-----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, OrS102COvO00jPLyHaiJe4A8Jrbk/yND38oledS5dEo26PtOgb2ZGgzPCMdUGhg6 4hLkRrTy+ITJD8mj2N+hlQ== 0000821026-99-000004.txt : 19990517 0000821026-99-000004.hdr.sgml : 19990517 ACCESSION NUMBER: 0000821026-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDERSONS INC CENTRAL INDEX KEY: 0000821026 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] IRS NUMBER: 341562374 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20557 FILM NUMBER: 99621412 BUSINESS ADDRESS: STREET 1: 480 W DUSSEL DR CITY: MAUMEE STATE: OH ZIP: 43537 BUSINESS PHONE: 4198935050 MAIL ADDRESS: STREET 1: 480 W DUSSEL DR CITY: MAUMEE STATE: OH ZIP: 43537 FORMER COMPANY: FORMER CONFORMED NAME: ANDERSONS MANAGEMENT CORP DATE OF NAME CHANGE: 19931119 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 000-20557 THE ANDERSONS, INC. (Exact name of registrant as specified in its charter) OHIO 34-1562374 (State of incorporation (I.R.S. Employer or organization) Identification No.) 480 W. Dussel Drive, Maumee, Ohio 43537 (Address of principal executive offices) (Zip Code) (419) 893-5050 (Telephone Number) (Former name, former address and former fiscal year, if changed since last report.) 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 __ The registrant had 8,161,581 Common shares outstanding, no par value, at May 1, 1999. THE ANDERSONS, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Operations - Three months ended March 31, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and 1998 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) March 31 December 31 1999 1998 (Unaudited) (Audited) Current assets Cash and cash equivalents $ 7,718 $ 3,253 Accounts and notes receivable: Trade accounts - net 80,114 62,647 Margin deposits 6,246 248 ----------------------- 86,360 62,895 Inventories: Grain 74,571 91,218 Agricultural fertilizer and supplies 40,488 27,127 Agriculture 115,059 118,345 Merchandise 31,785 25,863 Processing 21,474 22,428 Manufacturing 21,919 16,039 Other 2,501 2,315 ----------------------- 192,738 184,990 Deferred income taxes 5,787 4,634 Prepaid expenses 4,792 5,502 ----------------------- Total current assets 297,395 261,274 Other assets: Notes receivable (net) and other assets 7,371 8,435 Investments in and advances to affiliates 1,052 1,057 ----------------------- 8,423 9,492 Property, plant and equipment: Land 12,095 12,095 Land improvements and leasehold improvements 26,144 26,056 Buildings and storage facilities 88,995 88,818 Machinery and equipment 114,677 112,561 Construction in progress 2,539 3,059 ----------------------- 244,450 242,589 Less allowances for depreciation and amortization 154,605 152,532 ----------------------- 89,845 90,057 ----------------------- $395,663 $360,823 ======================= See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS - (continued) (UNAUDITED)(IN THOUSANDS) March 31 December 31 1999 1998 (Unaudited) (Audited) Current liabilities Notes payable $ 84,000 $ 7,700 Accounts payable for grain 36,968 88,978 Other accounts payable 89,066 75,301 Accrued expenses 14,766 17,079 Current maturities of long-term debt 5,992 6,318 -------------------------- Total current liabilities 230,792 195,376 Pension and postretirement benefits 3,026 3,113 Long-term debt 71,757 71,565 Deferred income taxes 7,070 7,330 Minority interest 694 705 Shareholders' equity: Common stock (25,000 shares authorized, stated value $.01 per share, 8,165 and 8,140 outstanding at 3/31/99 and 12/31/98, respectively) 84 84 Additional paid-in capital 67,219 67,180 Treasury stock (265 and 290 shares at 3/31/99 and 12/31/98, respectively; at cost) (2,550) (2,665) Accumulated other comprehensive income (29) (29) Unearned compensation (283) (83) Retained earnings 17,883 18,247 ------------------------ 82,324 82,734 ------------------------ $395,663 $360,823 ======================== See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended March 31 1999 1998 Sales and merchandising revenues $ 199,965 $ 221,221 Other income 790 968 ----------------------- 200,755 222,189 Cost of sales and merchandising revenues 161,889 188,329 ----------------------- Gross profit 38,866 33,860 Operating, administrative and general expenses 36,734 32,729 Interest expense 2,066 2,458 ----------------------- 38,800 35,187 ----------------------- Income (loss) before income taxes 66 (1,327) Income tax expense (credit) 22 (503) ----------------------- Net income (loss) $ 44 $ (824) ======================= Per common share: Basic $ 0.01 $ (0.10) ======================= Diluted $ 0.01 $ (0.10) ======================= Dividends paid $ 0.05 $ 0.04 ======================= Weighted average common shares outstanding - basic 8,157 7,986 ======================= Weighted average common shares outstanding - diluted 8,302 7,989 ======================= See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(IN THOUSANDS) Three Months Ended March 31 1999 1998 Operating activities Net income (loss) $ 44 $ (824) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 2,702 2,567 Provision for losses on accounts and notes receivable 314 (57) Deferred income tax (1,039) (835) Other 28 (39) -------------------- Cash provided by operations before changes in operating assets and liabilities 2,049 812 Changes in operating assets and liabilities: Accounts receivable (23,779) (11,183) Inventories (7,748) (6,401) Prepaid expenses 1,268 74 Accounts payable for grain (52,010) (66,158) Other accounts payable and accrued expenses 11,366 22,490 -------------------- Net cash used in operating activities (68,854) (60,366) Investing activities Purchases