EX-13 3 l93187ex13.txt EX-13 2001 ANNUAL REPORT Exhibit 13 THE ANDERSONS 2001 ANNUAL REPORT TABLE OF CONTENTS Financial Highlights 1 Letter to Shareholders 2 Agriculture Group 4 Processing Group 6 Rail Group 8 Retail Group 10 Selected Financial Data 12 Report of Independent Accountants 13 Consolidated Financial Statements 14 Management's Discussion & Analysis 18 Notes to Consolidated Financial Statements 21 Officers & Directors Data Inside Back Cover CORPORATE PROFILE The Andersons, Inc. (Nasdaq: ANDE) is a diversified agribusiness and retailing company with annual revenues of approximately $1.0 billion. The company, which began operations in Maumee, Ohio in 1947 with one grain elevator and 500,000 bushels of storage capacity, today has four operating groups: Agriculture, Processing, Rail and Retail. For more in-depth information about the company, please visit our website at www.andersonsinc.com. 2001 ACCOMPLISHMENTS - Earned $1.21 per diluted share in 2001 vs. $1.08 per diluted share in 2000 (before nonrecurring items and cumulative effect of change in accounting principle) - The Andersons' shares earned 19% (total return) - Record performance by the Agriculture Group - Added progressive grain contracting tools - Ended 2001 with 65.4 million bushels of grain in storage, second largest in our history - Began producing liquid roadway and runway de-icers, specialty chemicals, and specialty nutrients - Ended 2001 in control of 5,432 railcars and 51 locomotives, 13% and 70% higher than 2000, respectively - Created the new Andersons(TM) Golf Products brand for the professional turf market - Grew our Retail offerings by adding fresh meat selection at our Maumee Retail Store - Entered into agreement with FirstEnergy Solutions to better manage our utility expense - Safety - 2001 was a record year for the number of facilities going accident free
FINANCIAL HIGHLIGHTS (in thousands, except for per share data) 2001 2000 % CHANGE ----------------- ------------------ ---------------- OPERATIONS Grain sales & revenues $480,219 $490,820 (2.2)% Fertilizer, retail & other sales 504,408 470,302 7.3% ----------------- ------------------ TOTAL SALES & REVENUES $984,627 $961,122 2.4% ================= ================== Gross profit - grain $52,029 $46,789 11.2% Gross profit - fertilizer, retail & other 107,316 110,174 (2.6)% ----------------- ------------------ TOTAL GROSS PROFIT $159,345 $156,963 1.5% ================= ================== Other income / gains $3,841 $7,069 (45.7)% Income before income taxes and cumulative effect of accounting change 11,931 14,364 (16.9)% Net income 8,857 10,078 (12.1)% Effective tax rate 24.2% 29.8% (18.9)% PER SHARE DATA Net income - basic $1.22 $1.34 (9.0)% Net income - diluted 1.21 1.34 (9.7)% Net income - diluted before nonrecurring items (1) 1.21 1.08 12.0% Dividends paid 0.26 0.24 8.3% Year end market value 10.00 8.63 15.9% PERFORMANCE Pretax return on beginning equity 13.3% 16.9% Net income return on beginning equity 9.9% 11.9% Long-term debt to equity ratio (2) 1.02-TO-1 0.9-to-1 Weighted average shares outstanding - basic 7,281,000 7,507,000 Number of employees 3,035 3,112 EBITDA (thousands) $37,764 $39,312 EBITDA (net of interest to carry grain inventories - thousands) 33,699 34,566 (1)Diluted EPS $1.21 $1.34 Cumulative effect of change in accounting principle 0.03 -- Gain on involuntary conversion (net of tax) (0.03) (0.18) Gain on sales of business (net of tax) -- (0.08) ----------------- ------------------ Diluted EPS before non-recurring items $1.21 $1.08 ================= ==================
(2)Including pension and postretirement benefits
[Pie Chart] [Pie Chart] [Bar Chart] 2001 BEGINNING OPERATING INCOME REVENUES ALLOCATED CAPITAL TOTAL: $11.9 MILLION YEAR: $985 MILLION (AS OF (1/1/01) TOTAL: $186 MILLION Agriculture 67.3% 40.3% $19.8 Processing 11.5% 21.9% (7.7) Rail 3.1% 17.6% (0.3) Retail 18.1% 20.2% 1.8 Other -- -- (1.7) ---------------------------------------------------------------------------------- 100.0% 100.0% $11.9 ==================================================================================
1 Shareholders and friends, In a year that will be remembered for sadness, upheaval, and uncertainty, The Andersons turned in a solid performance for shareholders in 2001, providing a 19% total return. Equity investors were looking for consistent, essential industries as the economy slowed and the grave events of Sept. 11 added more confusion for the equity markets. Basic industries, including agricultural products and services, once again prove to provide an attractive choice for investors in difficult times. In 2001, shareholders liked our position in the food chain. We are committed to increasing shareholder value as well as providing extraordinary service to our customers, helping our employees improve and supporting our communities. Revenue was $984.6 million compared to $961.1 million for 2000. Net income was $8.9 million compared to $10.1 million in 2000. Earnings per diluted share [EPDS] in 2001 was $1.21 vs. $1.34 in 2000. Income in 2001 included a non-cash charge equal to $0.13 per diluted share to recognize the decline in market value of certain rail assets. Included in the 2000 EPS were: 1) a $0.18 per diluted share gain from an insurance recovery [related to one of our fertilizer facilities], and 2) $0.08 per diluted share from the sale of our interest in a chain of tire and auto centers. On a comparative basis, we are pleased with the quality of earnings from operations, excluding non-recurring gains and accounting changes, in 2001, $1.21 EPDS vs. $1.08 EPDS in 2000. Operating performance in 2001 produced mixed results. Our core business, the Agriculture Group, achieved a record operating performance. Vigilant attention to inventory positions, margin control and facility utilization were key to a very successful year. Our team added value to the excellent business conditions. Good harvests in our market territory increased demand for grain storage space. Fertilizer demand was strong and our organization performed very well during the heavy spring planting season. Our farm center units made a significant turnaround in 2001. The Retail Group turned in a respectable performance, although not as good as in 2000. Lower railcar lease rates and the slowing economy impacted the Rail Group. The Processing Group was positioned for significant growth in the consumer and professional turf markets which did not materialize. Excess capacity, high nitrogen costs and a significant slowdown in the golf industry all played a part in Processing's unfavorable performance in 2001. For more detail on the 2001 performance, see the business review pages of this report. We are very excited about our prospects in 2002. The entire team is dedicated to build on our core competencies and capabilities. We have a long history of physical handling, storing, maintaining, formulating, transporting and financial management of bulk materials. This history has provided us with the opportunity to enhance those bulk materials into added value products and services that provide solutions for our customers. Quality and integrity are a must for long-lasting relationships. With 54 years of experience, we know the importance of long-term relationships. The resurgence of earnings growth in the Agriculture Group in 2000 continued in 2001. The Ag Group is our largest investment and the base on which most of our other 2 businesses were created. We ended 2001 with 65.4 million bushels of grain in storage, the second largest level in our history. The huge inventory puts the Grain Division in an excellent position to generate storage income during the first six months of 2002. Grain inventory supply and demand varies widely from year to year. We believe that demand in the grain markets will force shipments of stored grain early in 2002, and therefore, we do not expect storage income to exceed that of 2001. The Crop Revenue Profiler(TM) software program continues to help producers make complex decisions about their crop marketing programs. It integrates the potential of crop insurance, government programs and various marketing contracts to help producers achieve a more predictable result, thus reducing the impact of volatile crop prices. Adding value for our producers ultimately enhances our profitability through fee income and better customer relationships. During 2001 we spent a significant amount of time developing a grain-growth strategy, including value-added opportunities for our customers. We have added progressive grain contracting tools, which should result in a more secure grain volume and increased fee revenue. We continue to seek marketing opportunities outside our historic marketing regions. As we stretch our professional sales and marketing talents to source and sell more grain, we are committed to increase the efficiency of our grain operations through automation. The Wholesale Fertilizer Division's [WFD] focus on consistent, dependable year-round logistics and supply is capturing market share across all agricultural customer segments. The division continues to look for added capacity adjacent to our market region. In addition, WFD is using its primary agriculture handling and formulating expertise in specialty agricultural and non-agricultural applications. We are now producing liquid roadway and runway de-icers, specialty biological nutrients for wastewater treatment and specialty nutrients for agriculture. We continue to believe population growth, demand for improved diets and higher standards of living will benefit those invested in the U.S. agriculture system, including The Andersons. In the Rail Group, we thought railcar prices and lease rates were beginning to stabilize; however, the events of Sept. 11 dampened the market. Rates dropped and customers were less likely to take on long-term leases. Fortunately, demand late in the fourth quarter of 2001 started to improve. We are in the process of repairing 400 cars which should be placed in service with a major customer during the second quarter of 2002. We ended 2001 with 74% of the railcars under management in service. We expect double-digit improvement in our utilization rate in 2002, which would lead to a significant improvement in the Group's income from operations. Rail had 5,432 railcars under management at the end of 2001, 13% more than in 2000. In addition, we have 51 locomotives, 70% more than a year earlier. New car building is expected to be down in 2002, as is demand for all types of railcars. However, we concentrate on used cars that can be reconfigured to meet customers' needs and to add 3 economic life to the equipment. With lease rates at relatively low levels, our