. See "Government Regulation." The grain business is seasonal coinciding with the harvest of the principal grains purchased and sold by the Company. During 1995, approximately 62% of the grain sold by the Company was purchased domestically by grain processors and feeders and approximately 38% was exported. Most of the exported grain was purchased by exporters for shipment to foreign markets. Some grain is shipped directly to foreign countries, mainly Canada. Almost all grain shipments are by rail or boat. Rail shipments are made primarily to grain processors and feeders, with some rail shipments made to exporters on the Gulf or east coast. All boat shipments are from the Toledo, Ohio port elevator. Grain sales are effected on a negotiated basis by the Company's merchandising staff. As with agricultural commodities generally, the volume and pricing of the Company's sales are sensitive to changes in supply and demand relationships, which in turn are affected by factors such as weather, crop disease and government programs, including subsidies and acreage allotments. The Company's business also is affected by factors such as conditions in the shipping industry, currency exchange fluctuations, government export programs and the relationships of other countries with the United States. Since the Company does not usually know the ultimate destination of the grain it sells for export, it is unable to determine the relative importance, in terms of sales, of the various countries to which grain is shipped by its customers. Fixed price purchases and sales of cash grain expose the Company to adverse changes in price. Hedging of these purchase and sales positions provides protection from the potential adverse changes in price. The Company hedges fixed price purchase and sales transactions through the use of futures and option contracts with the Chicago Board of Trade ("CBOT"). The CBOT is a regulated commodity futures exchange that maintains futures markets for the grains merchandised by the Company. Futures prices are determined by supply and demand. The Company's hedging program is designed to reduce the risk of changing commodity prices. In that regard, hedging transactions also limit potential gains from further changes in market prices. The agriculture group's profitability is primarily derived from margins on grain sold and revenues generated from other merchandising activities with its customers, not from its hedging transactions. Purchases of grain can be made the day the grain is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of grain are generally made by contract for delivery in some future period. When the Company purchase s or contracts for future delivery for grain at a fixed price, the purchase is immediately hedged with the sale of a futures contract on the CBOT. Similarly, when the Company sells grain at a fixed price, the sale is immediately hedged with the purchase of a futures contract on the CBOT. At the close of business each day, the open inventory ownership positions, as well as open futures and option positions, are marked-to-market. Gains /losses in value on the Company's owned inventory positions from changing prices are netted with and generally off-set by losses/gains in value on the Company's futures positions. When a futures contract is entered into, an initial margin deposit must be sent to the CBOT. The amount of the margin deposit is set by the CBOT and varies by commodity. If the market price of a short futures contract increases, then an additional margin deposit, called a maintenance margin, would be required to be sent to the CBOT. Similarly, if the price of a long futures contract decreases, a maintenance margin deposit would be required to be sent to the CBOT. Subsequent price changes could require additional maintenance margins or could result in the return of maintenance margins by the CBOT. Significant changes in market prices, such as occurs when weather conditions are unfavorable for extended periods, can have an effect on liquidity and requires the Company to maintain appropriate short-term lines of credit. The Company utilizes CBOT option contracts to reduce the potential margin deposits in the event of a rapidly rising market. At any one time the Agriculture Group's purchase contract portfolio may exceed 100 million bushels for delivery to the Company. Because of this volume, the Company relies heavily on its hedging program as the method for minimizing price risk in its grain inventories and contracts. The agriculture group has adopted a policy which specifies the key controls over the hedging program. This policy includes a description of the hedging programs, mandatory review of positions by key management outside of the trading function on a biweekly basis, daily position limits, modeling of positions for changes in market conditions, and other internal controls. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company reviews its purchase contracts and the parties to those contracts for delivery risk and provides appropriate reserves for potential defaults and non-delivery. The Company competes in the sale of grain with other grain merchants, other private elevator operators and farmer cooperatives which operate elevator facilities. Competition is based primarily on price, service and reliability. Some of the Company's competitors are also its customers and many of its competitors have substantially greater financial resources than the Company. The Company's wholesale agricultural fertilizer operations involve purchasing, storing, formulating, and selling dry and liquid fertilizers; manufacturing liquid fertilizers; providing fertilizer warehousing and services to manufacturers and customers; and wholesale distribution of seeds and various farm supplies. The major fertilizer ingredients sold by the Company are nitrogen, phosphate and potassium, all of which are readily available from various sources. The Company's wholesale agricultural fertilizer market area primarily includes Ohio, Michigan, Indiana and Illinois. Customers for the Company's agricultural fertilizer products are principally retail dealers. Sales of agricultural fertilizer products are heaviest in the spring and fall. The Company's aggregate storage capacity for dry fertilizer at December 31, 1995, was 14 million cubic feet. The Company reserves five million cubic feet of this space for various fertilizer manufacturers and customers. The Company's aggregate storage capacity for liquid fertilizer was 34 million gallons at December 31, 1995, and six million gallons of this space is reserved for manufacturers and customers. The agreements for reserved space provide the Company storage and handling fees and, generally, are for one year and are renewed at the end of each term. The Company operates ten retail farm centers located throughout Michigan, Indiana and Ohio. These centers, often strategically located at or near the Company's grain or wholesale fertilizer facilities, offer agricultural fertilizer, chemicals, seeds and supplies, as well as custom application of fertilizer and chemicals to the farmer. In its agricultural products business, the Company competes with regional cooperatives; fertilizer manufacturers; multi-state retail/wholesale chain store organizations; and other independent wholesalers of agricultural products. Many of these competitors have considerably larger resources than the Company. Competition in the agricultural products business of the Company is based principally on price, location and service. Retail Group The Company's retail store operations consist of six facilities operated as The Andersons General Stores (hereafter "General Stores"), which are located in the Columbus, Lima and Toledo, Ohio areas, and which serve urban, rural and suburban customers. Major product categories in the General Stores include: hardware, home remodeling and building supplies; automotive accessories and parts; small appliances, electronics and housewares products; work clothes and footwear; wine, specialty meats and cheeses, baked goods and produce; pet care products; lawn and garden supplies, nursery stock and Christmas decorations and trim; toys, sporting goods, bicycles and marine accessories. The General Store concept features self-selection of a wide range and variety of brand name, quality merchandise. Each General Store carries more than 70,000 different items, has over 100,000 square feet of in-store display space plus 40,000 square feet of outdoor garden center space, and has a center aisle that features do-it-yourself clinics, special promotions and varying merchandise displays. The retail merchandising business is highly competitive. The Company competes with a variety of retail merchandisers, including numerous mass retailers, department and hardware stores, and farm equipment and supply companies. The principal competitive factors are quality of product, price, service and breadth of selection. The Company's retail business is affected by seasonal factors with significant sales occurring during the Christmas season and in the spring. Business Development Group The Company produces more than 800 granular consumer and professional lawn and garden care products for national distribution. The consumer granular products are sold to mass merchandisers, home centers and regional retailers as well as other lawn fertilizer manufacturers. The professional granular products are sold both direct and through distributors to lawn service applicators and to golf courses. The principal raw materials for the lawn care products are nitrogen, potash and phosphate, which are primarily purchased from the Company's agriculture group. The lawn and garden industry is highly seasonal, with the majority of the sales occurring from early spring to early summer. Competition is based principally on merchandising ability, service and quality. The Company's Railcar division operates a full service repair shop, which specializes in repairs, renovations, cleaning and painting of railcars. In addition, the division buys and sells cars, leases and subleases cars and provides fleet management services. Competition for marketing services is based primarily on service and access to financing. Repair shop competition is based primarily on price, quality and location. The Company is one of the largest producers of processed corncob products in the United States. These products serve the chemical carrier, animal bedding, industrial and sorbent markets and are distributed throughout the United States and Canada and into Europe and Asia. The unique absorption characteristics of the corncob has led to the development of "sorbent" products. Sorbents include products made from corncobs as well as synthetic and other materials and are used to absorb spill ed industrial liquids and other waste products. The principal sources for the corncobs are the Company's grain operations and seed corn producers. The Company also produces dog and cat foods, operates seven auto service centers, a steel fabrication shop and an outdoor power equipment sales and service shop. Research and Development The Company's research and development program is mainly concerned with the development of improved products and processes, primarily lawn care products and corncob products. Approximately $370,000, $490,000, and $450,000 was expended on research and development during 1995, 1994 and 1993, respectively. Employees During the period covered by this report, all management and labor services were provided to the Partnership by the employees of the General Partner prior to the Merger for a management fee. At December 31, 1995, the General Partner had 1,187 full-time and 1,939 part-time or seasonal employees. Government Regulation Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture ("USDA"). The production levels, markets and prices of the grains which the Company merchandises are materially affected by United States government programs, including acreage control and price support programs of the USDA. Also, under federal law, the President may prohibit the export of any product, the scarcity of which is deemed detrimental to the domestic economy, or under circumstances relating to national security. Because a portion of the Company's grain sales are to exporters, the imposition of such restrictions could have an adverse effect upon the Company's operations. The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company's existing plant and processing facilities and could restrict future facilities expansion or significantly increase their cost of operation. The Company made capital expenditures of approximately $740,000 and $617,000 in 1995 and 1994, respectively, in order to comply with these regulations. Item 2. Properties The Company's principal agriculture, retail and other properties are described below. Except as otherwise indicated, all properties are owned by the Company. Agriculture Facilities Location Grain Wholesale Fertilizer Storage Dry Storage Liquid Storage (bushels) (cu. ft.) (gal.) Maumee, OH 18,800,000 6,333,000 2,600,000 Toledo, OH 6,300,000 2,000,000 3,000,000 Metamora, OH 6,480,000 --- --- Lyons, OH (3) 380,000 47,000 160,000 Champaign, IL 13,000,000 833,000 --- Delphi, IN 6,580,000 1,000,000 --- Clymers, IN (1) 4,400,000 --- 7,600,000 Clymers, IN (3) --- 37,000 480,000 Dunkirk, IN 5,900,000 900,000 --- Poneto, IN 530,000 --- 5,500,000 North Manchester, IN (3) --- 23,000 900,000 Logansport, IN --- 33,000 3,000,000 Walton, IN (3) --- 433,000 6,500,000 Albion, MI (3) 2,470,000 23,000 40,000 Potterville, MI (3) 790,000 23,000 --- White Pigeon, MI 1,730,000 --- --- Webberville, MI --- 2,017,000 3,300,000 Litchfield, MI (2)(3) --- 40,000 252,000 North Adams, MI(2)(3) --- 20,000 230,000 Union City, MI (3) --- 20,000 49,500 Munson, MI (3) --- 33,000 150,000 67,360,000 13,815,000 33,761,500 (1) Facility leased - lease expires in 1998, provides an option to purchase. (2) Facility leased. (3) Facility is or includes a retail farm center. The grain facilities are mostly concrete and steel tanks, with some flat storage. The Company also owns grain inspection buildings and driers, a corn sheller plant, maintenance buildings and truck scales and dumps. Agricultural products properties consist mainly of fertilizer warehouse and distribution facilities for dry and liquid fertilizers. The Maumee, Ohio and Walton, Indiana locations have fertilizer mixing, bagging and bag storage facilities. The Company owns a seed processing facility in Delta, Ohio. The Company also operates ten retail farm centers (two under lease agreements) in Michigan, Indiana and Ohio. Aggregate storage capacity in the ten retail farm centers for liquid fertilizer and dry fertilizer is 8.8 million gallons and 699,000 cubic feet, respectively. Retail Store Properties Name Location Square Feet Maumee General Store Maumee, OH 128,000 Toledo General Store Toledo, OH 134,000 Woodville General Store(1) Northwood, OH 105,000 Lima General Store (1) Lima, OH 103,000 Brice General Store Columbus, OH 140,000 Sawmill General Store Columbus, OH 134,000 Warehouse (1) Maumee, OH 245,000 (1) Leased. The leases for the two General Stores and the warehouse facility are long-term leases with several renewal options and provide for minimum aggregate annual lease payments approximating $1 million. The General Store leases provide for contingent lease payments based on achieved sales volume. Other Properties The Company owns lawn fertilizer production facilities and automated pet food production and storage facilities in Maumee, Ohio. It also owns corncob processing and storage facilities in Maumee, Ohio and Delphi, Indiana. The Company leases a lawn fertilizer production facility, a warehouse facility and four lawn products sales outlets. In its Railcar leasing business, the