of property, plant and equipment (2,373) (3,736) Proceeds from sale of property, plant and equipment 21 8 -------------------- Net cash used in investing activities (2,352) (3,728) Financing activities Net increase in short-term borrowings 76,300 59,728 Proceeds from issuance of long-term debt 26,574 20,378 Payments of long-term debt (26,707) (20,993) Purchase of common stock for the treasury (432) -- Proceeds from sale of treasury stock to employees 346 413 Dividends paid (410) (319) --------------------- Net cash provided by financing activities 75,671 59,207 --------------------- Increase (decrease) in cash and cash equivalents 4,465 (4,887) Cash and cash equivalents at beginning of period 3,253 8,278 --------------------- Cash and cash equivalents at end of period $ 7,718 $ 3,391 ===================== See notes to condensed consolidated financial statements. THE ANDERSONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for the periods indicated have been made. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 1998. Note B - Total comprehensive income was $44 thousand for the three months ended March 31, 1999 and a loss of $824 for the three months ended March 31, 1998. Note C - Results of Operations - Segment Disclosures (in thousands) First Quarter, Agri- Manu- 1999 culture facturing Processing Retail Other Total Revenues from external customers $126,601 $6,627 $29,867 $33,700 $3,170 $199,965 Inter-segment 1,635 250 670 -- -- 2,555 sales Other income 193 34 78 70 415 790 Interest expense (credit) (a) 1,360 286 391 419 (390) 2,066 Operating income (loss) (1,118) 761 2,577 (2,142) (12) 66 Identifiable assets 215,302 30,786 59,345 63,013 27,217 395,663 First Quarter, Agri- Manu- 1998 culture facturing Processing Retail Other Total Revenues from external customers $154,229 $ 6,766 $ 26,914 $30,753 $2,559 $221,221 Inter-segment sales 2,329 325 359 -- -- 3,013 Other income 344 49 61 49 465 968 Interest expense (credit) (a) 1,873 197 378 525 (515) 2,458 Operating income (loss) (1,931) 532 3,176 (3,017) (87) (1,327) Identifiable assets 228,265 17,554 49,961 65,996 21,272 383,048 (a) The other category of interest expense includes net interest income at the company level, representing rate differential between the interest rate on which interest is allocated to the operating segments and the actual rate at which borrowings were made. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of the three months ended March 31, 1999 with the three months ended March 31, 1998: Sales and merchandising revenues for the three months ended March 31, 1999 totaled $200 million, a decrease of $21.2 million, or 10%, from 1998. Sales in the Agriculture Segment were down $29.7 million, or 20%, due to an 8% volume decrease in grain and a 21% decrease in the average price per bushel sold caused by lower market prices and a change in the mix of grain sold by the Company. Fertilizer sales were up $4.2 million, or 16%, due to a 21% increase in volume, partially offset by a 4% decrease in the average price per ton sold. In addition, merchandising revenues were up $2.1 million, or 36%, due primarily to increases in income from storing grain and fertilizer for others and fees for custom application. In the first quarter of 1999, the Company operated two additional grain elevators, two additional fertilizer distribution facilities and five additional farm centers when compared to the same quarter in 1998. The Manufacturing Segment had a slight sales decrease of $.1 million, or 2%. Total revenues in the railcar repair and fabrication shops were down $.2 million while revenues from railcar marketing increased $.1 million. The Processing Segment had a $3 million, or 11%, increase in sales. Of this increase, $2.7 million was due to a 16% increase in lawn fertilizer volume, primarily in the professional and industrial markets. This volume increase more than offset a 4% reduction in the average price per ton sold. The remaining increase of $.3 million occurred in the cob-based businesses. The Retail Segment experienced a $3 million, or 10%, increase in sales, with all stores showing increases. A portion of this sales increase was due to weather-related sales in January. Gross profit for the first quarter of 1999 totaled $38.9 million, an increase of $5 million, or 15%, from the first quarter of 1998. The Agriculture Segment had a gross profit increase of $2.9 million, or 26%, due to the $2.1 million increase in merchandising revenues described above and the additional sales generated by the new facilities described previously. Gross profit in the Manufacturing Segment increased $1 million, or 46%, from the prior year. This was due primarily to the timing of and margins on railcar sales. Gross profit for the Processing Segment increased slightly from the first quarter of 1998. Both cob-based businesses experienced increased gross profit due to the shift in product mix toward higher margin product and increased sales. Gross profit in the professional and industrial lawn fertilizer businesses increased, due to increased volume despite a decrease in gross profit per ton. In the consumer lawn fertilizer business, gross profit decreased. Gross profit in the Retail Segment improved by $1 million, or 12%, from the first quarter of 1998. This was due to the increased sales and margin improvement resulting from changes in the product mix. Operating, administrative and general expenses for the first quarter of 1999 totaled $36.7 million, a $4 million, or 12%, increase from the first quarter of 1998. Full time employees increased 10% from the first quarter of 1998 with the majority