focus is on short-term lease deals, diligent management of inventories, valuation and positions, and stepping up our sales and marketing efforts. Important components of our Rail business are the repair and maintenance shops. Our long-term quest is to be a total rail solutions provider. The shops have created a number of profitable and exciting rail components which we design, manufacture, install and lease. The repair and maintenance shops performed nicely in 2001 and should make excellent contributions in future years, both in profits and as a complement to our operating lease business. The Processing Group is getting much of our attention after 2001's very disappointing year. The lawn and professional fertilizer industry suffered one of the worst years in recent history. We continue to work on the integration of our 2000 acquisition of a professional turf business - now Andersons Golf Products(TM). We believe that the industry must consolidate to service customers with maximum efficiency. Manufacturing capabilities and logistics resources need to be rationalized. Our team was slow to recognize and act on the industry dynamics in 2001. We remain intent on leveraging our position if a consolidation scenario develops. We have reorganized and downsized several functions in the Group to streamline the business. Volume is expected to grow about 7% in 2002, which will reduce our excess capacity. We have priced and contracted for a larger portion of 2002 nitrogen needs to avoid excessive margin volatility. We have increased our selling prices in certain sectors, which will add margin. Expense control, supply chain efficiency (freight and warehousing), and working capital levels are all being scrutinized. We are determined to turn the business around. Our Retail Group focus is on MORE FOR YOUR HOME(TM) as its primary product and customer service offering. The addition of fresh meats in the Maumee Store has been a huge success. Fresh meats will be added to the Toledo Store in early 2002 and perhaps in other stores later in the year. The offering complements our other food operations like wine, bakery, and fresh fruits and vegetables. We are looking for other retail products that complement and add shopping frequency for our core product line. Recent market research suggests that we modify our store design to improve customer flow, which potentially can add to the average sale and more prominently feature select merchandise. We plan to test the new design at the Woodville Store in 2002. Inventory efficiency, in-stock performance and improved technologies in our distribution center are on the drawing board for 2002. We have been in a holding pattern with six stores for some time. We are starting to evaluate our long-term growth potential, testing site selection models and even evaluating a few specific sites. If we determine growth is justified, we will need to determine the right capital structure for the business. 4 On the Corporate/Administrative front we have been aggressively cutting overhead costs, downsizing in select areas, and intensifying strategic sourcing and procurement efforts to find more efficient and less expensive business practices. These initiatives began early in 2001 and will continue through 2002. Lower interest rates have allowed us to take more to the bottom line, but more importantly, to lock in additional fixed rate long-term debt at lower rates. The added long-term debt had a positive impact on net working capital, which grew 36% by the end of 2001. This will provide us with more stability in the future. Our balance sheet has grown to over $450 million in total assets. Most of the asset growth is in grain inventories. Contrary to the way most non-commodity businesses operate, high grain inventories are generally a positive indicator for the near future. In our remaining businesses, we are striving to use working capital more efficiently. Reaching our goals on profitability, working capital management, total shareholder return and long-term strategic planning will demand the best from all of us. We have the talents and resources to meet these challenges. We are committed to leverage the skill sets we have, build on our core competencies, keep our house in order and be prepared to respond to the ever-changing industries and customers we serve. We expected an improvement in operating income in 2001, after adjusting for the one-time gains reported in 2000, and that was accomplished. However, achieving excellent performance in one sector but a disappointing performance in another sector is not acceptable. We must deal with the volatility to provide long-lasting shareholder value. We will rely heavily on the talents of more than 3,000 loyal employees. Their creativity and dedication to provide extraordinary products and service to our customers are keys to our success. We are grateful to them, to our customers and suppliers, and to you our shareholders. Sincerely /s/Mike /s/Dick Mike Anderson, CEO Dick Anderson, Chairman 5 AGRICULTURE GROUP The AGRICULTURE GROUP operates grain elevators and fertilizer formulation and distribution facilities in Ohio, Michigan, Indiana and Illinois. Its elevators receive large quantities of grain and oilseeds (primarily corn, soybeans and wheat) from farms and country elevators in the region, store and condition it, then market it via rail or ship to domestic and export processors. Its fertilizer distribution facilities market large volumes of dry and liquid agricultural fertilizers to dealers and company-owned farm centers. The group's farm centers, located in Ohio, Michigan and Indiana, sell fertilizer, crop protection chemicals, seed and field application services to area farms. In 2001, the group achieved the highest operating income in its 55-year history. While total revenues were relatively unchanged from 2000, operating income increased by 38%, reaching $19.8 million for the year. This increase reflected bottom-line improvement in all three businesses. 2001 was the fifth consecutive year with relatively good growing seasons and crop yields in the eastern corn belt. While U.S. corn production was down slightly this year, total grain stocks in the U.S. remained quite high, so demand for grain storage continued to be strong, and the group once again achieved higher income from its extensive storage space. Increases in grain drying income and bushel sales volume also contributed to gross profit and operating income growth as did the group's specialty oats business and its service businesses, i.e. its Crop Revenue ProfilerTM software, crop insurance marketing programs and licensing agreements. Operating income growth was also achieved by the group's fertilizer business in 2001, a year when many other participants in the fertilizer industry saw income drop dramatically. Although grain prices remained relatively low, a factor that has dampened fertilizer consumption in the U.S., the group was able to leverage its assets and market position to increase volumes and margins. The group's market share benefited from its strong customer focus, and margins were enhanced as a result of its supply management expertise and growth of new value-added agricultural and non-agricultural products and services. Excellent progress was similarly achieved by the group's farm centers. Gross profit increased and expenses decreased from consolidation, closure and improved expense management. As a result, this business achieved a modest operating profit for the year. A sizable portion of the Company's total spending on plant and equipment in 2001 was allocated to the Agriculture Group. In addition to numerous minor and major maintenance projects, significant improvements were made at its Logansport, Indiana facility to accommodate the production of new roadway anti-icer products. [Bar Charts]
1997 1998 1999 2000 2001 SALES & REVENUES $ 768 $ 829 $ 674 $ 648 $ 663 OPERATING INCOME 2.3 6.7 6.1 14.3 19.8 UNIT VOLUMES Grain Bushel Receipts (Millions) 145 157 158 156 155 Grain Bushels Shipped (Millions) 118 157 150 156 154 Wholesale Fertilizer Tons Sold (000) 845 850 926 971 1,010 Farm Center Application Acres (000) 318 333 552 479 475
6 PROCESSING GROUP The PROCESSING GROUP manufactures turf and ornamental plant fertilizer and control products for major retailers in the U.S. and is the industry-leading supplier of premium turf-care products for golf courses and other professional markets. It also produces corncob-based chemical and feed ingredient carriers, animal bedding, cat litter and ice-melter products. The group operates facilities in Maumee and Bowling Green, Ohio; Montgomery, Alabama; Pottstown, Pennsylvania and Delphi, Indiana. Total revenues in 2001 increased by $5.4 million, or 5%, primarily due to the full-year operation of the premium golf course fertilizer business acquired from The Scotts Co. in mid-2000. The group incurred an operating loss of $7.7 million for the year, more than double the loss it sustained in the previous year. 2001 was a very difficult year for the entire lawn industry. Retail fertilizer sales in the U.S. were hurt by softness in the general economy and cold weather experienced early in the spring season. Our sales into the retail distribution channel were also impacted by the efforts of retailers across the country to reduce their in-store inventories. The volume of our turf-care products sold into the golf course market was similarly hurt when the number of golf rounds played per course in the U.S. declined and golf course superintendents scrambled to curtail expenditures wherever possible. Gross margins were hurt by higher raw material costs and a weather-influenced shift away from higher-margin control products such as early-season crabgrass preventers. In response to these factors, we have taken steps to significantly reduce costs. At the same time, we are working to implement a rational market development program that will enable us to better utilize our available production capacity. We expect 2002 to show considerable improvement from 2001 results. Because one of the key markets of the group's cob business is the lawn fertilizer industry, it experienced some softness in tons sold, total revenues and operating income in 2001. Performance of the group's pet business in 2001 was relatively unchanged from the previous year. [Bar Charts]
1997 1998 1999 2000 2001 SALES & REVENUES $ 63.4 $ 76.4 $ 85.0 $ 107.4 $ 112.8 OPERATING INCOME (LOSS) $ 0.7 $ 2.8 $ (0.1) $ (3.5) $ (7.7)