Partnership owns or leases approximately 2,000 railcars (primarily covered hopper cars) with lease terms ranging from one to ten years and future minimum lease payments aggregating $22.6 million with future minimum lease income of $22.4 million. The Company also owns a railcar repair facility, a steel fabrication facility, a service and sales facility for outdoor power equipment and the Company owns or leases seven auto service centers. The Company's administrative office building is leased at an annual rental of approximately $850,000 under a net lease expiring in 2000. The Company owns approximately 704 acres of land on which various of the above properties and facilities are located; approximately 439 acres of farmland and land held for future use; approximately 11 acres of improved land in an office/industrial park held for sale; and certain other real estate. The Company also owns or leases a number of switch engines, cranes and other equipment. Real properties, machinery and equipment of the Company were subject to aggregate encumbrances of approximately $38 million at December 31, 1995. Property additions for the years ended December 30, 1995, 1994 and 1993 amounted to $16 million , $26 million, and $11 million, respectively. See Note 8 to the Company's Consolidated Financial Statements for information as to the Company's leases. The Company believes that its properties, including its machinery, equipment and vehicles, are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured. Item 3. Legal Proceedings The Company is not involved in any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders A special meeting of the shareholders of the Corporation was held on November 16, 1995 to vote on the Merger and other related actions. There were 4,378 votes from the Class A Common Shareholders in favor of the Agreement and Plan of Merger, 171 votes against and there were no abstentions. Of the Class B Common Shareholders, 5,412 voted in favor of the Agreement and Plan of Merger, 212 voted against and there were no abstentions. In addition, Class B Common Shares were voted 5,453 in favor of amending the Corporations Articles to eliminate cumulative voting in the election of members to the Board of Directors, 78 voted against and 93 abstained. Class B Common Shares also voted 5,361 in favor of approving The Andersons, Inc. Long-Term Performance Compensation Plan with 98 against and 165 abstaining. Finally, in the proposal to approve The Andersons, Inc. Employee Share Purchase Plan, 5,453 Class B Common Shares were voted for the proposal, 78 against and 93 abstained. All proposals passed. Item 4A. Executive Officers of the registrant Pursuant to General Instruction G(3) of Form 10-K, the following information with respect to the executive officers of the registrant is included herein in lieu of being included in the registrant's Proxy Statement for its Annual Meeting of Shareholders to be held May 23, 1996. Year Assumed Name Position Age Present Office Thomas H. Anderson Chairman of the Board 72 1987 Richard P. Anderson President and Chief Executive Officer 66 1987 Christopher J. Anderson Vice President - Business Development Group 41 1990 Michael J. Anderson Vice President and General Manager - Retail Group 44 1994 Vice President and General Manager - Grain Group 1990-1994 Richard M. Anderson Vice President and General Manager - Industrial Products Group 39 1990 Joseph L. Braker Vice President and General Manager - Agriculture Group 45 1994 Vice President and General Manager - Ag Products Group 1990-1994 Dale W. Fallat Vice President - Corporate Services 51 1990 Richard R. George Corporate Controller and Principal Accounting Officer 46 1979 Peter A. Machin Vice President and General Manager - Lawn Products Group 48 1990 Beverly J. McBride General Counsel and Corporate Secretary 54 1987 Gary L. Smith Corporate Treasurer 50 1985 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters (a) Because of ownership and transferability restrictions, there was no market for the Class A and Class B Common Shares of the Corporation prior to the Merger. (b) After the Merger, the Common Shares of The Andersons, Inc. were approved for trading on the Nasdaq National Market. Trading began on February 20, 1996. (c) At December 31, 1995, there were 187 holders of Class A Common Shares and 184 holders of Class B Common Shares of the Corporation. As of February 15, 1996, after the Merger and prior to the commencement of trading on the Nasdaq National Market, there were 305 Common Shareholders of The Andersons, Inc. (d) The Corporation does not intend to pay cash dividends in the foreseeable future. Item 6. Selected Financial Data The following table presents the selected financial data in thousand, except share and per share data of the Corporation: Year Ended December 31 1995 1994 1993 1992 1991 Management Fees $74,201 $70,395 $63,107 $57,388 $55,358 Net income 228 252 146 9 25 Net income per Class A Share 49.48 54.72 31.66 1.96 5.38 Weighted average number of Class A Common Shares outstanding 4,608 4,612 4,624 4,633 4,591 As of December 31 1995 1994 1993 1992 1991 Total assets $12,895 $12,984 $11,432 $ 8,841 $ 8,580 Shareholders' equity 2,104 1,862 1,607 1,473 1,445 The five year selected financial data appearing on page 1 of The Andersons, Inc. 1995 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information under the caption Management's Discussion and Analysis appearing on pages 6 and 7 of The Andersons, Inc. 1995 Annual Report to Shareholders is incorporated herein by reference. The following discussion of results of operations and liquidity and capital resources is included for the Corporation prior to the Merger. Results of Operations Years ended December 31, 1995 and 1994: Net income in 1995 was $228,010 or $49.48 per Class A Common Share, compared to $252,351 or $54.72 per share in 1994. Income earned by the Corporation on its investment in the Partnership was down $58,852 in 1995 and the management fee earned by the Corporation based on the Partnership's return on equity and rent and other reimbursable expenses was down $40,174. These decreases were due to reduced 1995 operating results of the Partnership Interest earned and other income increased by $64,146, primarily due to higher returns on the Corporation's other investments. Federal income tax expense decreased due to the decrease in income. Years ended December 31, 1994 and 1993: Net income in 1994 was $252,351 or $54.72 per Class A Common Share, compared to $146,399 or $31.66 per share in 1993. Income earned by the Corporation on its investment in the Partnership was up $73,318 in 1994 and the management fee earned by the Corporation based on the Partnership's return on equity and rent and other reimbursable expenses was up $213,563. These increases were due to improved 1994 operating results of the Partnership and an increase in space utilized by the Partnership in the Corporation's office building. Interest earned and other income decreased by $27,096, primarily due to less space leased by outside tenants in the Corporation's office building. Federal income tax expense increased due to the increase in income. Liquidity and Capital Resources The Corporation had cash and cash equivalents and short-term investments of approximately $890,000 and $1.2 million at December 31, 1995 and 1994, respectively. The largest component of the Corporation's working capital was a receivable from the Partnership. This receivable represents the costs incurred by the Corporation in providing management and labor services to the Partnership but not yet paid by the Corporation and therefore not yet collected from the Partnership. This receivable was eliminated in the Merger. The Corporation has no short-term or long-term debt. Management believes, given the relationship between the Corporation and the Partnership and the January 2, 1996 Merger with the Partnership, that the Corporation's cash and cash equivalents of $890,000 are adequate to meet both short-term and long-term needs. Item 8. Financial Statements and Supplementary Data The following consolidated financial statements of The Andersons, Inc. and Report of Independent Auditors set forth on pages 8 through 19 of The Andersons, Inc. 1995 Annual Report to Shareholders are incorporated herein by reference: Report of Independent Auditors Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets for December 31, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Changes in Owners' Equity for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Following are the financial statements of the Corporation. Report of Independent Auditors Board of Directors The Andersons, Inc. We have audited the accompanying balance sheets of The Andersons Management Corp. as of December 31, 1995 and 1994, and the related statements of income, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Andersons Management Corp. at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP February 2, 1996 Toledo, Ohio The Andersons Management Corp. Statements of Income Year ended December 31 1995 1994 1993 Management fees (Note 2) $74,201,056 $70,394,855 $63,107,331 Equity in income of The Andersons 159,992 218,844 145,526 Interest earned and other income 212,992 148,829 175,925 74,574,040 70,762,528 63,428,782 Costs and expenses: Salaries, wages and benefits 73,246,523 69,400,144 62,326,184 Rent expense 770,494 754,867 731,209 General expenses 248,713 227,966 153,590 74,265,730 70,382,977 63,210,983 Income before income taxes 308,310 379,551 217,799 Federal income taxes: Current 90,700 140,100 68,500 Deferred (credit) (10,400) (12,900) 2,900 80,300 127,200 71,400 Net income $ 228,010 $ 252,351 $ 146,399 Net income per weighted average Class A Common Share $49.48 $54.72 $31.66 Weighted average number of Class A shares outstanding 4,608 4,612 4,624 See accompanying notes. The Andersons Management Corp. Balance Sheets December 31 1995 1994 Assets Current assets: Cash and cash equivalents $ 889,126 $ 736,599 U.S. Treasury security held-to-maturity, fair value of $486,875 -- 490,532 Receivable from The Andersons 4,759,352 4,700,699 Prepaid expenses 2,828,185 2,703,173 Total current assets 8,476,663 8,631,003 Receivable from The Andersons 2,929,723 3,059,742 Investment in The Andersons 1,102,457 969,376 Investment in mutual fund, at fair value 325,244 250,000 Other 60,897 73,843 $12,894,984 $12,983,964 Liabilities and shareholders' equity Current liabilities: Accounts payable $ 1,952,809 $ 869,704 Accrued compensation and benefits 5,908,822 7,192,479 Total current liabilities 7,861,631 8,062,183 Pension and postretirement benefits 2,929,723 3,059,742 Shareholders' equity: Common Shares, without par value: Class A non-voting: Authorized--25,000 shares Issued-- 4,855 shares at stated value 1,456,405 1,456,405 Class B voting: Authorized--25,000 shares Issued--5,683 and 5,014 shares at stated value in 1995 and 1994, respectively 5,683 5,014 Retained earnings 699,451 471,441 2,161,539 1,932,860 Unrealized gain on available-for-sale securities 28,957 -- (net of tax) Less common shares in treasury, at cost--(275 and 236 Class A shares in 1995 and 1994, respectively) (86,866) (70,821) 2,103,630 1,862,039 $12,894,984 $12,983,964 See accompanying notes. The Andersons Management Corp. Statements of Cash Flows Year ended December 31 1995 1994 1993 Operating activities Net income $ 228,010 $ 252,351 $ 146,399 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in earnings of The Andersons in excess of cash received (159,992) (207,537) (139,180) Provision for deferred income tax (10,400) (12,900) 2,900 (credits) Amortization 2,655 4,110 41,411 Changes in operating assets and liabilities: Prepaid expenses and other assets (96,715) 6,328 (258,684) Receivable from The Andersons 71,366 (1,174,113) (2,160,348) Accounts payable and accrued expenses (330,571) 1,309,346 2,457,183 Net cash provided by (used in) operating activities (295,647) 177,585 89,681 Investing activities Sales and maturities of investments 565,000 500,000 1,000,000 Purchases of investments (101,450) (739,329) (505,313) Net cash provided by (used in) investing activities 463,550 (239,329) 494,687 Financing activities Purchase of common shares for treasury (29,582) (18,405) (23,697) Sale of common shares from treasury 13,537 21,036 11,141 Proceeds from sale of common shares 669 333 - Net cash provided by (used in) financing activities (15,376) 2,964 (12,556) Increase (decrease) in cash and cash equivalents 152,527 (58,780) 571,812 Cash and cash equivalents at beginning of year 736,599 795,379 223,567 Cash and cash equivalents at end of year $ 889,126 $ 736,599 $ 795,379 See accompanying notes.
The Andersons Management Corp. Statements of Changes in Shareholders' Equity Unrealized Gain on Common Shares Available- Retained Treasury for-Sale Class A Class B Earnings Shares Securities Balances at December 31, 1992 $1,456,405 $4,681 $ 72,691 $(60,896) $ -- Sale of 35 Class A and 251 Class B shares from treasury 11,141 Purchase of 75 Class A and 73 Class B shares for treasury (23,697) Net income for the year 146,399 Balances at December 31, 1993 $1,456,405 $4,681 $219,090 $(73,452) $ -- Sale of 59 Class A and 200 Class B shares from treasury 21,036 Purchase of 53 Class A and 53 Class B shares for treasury (18,405) Issuance of 333 shares 333 Net income for the year 252,351 Balances at December 31, 1994 $1,456,405 $5,014 $471,441 $(70,821) $ -- Sale of 34 Class A and 37 Class B shares from treasury 13,537 Purchase of 73 Class A and 37 Class B shares for treasury (29,582) Issuance of 669 shares 669 Unrealized gain on securities $28,957 Net income for the year $228,010 Balances at December 31, 1995 $1,456,405 $5,683 $699,451 $(86,866) $28,957 See accompanying notes.