of the increase due to acquisitions or added capacity in the Agriculture Segment and growth in other segments. Included in the total increase are additional labor and benefits charges of $2.5 million and additional occupancy costs of $.5 million. These increases reflect growth in the underlying businesses. Additional operating expenses relating specifically to the facilities added after the first quarter of 1998 were $1.8 million. Interest expense for the first quarter of 1999 was $2.1 million, a $.4 million, or 16%, decrease from the first quarter of 1998. Although average short-term borrowings were 10% higher in the first quarter of 1999 when compared to the first quarter of 1998, the effective interest rate decreased. Income before income taxes of $.1 million was an improvement of $1.4 million from the 1998 first quarter pretax loss of $1.3 million. Tax expense has been provided at 32.8%, the Company's expected effective tax rate for 1999. Net income of $.04 million improved $.86 million from the 1998 first quarter net loss of $.82 million. Basic and diluted earnings per share were $.01, an $.11 increase from the 1998 first quarter loss. Liquidity and Capital Resources The Company's operations (before changes in working capital) provided cash of $2 million in the first quarter of 1999, an increase of $1.2 million from the first quarter of 1998. Working capital at March 31, 1999 was $66.6 million, a slight increase from December 31, 1998. Working capital at March 31, 1998 was $50.8. The Company utilizes its short-term lines of credit to finance working capital, primarily inventories and accounts receivable. Lines of credit available on March 31, 1999 were $225 million. The Company had drawn $84 million on its short-term lines of credit at March 31, 1999, an increase of $76.3 million from December 31, 1998. Typically, the Company's highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to customer cash needs and market strategies. A quarterly cash dividend of $0.05 per common share was paid in the first quarter of 1999. A cash dividend of $0.05 per common share was declared on April 1, 1999 and was paid on April 21, 1999. Cash dividends of $0.04 per common share were paid quarterly in 1998. The Company made income tax payments of $1.7 million in the first quarter and expects to make payments totaling approximately $6.7 million for the remainder of 1999. Also in the first quarter, the Company issued 59,416 shares to its employees under stock compensation plans and purchased 35,000 of its common shares on the open market at an average of $12.36 per share. Total cash capital expenditures for 1999 are expected to exceed $20 million and include $6.2 million for additional facilities in the processing and agriculture segments, $1.5 million for additional grain storage, $3.6 million for the acquisition of additional railcars and $1.6 million to replace the point-of-sale system in the Company's retail stores. Funding for these expenditures is expected to come from cash generated from operations and additional debt. Capital expenditures can be curtailed if cash generated from operations is less than expected. Certain of the Company's long-term debt is secured by first mortgages on various facilities. Some of the long-term borrowings include provisions that impose minimum levels of working capital and equity, limitations on additional debt and 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. In the opinion of management, the Company's liquidity is adequate to meet short-term and long-term needs. Impact of Year 2000 The Company plan to resolve the Year 2000 Issue (the inability of computers to process date information after 1999) involves four phases: assessment, remediation, testing and implementation. The Company has completed its assessment of all systems that could be significantly affected by the year 2000 and has developed remediation plans that include both modifications and replacements. These remediation plans have been prioritized based on the perceived risk of failure or error. The Company interfaces with third parties in some of its businesses and functional areas. These third party interfaces have been considered in the assessment and remediation plans and have been assigned a high priority for completion. Costs incurred to date have totaled approximately $1.6 million for the purchase of new software and $.8 million representing existing internal resources that were expensed as incurred. The remaining cost of remediation for the Company is estimated at $1.4 million, which includes $1.2 million for the purchase of software and hardware and $.2 million representing existing internal resources that will be expensed as incurred. This cost information includes an enterprise resource planning (ERP) solution installation in the wholesale fertilizer division initially planned to be completed before the year 2000. The existing fertilizer software has been found to be Year 2000 compliant and while the ERP installation continues, it is not necessary for Year 2000 compliance. Year 2000 modification plans and software installations are under way and are substantially complete at the end of the first quarter of 1999 for all significant high risk systems except for the following: System Modification Completion Date Farm center system replacement 3rd Quarter 1999 Retail point-of-sale replacement 4th Quarter 1999 Railcar marketing system 2nd Quarter 1999 Processing electronic data interchange 2nd Quarter 1999 The Company has made significant progress in testing its remediated systems. Except for the systems identified above, the Company expects