7 RAIL GROUP The RAIL GROUP sells and leases railcars and locomotives. It also repairs and reconfigures various types of railcars to meet customer specifications, and it operates a custom steel fabrication business. The group's rail marketing business has grown significantly in the past decade and now controls a fleet of more than 5,400 railcars and 51 locomotives. The fleet consists of covered hopper cars, boxcars, open top hopper cars, gondolas, and tank cars. The group leases its rolling stock to shippers, railroads and fleet owners in a wide range of industries throughout North America. The group's total revenues increased by $12 million, or about 64%, in 2001. Because of a writedown during the year of certain railcars that had been acquired prior to the market reaching a cyclical low point, the group incurred an operating loss of $0.3 million for the year. In 2000, the group reported an operating income of $1.0 million. Excluding the asset valuation adjustment, the group generated operating income in 2001 slightly above the year-earlier level. While lease rates for some types of railcars were beginning to show signs of recovery from lows of the past two years, the events of September 11 reintroduced uncertainty into the markets. Thus lease rates continued to be soft, market values of some car types remained depressed, and the environment for new leases remained short-term for the most part. Although interest rates and fuel costs have declined, some lessors are still reluctant to enter into long-term lease commitments, favoring instead a more conservative position. In this environment, the railcar marketing business continued to pursue short-term leasing opportunities rather than making car sales or entering into long-term leasing deals. In the short-term, the Rail Group was not able to realize any significant gains from car sales, and leasing income per car declined. The number of cars in service increased, however, and the depressed railcar values enabled us to continue building our equipment portfolio. During the year the number of locomotives in the lease fleet more than doubled. Our total investment in rail assets increased by 8.7% in 2001, and stood at $38 million at year-end, as shown ON the Company's balance sheets. The railcar repair shop and the fabrication shop performed well in 2001. The integration of these shops with the rail marketing business continues to demonstrate promise. As we strive to be a total rail solution provider for our customers, some exciting opportunities are emerging, for example, in component manufacturing, whereby we design a component, manufacture it, install it on a car, then lease the refurbished car to our customer. As the group continues to build the lease fleet, care is taken to diversify it in terms of lease duration, car types, industries, customers and geographic dispersion. We will continue to monitor credit quality of its customers diligently, and to match-fund assets and liabilities as much as possible to effectively manage risk. [Bar Charts]
1997 1998 1999 2000 2001 SALES & REVENUES $ 23.5 $ 50.4 $ 55.3 $ 19.0 $ 31.1 OPERATING INCOME (LOSS) $ 3.3 $ 4.4 $ 4.2 $ 1.0 $ (0.3) FLEET SIZE Railcars 3,514 4,082 4,420 4,815 5,432 Locomotives 30 30 51
8 RETAIL GROUP The RETAIL GROUP operates six large stores in Ohio. Three are located in the Toledo area, two in Columbus and one in Lima. Four are stand-alone facilities, having in-store selling space of 130,000 or more square feet each. The other two are slightly smaller mall-based units. Our central message to the retail customer is that our stores offer MORE FOR YOUR HOME.(TM) The product offering includes a broad array of traditional home center merchandise - plumbing, electrical aND building supplies, hardware, flooring, paint and lighting products. In addition, our stores feature lawn and garden products, extensive lines of housewares and domestics, workwear, pet supplies, automotive supplies, sporting goods and the Uncommon MarketTM - a unique offering of high quality foods including a deli with cheeses from around the world, produce, a bakery featuring hard-crusted European-style breads, specialty gourmet foods, frozen meats, and one of the largest selections of fine wines in the Midwest. Total sales for the group were down 3.2% in 2001, and operating income of $1.9 million for the year was $1.3 million below its 2000 results. Approximately half of the year-to-year reduction in sales and operating income was due to the fifty-third week in 2000, an extra reporting period that occurs every few years. The sluggish economy this year also contributed to the decline, as did the virtual absence of demand for snow/cold weather merchandise in the months of January and December, a complete reversal from our 2000 experience. Average gross margins for the year were up slightly due to a shift in product mix to higher margin merchandise. Competitive wage pressures in our region continued to increase labor and benefit costs for the group. In total, expenses were well controlled. There were several bright spots in this year's performance. Flooring sales were up 42%. Christmas trim increased by 8%. Wine sales were also up 8%, and the entire food business performed well, achieving 4% sales growth overall. A fresh meat department was added in our Maumee store during the year. Its sales have been strong, and it has raised the customer count trend for that store as well. We also achieved several operational improvements in 2001. Total labor hours were reduced from year-earlier levels without a reduction in customer service levels. Our in-stock performance was the highest it's been since we began to measure it five years ago, an improvement made possible by new in-store ordering and inventory control processes using wireless data processing technology. Constant attention to product mix enhancements and operational efficiency are driven by our goal of providing noticeably extraordinary service to our customers. [Bar charts]
1997 1998 1999 2000 2001 SALES & REVENUES Retail $ 173 $ 174 $ 181 $ 184 $ 178 OPERATING INCOME Retail $ 0.6 $ 1.7 $ 2.6 $ 3.2 $ 1.9
9
SELECTED FINANCIAL DATA 2001 2000 1999 1998 1997 (in thousands, except for per common share data) Operating Results Total sales & revenues (a) $ 984,627 $ 961,122 $1,005,922 $1,140,445 $1,039,816 Net income 8,857(b) 10,078(c) 8,379 9,752 4,074(d) Per common share data: Earnings - basic 1.22 1.34 1.05 1.21 0.50 Dividends paid 0.26 0.24 0.20 0.16 0.12 Balance Sheet Data Total assets $ 454,076 $ 439,106 $ 376,776 $ 360,823 $ 368,244 Working capital 75,005 55,260 67,939 65,898 53,595 Long-term debt (e) 91,316 80,159 74,127 71,565 65,709 Shareholders' equity 94,934 89,836 84,805 82,734 72,201
(a) Includes reclassifications to prior years to decrease revenues for certain financing transactions in the Rail Group previously displayed on a gross basis (b) Non-recurring gain of $0.3 million for an insurance settlement is included ($0.2 million after tax). (c) Non-recurring gains of $2.1 million for an insurance settlement and $1.0 million on the sale of a business are Included ($2.0 million after tax). (d) Non-recurring charge of $1.1 million for asset impairment is included ($0.7 million after tax). (e) Excludes current portion. QUARTERLY FINANCIAL DATA AND MARKET FOR COMMON STOCK
(in thousands, except Net Income (Loss) before for per common share data) (a) Cumulative Effect Net Income (Loss) Common Stock Quote Dividends ---------------------------------------------------------------- Gross Per Per Quarter Ended Net Sales Profit Amount Share-Basic Amount Share-Basic High Low Declared ------------------------------------------------------------------------------------------------------- 2001 March 31 $218,007 $ 35,115 $ (630) $ (0.09) $ (815) $ (0.11) $ 8.94 $ 8.03 $ 0.065 June 30 273,064 48,260 7,274 1.00 7,274 1.00 8.88 7.50 0.065 September 30 186,518 31,314 (1,905) (0.26) (1,905) (0.26) 10.00 7.72 0.065 December 31 307,038 44,656 4,303 0.60 4,303 0.60 10.00 8.51 0.065 -------------------------------------- ---------- ----------- Year $984,627 $ 159,345 $ 9,042 1.24 $ 8,857 1.22 $ 0.260 ====================================== ========== =========== 2000 March 31 $202,181 $ 35,054 $ 1,222 $ 0.16 $ 1,222 $ 0.16 $ 8.25 $ 6.94 $ 0.060 June 30 260,825 44,858 6,718 0.89 6,718 0.89 9.69 6.88 0.060 September 30 176,391 32,039 (2,235) (0.30) (2,235) (0.30) 10.13 8.50 0.060 December 31 321,725 45,012 4,373 0.59 4,373 0.59 9.00 7.78 0.065 -------------------------------------- ---------- ----------- Year $961,122 $ 156,963 $ 10,078 1.34 $10,078 1.34 $ 0.245 ====================================== ========== ===========
(a) Includes reclassifications of quarters to decrease revenues for certain financing transactions in the Rail Group previously displayed on a gross basis Report of Independent Accountants To the Board of Directors and Shareholders of The Andersons, Inc. In our opinion, the accompanying consolidated balance sheets, and the related consolidated statements of income, of cash flows and of shareholders' equity, as presented on pages 14 through 17 and pages 21 through 32, present fairly, in all material respects, the financial position of The Andersons, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements of the Company for the year ended December 31, 1999 were audited by other independent auditors whose report dated January 24, 2000 expressed an unqualified opinion on those statements. /S/ Pricewaterhouse Coopers LLP Toledo, Ohio January 28, 2002 1 The Andersons, Inc. Consolidated Statements of Income
YEAR ENDED DECEMBER 31 (in thousands, except per common share data) 2001 2000 1999 ---------- ---------- --------- Sales and merchandising revenues $ 984,627 $ 961,122 $1,005,922 Cost of sales and merchandising revenues 825,282 804,159 855,959 ---------- ---------- --------- Gross profit 159,345 156,963 149,963 Operating, administrative and general expenses 139,685 137,839 132,682 Interest expense 11,570 11,829 9,517 Other income / gains: Other income 3,503 3,989 4,195 Gain on insurance settlements 338 2,088 -- Gain on sale of business -- 992 -- ---------- ---------- --------- Income before income taxes and cumulative effect of accounting change 11,931 14,364 11,959 Income tax provision 2,889 4,286 3,580 ---------- ---------- --------- Income before cumulative effect of accounting change 9,042 10,078 8,379 Cumulative effect of change in accounting principle, net of income tax benefit (185) -- -- ---------- ---------- --------- Net income $ 8,857 $ 10,078 $ 8,379 ========== ========== ========== Per common share: Basic earnings $ 1.22 $ 1.34 $ 1.05 ========== ========== ========== Diluted earnings $ 1.21 $ 1.34 $ 1.03 ========== ========== ========== Dividends paid $ 0.26 $ 0.24 $ 0.20 ========== ========== ==========
The Notes to Consolidated Financial Statements on pages 21-32 are an integral part of these statements. 2 The Andersons, Inc. Consolidated Balance Sheets