The Andersons Management Corp. Notes to Financial Statements December 31, 1995 1. Significant Accounting Policies Estimates and Assumptions The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Corporation considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Securities Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held- to-maturity securities are stated at amortized cost. Marketable equity securities and debt securities not classified as held-to- maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Cost of these available-for-sale securities at December 31, 1995 and 1994 was $276,981 and $250,000, respectively. The unrealized gain of $48,262 is shown as a separate component of shareholders' equity, net of applicable income taxes of $19,305. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Temporary differences relating to costs and expenses incurred on behalf of the Partnership are passed on to the Partnership through offsetting differences in the recognition of management fees by the Corporation. Deferred tax assets of the Corporation relate primarily to temporary differences associated with the Corporation's share of Partnership net income and amounted to $50,700 and $29,900 at December 31, 1995 and 1994, respectively. Taxes paid during 1995, 1994 and 1993 amounted to $146,000, $135,500, and $5,000, respectively. Description of Common Shares Common shares of the Corporation are held by limited partners of The Andersons. The holders of Class A shares are entitled to dividends, if declared, and to any surplus, earned or otherwise, of the Corporation upon liquidation or dissolution. The holders of Class B shares have sole voting power, but are not entitled to share in any dividends or surplus of the Corporation. Net income per share of Common Stock is computed based on the weighted average number of Class A Common Shares outstanding during the year. Reclassifications Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the 1995 presentation. These reclassifications had no effect on net income. 2. Investment in The Andersons The Corporation is the sole general partner of The Andersons (the Partnership). As sole general partner, the Corporation provides all management and labor services required by the Partnership in its operations. In exchange for providing management services the Corporation charges the Partnership a management fee equal to: a) the salaries and cost of all employee benefits and other normal employee costs, paid or accrued for services performed by the Corporation's employees on behalf of the Partnership, b) reimbursable expenses incurred by the Corporation in connection with its services to the Partnership, or on the Partnership's behalf, and c) an amount based on an achieved level of return on partners' invested capital of the Partnership to cover the Corporation's general overhead and to provide an element of profit to the Corporation. The Corporation leases an office building under a lease that commenced on May 1, 1990. The Corporation is required to pay annual lease payments of $767,515 through 2000, then increasing to $792,402 through 2005. The Corporation charges the Partnership rent for the space utilized in its operations, which amounted to $659,716, $635,714, and $529,982 in 1995, 1994 and 1993, respectively. The Partnership generally pays the Corporation for salaries and employee benefits as those costs are paid by the Corporation. Amounts due from the Partnership relating to postretirement benefits that will not be received within one year have been classified as a noncurrent asset. The components of the management fee and rent charged by the Corporation to the Partnership consisted of the following: Year ended December 31 1995 1994 1993 Costs and expenses: Salaries and wages $56,011,690 $53,726,460 $47,706,731 Employee benefits 17,234,830 15,673,685 14,619,453 Rent for office space and other reimbursable expenses 747,070 803,830 641,491 Achieved level of return of the Partnership 207,466 190,880 139,656 Total management fees $74,201,056 $70,394,855 $63,107,331 3. Employee Benefit Plans The Corporation sponsors several employee benefit programs which include the following: Defined Benefit Pension Plan and Supplemental Defined Benefit Pension Plan, Retirement Savings Investment Plan, Cash Profit Sharing Plan, Management Performance Program and health insurance benefits. Substantially all permanent employees are covered by the Corporation's Defined Benefit Pension Plan. The benefits are based on the employee's highest five consecutive years of compensation during their last ten years of service. The Corporation's policy is to pay into trusteed funds each year an amount equal to the annual pension expense calculated under the Entry Age Normal method. In addition, the Corporation has a Supplemental Retirement Plan which is a non- qualified deferred compensation plan designed to cover all Defined Benefit Plan participants whose compensation exceeds the Internal Revenue Code limitation. Supplemental Plan benefits are calculated similarly to the Defined Benefit Plan and are based on compensation in excess of the Internal Revenue Code limitation. The following table sets forth the plans' funded status and amounts recognized in the Corporation's balance sheets as of December 31, 1995 and 1994. December 31 1995 1994 Actuarial present value of benefit obligation: Vested benefits $6,666,393 $5,743,223 Non-vested benefits 329,443 364,007 Accumulated benefits obligation 6,995,836 6,107,230 Impact of future salary increases 4,195,199 3,417,369 Projected benefit obligation for service rendered to date 11,191,035 9,524,599 Plan assets at fair value 9,605,800 7,297,051 Projected benefit obligation in excess of plan assets 1,585,235 2,227,548 Unrecognized net asset at adoption of FAS 87, net of amortization 142,859 193,338 Unrecognized net gain (loss) 526,377 (435,467) Prior service cost (292,296) (29,044) Net pension liability recognized in balance sheet (includes current portion of $1,498,000 in 1995 and $415,365 in 1994) $1,962,175 $1,956,375 Net periodic pension cost includes the following components: Year ended December 31 1995 1994 1993 Service cost -benefits earned during the $1,233,838 $1,082,143 $1,135,948 period Interest cost on projected benefit obligation 680,739 563,333 571,278 Return on plan assets (2,017,708) 70,796 (493,623) Net amortization and deferral 1,425,058 (655,230) 10,420 Net periodic pension cost $1,321,927 $1,061,042 $1,224,023 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.5% and 4%, respectively. The weighted average long-term rate of return on plan assets used in determining the expected return on plan assets included in net periodic pension cost was 8% for all years presented. Substantially all of the plan assets are invested in a family of mutual funds. Under the Retirement Savings Investment Plan (RSIP) eligible participating employees may elect to contribute specified amounts up to 15% of their gross pay on a tax-deferred basis, subject to certain limitations, to a trust for investment in a family of mutual funds. The Corporation contributes an amount equal to 50% of the participant's contributions, but not in excess of 3% of the participant's annual gross pay. Participants are fully vested in their contributions to the RSIP. Participants hired before January 1, 1993 vest immediately in the Corporation's matching contributions and participants hired after December 31, 1992 vest ratably over five years. The matching contributions to the RSIP amounted to $920,845, $857,804, and $761,536 in 1995, 1994 and 1993, respectively. Substantially all permanent employees are included in the Cash Profit Sharing Plan. The Plan provides for participants to receive certain percentages of their pay as various threshold levels of return on capital of the Partnership are achieved. The Corporation also has a Management Performance Program for certain levels of management. Participants in the Management Performance Program are not eligible to participate in the Cash Profit Sharing Plan. The expense for profit sharing/management performance programs was $1,226,893, $3,040,207 and $2,050,273 for 1995, 1994 and 1993, respectively. The Corporation currently provides certain health insurance benefits to its employees, including retired employees. The Corporation has reserved the right in most circumstances to modify the benefits provided and in recent years has in fact made changes. Further changes were implemented in 1993 that will effect the benefits provided to future retirees. These changes include the minimum retirement age, years of service and a sharing in the cost of providing these benefits. In addition, the Medicare Part B reimbursement currently paid by the Corporation for retirees is being phased out over a five-year period. The Corporation has elected to recognize the accrued benefits earned by employees as of January 1, 1993 (transition obligation) prospectively, which means this cost will be recognized as a component of the net periodic postretirement benefit cost over a period of approximately 20 years. The Corporation's postretirement benefits are not funded. The status of the plan as of December 31 is as follows: 1995 1994 Accumulated postretirement benefit obligation: Retirees $5,502,090 $5,267,700 Fully eligible active plan participants 569,619 1,516,379 Other active participants 3,679,649 2,551,870 9,751,358 9,335,949 Unrecognized net transition obligation (7,150,383) (7,570,994) Unrecognized net loss (135,931) (246,223) Accrued postretirement benefit cost $2,465,044 $1,518,732 Net periodic postretirement benefit cost includes the following components: Year ended December 31 1995 1994 1993 Service cost $ 247,493 $ 245,186 $ 181,457 Interest cost 679,416 749,651 653,625 Net amortization 420,611 451,999 420,611 Net periodic postretirement benefit cost $1,347,520 $1,446,836 $1,255,693 The weighted average discount rate used in determining the postretirement benefit cost was 7.5% for all years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1995 and 1994 was 7.5%. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 7% in 1995, declining to 5% through the year 1997 and remaining at that level thereafter. A 1% increase in the assumed health care cost trend rate would increase the annual postretirement benefit cost by approximately $181,000 and the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $1.6 million. To partially fund self-insured health care and other employee benefits, the Corporation makes payments to a trust. Assets of the trust amounted to $2,730,315 and $2,639,566 at December 31, 1995 and 1994, respectively, and such amounts are included in prepaid expenses. 4. Merger with the Partnership On January 2, 1996, the Partnership merged with and into the Corporation and the Partnership was dissolved. Concurrent with the merger, the name of the Corporation was changed to The Andersons, Inc. The merger has been accounted for as a reorganization of entities under common control similar to a pooling of interests. All future financial statements will be combined and historical periods restated to give effect to the merger. Presented below is a condensed balance sheet as of January 2, 1996 (the date of the merger) and a condensed statement of income for the years ended December 31, 1995, 1994 and 1993 showing the effect of the merger had it been consummated at the beginning of the period. Condensed Balance Sheet (in thousands) January 2, 1996 Assets Current assets $ 371,342 Property plant and equipment - net 81,862 Other noncurrent assets 5,245 $ 458,449 Liabilities Current liabilities $ 309,578 Long-term obligations 76,792 Other noncurrent liabilities 4,327 390,697 Minority interest 1,001 Shareholders' Equity 66,751 $ 458,449 Condensed Pro forma Statements of Income (in thousands) Year Ended December 31 1995 1994 1993 Net sales and revenues $1,092,410 $ 968,880 $ 796,471 Other income 5,320 2,758 3,874 1,097,730 971,638 800,345 Cost of sales and revenues 944,176 822,274 670,158 153,554 149,364 130,187 Operating, general and administrative expenses 129,347 125,798 112,939 Interest expense 14,019 8,395 6,168 143,366 134,193 119,107 Net income - historical 10,188 15,171 11,080 Pro forma income tax expense 3,915 5,886 4,094 Pro forma net income $ 6,273 $ 9,285 $ 6,986 The Partnership's net income was includable in the federal income tax returns of its partners and therefore it did not pay federal income taxes. The Partnership's operations will be included in the Corporation's U.S. federal income tax return effective January 2, 1996. This table includes separate unaudited pro forma net income which reflect the pro forma adjustments to present income taxes on the basis on which they will be reported in future periods. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant For information with respect to the executive officers of the registrant, see "Executive Officers of the Registrant" in Item 4A included in Part I of this report. For information with respect to the Directors of the registrant, see "Election of Directors" in the Proxy Statement for the Annual Meeting of the Shareholders to be held on May 23, 1996 (the "Proxy Statement"), which is incorporated herein by reference; for information concerning 1934 Securities and Exchange Act Section 16(a) Compliance, see such section in the Proxy Statement, incorporated herein by reference. In addition to the directors disclosed in the Proxy Statement, the following directors of the Company are not standing for re-election at the 1996 annual meeting: Name Age Position Daniel T. Anderson 40 Director; General Merchandise Manager Retail Group Dale W. Fallat 51 Director; Vice President Corporate Services Janet M. Schoen 36 Director Item 11. Executive Compensation The information set forth under the captions "Executive Compensation" in the Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the caption "Security Ownership" in the Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions See "Item 1. Business" regarding personnel and management services provided by the Corporation to the Partnership. The management fee received by the Corporation in 1995 under the Management Agreement between the Corporation and the Partner ship was $74.2 million. See Note 2 to the Corporation's Financial Statements. The office building utilized by the Partnership was leased by the Corporation from an unaffiliated lessor under a net lease expiring in 2000. The Partnership subleased approximately 90% of the building from the Corporation and paid the Corporation rent for the space it occupies. Under the terms of the sublease, the Partnership also was responsible for insurance, utilities, taxes, general maintenance, snow removal, lawn care and similar upkeep expenses for the entire building. The Corporation reimbursed the Partnership for management and maintenance of the building, including the space it did not occupy. The amount paid by the Partnership to the Corporation for the portion of the building occupied by the Partnership was designed to reimburse the Corporation for its equivalent cost under the Corporation's lease. In 1995, the rental payments made by the Partnership to the Corporation, net of the reimbursement for management and maintenance of the building was $692,918, which is included in the management fee referred to in the preceding paragraph. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) The following financial statements of the registrant are included in Item 8: Page Report of Independent Auditors................................... 15 Statements of Income - years ended December 31, 1995, 1994 and 1993............................... 16 Balance Sheets - December 31, 1995 and 1994...................... 17 Statements of Cash Flows - years ended December 31, 1995, 1994 and 1993............................... 18 Statements of Changes in Shareholders' Equity - years ended December 31, 1995, 1994 and 1993................... 19 Notes to Financial Statements.................................... 20 In addition the consolidated financial statements of the Company, as set forth under Item 8 of this report on Form 10-K, are incorporated herein by reference from The Andersons, Inc. 1995 Annual Report to Shareholders. (a) (2) All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted for the Corporation. (3) Exhibits: 2.1 Agreement and Plan of Merger, dated April 28, 1995 and amended as of September 26, 1995, by and between The Andersons Management Corp. and The Andersons. (Incorporated by reference to Exhibit 2.1 to Registration Statement No. 33-58963). 3.1 Articles of Incorporation. (Incorporated by reference to Exhibit 3(d) in Registration Statement No. 33- 16936.) 3.2 Code of Regulations. (Incorporated by reference to Exhibit 3(e) in Registration Statement No. 33-16936.) 3.3 Articles of Incorporation of The Andersons, Inc. (Incorporated by reference to Exhibit 3.3 to Registration Statement No. 33-58963). 3.4 Code of Regulations of The Andersons, Inc. (Incorporated by reference to Exhibit 3.4 to Registration Statement No. 33-58963). 4.1 Specimen certificate of Class A Shares. (Incorporated by reference to Exhibit 4(b)(i) in Registration Statement No. 33-16936.) 4.2 Specimen certificate of Class B Shares. (Incorporated by reference to Exhibit 4(b)(ii) in Registration Statement No. 33-16936.) 4.3 Specimen Common Share Certificate. (Incorporated by reference to Exhibit 4.1 in Registration Statement 33- 58963). 4.4 The Fifteenth Supplemental Indenture dated as of January 2, 1995, between The Andersons, Inc. and Fifth Third Bank of Northwestern Ohio, N.A., successor Trustee to an Indenture between The Andersons and Ohio Citizens Bank, dated as of October 1, 1985. 10.1 Management Performance Program.* (Incorporated by reference to Exhibit 10(a) to the Partnership's Form 10-K dated December 31, 1990, File no. 2-55070.) 