-----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, DQ9hoeujOljtioMBNivJrCVqLyDLQcMwFZGHUULU5/7QIcrqHf/irGHqUW2fjXP/ Ed45ywuLyVicwuWsYuTU1A== 0000821026-99-000010.txt : 19990816 0000821026-99-000010.hdr.sgml : 19990816 ACCESSION NUMBER: 0000821026-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99687243 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 June 30, 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 8,031,360 Common shares outstanding, no par value, at August 1, 1999. THE ANDERSONS, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Income - Three months and six months ended June 30, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 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 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 16 PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) June 30 December 31 1999 1998 (Unaudited) (Audited) Current assets Cash and cash equivalents $ 6,652 $ 3,253 Accounts and notes receivable: Trade accounts - net 59,047 62,647 Margin deposits 148 248 ---------------------- 59,195 62,895 Inventories: Grain 46,006 91,218 Agricultural fertilizer and supplies 21,307 27,127 ---------------------- Agriculture 67,313 118,345 Merchandise 32,333 25,863 Processing 18,223 22,428 Manufacturing 23,116 16,039 Other 2,239 2,315 ---------------------- 143,224 184,990 Deferred income taxes 4,690 4,634 Prepaid expenses 3,844 5,502 ---------------------- Total current assets 217,605 261,274 Other assets: Notes receivable (net) and other assets 6,726 8,435 Investments in and advances to affiliates 1,042 1,057 ---------------------- 7,768 9,492 Property, plant and equipment: Land 12,153 12,095 Land improvements and leasehold improvements 26,444 26,056 Buildings and storage facilities 89,717 88,818 Machinery and equipment 116,606 112,561 Construction in progress 3,955 3,059 ---------------------- 248,875 242,589 Less allowances for depreciation and amortization 156,923 152,532 ---------------------- 91,952 90,057 ---------------------- $317,325 $360,823 ====================== See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS - (continued) (UNAUDITED)(IN THOUSANDS) June 30 December 31 1999 1998 (Unaudited) (Audited) Current liabilities Notes payable $ 35,000 $ 7,700 Accounts payable for grain 28,466 88,978 Other accounts payable 64,906 75,301 Accrued expenses 15,940 17,079 Current maturities of long-term debt 5,426 6,318 ---------------------- Total current liabilities 149,738 195,376 Pension and postretirement benefits 2,640 3,113 Long-term debt 68,371 71,565 Deferred income taxes 7,635 7,330 Minority interest 1,167 705 Shareholders' equity: Common stock (25,000 shares authorized, stated value $.01 per share, 8,035 and 8,140 outstanding at 6/30/99 and 12/31/98, respectively) 84 84 Additional paid-in capital 67,220 67,180 Treasury stock (395 and 290 shares at 6/30/99 and 12/31/98, respectively; at cost) (4,204) (2,665) Accumulated other comprehensive income (29) (29) Unearned compensation (237) (83) Retained earnings 24,940 18,247 ---------------------- 87,774 82,734 ---------------------- $317,325 $360,823 ====================== See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 Sales and merchandising revenues $ 259,247 $ 282,799 $ 459,212 $ 504,020 Other income 1,078 1,040 1,868 2,008 ------------------------------------------ 260,325 283,839 461,080 506,028 Cost of sales and merchandising revenues 208,544 235,077 370,433 423,406 ------------------------------------------ Gross Profit 51,781 48,762 90,647 82,622 Operating, administrative and general expenses 38,602 37,210 75,336 69,938 Interest expense 2,052 1,886 4,118 4,344 ------------------------------------------ 40,654 39,096 79,454 74,282 ------------------------------------------ Income before income taxes 11,127 9,666 11,193 8,340 Provision for income taxes 3,668 3,296 3,690 2,794 ------------------------------------------ Net income $ 7,459 $ 6,370 $ 7,503 $ 5,546 ========================================== Per common share: Basic earnings $ 0.92 $ 0.80 $ 0.92 $ 0.70 ========================================== Diluted earnings $ 0.90 $ 0.80 $ 0.91 $ 0.70 ========================================== Dividends paid $ 0.05 $ 0.04 $ 0.10 $ 0.08 ========================================== Weighted average common shares Outstanding - basic 8,075 7,960 8,116 7,973 ========================================== Weighted average common shares Outstanding - diluted 8,243 8,012 8,273 7,979 ========================================== See notes to condensed consolidated financial statements. THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(IN THOUSANDS) Six Months Ended June 30 1999 1998 Operating activities Net income $ 7,503 $ 5,546 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,515 5,184 Provision for losses on accounts and notes receivable 532 1,082 Deferred income tax 624 (2,011) Other 4 -- --------------------- Cash provided by operations before changes in operating assets and liabilities 14,178 9,801 Changes in operating assets and liabilities: Accounts receivable 3,168 4,019 Inventories 41,767 70,246 Prepaid expenses and other assets 2,716 1,975 Accounts payable for grain (60,512) (86,428) Other accounts payable and accrued expenses (11,999) 11,064 --------------------- Net cash provided by (used