to have its testing of significant high-risk systems completed by the end of the second quarter of 1999. For the systems identified above testing will be completed immediately following the completion of modifications. There have been no substantial changes to the plans as previously reported. The Company believes that with the planned modifications and conversions, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not completed before the year 2000, there could be an impact on the operations of the Company. The Company is now in the process of developing contingency plans for its major systems applications and other high-risk systems. This process will both determine the need for a contingency plan based on the current status of remediation and testing as well as determine manual workarounds or other actions for these critical applications. The Company queried its significant suppliers and subcontractors that do not share information systems with the Company (its "external agents") and received responses from 76% of them. The Company is in the process of updating this survey for new external agents added after the initial mailing and throughout 1999. To date, the Company is not aware of any external agent with a Year 2000 Issue that would materially impact the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution processes in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. While the Company is monitoring its external agents, it may also be affected by Year 2000 failures at other 3rd parties such as utilities and the railroads. The Company can not identify all possible worst-case scenarios, however, the most reasonable worst-case scenario would be the failure of utilities and/or transportation systems that are critical to the Company's operations and that couldn't quickly be replaced by other suppliers or through internal resources. In such situations, operations at the affected facility or facilities could be interrupted with adverse effects on the Company's financial results. The Company has no contingency plans for this scenario, except to the extent that it can operate at another unaffected facility. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. Forward Looking Statements The preceding Management's Discussion and Analysis contains various "forward-looking statements" which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including but not limited to those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "believe," "expect," "anticipate" and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. The following factors could cause actual results to differ materially from historical results or those anticipated; weather, supply and demand of commodities including grains, fertilizer and other basic raw materials, market prices for grains and the potential for increased margin requirements, competition, economic conditions, risks associated with acquisitions, interest rates and income taxes. Item 3. Quantitative and Qualitative Disclosure of Market Risk Market Risk Sensitive Instruments and Positions The market risk inherent in the Company's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below. Commodities The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are readily marketable exchange-traded futures contracts that are designated as hedges. To a lesser degree, the Company uses exchange-traded option contracts, also designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of the hedged commodity. The Company's accounting policy for these hedges, as well as the underlying inventory positions, and purchase and sale contracts is to mark them to the market price daily and include gains and losses in the statement of income in sales and merchandising revenues. A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its commodity position. The Company's daily net commodity position consists of inventories, related purchase and sale contracts and exchange traded contracts. The fair value of such position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The result of this analysis, which may differ from actual results, is as follows: (in thousands) March 31, December 31, 1999 1998 Net long (short) position $1,128 $ (1,961) Market risk 113 196 Interest The fair value of the Company's long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Such fair value exceeded the long-term debt carrying value. In addition, the Company has off-balance sheet interest rate contracts established as hedges. The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below: (in thousands) March 31, December 31, 1999 1998 Fair value of long-term debt and $78,794 $78,521 interest rate contracts Excess of fair value over carrying 1,045 638 value Market risk 348 403 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K. A report on Form 8-K was filed with the SEC containing a January 12, 1999 press release announcing the settlement with the Commodity Futures Trading Commission relating to its review of the Company's grain contracting activity. SIGNATURES Pursuant to the requirements 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. THE ANDERSONS, INC. (Registrant) Date: May 14, 1999 By /s/Michael J. Anderson Michael J. Anderson President and Chief Executive Officer Date: May 14, 1999 By /s/Richard R. George Richard R. George Vice President and Controller (Principal Accounting Officer) EX-27 2
5 1000 3-MOS DEC-31-1999 MAR-31-1999 7718 0 90810 4450 192738 297395 244450 154605 395663 230792 71757 0 0 84 82240 395663 199965 200755 161889 161889 36734 0 2066 66 22 44 0 0 0 44 .01 .01
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