10.2 Lease agreement effective May 1, 1990, between Carentmon and The Andersons Management Corp. (Incorporated by reference to Exhibit 10(b) to Registrants Form 10-K dated December 31, 1992.) 10.3 Management Agreement between The Andersons and The Andersons Management Corp., effective as of January 1, 1988. (Incorporated by reference to Exhibit 10(h) in Registration Statement No. 33-13538.) 13 The Andersons, Inc. 1995 Annual Report to Shareholders 22 Subsidiaries of The Andersons, Inc. (Incorporated by reference to the Partnership's Form 10-K dated December 31, 1995) 23.1 Consent of Independent Auditors 28 Partnership Form 10-K for the year ended December 31, 1995. (Incorporated by reference to File No. 2-55070.) The Corporation agrees to furnish to the Securities and Exchange Commission a copy of any long-term debt instrument or loan agreement that it may request. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the last quarter of the year. (c) Exhibits: The exhibits listed in Item 14(a)(3) of this report, and not incorporated by reference, follow "Signatures". * Management contract or compensatory plan. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Maumee, Ohio, on the 28th day of March, 1996. THE ANDERSONS, INC. (FORMERLY THE ANDERSONS MANAGEMENT CORP.) (Registrant) By \s\Thomas H. Anderson Thomas H. Anderson Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 28th day of March, 1996. Signature Title \s\Richard P. Anderson President and Chief Executive Officer, Richard P. Anderson Director (Principal Executive and Financial Officer) \s\Richard R. George Corporate Controller Richard R. George (Principal Accounting Officer) Signature Title Signature Title \s\Daniel T. Anderson Director \s\Dale S. Fallat Director Daniel T. Anderson Dale W. Fallat Director \s\Paul M. Kraus Director Donald E. Anderson Paul M. Kraus \s\Michael J. Anderson Director Director Michael J. Anderson Donald M. Mennel \s\Richard M. Anderson Director Director Richard M. Anderson David L. Nichols \s\Thomas H. Anderson Director Director Thomas H. Anderson Janet M. Schoen Director John F. Barrett Except for those portions of The Andersons, Inc. 1995 Annual Report to Shareholders specifically incorporated by reference in this report on Form 10- K, such annual report is furnished solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as a part of this filing. EX-13 2 Exhibit 13 The Andersons, Inc. 1995 Annual Report Mission Statement We firmly believe that our Company is a powerful vehicle through which we channel our time, talent, and energy in pursuit of the fundamental goal of serving God by serving others. Through our collective action we greatly magnify the impact of our individual efforts to: . Provide extraordinary service to our customers . Help each other improve . Support our communities . Increase the value of our Company. Table of Contents Corporate Profile 1 Selected Financial Data 1 Letter to Shareholders 2 Business Review Agriculture 3 Retail 4 Business Development 5 Management's Discussion and Analysis 6 Report of Independent Auditors 8 Consolidated Financial Statements 9 Notes to Consolidated Financial Statements 13 Directors and Officers 20 Investor Information Inside Back Cover Corporate Profile The Andersons, Inc. is a strong regional company based in Maumee, Ohio. The firm organizes its businesses into three strategic business groups: Agriculture, Retail and Business Development. The Agriculture Group consists of eleven grain elevators located in Ohio, Michigan, Indiana and Illinois with a combined total storage capacity of 67 million bushels, wholesale fertilizer operations in the same eastern corn belt area, and ten Retail Farm Centers. The Retail Group operates six large General Stores in Ohio which feature a "store-within-a-store" concept, whereby more than 70,000 different items are sold through several specialty stores under one roof. The Business Development Group includes railcar repair and marketing, lawn-care products, industrial products, and several smaller businesses. The Company began in 1947 with a one-half million bushel elevator in Maumee. Since that time it has achieved an excellent reputation and a solid record of growth. The Company has been profitable every year but one since its inception. Looking forward, the Company anticipates continued earnings growth. The Agriculture Group is positioned to take advantage of anticipated increases in planted acreage, fertilizer usage and volume. In Retail, the Company is taking steps to improve operating margins and define a prototype for expansion. The Business Development Group also envisions growth through continued expansion of its railcar fleet, improved operating efficiencies, and development of new products. Selected Financial Data The following selected financial information presents highlights of the consolidated income statement and balance sheet of The Andersons, an Ohio limited partnership (the "Partnership") and The Andersons Management Corp. (the "General Partner") for the five years ended December 31, 1995. This selected financial information should be read in conjunction with and is qualified in its entirety by reference to the Consolidated Financial Statements contained elsewhere in this report. On January 2, 1996, the Partnership merged with and into the General Partner (the "Merger") and the General Partner changed its name to The Andersons, Inc. See Note 1 to the Consolidated Financial Statements for a discussion of the Merger. Unless the context otherwise requires, references herein to the "Company" shall mean the combination of the Partnership and the General Partner prior to the merger and The Andersons, Inc. after the Merger. (in thousands) 1995 1994 1993 1992 1991 Income Statement Data Grain sales and revenues $ 660,121 $551,836 $439,484 $440,800 $356,898 Fertilizer, retail and other sales 432,289 417,044 356,987 326,636 299,974 Total sales and merchandising revenues 1,092,410 968,880 796,471 767,436 656,872 Operating Profit (a) 28,031 29,091 22,640 19,673 14,108 Operating, administrative and general expenses 129,347 125,798 112,939 100,987 93,408 Interest expense 14,019 8,395 6,168 6,325 7,298 Income from continuing operations (b) 10,188 15,171 11,080 10,045 4,506 Balance Sheet Data Total assets $ 455,518 $344,809 $360,586 $259,294 $293,001 Working capital 58,897 57,623 47,795 40,940 31,881 Long-term debt and other long-term obligations 77,743 74,277 55,817 49,327 51,373 Owners' equity 67,260 64,870 56,256 51,970 43,421 (a) See Note 12 to the Consolidated Financial Statements for the definition of Operating Profit. (b) Prior to the Merger, income tax expense was not significant as the net income of the Partnership was included in the federal tax returns of its limited partners. See Note 1 to the Consolidated Financial Statements for pro forma income tax expense and net income per common share. Letter to Shareholders On January 2, 1996, The Andersons, Inc. was created by the merger of The Andersons, an Ohio limited partnership, into its corporate general partner. Several weeks later, the common shares of the Company were included in the Nasdaq National Market and public trading commenced. While the partnership form served us well for almost half a century, we have grown to such an extent that corporate status is now clearly warranted. In this form, our owners have improved liquidity and a market value for their shares. We gain better access to capital markets, a noncash currency for future acquisitions, a vehicle for performance compensation and a means for expanded employee participation in Company ownership. The consolidated financial statements that follow reflect the results of operations for the final three years in our prior business form. Also included are pro forma data reflecting our new corporate form. Total revenue for 1995 was $1.1 billion, almost 13% higher than 1994 due to volume growth as well as increases in grain and fertilizer prices. Our net income of $10.2 million was down from the $15.2 million generated in 1994. This decline was primarily due to the volatility in the agriculture-related businesses. On a pro forma basis, The Andersons earned $0.74 per share in 1995 on 8.43 million shares outstanding, $1.10 in 1994 and $0.83 in 1993. During the past year, we continued to invest heavily in plant and equipment. We completed the purchase of the Metamora Elevator facilities, began renovation of the Toledo General Store, developed several new products, invested in new information systems and continued to make improvements related to safety, environmental stewardship and operating efficiency. We welcome the addition of David L. Nichols, Chairman & CEO of Mercantile Stores Company, Inc., to our Board of Directors. At the same time, we mourn the loss of Rene McPherson, a long-time member of our Board. In summary, we have experienced a great deal of change during the past year. However, our commitment to the goals and principles outlined in our Mission Statement has not changed. We firmly believe that The Andersons, Inc. is positioned to grow and prosper. Agriculture is an inherently volatile industry due to factors such as weather and worldwide grain demand, however, over time, our financial objectives are to average a 25% pretax return on equity, achieve average annual equity growth of 15%, and to work toward a long-term debt-to-equity ratio of no more than 0.8 to 1. The following pages review in greater detail the performance of our three strategic business groups. /s/ Richard P. Anderson, President & CEO /s/ Thomas H. Anderson, Chairman Agriculture Group SALES GRAPH: OPERATING INCOME GRAPH: 1991 $ 473 million 1991 $ 3.9 million 1992 $ 555 million 1992 $ 4.5 million 1993 $ 571 million 1993 $ 9.2 million 1994 $ 711 million 1994 $12.3 million 1995 $ 831 million 1995 $ 6.0 million LOCATIONS: Illinois Champaign Indiana Delphi, Clymers, Dunkirk, Poneto, Walton, Logansport, North Manchester Michigan Albion, Potterville, White Pigeon, Webberville, Litchfield, North Adams, Union City, Munson Ohio Maumee, Toledo, Metamora, Lyons, Delta The Agriculture Group, consisting of our Grain, Wholesale Fertilizer and Retail Farm Center businesses, experienced a $6.3 million drop in operating income in 1995. Several factors contributed to this decline. First the government's agriculture policy included a 7 1/2% acreage set-aside (farmland removed from production). In addition, unusually cold and wet conditions occurred during the spring planting period. As a result, 8 million fewer corn acres were planted this year, average yields we re down, and total U.S. corn production declined by 27%. At the same time, export demand was increasing, leaving U.S. grain stocks at the lowest levels in twenty years and prices higher than we've seen in the past decade. Our Grain division felt the impact of these forces directly. The higher grain prices lead to a noticeable increase in carrying costs, specifically interest expense. In addition, the crop was unusually dry in 1995. This caused a reduction in our drying and mixing income. Operating expenses for the Grain division were higher in 1995. In total, operating income for the division declined from 1994. The Wholesale Fertilizer division achieved volume and gross profit levels in 1995 which were about equivalent to those recorded in 1994. Overall operating expenses were down somewhat. Year-to-year income comparisons were affected, however, by the $ 1.6 million non-recurring gain on phosphate materials realized in 1994. Our Retail Farm Centers were affected by the poor conditions at planting time. While overall tonnage and gross profit were up slightly year-to-year, this growth was more than offset by an increase in expenses. As a result, income for this segment was down. Looking forward, we are well positioned to take advantage of the present situation. With acreage set-asides removed for 1996, we anticipate a strong fertilizer demand this spring and more bushels to handle next fall. We also believe that there will continue to be growth opportunities within the region. Retail Group SALES GRAPH: OPERATING INCOME GRAPH: 1991 $ 139 million 1991 $ 0.4 million 1992 $ 149 million 1992 $ 2.8 million 1993 $ 153 million 1993 $ 0.4 million 1994 $ 169 million 1994 $ 2.3 million 1995 $ 168 million 1995 $ 1.8 million LOCATIONS: Ohio Maumee Toledo Northwood (Woodville Mall) Lima Columbus (Brice Road) Columbus (Sawmill Road) The Retail Group operates six stores in Ohio: three in the Toledo area, two in Columbus and one in Lima. These are large (105,000 to 130,000 square feet) General Stores with a unique product mix configured in several "Stores-With in- A-Store." Among these are hardware, home remodeling, housewares, automotive, sporting goods, lawn and garden, pet, workwear, and food (bakery, deli, produce, specialty groceries and wine). 1995 was a tough year for the retail industry in the United States. As the graphs indicate, this was true for The Andersons as well. Sales were virtually flat year-to-year, and operating income declined. However, individual store results were some what mixed. 1995 was the best year ever for us in Toledo with gains in both sales and income. Lima, our newest store, continued to achieve sales growth. The Columbus stores, however, experienced a large influx of new competition in the past year. This caused a reduction in sales and profitability. During the year, we made a significant investment to improve the Toledo General Store. This included a new facade, an additional entrance, a drive-through customer pick-up warehouse and other exterior enhancements. In 1996, we will complete this project, focusing on improvements within the store, and begin a similar upgrade of our flagship store in Maumee. In 1995, the Company also invested in improved operating systems and training programs to ensure a consistently positive customer experience within our stores. We also continued to work hard on building relationships with our suppliers. In 1996 and beyond, we plan to adjust our store operations to better align with each market we serve. In addition, we are defining a prototype store design for potential use in the event of future expansion. Business Development Group SALES GRAPH: OPERATING INCOME GRAPH: 1991 $ 47 million 1991 ($ 1.4) million 1992 $ 69 million 1992 $ 1.8 million 1993 $ 79 million 1993 $ 4.4 million 1994 $ 95 million 1994 $ 3.2 million 1995 $ 105 million 1995 $ 3.7 million LOCATIONS: Railcar Repair Shop Maumee, Ohio Lawn Products Manufacturing Maumee, Ohio Bowling Green, Ohio Industrial Products Manufacturing Maumee, Ohio Delphi, Indiana Perrysburg, Ohio The Business Development Group, made up of several businesses which grew out of the abilities and experience gained in the Company's Agriculture and Retail Groups, achieved growth in revenue and operating income in 1995. The Railcar division, which grew out of our expertise in transportation, fabrication and leasing, continued to be a significant profit contributor during the past year. This segment purchases, sells, leases, and repairs railcars. It is also beginning to develop fleet management and railcar component manufacturing capabilities. The division hopes to capitalize on the aging fleet of railcars in the United States and our central location. The Lawn Products division, among the top five or six U.S. manufacturers of lawn fertilizer and related turf care products, experienced a decline in operating income from 1994 to 1995. This was due to a rapid run-up in the price of urea, a key raw material for this business, which was not fully recouped through customer price increases. Initiatives to simplify and streamline the product line and distribution systems were begun during the year. The Industrial Products division, in the midst of a transition to higher "value-added" products, saw its profitability decline in 1995. This unit