in) operating activities (10,682) 10,677 Investing activities Purchases of property, plant and equipment (6,764) (6,116) Proceeds from sale of property, plant and equipment 184 19 --------------------- Net cash used in investing activities (6,580) (6,097) Financing activities Net increase (decrease) in short-term borrowings 27,300 (6,072) Proceeds from issuance of long-term debt 56,920 61,985 Payments of long-term debt (61,006) (62,316) Purchase of common stock for the treasury (2,115) (344) Proceeds from sale of treasury stock to employees 380 413 Dividends paid (818) (639) --------------------- Net cash provided by (used in) financing activities 20,661 (6,973) --------------------- Increase (decrease) in cash and cash equivalents 3,399 (2,393) Cash and cash equivalents at beginning of period 3,253 8,278 --------------------- Cash and cash equivalents at end of period $ 6,652 $ 5,885 ===================== 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 $7.5 million for the six months ended June 30, 1999 and $5.5 million for the six months ended June 30, 1998. Total comprehensive income for the quarters ended June 30, 1999 and 1998 was $7.5 million and $6.4 million, respectively. Note C - Results of Operations - Segment Disclosures (in thousands) Second Quarter, Agriculture Manufacturing Processing Retail Other Total 1999 Revenues from external customers $164,523 $ 8,232 $27,646 $54,083 $4,763 $259,247 Inter-segment sales 835 240 425 -- -- 1,500 Other income 319 37 135 103 484 1,078 Interest expense (credit) (a) 1,036 274 477 389 (124) 2,052 Operating income (loss) 5,961 1,122 1,012 3,767 (735) 11,127 Identifiable assets at June 30, 1999 149,127 31,828 50,185 63,598 22,587 317,325 Second Quarter, 1998 Revenues from external $197,005 $ 6,372 $24,052 $51,081 $4,289 $282,799 customers Inter-segment sales 1,202 265 402 -- -- 1,869 Other income 347 41 112 77 463 1,040 Interest expense (credit) (a) 1,081 210 324 490 (219) 1,886 Operating income (loss) 5,902 779 1,827 3,212 (2,054) 9,666 Identifiable assets at 148,872 19,839 35,423 64,557 23,297 291,988 June 30, 1998 First Half, 1999 Agriculture Manufacturing Processing Retail Other Total Revenues from external customers $291,124 $14,859 $57,513 $87,784 $7,932 $459,212 Inter-segment 2,470 490 1,095 -- -- 4,055 sales Other income 512 71 212 173 900 1,868 Interest expense (credit) (a) 2,396 560 868 808 (514) 4,118 Operating income (loss) 4,843 1,883 3,590 1,625 (748) 11,193 First Half, 1998 Revenues from external customers $351,234 $13,138 $50,966 $81,834 $6,848 $504,020 Inter-segment sales 3,532 590 761 -- -- 4,883 Other income 691 90 173 126 928 2,008 Interest expense (credit) (a) 2,954 407 702 1,015 (734) 4,344 Operating income (loss) 3,971 1,310 5,002 195 (2,138) 8,340 (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 June 30, 1999 with the three months ended June 30, 1998: Sales and merchandising revenues for the three months ended June 30, 1999 totaled $259 million, a decrease of $23.6 million, or 8%, from 1998. Sales in the Agriculture Segment were down $34.4 million, or 18%, due to a 15% volume decrease in grain and a 12% 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 down $4 million, or 6%, due to a 6% decrease in volume, partially offset by a 2% increase in the average price per ton sold. In addition, merchandising revenues for the Ag Segment were up $1.9 million, or 34%, due primarily to increases in income from storing grain and fertilizer for others and fees for custom application. Total acres, on which custom application was performed, increased 55% from the second quarter of 1998. The second quarter of 1998 includes partial period operations of two grain elevators (one month). There were five additional farm centers and two additional fertilizer distribution facilities in operation in the second quarter of 1999 when compared to the same quarter in 1998. The Manufacturing Segment had a sales increase of $1.9 million, or 29%, due primarily to a revenue increase of $2.7 million from the sale of railcars. Total revenues in the railcar repair and fabrication shops were down $.4 million while revenues from the railcar lease portfolio decreased $.4 million. The Processing Segment had a $3.6 million, or 15%, increase in sales primarily due to a 16% increase in lawn fertilizer volume, primarily in the professional and industrial markets. In addition, there was a 1% increase in the average price per ton sold. The cob-based businesses had a slight decrease in sales. The Retail Segment experienced a $3 million, or 6%, increase in sales, with all stores showing increases. Strong demand for lawn and garden, nursery and home improvement merchandise was the primary reason for the sales increase in the second quarter. Gross profit for the second quarter of 1999 totaled $51.8 million, an increase of $3 million, or 6%, from the second quarter of 1998. The Agriculture Segment had a gross profit increase of $1 million, or 5%, due primarily to the increase in merchandising revenues described above. Gross profit in the Manufacturing Segment increased $.7 million, or 26%, from the prior year. This was due primarily to the timing of and margins on railcar sales. Gross profit for the Processing Segment increased $.1 million, or 1%, from the second quarter of 1998. The lawn fertilizer and