DECEMBER 31 (in thousands) 2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 5,697 $ 13,138 Accounts and notes receivable: Trade receivables, less allowance for doubtful accounts of $2,701 in 2001; $3,084 in 2000 51,080 51,435 Margin deposits 3,756 5,706 --------- --------- 54,836 57,141 Inventories 238,291 211,863 Railcars available for sale 11,932 12,719 Deferred income taxes 3,963 3,444 Prepaid expenses and other current assets 11,954 10,429 --------- --------- Total current assets 326,673 308,734 Other assets: Other assets and notes receivable, less allowance for doubtful notes receivable of $472 in 2001; $698 in 2000 5,344 8,598 Investments in and advances to affiliates 956 1,422 --------- --------- 6,300 10,020 Railcar assets leased to others, net 26,102 22,281 Property, plant and equipment, net 95,001 98,071 --------- --------- $ 454,076 $ 439,106 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 82,600 $ 71,300 Accounts payable for grain 66,968 67,468 Other accounts payable 50,996 64,619 Customer prepayments and deferred income 22,683 23,249 Accrued expenses 18,047 17,712 Current maturities of long-term debt 10,374 9,126 --------- --------- Total current liabilities 251,668 253,474 Deferred income 2,209 3,166 Pension and post-retirement benefits 5,302 3,684 Long-term debt, less current maturities 91,316 80,159 Deferred income taxes 8,647 8,787 --------- --------- Total liabilities 359,142 349,270 Shareholders' equity: Common shares, without par value Authorized -- 25,000 shares Issued -- 8,430 shares at stated value of $0.01 per share 84 84 Additional paid-in capital 66,431 66,488 Treasury shares, at cost (1,174 in 2001; 1,070 in 2000) (10,687) (9,852) Accumulated other comprehensive income (964) -- Unearned compensation (83) (78) Retained earnings 40,153 33,194 --------- --------- 94,934 89,836 --------- --------- $ 454,076 $ 439,106 ========= =========
The Notes to Consolidated Financial Statements on pages 21-32 are an integral part of these statements. 3 The Andersons, Inc. Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 (in thousands) 2001 2000 1999 --------- --------- --------- OPERATING ACTIVITIES Net income $ 8,857 $ 10,078 $ 8,379 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 14,264 13,119 11,282 Provision for losses on accounts and notes receivable 224 911 1,180 Cumulative effect of accounting change, net of income tax benefit 185 -- -- Gain on insurance settlements (338) (2,088) -- Gain on sale of business -- (992) -- Gain on sale of property, plant and equipment (336) (35) (459) Realized and unrealized (gains) losses on railcars 1,172 (110) (1,573) Deferred income taxes (539) 2,242 854 Other 368 112 258 --------- --------- --------- Cash provided by operations before changes in operating assets and 23,857 23,237 19,921 liabilities Changes in operating assets and liabilities: Accounts and notes receivable 2,080 (6,984) 7,549 Inventories (26,428) (35,811) 4,823 Prepaid expenses and other assets 272 (2,632) 1,913 Accounts payable for grain (500) (1,415) (20,095) Other accounts payable and accrued expenses (5,389) 5,302 (2,432) --------- --------- --------- Net cash provided by (used in) operating activities (6,108) (18,303) 11,679 INVESTING ACTIVITIES Purchases of property, plant and equipment (9,155) (16,189) (17,963) Purchases of railcars (21,790) (16,245) (40,209) Purchase of U.S. ProTurf(R)and other business assets -- (16,311) -- Proceeds from sale of railcars 15,376 3,821 39,995 Proceeds from sale of property, plant and equipment 951 240 741 Proceeds from insurance settlements 338 2,346 -- Proceeds from sale of business -- 2,133 -- --------- --------- --------- Net cash used in investing activities (14,280) (40,205) (17,436) FINANCING ACTIVITIES Net increase in short-term borrowings 11,300 26,300 37,300 Proceeds from issuance of long-term debt 23,250 194,723 102,082 Payments of long-term debt (10,845) (187,417) (101,679) Change in overdrafts (7,796) 17,827 (3,292) Proceeds from sale of treasury shares to employees 332 362 429 Dividends paid (1,907) (1,819) (1,616) Purchase of treasury shares (1,387) (3,944) (5,106) --------- --------- --------- Net cash provided by financing activities 12,947 46,032 28,118 --------- --------- --------- Increase (decrease) in cash and cash equivalents (7,441) (12,476) 22,361 Cash and cash equivalents at beginning of year 13,138 25,614 3,253 --------- --------- --------- Cash and cash equivalents at end of year $ 5,697 $ 13,138 $ 25,614 ========= ========= ========= NONCASH INVESTING ACTIVITIES Acquisition of intangible assets in exchange for long-term debt $ 3,879 ========
The Notes to Consolidated Financial Statements on pages 21-32 are an integral part of these statements. 4 The Andersons, Inc. Consolidated Statements of Shareholders' Equity
Common Shares Accumulated (stated Additional Other value $0.01 Paid-in Treasury Comprehensive Unearned Retained (in thousands) per share) Capital Shares Income Compensation Earnings Total --------------------------------------------------------------------------------------- Balances at January 1, 1999 $ 84 $ 67,180 $ (2,665) $ (29) $ (83) $ 18,247 $ 82,734 Net income 8,379 8,379 Other comprehensive loss Minimum pension liability, net of $76 income taxes (115) (115) -------- Comprehensive income 8,264 Stock awards, stock option exercises, and other shares issued to employees and directors 47 613 (231) 429 Amortization of unearned compensation 156 156 Purchase of treasury shares (5,106) (5,106) Dividends declared ($0.21 per common share) (1,672) (1,672) --------- --------- -------- ---------- ---------- -------- -------- Balances at December 31, 1999 84 67,227 (7,158) (144) (158) 24,954 84,805 Net income 10,078 10,078 Other comprehensive income: Minimum pension liability, net of $(96) income taxes 144 144 -------- Comprehensive income 10,222 Stock awards, stock option exercises, and other shares issued to employees and directors (96) 607 (148) 363 Issuance of shares to complete acquisition (643) 643 -- Amortization of unearned compensation 228 228 Purchase of treasury shares (3,944) (3,944) Dividends declared ($0.245 per common share) (1,838) (1,838) --------- --------- -------- ---------- ---------- -------- -------- Balances at December 31, 2000 84 66,488 (9,852) -- (78) 33,194 89,836 Net income 8,857 8,857 Other comprehensive income (loss): Cumulative effect of accounting change (1,172) (1,172) Other 208 208 -------- Comprehensive income 7,893 Stock awards, stock option exercises, and other shares issued to employees and directors (57) 552 (163) 332 Amortization of unearned compensation 158 158 Purchase of treasury shares (1,387) (1,387) Dividends declared ($0.26 per common share) (1,898) (1,898) --------- --------- -------- ---------- ---------- -------- -------- Balance at December 31, 2001 $ 84 $ 66,431 $(10,687) $ (964) $ (83) $ 40,153 $ 94,934 ========= ========= ======== ========== ========== ======== ========
The Notes to Consolidated Financial Statements on pages 21-32 are an integral part of these statements. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Operating results for The Andersons, Inc. business segments are discussed in the Business Review on pages 4 - 11 of this annual report. In addition, Note 13 to the consolidated financial statements displays revenues from external customers, inter-segment sales, other income, non-recurring gains, interest expense (income), operating income (loss), identifiable assets, railcar and capital expenditures and depreciation and amortization for each of the Company's business segments. The following discussion focuses on the operating results as shown in the consolidated statements of income. COMPARISON OF 2001 WITH 2000 Sales and merchandising revenues for 2001 totaled $984.6 million, an increase of $23.5 million, or 2%, from 2000. Sales in the Agriculture segment were up $11.6 million, or 2%. Grain sales were down $13.5 million, or 3%, due to flat volumes and a 3% decrease in the average price per bushel sold. Fertilizer sales were up $25.1 million, or 17%, due to a 2% increase in volume and a 14% increase in average price per ton sold. Merchandising revenues in the Agriculture segment were up $2.8 million, or 6%, due primarily to increases in drying and mixing income, space income (before interest charges) in the grain division and licensing revenue from the Crop Revenue Profiler (TM) software. Space income includes storage fees earned on grain held for our customers and appreciation in the value of grain owned. Grain bushels on hand at December 31, 2001 were 65.4 million, slightly more inventory than at December 31, 2000. The Processing segment had a sales increase of $5.4 million, or 5%. The majority of this increase was attributable to increased price per ton sold in the lawn fertilizer division and a full twelve months of sales in 2001 of the U.S. ProTurf(R) product line, which was acquired from The Scotts Company on May 31, 2000. Volume decreased for the period in the consumer and industrial lawn fertilizer businesses (sold into the retail distribution channel) due to softness in the economy coupled with cold weather in much of the spring application season. The much smaller corncob-based businesses experienced a 16% increase in the average price per ton sold, partially offset by an 11% reduction in volume. The Rail segment had a sales increase of $12.1 million, or 64%. Railcar sales transactions completed during 2001 were up $11.5 million, and lease fleet revenue was up $1.0 million, or 8%. The lease fleet revenue growth was due to an increased number of railcars and locomotives managed and in service as compared to 2000. Railcars managed at December 31, 2001 numbered 5,432, an increase of approximately 13% over railcars managed at December 31, 2000. The segment also added 21 locomotives to its fleet. The Retail segment experienced decreased sales of $5.9 million, or 3%, in 2001 when compared to 2000. More than half of this decrease relates to an extra (or 53rd) week in the 2000 fiscal year. In addition, weather during the months of January and December in 2001 was mild and demand for our cold weather items was very limited. This is in contrast to the same months in 2000 where weather drove significant sales of cold weather items. 