develops products for industrial and consumer markets utilizing milled corn cob products as the basic feedstock. Primary product categories include agricultural chemical carriers, mild abrasives, cat litter, lab animal bedding and various absorbents. The Business Development Group also includes gains from liquidation of excess prime real estate. While these earnings are not sustainable long-term, significant income was generated in 1995. The performance in 1995 of several smaller businesses in this group collectively matched year-earlier levels. Management's Discussion and Analysis Introduction The following discussion should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements. The Merger On November 16, 1995, the partners of The Andersons and the shareholders of The Andersons Management Corp. approved a merger of the two entities, effective on January 2, 1996. As part of the merger, the Partnership was terminated, the name was changed to The Andersons, Inc., common shares of The Andersons, Inc. were issued to former partners and shareholders for their previous ownership interests and certain other changes were adopted. This annual report presents the financial position and results of operations of the Partnership and the General Partner on a historical basis, with all necessary eliminations. Note 1 to the financial statements presents pro forma adjustments to reflect taxes as if the merger had been completed on January 1, 1993. In addition, the January 2, 1996 balance sheet of the Company with the appropriate adjustments to establish deferred income taxes and the equity conversion has been presented. The following discussions of results of operations and liquidity and capital resources are presented for the Company on a consolidated basis. Operating Results Operating results for The Andersons, Inc. business segments are discussed in the Business Review on pages 3, 4 and 5 of this annual report. In addition, Note 14 to the consolidated financial statements discloses sales, operating profit, identifiable assets, capital expenditures and depreciation and amortization for each of the Company's three business segments. The following discussion will focus on the consolidated operating results as shown in the Statements of Income. Comparison of 1995 with 1994 Total sales and revenue for 1995 was $1,098 million, a $126 million or 13% increase from 1994. Grain shipment volume increased 11% and the average price per bushel increased 9%, resulting in 85% of the total increase. A portion of the volume increase resulted from two grain facilities that were opened during 1994 and therefore did not have a full year of operations in 1994. The Company's Retail Group experienced a 1% decrease in sales and revenues but all other operating units experienced some level of increase. Notable increases include the Railcar division of the Business Development Group which experienced an $8 million or 88% increase in revenue and the Retail Farm Centers which experienced a $7 million or 35% increase. Half of the Retail Farm Center increase was related to additional facilities. In addition, the Company liquidated some of its excess real estate, realizing gains of approximately $2.5 million. Gross profit for 1995 was $154 million, a $4 million or 3% increase from 1994. The increase in other income of $2.6 million accounts for the majority of the gross profit increase. Gross profit, as a percent of total sales and revenue decreased from 15.4% in 1994 to 14% in 1995. Operating, administrative and general expenses for 1995 were $129 million, a $4 million or 2.8% increase over 1994. 1% of this increase was due to facilities opened during 1994. As a percent of total sales and revenue, expenses again decreased from 12.9% in 1994 to 11.8% in 1995. Interest expense for 1995 was $14 million, a $5.6 million or 67% increase over 1994. This was due to a 64% higher average daily borrowing and a 1.5% increase in the average short-term interest rate. See Note 6 to the consolidated financial statements. Net income of $10.2 million represented a $5 million or 33% decrease from the 1994 level. After the pro forma tax adjustment, net income per share for 1995 was $0.74 as compared to $1.10 in 1994. Comparison of 1994 with 1993 Total sales and revenue for 1994 was $972 million, an increase of $171 million or 22% from 1993. This was due primarily to a $112 million increase in grain sales and revenue resulting from volume increases due to both a large harvest and additional facilities. Wholesale Fertilizer and Retail Farm Centers, the Retail General Stores, the Lawn division and the Railcar division all experienced proportionally significant sales and revenue increases. The 1994 Agriculture Group facility acquisitions (by lease) contributed approximately $44 million of the $171 million increase. Gross profit for 1994 was $149 million, a $19 million or 15% increase from 1993. As a percentage of total sales and revenue, the 1994 gross profit percentage of 15.4% represented a reduction from the 1993 gross profit percentage of 16.3%. This was due to a net decrease in the percentage of gross profit generated on grain sales and revenue (from 7.6% of grain sales and revenue in 1993 to 6.9% in 1994). The gross profit percentage for fertilizer, retail and other sales decreased only slightly from 1993 to 1994. In addition, other income decreased $1.1 million. Operating, administrative and general expenses for 1994 were $126 million, an increase of $12.8 million or 11.4% from 1993. This was due primarily to increased operations for the additional facilities discussed previously. As a percent of total sales and revenue, operating, administrative and general expenses decreased from 14.1% in 1993 to 12.9% in 1994. Interest expense for 1994 was $8.4 million, an increase of $2.2 million or 36% from 1993. This was due to both a higher average daily borrowing under the short-term lines of credit and an almost full percentage increase in the average interest rate. Historical income from continuing operations in 1994 represented a 37% increase from 1993. After considering the pro forma tax adjustment, net income per share increased from $0.83 in 1993 to $1.10 in 1994. Liquidity and Capital Resources The Company used cash of $60 million in its 1995 operations as compared with operations providing $52 million in 1994. Accounts receivable increases of $39 million from 1994 to 1995 and inventory increases of $71 million for the same period accounted for virtually all of this change. The Company's position as a grain merchandiser requires it to forward contract for purchases of grain and hold grain in inventory. In order to hedge these positions against changing prices in the commodity markets, the Company holds futures and option contracts on the Chicago Board of Trade. These positions, as well as the bushels held in inventory, are marked to the market price on a daily basis. The addition of ten million bushels of storage in 1994 and a more aggressive purchasing program has significantly increased the Company's portfolio of purchase contracts. Commodity prices, in general, were unusually high throughout 1995 and, as such , the cost to purchase, hedge and carry inventories required more cash. The Company's hedging positions with the Chicago Board of Trade increased in volume and value and required additional margin monies to be forwarded to the brokers holding them. These margin deposits are classified with accounts receivable for reporting purposes. The Company continues to review the contracts it holds with grain producers and dealers for non-delivery risk and believes it has adequately reserved for potential defaults. In order to finance operations, the Company has short-term lines of credit available for $292 million. At December 31, 1995, $120 million of these lines were used, an increase of $70 million from the prior year. Because of the significant availability of short-term funds, cash generated from operations is often utilized to pay down debt or finance capital improvements or acquisitions. Cash on hand at December 31, 1995 was $5.1 million, a decrease of $1.9 million from 1994. In addition to financing the programs of the grain division, the short-term lines are used to finance inventories and accounts receivable in other businesses. Typically, borrowings under these lines are highest in the spring due to seasonal inventory requirements in several of the Company's businesses, peak credit sales of lawn and agricultural fertilizer and a customary reduction in grain payables due to customer cash needs and market strategies. Because of its significant short-term borrowings, the Company periodically utilizes interest rate contracts to manage interest rate risk by converting variable rates on short-term borrowings to intermediate-term fixed rates, consistent with projected borrowing needs. At December 31, 1995, the Company had three $10 million interest rate swap agreements, maturing in 1996, that converted variable rates to fixed rates ranging from 5.815% to 5.87%. Because these rates approximated the actual variable rates, the effect on 1995 interest expense was not significant. During 1995, the Company invested $11.9 million in capital additions and improvements. The Company also used $1.4 million to purchase the outstanding stock of the Metamora Elevator Company, Inc., a facility it had previously leased. In 1996, the Company anticipates capital expenditures of $13 million, including $1.5 million for Retail Farm Center expansion, $2.5 million for renovations to two General Stores, $2.3 million for additional storage capacity and $2.4 million for plant upgrades and improvements. Funding for these expenditures is expected to come from cash generated from operations and additional long-term debt. Capital expenditures could be curtailed if necessary. Prior to the merger, the taxable income of the Partnership was included in the individual tax returns of its partners. To make cash available to these partners to pay estimated tax payments, the Partnership made quarterly cash distributions available. Partners could elect whether to take all, none or a portion of these distributions. All partners made their final requests for tax distributions and equity withdrawals prior to the merger vote and all distributions were made prior to December 31, 1995. The Company will pay federal, state and local tax as a corporation beginning January 2, 1996. Pro forma after-tax results of the Company's prior three years are included in Note 1 to the consolidated financial statements. In addition, the January 2, 1996 balance sheet reflects a charge of approximately $0.7 million to establish deferred taxes in accordance with generally accepted accounting principles for a corporation. The $2.4 million increase in owners' equity from December 31, 1994 to December 31, 1995 reflects income of $10.2 million, withdrawals and distributions of $6.1 million and charitable contributions of $1.7 million. Certain of the Company's long-term debt is secured by first mortgages on various facilities. In addition, some of the long-term borrowings include provisions that impose minimum levels of working capital and equity, limitations on additional debt an d require the Company to be substantially hedged in its grain transactions. The Company's liquidity is enhanced by the fact that grain inventories are readily marketable and the Maumee and Toledo, Ohio elevators serve as delivery points for Chicago Board of Trade contracts. In the opinion of management, the Company's liquidity is adequate to meet short-term and long-term needs. Report of Independent Auditors Board of Directors The Andersons, Inc. We have audited the accompanying consolidated balance sheets of The Andersons, Inc. as of January 2, 1996 and as of December 31, 1995 and 1994, and the related consolidated statements of income, cash flows and changes in owners' equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Andersons, Inc. at January 2, 1996 and at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. February 2, 1996 /s/ ERNST & YOUNG LLP Toledo, Ohio The Andersons, Inc. Consolidated Statements of Income Year ended December 31 (in thousands) 1995 1994 1993 Grain sales and revenues $ 660,121 $ 551,836 $ 439,484 Fertilizer, retail and other sales 432,289 417,044 356,987 Other income 5,320 2,758 3,874 1,097,730 971,638 800,345 Cost of grain sales and revenues 617,934 513,893 405,889 Cost of fertilizer, retail and other sales 326,242 308,381 264,269 944,176 822,274 670,158 Gross profit 153,554 149,364 130,187 Operating, administrative and general expenses 129,347 125,798 112,939 Interest expense 14,019 8,395 6,168 143,366 134,193 119,107 Net Income $ 10,188 $ 15,171 $ 11,080 Pro forma earnings per share $ 0.74 $ 1.10 $ 0.83 See accompanying notes. The Andersons, Inc. Consolidated Balance Sheets January 2 December 31 (in thousands) 1996 1995 1994 Assets Current assets: Cash and cash equivalents $ 5,052 $ 5,052 $ 6,923 Short-term investment, at amortized cost (fair value of $487) - - 491 Accounts receivable: Trade accounts, less allowance for doubtful accounts of $3,514 in 1995 and $2,292 in 1994 68,362 68,362 45,529 Margin deposits 20,753 20,753 7,034 89,115 89,115 52,563 Inventories 269,930 269,930 198,635 Deferred income taxes 2,982 - - Prepaid expenses 4,263 4,314 3,602 Total current assets 371,342 368,411 262,214 Other assets: Notes receivable and other assets, less allowance for doubtful notes receivable of $1,277 in 1995; $717 in 1994 4,575 4,575 3,407 Investments in and advances to affiliates 670 670 1,592 5,245 5,245 4,999 Property, plant and equipment 81,862 81,862 77,596 $458,449 $455,518 $344,809 Liabilities and owners' equity Current liabilities: Notes payable $120,267 $120,267 $ 50,000 Accounts payable for grain 94,084 94,084 83,844 Other accounts payable 72,841 72,777 52,231 Accrued expenses 14,357 14,357 14,901 Current maturities of long-term debt 8,029 8,029 3,615 Total current liabilities 309,578 309,514 204,591 Pension and postretirement benefits 2,929 2,929 3,060 Long-term debt 73,863 74,139 71,217 Deferred income taxes 4,327 675 - Minority interest 1,001 1,001 1,071 Owners' equity: The Andersons, Inc. 66,751 - - The Andersons - 65,156 63,008 The Andersons Management Corp. - 2,104 1,862 66,751 67,260 64,870 $458,449 $455,518 $344,809 See accompanying notes. The Andersons, Inc. Consolidated Statements of Cash Flows Year ended December 31 (in thousands) 1995 1994 1993 Operating activities Net income 10,188 15,171 11,080 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,318 8,105 7,109 Gain on sale of property, plant and equipment (2,568) (161) (1,108) Provision for losses on accounts notes 2,229 2,683 910 receivable Payments to minority interests (162) (222) (166) Minority interest in net income of subsidiaries 92 189 236 Amortization of deferred gain - (44) (386) Changes in operating assets and liabilities: Accounts receivable (38,775) 10,486 (32,064) Inventories (71,295) 12,388 (61,138) Prepaid expenses (571) (90) (560) Accounts payable for grain 10,240 132 18,967 Other accounts payable and accrued expenses 19,818 4,574 7,019 Other assets 1,386 (902) (1,000) Net cash provided by (used in) operating activities (60,100) 52,309 (51,101) Investing activities Purchases of property, plant and equipment (11,894) (22,663) (10,809) Acquisition of business - net of cash acquired (1,427) - - Proceeds from sale of property, plant and equipment 1,242 848 1,697 Sales and maturities of investments 565 2,179 1,041 (Advances to)/payments received from affiliates 518 (640) 150 Purchases of investments (101) (739) (505) Net cash used in investing activities (11,097) (21,015) (8,426) Financing activities Net increase (decrease) in short-term borrowings 68,578 (37,900) 64,150 Proceeds from issuance of long-term debt 56,570 35,509 22,754 Payments of long-term debt (49,616) (20,144) (17,440) Payments to partners and shareholders and other deductions from owners' equity accounts (7,556) (7,323) (7,229) Capital invested by partners and shareholders 1,350 755 435 Net cash provided by (used in) financing activities 69,326 (29,103) 62,669 Increase (decrease) in cash and cash equivalents (1,871) 2,191 3,143 Cash and cash equivalents at beginning of year 6,923 4,732 1,589 Cash and cash equivalents at end of year $ 5,052 $ 6,923 $ 4,732 Noncash operating, investing and financing activities: Acquisition of business: Working capital - other than cash 90 Property, plant and equipment 4,096 Short and long-term debt assumed (2,070) Other long-term liabilities assumed (689) Net cash expended $ 1,427 Donation of land to charity $ 1,648 Notes received on sale of land $ 2,431 Assumption of long-term debt in purchase of property, plant and equipment $ 5,217 See accompanying notes.