pet businesses showed slight increases in gross profit, while the cob business had a gross profit decrease. Gross profit in the Retail Segment improved by $1.1 million, or 7%, from the second 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 second quarter of 1999 totaled $38.6 million, a $1.4 million, or 4%, increase from the second quarter of 1998. Operating, administrative and general expenses as a percent of gross profit, however, decreased from 76% for the second quarter of 1998 to 75% in the second quarter of 1999. Full time employees increased 8% from the second 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 costs of $2.2 million and additional occupancy costs of $.5 million. These increases reflect growth in the underlying businesses. Interest expense for the second quarter of 1999 was $2.1 million, a $.2 million, or 9%, increase from the second quarter of 1998. Although average short-term borrowings were higher in the second quarter of 1999 when compared to the second quarter of 1998, the effective interest rate decreased. Income before income taxes of $11.1 million was an improvement of $1.4 million from the 1998 second quarter pretax income of $9.7 million. Tax expense has been provided at 33%, the Company's expected effective tax rate for 1999. Net income of $7.5 million improved $1.1 million from the 1998 second quarter net income of $6.4 million. Basic earnings per share were $.92, a $.12 increase from the 1998 second quarter. Diluted earnings per share were $.90, a $.10 increase from the 1998 second quarter. Comparison of the six months ended June 30, 1999 with the six months ended June 30, 1998: Sales and merchandising revenues for the six months ended June 30, 1999 totaled $459 million, a decrease of $44.8 million, or 9%, from 1998. Sales in the Agriculture Segment were down $64.1 million, or 19%, due to a 12% volume decrease in grain and a 16% 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 very slightly, $.2 million, and include a 3% increase in volume offset by a 3% decrease in the average price per ton sold. In addition, merchandising revenues for the Ag Segment were up $4 million, or 35%, due primarily to increases in income from storing grain and fertilizer for others and fees for custom application. Total acres, on which custom application was performed, increased 55% from 1998. The 1998 results include partial period operations of two grain elevators (one month), one distribution facility (three months) and a farm center (three months). The 1999 first half results include the operations of five additional farm centers and two additional fertilizer distribution facilities (one for one month). The Manufacturing Segment had a sales increase of $1.7 million, or 13% due primarily to a $2.8 million increase in the sales of railcars. Total revenues in the railcar repair and fabrication shops were down $.6 million while revenues from the railcar lease portfolio decreased $.5 million. The Processing Segment had a $6.5 million, or 13%, increase in sales. Of this increase, $6.3 million was from increases in the lawn fertilizer business, including a 16% increase in lawn fertilizer volume, primarily in the professional and industrial markets. This volume increase more than offset a 2% reduction in the average price per ton sold. The remaining increase of $.2 million, or 3%, occurred in the cob-based businesses. The Retail Segment experienced a $5.9 million, or 7%, increase in sales, with all stores showing increases. Sales increases were due primarily to weather-related sales in January and strong demand for lawn and garden, nursery and home improvement merchandise in the second quarter. Gross profit for the first half of 1999 totaled $90.6 million, an increase of $8 million, or 10%, from the first half of 1998. The Agriculture Segment had a gross profit increase of $3.9 million, or 12%, due largely to the increase in merchandising revenues described above. Gross profit in the Manufacturing Segment increased $1.6 million, or 35%, 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 six months of 1998. Gross profit for the lawn fertilizer business and the cob business was flat while gross profit for the much smaller pet business showed a significant increase. Gross profit in the Retail Segment improved by $2.1 million, or 9%, from the first half 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 half of 1999 totaled $75.3 million, a $5.4 million, or 8%, increase from the first half of 1998. Operating, administrative and general expenses as a percent of gross profit, however, decreased from 85% for the first half of 1998 to 83% in the first half of 1999. Full time employees increased 8% from 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 costs of $4.6 million and additional occupancy costs of $1 million. These increases reflect growth in the underlying businesses. Interest expense for the first half of 1999 was $4.1 million, a $.2 million, or 5%, decrease from the first half of 1998. Although average short- term borrowings were higher in the first half of 1999 when compared to the first half of 1998, the effective interest rate decreased. Income before income taxes of $11.2 million was an improvement of $2.9 million from the 1998 first half pretax income of $8.3 million. Tax expense has been