6 The absence of revenues in the Other segment for 2001 was due to the sale of the Company's interest in The Andersons-Tireman Auto Centers (Tireman), an automotive repair business, in 2000. See the Comparison of 2000 with 1999 for more discussion about that sale. Gross profit for 2001 totaled $159.3 million, an increase of $2.4 million, or 2%, from 2000. The Agriculture segment had a gross profit increase of $8.5 million, or 11%, resulting from a 28% increase in margin on grain bushels sold, a 14% increase in gross profit on fertilizer tons sold and the 6% increase in merchandising revenues discussed previously. For 2002, the Company expects continued strong performance from this segment. As always, this segment's results are highly dependent on weather conditions during the spring planting season through fall harvest in the eastern corn belt. Gross profit for the Processing segment decreased $1.8 million, or 8%, from the prior year. This decrease resulted from a 6% decrease in gross profit per lawn fertilizer ton sold and a 6% decrease in lawn fertilizer volume. The decrease in gross profit per ton was primarily caused by high raw material costs coupled with a change in product mix in the 2001 spring season, as customers opted for lower margin products. Gross profit in the corncob-based businesses was up $0.3 million, or 12%. The lawn fertilizer business has been able to lock in better raw material pricing for the upcoming spring fertilizer season and expects gross profit improvement in 2002. Gross profit in the Rail segment decreased $1.0 million, or 12%, from the prior year. While gross profit from car sales, railcar repairs, the fabrication shop and lease transactions was up, the segment took a $1.5 million charge to write down the book value of certain impaired railcars. The increased sales activity in the latter portion of the year and some indications of future long-term deals are positive indications that the industry is improving; however, the recovery has been slow. Customer preference and market rates are still more focused on short-term lease opportunities rather than long-term leases or outright sales. Gross profit in the Retail segment decreased by $2.0 million, or 4%, from 2000. Half of this decrease was related to the extra week in 2000 mentioned previously. The remainder was due to the decrease in sales discussed above. New competition is expected in the Toledo market in 2002. Gross profit in the Other segment declined by $1.5 million in 2001 over 2000 due to the Company's sale of its interest in Tireman in March 2000. The Company recorded a nonrecurring gain in 2001 and two nonrecurring gains in 2000. The 2001 nonrecurring gain of $0.3 million was related to an insurance recovery for a damaged grain tank at the Albion, Michigan facility. A tank collapse at its Webberville, Michigan wholesale fertilizer facility resulted in a 2000 gain of $2.1 million from an insurance settlement for the replacement of the fixed assets. In addition, the Company recognized a gain of $1.0 million on the sale of its 52.5% interest in Tireman. Operating, administrative and general expenses for 2001 totaled $139.7 million, a $1.8 million, or 1%, increase from 2000. The increase primarily reflects increased labor and benefits expenses including $1.3 million in severance expense. Full-time employees decreased 4% from the prior year, with reductions in all segments and at the corporate level. While the Company has certain initiatives in place to reduce expenses, it expects property and liability insurance and the cost of providing postretirement health benefits to increase in 2002. 7 Interest expense for 2001 was $11.6 million, a $0.3 million, or 2%, decrease from 2000. Average daily short-term borrowings increased 1% from 2000 while the average short-term interest rate decreased from 6.95% in 2000 to 5.10% in 2001. However, the Company has increased its long-term debt (including current maturities) 14% from December 31, 2000 to December 31, 2001 and has seen a similar increase in its long-term interest expense. Income before income taxes of $11.9 million decreased $2.4 million, or 17%, from the 2000 pretax income of $14.4 million. Income tax expense was $2.9 million, a $1.4 million, or 33%, decrease from 2000. The effective tax rate decreased significantly from the 2000 rate of 29.8% to 24.2% in 2001. This significant decrease resulted primarily from an increased benefit from the Company's foreign sales corporation. The Company recognized an after-tax charge of $0.2 million to record the cumulative effect of adopting the new financial accounting standard on derivatives. As a result of the above, net income for 2001 decreased $1.2 million, or 12%, from the $10.1 million in 2000 to $8.9 million in 2001. Basic earnings per share decreased $0.12 from 2000 and diluted earnings per share decreased $0.13 from 2000. COMPARISON OF 2000 WITH 1999 Sales and merchandising revenues for 2000 totaled $961.1 million, a decrease of $44.8 million, or 4%, from 1999. Sales in the Agriculture segment were down $32.1 million, or 5%. Grain sales were down $27.8 million, or 6%, due to a 7% volume decrease that was partially offset by a 2% increase in the average price per bushel sold. Fertilizer sales were down $4.2 million, or 3%, due to a 3% increase in volume offset by a 6% decrease in average price per ton sold. Merchandising revenues in the Agriculture segment were up $7.0 million, or 18%, due to basis appreciation of grain inventory and increased income from storing grain and fertilizer for others. Grain bushels on hand at December 31, 2000 were 65.3 million, a 4% decrease from December 31, 1999. The Company added 0.8 million bushels of covered grain storage space in 2000. The Processing segment had a sales increase of $22.4 million, or 26%. All of this increase was attributable to increased volume and price per ton sold in the lawn fertilizer division. The increased sales in the lawn fertilizer business in 2000 reflect seven months of sales of the U.S. ProTurf(R) product line, which was acquired from The Scotts Company on May 31, 2000. The Company began producing and warehousing lawn fertilizer at an additional facility, located in Alabama, in the fourth quarter of 1999 and purchased its venture partner's interest in a Pennsylvania lawn fertilizer manufacturing facility in late 2000. The corncob-based businesses experienced a 6% reduction in volume, partially offset by a 4% increase in the average price per ton sold. The Rail segment had a sales decrease of $36.4 million, or 66%. Total revenues in the railcar repair and fabrication shops were down $0.4 million. Railcar sales and financings completed during 2000 were down $36.2 million, or 91%, but lease fleet income was up slightly. Railcars controlled at December 31, 2000 numbered about 4,800, an increase of about 500 cars, or 12%, over that of December 31, 1999. A cyclical downturn in railcar lease values and rental rates, primarily in covered hopper cars, reduced the segment's long-term lease placements and outright sales during 2000. The Retail segment experienced increased sales of $2.9 million, or 2%, in 2000 when compared to 1999. 8 On March 31, 2000, the Company completed the sale of its interest in Tireman, one of the businesses included in the Other segment in Note 13 to the consolidated financial statements. As a result, sales in the Other segment decreased by $8.7 million in 2000 as compared to 1999. Gross profit for 2000 totaled $157.0 million, an increase of $7.0 million, or 5%, from 1999. The Agriculture segment had a gross profit increase of $7.7 million, or 11%, due primarily to the increase in merchandising revenues described previously. Gross profit for the Processing segment increased $5.6 million, or 34%, from the prior year. This increase resulted from a 22% increase in gross profit per ton and a 14% increase in lawn fertilizer volume, again resulting primarily from the purchase of the U.S. ProTurf(R) product line. Gross profit in the corncob-based businesses was down 8%. Gross profit in the Rail segment decreased $2.6 million, or 24%, from the prior year. This was due to lower railcar sales and a soft lease market for the segment's primary car type - the covered hopper - and was mostly offset by the increased fleet income. Gross profit in the Retail segment improved by $1.4 million, or 3%, from 1999. This was due primarily to increased sales and a slight increase in gross margin percentage. Gross profit in the Other segment declined by $5.1 million in 2000 over 1999 due to the Company's sale of its interest in Tireman in March 2000. The Company recorded two nonrecurring gains in 2000. A tank collapse at its Webberville, Michigan wholesale fertilizer facility resulted in a gain of $2.1 million from an insurance settlement for the replacement of the fixed assets. In addition, the Company's sale of its 52.5% interest in Tireman resulted in a gain of $1.0 million. Operating, administrative and general expenses for 2000 totaled $137.8 million, a $5.2 million, or 4%, increase from 1999. The increase primarily reflects increased labor and benefits expenses for added employees and start-up costs related to new production capacity in the Processing segment. Full-time employees increased 4% from the prior year, with the majority of the increase due to the acquisition discussed above and added capacity in the Processing segment. Interest expense for 2000 was $11.8 million, a $2.3 million, or 24%, increase from 1999. Average daily short-term borrowings increased 11% from 1999 while the average short-term interest rate increased from 5.70% in 1999 to 6.95% in 2000. Income before income taxes of $14.4 million increased $2.4 million, or 20%, from the 1999 pretax income of $12.0 million. Income tax expense was $4.3 million, a $0.7 million, or 20%, increase from 1999. The effective tax rate decreased slightly from the 1999 rate of 29.9% to 29.8% in 2000. As a result of the above, net income for 2000 increased $1.7 million, or 20%, from the $8.4 million in 1999 to $10.1 million in 2000. Basic earnings per share increased $0.29 from 1999 and diluted earnings per share increased $0.31 from 1999. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's operations (before changes in operating assets and liabilities) provided cash of $23.9 million in 2001, an increase of $0.6 million from 2000. Net working capital at December 31, 2001 was $75.0 million, an increase of $19.7 million, or 36%, from December 31, 2000. The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable. Available short-term lines of credit aggregated $155 million on December 31, 2001. The Company had drawn $82.6 million on its short-term lines of credit at that date. The Company's peak short-term borrowing occurred on November 26, 2001 and amounted to $130.4 million. 