The Andersons, Inc. Consolidated Statements of Changes in Owners' Equity The Andersons The Andersons Management Corp. General Limited Partner Partners Common Shares Retained Treasury (in thousands) Capital Capital Class A Class B Earnings Shares Total Balances at December 31, 1992 $ - $50,497 $1,456 $ 5 $ 73 $ (61) $1,473 Elimination 623 Balances at beginning of year 623 50,497 Net income for the year 145 10,934 146 Increase in invested capital 424 Charitable contributions (6) (477) Withdrawals of capital (828) Distributions (5,901) Sale of shares from treasury 11 11 Purchase of shares for treasury (23) (23) 762 54,649 1,456 5 219 (73) 1,607 Elimination (762) Balances at December 31, 1993 - 54,649 1,456 5 219 (73) 1,607 Elimination 762 Balances at beginning of year 762 54,649 Net income for the year 218 14,919 252 252 Increase in invested capital 734 Issuance of 333 shares - Class B - - Charitable contributions (11) (771) Withdrawals of capital (1,759) Distributions (4,764) Sale of shares from treasury 21 21 Purchase of shares for treasury (18) (18) 969 63,008 1,456 5 471 (70) 1,862 Elimination (969) Balances at December 31, 1994 - 63,008 1,456 5 471 (70) 1,862 Elimination 969 Balances at beginning of year 969 63,008 Net income for the year 160 9,960 228 228 Increase in invested capital 1,336 Charitable contributions (27) (1,675) Withdrawals of capital (2,072) Distributions (5,401) Sale of shares from treasury 13 13 Purchase of shares for treasury (29) (29) Issuance of 669 shares - Class B 1 1 Unrealized gain on available-for- sale securities 29 29 1,102 65,156 1,456 6 728 (86) 2,104 Elimination (1,102) Balances at December 31, 1995 $ - $65,156 $1,456 $6 $728 $(86) $2,104 See accompanying notes.
The Andersons, Inc. Notes to Consolidated Financial Statements December 31, 1995 1. Basis of Financial Presentation On January 2, 1996, The Andersons, an Ohio limited partnership (the "Partnership") merged with and into The Andersons Management Corp. (the "Company") and the partnership was dissolved. Concurrent with the merger, the Company changed its name to The Andersons, Inc. Prior to the merger and dissolution of the Partnership, the Company was the sole general partner of the Partnership, and the Company and the Partnership shared common ownership since ownership of Class A Common shares of the Company was restricted to limited partners of the Partnership and ownership of Class B Common shares (voting shares) was restricted to holders of Class A Common shares. The merger has been accounted for as a reorganization of entities under common control similar to a pooling of interests. The Company's financial statements have been restated to include the accounts and operations of the Partnership for all periods prior to the merger. The Company, in previous years, had presented financial statements that combined the accounts and results of operations of the Company and the Partnership. All material intercompany accounts and transactions had been eliminated in the combined presentation and, consequently, the restatement to reflect the merger was not material to the historical presentation. The Partnership's net income was includable in the federal income tax returns of its partners and therefore it did not pay federal income taxes. The Partnership's operations will be included in the Company's U. S. federal income tax return effective January 2, 1996, and therefore, a net deferred tax liability and corresponding expense of $0.7 million will be recorded in the first quarter of 1996. The table below presents unaudited pro forma net income and net income per share for 1995, 1994 and 1993 after deducting income taxes in the same manner in which they will be reported in future periods. Year ended December 31 (in thousands, except per 1995 1994 1993 share data) Net income as reported $10,188 $15,171 $11,080 Pro forma income taxes on partnership income 3,915 5,886 4,094 Pro forma net income $ 6,273 $ 9,285 $ 6,986 Pro forma net income per share $ 0.74 $ 1.10 $ 0.83 Weighted average shares outstanding (in thousands) 8,430 8,430 8,430 Pro forma net income per share is calculated on the actual shares that were outstanding at the date of the merger. In the merger transaction, 8.1 million shares were issued to the partners of the Partnership and the remainder to shareholders of the Company and employee bondholders of the Partnership. There have been no significant new investors in the Company or the Partnership in the prior three years. The January 2, 1996 consolidated balance sheet is presented to show the effect of the merger transaction on the Company. Unless otherwise indicated, the notes to the consolidated financial statements with the heading "December 31, 1995" are also applicable to the January 2, 1996 consolidated balance sheet. In connection with the merger, approximately $0.6 of merger costs and expenses were incurred and have been charged to expense in 1995. The merger costs consisted of legal, accounting and benefits consulting fees. 2. Significant Accounting Policies Estimates and Assumptions The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash and all highly liquid debt instruments purchased with a maturity of three months or less. The carrying value of these assets approximate their fair values. Securities Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when there is positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Marketable equity securities and debt securities not classified as held-to- maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of owners' equity. Inventories Inventories of grain are hedged to the extent practicable and are valued on the basis of replacement market prices prevailing at the end of the year. Such inventories are adjusted for the amount of gain or loss (based on year-end market price quotations) on open grain contracts at the end of the year. Contracts in the commodities futures market, maintained for hedging purposes, are valued at market at the end of the year and income or loss to that date is recognized. Grain contracts maintained for other merchandising purposes are valued in a similar manner and net margins from these transactions are included in grain sales and revenues. All other inventories are stated at the lower of cost or market. Cost is determined by the average cost method. Property, Plant and Equipment Land, buildings and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the individual assets principally by the straight-line method. Accounts Payable for Grain The liability for grain purchases on which price has not been established (delayed price), has been computed on the basis of replacement market at the end of the year, adjusted for the applicable premium or discount. Revenue Recognition Sales of grain and other products are recognized at the time of shipment. Revenues from merchandising activities are recognized as open contracts are marked to market or as services are provided. Preopening Expenses Preopening expenses are charged to income when incurred. Advertising Advertising costs are expensed when incurred. Advertising expense of $3.6 million, $4.2 million and $3.9 million is included in operating, administrative and general expense in 1995, 1994 and 1993, respectively. Income Allocations and Cash Distributions to Partners Prior to the merger, the Partnership was governed by a Partnership Agreement which reflected each partner's capital account as of the beginning of each year. Partners' capital, used in determining the allocation of net income or loss to each partner, was weighted to reflect cash and tax distributions made to partners and additional investments made by partners during the year. The general partner and each limited partner received the same allocation of net income or loss per one thousand dollars of partner's capital. All distributions to partners for the 1995 fiscal year were paid prior to the merger. Charitable Contributions Provision was made in the Partnership Agreement for contributions to various charitable, educational and other not-for-profit institutions. It was the policy of the Partnership to account for charitable contributions as charges to partners' capital, and not as deductions in determining Partnership net income. Reclassifications Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the 1995 presentation. These reclassifications had no effect on net income. 3. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Prior to the merger, the Partnership's net income was included in the net income of its partners and provision for federal income taxes was made on the net income of the Company only and was included in general expenses as it was not significant. Income tax payments were also not significant. In 1995, the Partnership recorded $689 thousand of deferred tax liabilities in connection with its acquisition of a business. The net basis differences of the Partnership, as of the merger date, are reflected in the January 2, 1996 balance sheet. Details of these basis differences are as follows: January 2, December 31 (in thousands) 1996 1995 1994 Deferred tax liabilities: Property, plant & equipment $(7,475) $ (675) $ - Prepaid employee benefits (1,079) - - Other (213) - - (8,767) (675) - Deferred tax assets: Employee benefits 2,586 - - Accounts receivable valuation 1,943 - - Inventory valuation 1,063 - - Deferred income 837 - - Investments 707 - - Other 286 - - 7,422 - - Net deferred tax liability $(1,345) $ (675) $ - 4. Inventories Major classes of inventory are as follows: December 31 (in thousands) 1995 1994 Grain $186,989 $113,555 Agricultural fertilizer and supplies 19,602 21,111 Merchandise 29,909 32,241 Lawn and corn cob products 21,729 20,992 Other 11,701 10,736 $269,930 $198,635 5. Property, Plant and Equipment The components of property, plant and equipment are as follows: December 31 (in thousands) 1995 1994 Land $ 11,179 $ 13,063 Land improvements and leasehold improvements 23,926 22,570 Buildings and storage facilities 78,210 71,700 Machinery and equipment 97,970 87,308 Construction in progress 972 1,387 212,257 196,028 Less allowances for depreciation and amortization 130,395 118,432 $ 81,862 $ 77,596 6. Banking and Credit Arrangements The Company has available lines of credit for unsecured short-term debt with banks aggregating $292 million. The credit arrangements, the amounts of which are adjusted from time to time to meet the Company's needs, do not have termination dates but are reviewed at least annually for renewal. The terms of certain of the lines of credit provide for annual commitment fees. The following information relates to borrowings under short-term lines of credit during the year indicated. (in thousands, except for 1995 1994 1993 interest rate) Maximum borrowed $195,500 $127,600 $100,500 Average daily amount borrowed (total of daily borrowings divided by number of days in period) 118,382 72,183 60,404 Average interest rate (computed by dividing interest expense by average daily amount outstanding) 6.55% 5.03% 4.15% 7. Long-Term Debt Long-term debt consists of the following: January 2 December 31 (in thousands) 1996 1995 1994 Note payable, 7.84% payable $75 thousand quarterly through July 1997, and $398 thousand quarterly thereafter, due 2004 $14,550 $14,550 $14,850 Note payable relating to revolving credit agreement 20,000 20,000 10,000 Notes payable, variable rate (6.9375% at December 31, 1995), payable $336 thousand quarterly beginning October 1997, due 2004 9,418 9,418 10,661 Other notes payable 1,101 1,101 796 Industrial development revenue bonds: 6.5%, sinking fund paid annually, due 1999 3,700 3,700 4,400 Variable rate (5.80% at December 31, 1995), due in annual installments of $881 thousand through 2004 7,233 7,233 8,114 Variable rate (5.30% at December 31, 1995), due 2025 3,100 3,100 3,100 Debenture bonds: 9.2% to 10%, due 1996 5,868 5,868 6,088 6.5% to 8%, due 1997 through 1999 5,815 5,815 5,530 10% , due 1997 and 1998 2,117 2,117 2,117 10%, due 2000 and 2001 2,704 2,704 2,742 7.5% to 8.7%, due 2002 through 2004 5,689 5,689 5,590 Employee bonds, variable rate (12.38 % at December 1, 1995) 28 304 233 Other bonds, 4% to 9.6% 569 569 611 81,892 82,168 74,832 Less current maturities 8,029 8,029 3,615 $73,863 $74,139 $71,217 The Company has a $20 million revolving line of credit with a bank which bears interest based on the LIBOR rate (6.725% at December 31, 1995). Borrowings under this agreement totalled $20 million at December 31, 1995. The revolving credit agreement expires on July 1, 1997. The variable rate notes payable, the notes payable in quarterly installments, and the industrial development revenue bonds are collateralized by first mortgages on certain facilities and related property with a book value aggregating approximately $24 million. The various underlying loan agreements, including the Company's revolving line of credit, contain certain provisions which require the Company to, among other things, maintain minimum working capital of $32 million and net equity (as defined) of $43 million, limit the addition of new long-term debt, limit its unhedged grain position to 2 million bushels, and restrict the amount of dividends. The Company was in compliance with these covenants at December 31, 1995. The aggregate annual maturities, including sinking fund requirements, through 2000 of long-term debt are as follows: 1996--$8 million; 1997--$26 million; 1998--$8 million; 1999--$6 million and 2000--$4 million. Interest paid (including short-term lines of credit) amounted to $13 million, $8 million and $5 million in 1995, 1994 and 1993, respectively. 