provided at 33%, the Company's expected effective tax rate for 1999. Net income of $7.5 million improved $2 million from the 1998 first half net income of $5.5 million. Basic earnings per share were $.92, a $.22 increase from 1998. Diluted earnings per share were $.91, a $.21 increase from 1998. Liquidity and Capital Resources The Company's operations (before changes in operating assets and liabilities) provided cash of $14.2 million in the first half of 1999, an increase of $4.4 million from the first half of 1998. Working capital at June 30, 1999 was $67.9 million, a $2 million increase from December 31, 1998. Working capital at June 30, 1998 was $59.1. The Company utilizes its short-term lines of credit to finance working capital, primarily inventories and accounts receivable. Lines of credit available on June 30, 1999 were $155 million. The Company had $111 million outstanding on its short- term lines of credit on April 26, its peak for the quarter and the year to date. 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 and second quarters of 1999. A cash dividend of $0.05 per common share was declared on July 1, 1999 and was paid on July 21, 1999. Cash dividends of $0.04 per common share were paid quarterly in 1998. The Company made income tax payments of $2.1 million in the first half and expects to make payments totaling approximately $3.6 million for the remainder of 1999. Also in the first half, the Company issued 63,126 shares to its employees under stock compensation plans and purchased 168,000 of its common shares on the open market at an average of $12.59 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, $4.4 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 $1.9 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 million, which includes $.9 million for the purchase of software and hardware and $.1 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 second quarter of 1999 for all significant high risk. The only significant systems still being worked on are the following: System Modification Completion Date Farm center system replacement 3rd Quarter 1999 Retail point-of-sale replacement 4th Quarter 1999 Railcar marketing system 3rd Quarter 1999 The Company has made significant progress in testing its remediated systems. Except for the systems identified above and certain centralized accounting systems, the Company has completed its testing of significant high- risk systems at the end of the second quarter of 1999. For the systems identified above testing will be completed immediately following the completion of modifications. Testing of the high-risk centralized accounting systems will be completed in the third quarter of 1999. 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 has developed contingency plans for its major systems applications and other high-risk systems. This process determined the need for a contingency plan based on the current status of remediation and testing. The contingency plans will determine manual workarounds or other actions for 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 and following up on business critical suppliers that have not yet responded. 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 or utilize the services of another carrier. 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) June 30, 1999 December 31, 1998 Net long (short) position $ 1,451 $ (1,961) Market risk 145 196 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. 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) June 30, 1999 December 31, 1998 Fair value of long-term debt and interest rate contracts $73,231 $78,521 Excess (deficit) of fair value over carrying value (566) 638 Market risk 458 403 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the shareholders of The Andersons, Inc. was held on May 15, 1999 to elect twelve directors, to approve an amendment to the Company's Long-Term Performance Compensation Plan and to ratify the appointment of the Company's independent auditors. Results of the voting follow: Director For Against Withheld Not Voted Donald E. Anderson 7,465,940 0 76,999 623,858 Michael J. Anderson 7,466,240 0 76,699 623,858 Richard M. Anderson 7,466,240 0 76,699 623,858 Richard P. Anderson 7,466,240 0 76,699 623,858 Thomas H. Anderson 7,466,240 0 76,699 623,858 John F. Barrett 7,493,540 0 49,399 623,858 Paul M. Kraus 7,493,540 0 49,399 623,858 Donald L. Mennel 7,493,540 0 49,399 623,858 David L. Nichols 7,493,540 0 49,399 623,858 Dr. Sidney A. Ribeau 7,493,340 0 49,599 623,858 Charles A. Sullivan 7,493,540 0 49,399 623,858 Jacqueline F. Woods 7,493,540 0 49,399 623,858 Plan Amendment 4,669,607 607,686 2,171,003 718,501 Independent Auditors 7,463,451 550 78,938 623,858 Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter. 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: August 13, 1999 By /s/Michael J. Anderson Michael J. Anderson President and Chief Executive Officer Date: August 13, 1999 By /s/Richard R. George Richard R. George Vice President and Controller (Principal Accounting Officer) EX-27 2
5 1,000 6-MOS DEC-31-1999 JUN-30-1999 6652 0 63911 4716 143224 217605 248875 156923 317325 149738 68371 0 0 84 87690 317325 459212 461080 370433 370433 75336 0 4118 11193 3690 7503 0 0 0 7503 .92 .91
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