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 cash needs and market strategies of grain customers. The continued high grain inventories during the fall harvest of 2001 was the primary driver for this unusual timing for the Company's highest borrowing. The Company utilizes interest rate contracts to manage a portion of its interest rate risk on both its short and long-term debt and lease commitments. At December 31, 2001, the fair value of these derivative financial instruments (primarily interest rate swaps and interest rate caps) was a credit of less than $0.1 million and was recorded in the balance sheet. The initial charge to record the fair value of open derivative instruments on January 1, 2001 was $0.4 million ($0.2 million after-tax) which is shown as a cumulative effect of adopting Statement of Financial Accounting Standards No. 133, as amended. Finally, the Company moved the unamortized values of its long-term closed interest rate caps and locks to other comprehensive income at the time of adoption. Cash dividends of $1.9 million ($0.26 per common share) were paid in 2001. The Company made income tax payments of $2.7 million in 2001. The Company purchased 166 thousand of its common shares on the open market at an average price of $8.38 per share. The Company issued approximately 62 thousand shares to employees, directors and former employees under stock compensation plans. During 2001, the Company acquired property, plant and equipment aggregating $9.2 million. Included in these assets are $1.5 million for the replacement or addition of wholesale fertilizer and grain storage assets and $1.2 million for information systems investments. The remaining $6.5 million was spent on numerous assets and projects; no single project had a cost of more than $0.3 million. The Company also acquired railcar assets totaling $21.8 million. Approximately $14.0 million is budgeted for capital spending in 2002, which includes $2.0 million in additional grain and wholesale fertilizer storage and improvements, $0.5 million in lawn fertilizer production equipment, $0.4 million in information systems investments and $0.7 million in retail store refurbishments. The remaining amount will be spent on numerous assets and projects; no single such project is expected to cost more than $0.3 million. In addition, the Company anticipates spending $8.3 million during 2002 to acquire railcars. The Company plans to fund these expenditures with cash generated from operations or additional debt. The Company added long-term debt during 2001 in order to lock in lower long-term interest rates and add to working capital. Certain of the Company's long-term debt obligations are secured by first mortgages on various facilities or are collateralized by railcar assets. In addition, some of the long-term borrowings 10 include provisions that impose minimum levels of working capital and equity, impose limitations on additional debt and require that grain inventory positions be substantially hedged. The Company was in compliance with all of these provisions at December 31, 2001 and 2000. The Company's liquidity is enhanced by the fact that grain inventories are readily marketable and due to the lines of credit that it has available. In the opinion of management, the Company's liquidity is adequate to meet short-term and long-term needs. OFF-BALANCE SHEET TRANSACTIONS The Company's Rail segment utilizes leasing arrangements which provide off-balance sheet financing for its activities. The Company leases railcars from financial intermediaries under operating leases through sale-leaseback transactions, the majority of which involve operating leasebacks. Railcars owned by the Company, or leased by the Company from a financial intermediary are generally leased to a customer under an operating lease. The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to a financial intermediary, and assigns the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, the Company generally provides ongoing railcar maintenance and management services for the financial intermediary, and receives a fee for such services. The Company controlled 5,432 railcars and 51 locomotives at December 31, 2001. Railcars controlled include railcars owned by the Company, railcars leased from financial institutions and railcars and locomotives previously sold by the Company in non-recourse lease transactions, where the Company provides management services on behalf of a financial intermediary. On most of the railcars and locomotives, the Company holds an option to purchase these assets at the end of the lease. The segment's risk management philosophy includes match-funding of lease commitments and detailed review of lessee credit quality. In addition, the Company prefers non-recourse lease transactions, whenever possible, in order to minimize risk. The December 31, 2001 railcar position included 1,168 railcars leased by the Company from financial intermediaries under various operating leases with an average remaining term in excess of 4 years. Future lease payment commitments for these cars aggregated $24.6 million and are included in note 10 to the Consolidated Financial Statements. The majority of these railcars have been leased to customers at December 31, 2001. The December 31, 2001 railcar position also included 1,510 railcars and 51 locomotives for which the Company was providing maintenance and/or fleet management services under non-recourse lease transactions. The remaining 2,754 railcars are included on the Company's balance sheet as either railcars available for sale or railcar assets leased to others. Note 10 to the Consolidated Financial Statements includes all future contractual lease income for the 1,168 railcars leased by the Company under operating leases and the Railcar assets leased to others on the Company's balance sheet. CRITICAL ACCOUNTING POLICIES The Company marks all grain inventory, forward purchase and sale contracts for grain and exchange-traded futures and options contracts to the market. Changes in market value are recorded as merchandising revenues in the statement of income. Because the Company marks inventories and sales 11 commitments to the market, gross profit on a grain sale transaction is recognized when a contract for sale of the grain is executed. The related revenue is recognized upon shipment of the grain, at which time title transfers and customer acceptance occurs. The Company has a marketing agreement that covers certain of its grain facilities. This five-year agreement includes a base-level income guarantee and equal sharing of income over that base level. There is also a look-back provision that places at risk any income in excess of the base level for the term of the agreement upon the occurrence of certain circumstances. The Company has recognized in income the base level guarantee amount for each year of the agreement and spreads its share of the amount in excess of the base level for completed contract years on a pro rata basis over all future periods covered by the agreement. At December 31, 2001, the Company had completed 43 months under the agreement and has deferred income (both current and long-term) in excess of $5.0 million. If the facilities' performance drops below the base-level income guarantee for the remaining 17 months of the contract, the Company is at risk for writing off a portion of this deferred income. If performance is at or greater than the base-level guarantee, the Company will recognize the income it already deferred over that period. 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. COMMODITY PRICES 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 exchange-traded futures and options contracts that function as hedges. The market value of exchange-traded futures and options used for hedging has a high, but not perfect correlation, to the underlying market value of grain inventories and related purchase and sale contracts. The less correlated portion of inventory and purchase and sale contract market value (known as basis) is much less volatile than that of exchange-traded futures and tends to follow historical patterns. The Company manages this less volatile risk using its daily grain position report to constantly monitor its position relative to the price changes in the market. 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 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 (exclusive of basis risk). The Company's daily net commodity position consists of inventories, related purchase and sale contracts and exchange-traded contracts. The fair value of the 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: 12
DECEMBER 31 (in thousands) 2001 2000 ------ ------ Net long position $3,659 $ 26 Market risk 366 3
INTEREST RATES 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 derivative interest rate contracts recorded in its balance sheet at their fair value. 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:
DECEMBER 31 (in thousands) 2001 2000 -------- -------- Fair value of long-term debt and interest rate contracts $104,102 $ 88,554 Fair value in excess of (less than) carrying value 2,344 (1,154) Market risk 2,253 594
FORWARD LOOKING STATEMENTS The preceding Letter to Shareholders, Business Review and Management's Discussion and Analysis contain 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," "will" 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. 13 The Andersons, Inc. Notes to Consolidated Financial Statements December 31, 2001 1. BASIS OF FINANCIAL PRESENTATION / ACQUISITIONS These consolidated financial statements include the accounts of The Andersons, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions are eliminated in consolidation. On May 31, 2000, the Company acquired inventory and intangible assets of the U.S. ProTurf(R) division of The Scotts Company. The acquisition was accounted for as a purchase, and the results of operations have been included in the consolidated statements of income from June 1, 2000. This transaction was completed through a combination of cash paid and liabilities assumed with a total purchase price of approximately $19.8 million. Of this amount, $15.0 million was allocated to inventory and the remainder to goodwill and other intangible assets. Goodwill is being amortized on a straight-line basis over 12 years and the intangible assets over five years. The purchase agreement provides for additional payments to the seller through 2005 if the sales volume of the acquired business exceeds certain targets. These payments, if any, will be accounted for as additional purchase price. If the acquisition had taken place on January 1, 1999, pro forma revenues (unaudited) would have been $993.0 million and $1,078.3 million for the years ended December 31, 2000 and 1999, respectively. The business has been integrated into the Company's Processing segment and is expected to result in significantly different cost and expense structures. Therefore, pro forma operating income, net income and earnings per common share are not presented as they are not meaningful. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 an initial maturity of three months or less. The carrying value of these assets approximates their fair values. INVENTORIES AND INVENTORY COMMITMENTS Grain inventories include owned bushels of grain, the value of forward contracts to buy and sell grain and exchange traded futures and option contracts used to hedge the value of both owned grain and forward 14 contracts. Each of these grain inventory components is marked to the market price. The forward contracts require performance in future periods. Contracts to purchase grain from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of grain to processors or other consumers generally do not extend beyond one year. The terms of contracts for the purchase and sale of grain are consistent with industry standards. All other inventories are stated at the lower of cost or market. Cost is determined by the average cost method. DERIVATIVES - COMMODITY AND INTEREST RATE CONTRACTS For the purpose of hedging its market price risk exposure on grain owned and related forward grain purchase and sale contracts, the Company holds regulated commodity futures and options contracts for corn, soybeans, wheat and oats. The Company accounts for all commodity contracts using a daily mark-to-market method, the same method it uses to value grain inventory and forward purchase and sale contracts. Company policy limits the Company's unhedged grain position. While the Company considers all of its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges. Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices or due to sale, maturity or extinguishment of the commodity contract), grain inventories and related forward grain contracts are included in sales and merchandising revenues in the statements of income. The Company also periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. The Company accounts for its long-term interest rate swap contract as a cash flow hedge; accordingly, changes in the fair value of the swap are recognized in other comprehensive income. While the Company considers all of its derivative positions to be effective economic hedges of specified risks, the Company does not designate or account for other open interest rate contracts as hedges. Changes in the market value of all other interest rate contracts are recognized currently in income. Upon termination of a derivative instrument or a change in the hedged item, any remaining fair value recorded on the balance sheet is immediately recorded as a component of interest expense. The Company recorded in the statement of income a transition adjustment of $305 thousand ($185 thousand after tax) as a result of adopting Financial Accounting Standards Board (FASB) Statement No. 133, as amended, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. This adjustment was made to write down open interest rate contracts to their fair value. The Company also reclassified deferred net losses of $1.2 million to other comprehensive income. This amount represented deferred net losses on the settlement of Treasury rate locks entered into for the purpose of hedging the interest rate component of firm commitment lease transactions. The deferred losses will be recognized as a component of gross profit over the term of the underlying leases. Prior to the adoption of Statement No. 133, the Company recognized income or expense associated with interest rate swap contracts on the accrual basis over the term of the agreement as a component of interest expense. The cost of short-term interest rate caps was expensed at the date of purchase and long-term interest rate caps expensed over their term. Gains or losses on settlement of Treasury rate locks hedging the interest component of firm commitment lease transactions were recognized over the term of the ensuing lease transaction. The balance of deferred losses on settled Treasury rate locks included in other assets and notes receivable totaled $1.6 million and $1.4 million at December 31, 2000 and 1999, 15 respectively. The fair value of interest rate contracts was not recognized in the balance sheet prior to 2001. RAILCARS AVAILABLE FOR SALE The Company's Rail segment purchases, leases, markets and manages railcars for third parties and for internal use. Railcars to which the Company holds title are shown on the balance sheet in one of two categories - railcars available for sale or railcar assets leased to others. Railcars that have been acquired but have not been placed in service are classified as current assets and are stated at the lower of cost or market. Railcars leased to others, both on short- and long-term leases, are classified as long-term assets and are depreciated over their estimated useful lives. Railcars leased to others under sales-type and direct financing leases are not material. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Repairs and maintenance are charged to expense as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided over the estimated economic useful lives of the individual assets, principally by the straight-line method. Estimated useful lives are generally as follows: land improvements and leasehold improvements - 10 to 16 years; buildings and storage facilities - 20 to 30 years; machinery and equipment - 3 to 20 years; and software - 3 to 10 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts, with any gain or loss realized upon sale or disposal credited or charged to operations. INTANGIBLE ASSETS Intangible assets, primarily purchased intangible assets and goodwill resulting from business acquisitions, are amortized over the estimated period of benefit (ranging from 5 to 12 years) by the straight-line method. Intangible assets of $4.1 million and $5.1 million at December 31, 2001 and 2000, respectively, are included in other assets and notes receivable in the balance sheet. Accumulated amortization at December 31, 2001 and 2000 was $1.8 million and $0.8 million, respectively. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets and intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the assets to the future net cash flows the Company expects to generate with the asset. If such assets are considered to be impaired, the Company recognizes impairment expense for the amount by which the carrying amount of the assets exceeds the fair value of the assets. ACCOUNTS PAYABLE FOR GRAIN Accounts payable for grain includes the liability for grain purchases on which price has not been established (delayed price). This amount has been computed on the basis of market prices at the end of the year, adjusted for the applicable premium or discount. 16 DEFERRED INCOME Certain of the Company's agriculture facilities are subject to a long-term (five-year) marketing agreement with a third party that provides for a base-level income guarantee and equal sharing of income earned over the base level. The marketing agreement includes a look-back provision that places at risk any income in excess of the base level for the term of the agreement. The Company recognizes the base-level income guarantee as revenue on a pro rata basis over the remaining life of the agreement. The Company measures its share of the cumulative income over the base-level income guarantee at the end of each contract year and recognizes such income on a pro rata basis over the remaining life of the agreement. STOCK-BASED COMPENSATION The Company has adopted the disclosure-only provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation." Statement No. 123 encourages, but does not require, companies to adopt a fair value method for determining expense related to stock-based compensation. The Company continues to account for stock-based compensation using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. REVENUE RECOGNITION Sales of products are recognized at the time of shipment. Gross profit on grain sales is recognized when sales are contracted. Revenues from other merchandising activities are recognized as open grain contracts are marked-to-the-market or as services are provided. Sales returns and allowances are provided for at the time sales are recorded. Shipping and handling costs are included in the cost of goods sold. Sales of railcars, including railcars sold in non-recourse lease transactions, are recorded as revenue on the date of sale. Sales for these transactions totaled $15.3 million, $3.8 million and $40.0 million in 2001, 2000 and 1999, respectively. LEASE ACCOUNTING The Company accounts for its leases under FASB Statement 13, as amended, and related pronouncements. The Company's Rail segment leases and manages railcars for third parties, and leases railcars for internal use. The Company is an operating lessor of railcars that are owned by the Company, or leased by the Company from financial intermediaries. The Company records lease income for its activities as an operating lessor as earned, which is generally spread evenly over the lease term. The Company expenses operating lease payments made to financial intermediaries on a straight-line basis over the lease term. The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to financial intermediaries and assigns the related operating lease on a non-recourse basis. The Company generally provides ongoing railcar maintenance and management services for the financial intermediaries, and receives a fee for such services. On the date of sale, the Company recognizes the proceeds from sales of railcars in non-recourse lease transactions as revenue. Management and service fees are recognized as revenue when earned; generally spread evenly over the lease term. 17 INCOME TAXES Income tax expense for each period includes taxes currently payable plus the change in deferred income tax assets and liabilities. Deferred income taxes are provided for temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates and laws expected to be in effect when the differences are expected to reverse. The Company evaluates the realizability of deferred tax assets and provides a valuation allowance for amounts that management does not believe are more likely than not to be recoverable. ADVERTISING Advertising costs are expensed as incurred. Advertising expense of $2.8 million in each of 2001 and 2000 and $2.9 million in 1999 is included in operating, administrative and general expenses. EARNINGS PER SHARE Basic earnings per share is equal to net income divided by weighted average shares outstanding. Diluted earnings per share is equal to basic earnings per share plus the incremental per share effect of dilutive options and restricted shares.