8. Owners' Equity Owners' equity is comprised of the following: January 2 December 31 (in thousands) 1996 1995 1994 The Andersons, Inc. Common Shares, without par value Authorized--25,000,000 shares Issued-- 8,430,286 shares at stated value of $.01 per share $ 84 $ - $ - Additional paid in capital 65,939 Retained earnings 699 The Andersons: Limited partners' capital - 65,156 63,008 The Andersons Management Corp.: Common Shares, without par value: Class A non-voting: Authorized--25,000 shares Issued--4,855 shares at stated value - 1,456 1,456 Class B voting: Authorized--25,000 shares Issued--5,683 and 5,014 shares respectively at stated value - 6 5 Retained earnings - 699 472 Less common shares in treasury at cost: Class A non-voting--275 and 236 shares, respectively - (86) (71) Unrealized gain on available-for-sale securities 29 29 - $66,751 $67,260 $64,870 Following are the details (in thousands) of the conversion of partners' equity and Class A and Class B shares to common shares of The Andersons, Inc. upon completion of the merger: Combined equity at December 31, 1995 $ 67,260 Deferred tax liability recognized in conversion from partnership status (721) Conversion of employee bonds to common shares 276 Payment to partners not electing conversion (62) Cash payments for fractional shares (2) The Andersons, Inc. equity at January 2, 1996 $ 66,751 As part of the January 2, 1996 merger, the Company adopted a Long Term Performance Compensation Plan (the "LT Plan") which is designed to promote the interests of the Company and its shareholders by providing officers and other key employees compensation that aligns their interests with shareholder interests through share ownership and investment in the Company, and to encourage long-term growth in shareholder value through the achievement of specified financial objectives. The LT Plan provides for the award of incentive stock options and other non-qualifying stock options to officers and other key employees to purchase a specified number of common shares at a price not less than the fair market value on the date of the grant and for a term not to exceed ten years. In addition, the LT Plan provides for the grant of performance awards to employees. These performance awards may be in common shares, cash or both and will only be granted on the achievement of specified performance targets. Finally, the LT Plan provides for formula grants of stock options to non-employee directors at a price equal to the fair market value on the date of the grant. These options shall have a one year vesting period and a term of five years. The Company has reserved 500,000 shares for issuance under this plan. The Company has not made any awards under the LT Plan. Also as part of the merger, the Company adopted an Employee Share Purchase Plan to enable and encourage employees to acquire an ownership interest in the Company through purchase of common shares via payroll deductions, up to 10% of eligible compensation. Annually, on December 31, participant account balances will be used to purchase common shares at the lesser of the fair market value of the shares on January 1 (the grant date, January 2 for the initial plan year) or December 31 (the exercise date). The aggregate fair market value of shares (as measured at the grant date) purchased by an employee may not exceed $25,000. A total of 300,000 shares are reserved for issuance under this plan. 9. Leases The Company leases certain equipment and real property under operating leases, including railcars which are subleased to third parties. Net rental expense under operating leases was as follows: (in thousands) 1995 1994 1993 Total rental expense $11,242 $8,562 $7,239 Less rental income from subleases 6,313 2,884 1,431 Net rental expense $ 4,929 $5,678 $5,808 Future minimum rentals for all noncancelable operating leases and future rental income from subleases are as follows: (in thousands) Future Minimum Future Rentals Sublease Income 1996 $10,124 $ 6,627 1997 8,470 5,608 1998 7,319 5,334 1999 4,849 3,071 2000 2,783 840 Future years 7,675 1,053 $41,220 $22,533 10. Employee Benefit Plans The Company sponsors several employee benefit programs which include the following: Defined Benefit Pension Plan and Supplemental Defined Benefit Pension Plan, Retirement Savings Investment Plan, Cash Profit Sharing Plan, Management Performance Program and health insurance benefits. Substantially all permanent employees are covered by the Company's Defined Benefit Pension Plan. The benefits are based on the employee's highest five consecutive years of compensation during their last ten years of service. The Company's policy is to pay into trusteed funds each year an amount equal to the annual pension expense calculated under the Entry Age Normal method. In addition, the Company has a Supplemental Retirement Plan which is a non- qualified deferred compensation plan designed to cover all Defined Benefit Plan participants whose compensation exceeds the Internal Revenue Code limitation. Supplemental Plan benefits are calculated similarly to the Defined Benefit Plan and are based on compensation in excess of the Internal Revenue Code limitation. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheets as of December 31, 1995 and 1994. December 31 (in thousands) 1995 1994 Actuarial present value of benefit obligation: Vested benefits $6,666 $5,743 Non-vested benefits 329 364 Accumulated benefits obligation 6,995 6,107 Impact of future salary increases 4,196 3,417 Projected benefit obligation for service rendered to date 11,191 9,524 Plan assets at fair value 9,606 7,297 Projected benefit obligation in excess of plan assets 1,585 2,227 Unrecognized net asset at adoption of FAS 87, net of amortization 143 193 Unrecognized net gain (loss) 526 (435) Prior service cost (292) (29) Net pension liability recognized in balance sheet (includes current portion of $1,498 thousand in 1995 and $415 thousand in 1994) $1,962 $1,956 Net periodic pension cost includes the following components: Year ended December 31 (in thousands) 1995 1994 1993 Service cost - benefits earned during the period $1,234 $1,082 $1,136 Interest cost on projected benefit obligation 681 563 571 Return on plan assets (2,018) 71 (493) Net amortization and deferral 1,425 (655) 10 Net periodic pension cost $1,322 $1,061 $1,224 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.5% and 4%, respectively. The weighted average long-term rate of return on plan assets used in determining the expected return on plan assets included in net periodic pension cost was 8% for all years presented. Substantially all of the plan assets are invested in a family of mutual funds. Under the Retirement Savings Investment Plan (RSIP) eligible participating employees may elect to contribute specified amounts up to 15% of their gross pay on a tax-deferred basis, subject to certain limitations, to a trust for investment in a family of mutual funds. The Company contributes an amount equal to 50% of the participant's contributions, but not in excess of 3% of the participant's annual gross pay. Participants are fully vested in their contributions to the RSIP. Participants hired before January 1, 1993 vest immediately in the Company's matching contributions and participants hired after December 31, 1992 vest ratably over five years. The matching contributions to the RSIP amounted to $0.9 million, $0.9 million, and $0.8 million in 1995, 1994 and 1993, respectively. Substantially all permanent employees are included in the Cash Profit Sharing Plan. The Plan provides for participants to receive certain percentages of their pay as various threshold levels of return on capital of the Partnership are achieved. The Company also has a Management Performance Program for certain levels of management. Participants in the Management Performance Program are not eligible to participate in the Cash Profit Sharing Plan. The expense for profit sharing/management performance programs was $1.2 million, $3 million and $2 million for 1995, 1994 and 1993, respectively. The Company currently provides certain health insurance benefits to its employees, including retired employees. The Company has reserved the right in most circumstances to modify the benefits provided and in recent years has in fact made changes. Further changes were implemented in 1993 that will effect the benefits provided to future retirees. These changes include the minimum retirement age, years of service and a sharing in the cost of providing these benefits. In addition, the Medicare Part B reimbursement currently paid by the Company for retirees is being phased out over a five-year period. The Company has elected to recognize the accrued benefits earned by employees as of January 1, 1993 (transition obligation) prospectively, which means this cost will be recognized as a component of the net periodic postretirement benefit cost over a period of approximately 20 years. The Company's postretirement benefits are not funded. The status of the plan as of December 31 is as follows: (in thousands) 1995 1994 Accumulated postretirement benefit obligation: Retirees $5,502 $5,268 Fully eligible active plan participants 656 628 Other active participants 3,593 3,440 9,751 9,336 Unrecognized net transition obligation (7,150) (7,571) Unrecognized net loss (136) (246) Accrued postretirement benefit cost $2,465 $1,519 Net periodic postretirement benefit cost includes the following components: Year ended December 31 (in thousands) 1995 1994 1993 Service cost $ 247 $ 245 $ 181 Interest cost 679 750 654 Net amortization 421 452 421 Net periodic postretirement benefit costs $1,347 $1,447 $1,256 The weighted average discount rate used in determining the postretirement benefit cost was 7.5% for all years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1995 and 1994 was 7.5%. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 7% in 1995, declining to 5% through the year 1997 and remaining at that level thereafter. A 1% increase in the assumed health care cost trend rate would increase the annual postretirement benefit cost by approximately $181 thousand and the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $1.6 million. To partially fund self-insured health care and other employee benefits, the Company makes payments to a trust. Assets of the trust amounted to $2.7 million and $2.6 million at December 31, 1995 and 1994, respectively, and such amounts are included in prepaid expenses. 11. Commitments and Risk Management The Company has, in the normal course of its business, entered into contracts to purchase and sell grain inventories and has interest in other commodity contracts requiring performance in future periods. Contracts for purchase of grain inventories from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for sale of grain inventories to processors and other consumers generally do not extend beyond one year. The terms of these contracts are consistent with industry practice. The Company utilizes futures and option contracts that are traded on a regulated exchange to hedge its net price exposure from grain inventories held and firm commitments to purchase or sell grain inventories and to limit its cash requirements for margin calls in the event of rising market prices. The Company's policy is to hedge its net price exposure and at December 31, 1995, nearly 100% of the its grain inventories held and firm commitments under forward contracts were hedged with futures contracts. All grain inventories held, firm commitments under forward contracts and futures contracts are marked to market on a daily basis. The Company periodically utilizes interest rate contracts to manage interest rate risk by converting variable interest rates on short term borrowings to intermediate term fixed rates. Income or expense associated with interest rate swap agreements is recognized on the accrual basis over the life of the swap agreement as a component of interest expense. At December 31, 1995, the Company was participating in three interest rate swap agreements, each with a notional amount of $10 million. The interest rate swaps expire in March and June of 1996 and convert variable interest rates to fixed rates of 5.815% to 5.87%. The effect of the interest rate swaps on the Company's interest expense was not significant in 1995. The Company incurred $53 thousand and $93 thousand of additional interest expense from participating in interest rate swaps in 1994 and 1993, respectively. 12. Fair Values of Financial Instruments The fair values of the Company's financial instruments, consisting of cash equivalents, margin deposits, investments in and advances to affiliates and long and short-term debt, approximate their carrying values since the instruments either provide for short terms to maturity or interest at variable rates based on market indexes or, in the case of investments in affiliates, the investments are being carried on the equity method which approximate fair value. Certain long-term notes payable and the Company's debenture bonds bear fixed rates of interest and terms of five or ten years. Based upon current interest rates offered by the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities, the Company believes its long-term debt instruments outstanding at December 31, 1995 and 1994, have fair values as follows: Carrying Fair (in thousands) Amount Value 1995: Debenture bonds $22,257 $22,251 Long-term notes payable 59,911 60,513 $82,168 $82,764 1994: Debenture bonds $22,144 $22,189 Long-term notes payable 52,688 51,316 $74,832 $73,505 13. Securities The following is a summary of held-to-maturity securities as of December 31, 1995 and 1994: Gross Gross Amortized Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value December 31, 1995 Cash equivalent: Time deposit $ 276 $ $ $ 276 U.S. Treasury securities 595 2 -- 597 Margin deposits-- U.S. Treasury securities 5,131 8 83 5,056 $6,002 10 83 $5,929 December 31, 1994 Cash equivalent: Commercial paper $4,700 $ -- $ -- $4,700 Time deposit 259 -- -- 259 Short-term investments-- U.S. Treasury securities 491 -- 3 488 Margin deposits-- U.S. Treasury securities 3,902 1 -- 3,903 $9,352 $ 1 3 $9,350 All held-to-maturity securities mature within one year. At December 31, 1995, the Company held mutual fund securities with a cost of $277 thousand and fair value of $325 thousand. The unrealized gain of $48 thousand is shown as a separate component of owners' equity, net of applicable income taxes. The mutual fund securities had a cost and fair value of $250 thousand at December 31, 1994. The mutual fund securities have been classified as available-for-sale and are being carried as a noncurrent asset as they are expected to be held for more than one year. 14. Business Segments The Company operates three business segments: Agriculture Group, Retail Group and Business Development Group. The Agriculture Group includes grain merchandising, operation of terminal grain elevator facilities, and distribution of agricultural products, primarily fertilizer. The Retail Group includes operation of retail stores and a distribution center. The Business Development Group includes production and distribution of lawn and corn cob products, rail car leasing and repair and the marketing of the Company's excess real estate as well as other, smaller businesses. In 1995, the Company realigned its segments, moving some smaller divisions to the Business Development Group to reflect the management structure and development cycle of these businesses. Prior to 1994 the Company reported its Agriculture businesses as two segments: Grain Operations and Agricultural Products. The Company elected to combine these operations into a single business segment based upon the similarities in the customer bases and geographic markets. Prior year segment information has been restated. The segment information includes the allocation of expenses shared by one or more segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Year ended December 31 (in thousands) 1995 1994 1993 Sales and revenues: Agriculture Group: Sales to unaffiliated customers $ 796,754 $678,316 $540,254 Intersegment sales 6,630 3,106 2,979 Merchandising revenue and other income 28,090 29,623 28,001 831,474 711,045 571,234 Retail Group: Sales to unaffiliated customers 168,051 169,009 152,627 Other income 282 113 118 168,333 169,122 152,745 Business Development Group: Sales to unaffiliated customers 100,402 92,965 76,535 Intersegment sales 929 870 730 Other income 3,296 765 1,875 104,627 94,600 79,140 Other income 855 847 935 Eliminations--intersegment sales (7,559) (3,976) (3,709) Total sales and revenues $1,097,730 $971,638 $800,345 Operating profit: Agriculture Group $ 16,920 $ 18,901 $ 14,571 Retail Group 4,392 4,596 1,640 Business Development Group 6,719 5,594 6,429 Total operating profit 28,031 29,091 22,640 Other income 664 641 730 Interest expense (14,019) (8,395) (6,168) General expenses (4,488) (6,166) (6,122) Income from continuing operations $ 10,188 $ 15,171 $ 11,080 Identifiable assets: Agriculture Group $ 321,045 $207,833 $244,065 Retail Group 61,296 64,135 56,067 Business Development Group 62,313 59,881 50,438 General 10,864 12,960 10,016 Total assets $ 455,518 $344,809 $360,586 Depreciation and amortization expense: Agriculture Group $ 4,186 $ 3,391 $ 3,252 Retail Group 2,771 2,567 1,914 Business Development Group 1,960 1,789 1,627 General 401 358 316 Total depreciation and amortization expense $ 9,318 $ 8,105 $ 7,109 Capital expenditures: Agriculture Group $ 10,072 $ 6,689 $ 3,773 Retail Group 2,749 12,981 4,164 Business Development Group 2,536 5,995 2,738 General 633 635 134 Total expenditures $ 15,990 $ 26,300 $ 10,809 Intersegment sales are made at prices comparable to normal, unaffiliated customer sales. Operating profit is sales and merchandising revenues plus interest and other income attributable to the operating area less operating expenses, excluding interest and general expenses. Identifiable assets by segment include accounts receivable, inventories, advances to suppliers, property, plant and equipment and other assets that are directly identified with those operations. General assets consist of cash, investments, land and buildings and equipment associated with administration and services, and other assets not directly identified with segment operations. No unaffiliated customer accounted for more than 10% of sales and revenues in 1995, 1994 or 1993. Grain sales for export to foreign markets amounted to approximately $194 million, $130 million and $88 million in 1995, 1994 and 1993, respectively. Board of Directors Richard P. Anderson, President and Chief Executive Officer, The Andersons, Inc. Thomas H. Anderson Chairman of the Board, The Andersons, Inc. Daniel T. Anderson General Merchandise Manager Retail Group, The Andersons, Inc. Donald E. Anderson Science Advisor, retired The Andersons, Inc. Michael J. Anderson Vice President & General Manager Retail Group The Andersons, Inc. Richard M. Anderson Vice President & General Manager Industrial Products Group The Andersons, Inc. John F. Barrett Chief Executive Officer, The Western and Southern Life Insurance Company Dale W. Fallat Vice President Corporate Services The Andersons, Inc. Paul M. Kraus Attorney, Marshall & Melhorn Rene C. McPherson Retired Chairman of the Board and Chief Executive Officer, Dana Corporation (deceased February, 1996) Donald M. Mennel Attorney, Retired Chairman of the Board and Chief Executive Officer, The Mennel Milling Company David L. Nichols Chairman of the Board and Chief Executive Officer, Mercantile Company, Inc. Stores Janet M. Schoen Private investor and former school teacher Officers Thomas H. Anderson Chairman of the Board Richard P. Anderson President and Chief Executive Officer Christopher J. Anderson Vice President and General Manager Business Development Group Michael J. Anderson Vice President & General Manager Retail Richard M. Anderson Vice President & General Manager Industrial Products Group Joseph L. Braker Vice President & General Manager Agriculture Group Dale W. Fallat Vice President Corporate Services Richard R. George Corporate Controller Peter A. Machin Vice President & General Manager Lawn Products Group Beverly J. McBride General Counsel and Corporate Secretary Gary L. Smith Corporate Treasurer Board Committees Audit Committee Donald M. Mennel, Chairman Richard M. Anderson David L. Nichols Nominating Committee Thomas H. Anderson, Chairman Richard P. Anderson Michael J. Anderson John F. Barrett Rene C. McPherson Donald M. Mennel David L. Nichols Compensation Committee John F. Barrett, Chairman Donald E. Anderson Paul M. Kraus Rene C. McPherson Investor Information Corporate Offices The Andersons, Inc. 480 West Dussel Drive Maumee, Ohio 43537 (419) 893-5050 Transfer Agent and Registrar Harris Trust & Savings Bank Shareholder Services Division 311 W. Monroe P.O. Box A-3504 Chicago, Illinois 60690-3504 Shareholder Services (312) 461-3309 Form 10-K The Company will provide without charge to any person who is a beneficial owner of its shares, a copy of the Company's 1995 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Requests should be addressed to the Investor Relations department of the Company. Independent Auditors Ernst & Young LLP, Toledo, Ohio Annual Meeting The annual shareholders' meeting of The Andersons, Inc. will be held at the Lucas Auditorium of the Eleanor Dana Center, on the campus of the Medical College of Ohio, Glendale Road entrance, Toledo, Ohio at 7:00 p.m. on May 23, 1996. Nasdaq Symbol The Andersons, Inc. common shares are trades on the Nasdaq National Market under the symbol "ANDE." Shareholders On February 15, 1996, there were 305 common shareholders. Investor Relations Gary Smith, Corporate Treasurer, (419) 891-6417 EX-4 3 Exhibit 4.4 THE ANDERSONS, INC. AND THE FIFTH THIRD BANK OF NORTHWESTERN OHIO, N.A., Trustee. __________________ FIFTEENTH SUPPLEMENTAL INDENTURE dated as of January 2, 1996 Supplementing Indenture Dated as of October 1, 1985 __________________ Debentures Due Five Years or Ten Years from Original Issue Date THIS FIFTEENTH SUPPLEMENTAL INDENTURE, dated as of January 2, 1996, between The Andersons, Inc., an Ohio corporation having its principal office at 480 W. Dussel Drive, City of Maumee, Lucas County, Ohio (hereinafter called the "Corporation"), and The Fifth Third Bank of Northwestern Ohio, N.A., a national banking association organized and existing under the laws of the United States of America (hereinafter called the "Trustee"); W I T N E S E T H WHEREAS, The Andersons, an Ohio limited partnership ("Partnership") heretofore executed and delivered to the Trustee a certain indenture dated as of October 1, 1985 (hereinafter called the "Indenture"), providing for the issuance of debentures (hereinafter called the "Debentures") as therein provided; and WHEREAS, the Partnership heretofore executed and delivered to the Trustee a Fourteenth Supplemental Indenture dated as of January 1, 1995; and WHEREAS, at the time of the execution of the Fourteenth Supplemental Indenture, the Partnership had been formed and existed under a Partnership Agreement dated as of January 1, 1995; and WHEREAS, the Partnership dated as of January 1, 1995, is no longer in existence; and WHEREAS, a Certificate of Merger has been filed on January 2, 1996, wherein the Partnership and The Andersons Management Corp., an Ohio corporation, and being the Partnership's sole General Partner, merged, with the surviving entity being The Andersons Management Corp., which changed its name to The Andersons, Inc. ("Corporation"), which merger resulted in the transfer thereto of the Partnership's property and assets substantially as an entirety for purposes of Sections 801 and 8 02 of the Indenture; and WHEREAS, the Corporation and the Trustee may enter into supplemental indentures to the Indenture without the consent of the holders of Debentures, pursuant to Section 901(3) of the Indenture, to evidence the merger and the assumption by the Corporation of the covenants of the Partnership contained in the Indenture and the Debentures; and WHEREAS, giving effect to the execution of the above-referenced merger as of January 2, 1996, no Event of Default, as defined in Section 501 of the Indenture, and no event which after notice or lapse of time, or both, would become an Event of Default, has happened or is continuing; and WHEREAS, the Corporation has delivered to the Trustee a Corporate Certificate and an Opinion of Counsel, stating that the transfer of the Partnership's properties and assets substantially as an entirety from the Partnership, as formed under the Partnership Agreement dated as of January 1, 1995, to the Corporation, pursuant to the Certificate of Merger filed January 2, 1996, and this Fifteenth Supplemental Indenture comply with Article Eight of the Indenture and that all condition s precedent therein provided for relating to such transfer and change in interest rates have been complied with; and WHEREAS, the Corporation has been authorized by its Board of Directors to enter into this Fifteenth Supplemental Indenture in accordance with Section 901 of the Indenture; NOW, THEREFORE, The Corporation, hereby expressly assumes the due and punctual payment of the principal of, including each installment thereof (and premium, if any), and interest on all the Debentures and the performance of every covenant of the Indenture on the part of the Corporation to be performed or observed; and Pursuant to Section 802 of the Indenture, the Corporation, hereby succeeds to, and is substituted for, and may exercise every right and power of the Partnership, and all successors, under the Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Fifteenth Supplemental Indenture to be duly executed as of the day and year first above written. THE FIFTH THIRD BANK OF THE ANDERSONS, INC., an Ohio corporation NORTHWESTERN OHIO, N.A. By: \s\Douglas P. Foxx By: \s\Richard P. Anderson Douglas P. Foxx Richard P. Anderson Executive Vice President President and Chief Executive Officer [Corporate Seal] By: \s\ Gary Smith Gary Smith Treasurer Attest: \s\James A. Foote James A. Foote Trust Operations Officer STATE OF OHIO ) ) SS: COUNTY OF LUCAS ) Before me, a Notary Public, in and for said county and state, personally appeared Richard P. Anderson and Gary Smith, President and Chief Executive Officer and Treasurer, respectively, of The Andersons, Inc., an Ohio corporation, who acknowledged that, they being thereunto duly authorized, did sign the foregoing instrument in behalf of said corporation and by authority of its board of directors and that the same is the free act and deed of said officers and of said corporation. In Testimony Whereof, I have hereunto set my hand and official seal at Maumee, Ohio this 24th day of January, 1996. /s/ Julie Ann Dibble Julie Ann Dibble Notary Public My Commission Expires:6/20/2000 [Notarial Seal] STATE OF OHIO ) ) SS: COUNTY OF LUCAS ) On the 12th day of February, 1996, before me personally came Douglas P. Foxx, Executive Vice President, and James A. Foote, Trust Operations Officer, to me known, who, being by me duly sworn, did depose and say that they are Trust Officers of THE FIFTH THIRD BANK OF NORTHWESTERN OHIO, N.A., a bank organized under the laws of the United States of America, described in and which executed the foregoing instrument; that they know the seal of said corporation; that the seal affixed to said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that they signed their names hereto by like authority. \s\Karen S. Opblinger Notary Public My Commission Expires 2/16/2000 [Notarial Seal] CORPORATE CERTIFICATE This is to certify that The Andersons, Inc., an Ohio corporation, has examined the above-mentioned Indenture, Fifteenth Supplemental Indenture, the foregoing Opinion of Counsel and all other documents and matters as it deemed necessary to express an informed opinion on compliance by the corporation with the conditions precedent provided in said Indenture and that it concurs with the aforesaid Opinion of Counsel. THE ANDERSONS, INC., an Ohio corporation By: /s/ Richard P. Anderson Richard P. Anderson President and Chief Executive Officer By: /s/ Gary Smith Gary Smith, Treasurer January 23, 1996 Mr. James A. Foote Trust Operations Officer The Fifth Third Bank of Northwestern Ohio, N.A. 606 Madison Avenue Toledo, Ohio 43604 RE: The Andersons, Inc. Fifteenth Supplemental Indenture Dated as of January 2, 1996 Dear Jim: According to the terms of the Indenture dated October 1, 1985, each year, in the past, it has been necessary to transfer the property and assets of the partnership to the successor partnership formed. This year, there has been a merger of The Andersons, an Ohio limited partnership, and The Andersons Management Corp., an Ohio corporation, being the partnership's sole General Partner, with The Andersons Management Corp. as the surviving entity. The name of the Corporation was changed to The Andersons, Inc. A certified copy of the Certificate of Merger, along with the Amended Articles of Incorporation, is enclosed. In order to accomplish transfer of the assets from the limited partnership which was formed effective January 1, 1995, to The Andersons, Inc., the following documents relative to the current debenture issue are enclosed: 1. Fifteenth Supplemental Indenture. 2. Opinion of Counsel. 3. Corporate Certificate. If you have any questions regarding the above, please do not hesitate to contact me. All of this is based upon work previously accepted in connection with the Indenture dated as of October 1, 1985. Please return to me a copy of the fully-executed Fifteenth Supplemental Indenture. Thank you for your assistance. Best regards. Sincerely, /s/ Beverly J. McBride Beverly J. McBride General Counsel and Corporate Secretary BJM Enclosures cc: Ms. Cathy Redford, Legal Analyst Ms. Anne Rex, Financial Accounting Manager Mr. Gary Smith, Corporate Treasurer January 23, 1996 The Fifth Third Bank of Northwestern Ohio, N.A., Trustee 606 Madison Avenue Toledo, Ohio 43604 Re: Indenture Dated As Of October 1, 1985 and Fifteenth Supplemental Indenture Thereto Dated As Of January 2, 1996; Opinion of Counsel and Corporate Certificate Gentlemen: In compliance with Section 801(3) of the above-referenced Indenture between The Andersons, Inc., an Ohio corporation, as successor to The Andersons, an Ohio limited partnership, by Certificate of Merger filed January 2, 1996, and The Fifth Third Bank of Northwestern Ohio, N.A., Trustee, please be advised that I have examined the Certificate of Merger filed January 2, 1996, the aforementioned Indenture and Supplemental Indenture thereto and all other documents and matters as I deemed necessary under the circumstances to render the within opinion, and it is my opinion that the instruments which have been or are herewith delivered to the Trustee conform to the requirements of this Indenture, and it is my opinion that the transfer of the partnership's property and assets to The Andersons, Inc. and the said Fifteenth Supplemental Indenture comply with and are authorized by Article Eight of the Indenture and that The Andersons, Inc. has complied with all conditions precedent therein provided for relating to said transfer and Fifteenth Supplemental Indenture. /s/ Beverly J. McBride Beverly J. McBride General Counsel BJM EX-27 4
5 0000821026 THE ANDERSONS, INC. YEAR DEC-31-1995 DEC-31-1995 5052000 0 92629000 3514000 269930000 371342000 212257000 130395000 458449000 309578000 73863000 0 0 840000 66638000 458449000 1092410000 1097730000 944176000 944176000 129347000 0 14019000 10188000 0 10188000 0 0 0 10188000 0 0 Merger of The Andersons and The Andersons Management Corp. occurred on January 2, 1996. The Andersons Management Corp concurrently changed its name to The Andersons, Inc. This Financial Data Schedule presents the balance sheet information of The Andersons, Inc. as of the merger date (January 2, 1996) and the income statement information of The Andersons, Inc. for the year ended December 31, 1995 (historical combination of The Andersons and The Andersons Management Corp.). See also Note 1 to The Andersons, Inc. annual report to shareholders for further explanation. See Note 3 to The Andersons, Inc. audited financial statement included in the 1995 annual report to shareholders. See Note 1 to the audited financial statements included in The Andersons, Inc. annual report to shareholders.
EX-23 5 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements pertaining to (Form S-8 No. 33-01249) The Andersons, Inc. Long-Term Performance Compensation Plan and (Form S-8 No. 33-00233) The Andersons, Inc. Employee Share Purchase Plan of The Andersons, Inc., of our report dated February 2, 1996 with respect to the consolidated statements of The Andersons, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1995. \s\Ernst & Young LLP Toledo, Ohio March 28, 1996 -----END PRIVACY-ENHANCED MESSAGE-----