YEAR ENDED DECEMBER 31 (in thousands) 2001 2000 1999 --------- ------- ------- Income before cumulative effect of accounting change $ 9,042 $10,078 $ 8,379 Cumulative effect of change in accounting principle, net of income tax benefit (185) -- -- --------- ------- ------- Net income $ 8,857 $10,078 $ 8,379 ========= ======= ======= Basic earnings per share: Income before cumulative effect of accounting change $ 1.24 $ 1.34 $ 1.05 Cumulative effect of change in accounting principle, net of income tax benefit (0.02) -- -- --------- ------- ------- Net income $ 1.22 $ 1.34 $ 1.05 ========= ======= ======= Diluted earnings per share: Income before cumulative effect of accounting change $ 1.24 $ 1.34 $ 1.03 Cumulative effect of change in accounting principle, net of income tax benefit (0.03) -- -- --------- ------- ------- Net income $ 1.21 $ 1.34 $ 1.03 ========= ======= ======= Weighted average shares outstanding - basic 7,281 7,507 7,996 Restricted shares and shares contingently issuable upon exercise of options 35 18 102 --------- ------- ------- Weighted average shares outstanding - diluted 7,316 7,525 8,098 ========= ======= =======
18 Diluted earnings per common share excludes the impact of 260 thousand, 634 thousand and 178 thousand employee stock options for 2001, 2000 and 1999, respectively, as such options were antidilutive. NEW ACCOUNTING STANDARDS The FASB has issued Statement No. 142, "Goodwill and Other Intangible Assets," which is effective for the Company's 2002 fiscal year. This statement eliminates the amortization of goodwill, among other things, and replaces it with an annual goodwill impairment test. The Company has analyzed the requirements of the statement and expects a reduction in amortization expense of less than $0.2 million for 2002. The Company also believes that the $1.3 million of goodwill it has recorded in other assets and notes receivable is not currently impaired. The FASB also issued the following statements in 2001. These statements each require prospective application. - Statement No. 141, "Business Combinations," amends or supersedes existing rules used in accounting for business combinations. The Company does not expect to be impacted by this statement until it makes a future acquisition. - Statement No. 143, "Accounting for Asset Retirement Obligations," requires the recognition of asset retirement obligations at their net present value. It is effective for the Company's fiscal year beginning January 1, 2003. The Company has not determined the impact, if any, of this statement. - Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," supersedes Statement No. 121, provides guidance for the application of impairment tests and removes goodwill from the Statement No. 121 impairment calculation. Goodwill impairment is now covered by Statement No. 142. Statement 144 is effective for the Company's fiscal year beginning January 1, 2002. The Company does not believe the impact of adopting this statement will be material. RECLASSIFICATIONS Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on net income or shareholders' equity as previously presented. 3. INVENTORIES Major classes of inventories are as follows:
DECEMBER 31 (in thousands) 2001 2000 -------- -------- Grain $140,316 $111,887 Agricultural fertilizer and supplies 24,240 28,479 Lawn and garden fertilizer and corncob products 43,440 39,810 Railcar repair parts 1,401 1,273 Retail merchandise 28,539 29,866 Other 355 548 -------- -------- $238,291 $211,863 ======== ========
19 4. PROPERTY, PLANT AND EQUIPMENT AND RAILCAR ASSETS LEASED TO OTHERS The components of property, plant and equipment and railcar assets leased to others are as follows:
DECEMBER 31 (in thousands) 2001 2000 -------- -------- Land $ 11,758 $ 11,899 Land improvements and leasehold improvements 27,937 27,702 Buildings and storage facilities 94,309 93,620 Machinery and equipment 119,460 118,724 Software 3,714 3,850 Construction in progress 4,144 1,878 -------- -------- 261,322 257,673 Less accumulated depreciation and amortization 166,321 159,602 -------- -------- $ 95,001 $ 98,071 ======== ======== Railcar assets leased to others $ 30,585 $ 25,085 Less accumulated depreciation 4,483 2,804 -------- -------- $ 26,102 $ 22,281 ======== ========
On December 31, 2001, the Company entered into a sale leaseback transaction with a financial institution; the Company accounts for its leaseback as a capital lease. These assets have a book value of $4.5 million at December 31, 2001 and are included with other railcars above. Amortization of railcars under capital lease will be included in depreciation expense. At December 31, 2001, there was no accumulated amortization for these assets. 5. NONRECURRING GAINS During 2000, a grain tank and related assets at the Company's Albion, Michigan facility were destroyed in a windstorm. This facility was insured for replacement value and the Company received insurance funds to replace the assets lost. The 2001 gain of $0.3 million represents the insurance proceeds received in 2001 in excess of the net book value of the destroyed assets. During 1999, a liquid fertilizer tank and adjoining assets at the Company's Webberville, Michigan facility were destroyed when the tank collapsed. This facility was insured for replacement value and the Company received funds to replace the assets. During 2000, the Company completed the settlement of its insurance claim for the accident. The resultant gain of $2.1 million represents the insurance proceeds in excess of the net book value of the destroyed assets. In March 2000, the Company sold its interest in The Andersons - Tireman Auto Centers, a joint venture in which it owned a 52.5% interest. The gain of $1.0 million represents proceeds received in excess of the Company's equity investment. This business was previously consolidated in the Company's financial statements and reported in the Other segment in the Company's segment data. 20 6. BANKING AND CREDIT ARRANGEMENTS The Company has available lines of credit for unsecured short-term debt with banks aggregating $155.0 million. Borrowings under these facilities totaled $82.6 million at December 31, 2001 ($71.3 million at December 31, 2000). After considering its standby letters of credit totalling $9.0 million, the Company had available borrowing capacity under the facilities of $63.4 million at December 31, 2001. 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. Borrowings under the lines of credit bear interest at variable interest rates, which are generally based on LIBOR, plus a spread. 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: DECEMBER 31 (dollars in thousands) 2001 2000 1999 -------- -------- --------- Maximum amount borrowed $130,400 $113,800 $110,500 Average daily amount borrowed 91,014 89,798 81,042 Weighted average interest rate 5.10% 6.95% 5.70% 21 7. LONG-TERM DEBT AND INTEREST RATE CONTRACTS Long-term debt consists of the following:
DECEMBER 31 (in thousands, except percentages) 2001 2000 -------- -------- Note payable under revolving line of credit $ 15,000 $ 15,000 Note payable, 7.98%, payable $317 quarterly; remainder due 2008 17,415 18,683 Note payable, 7.00%, payable $316 quarterly beginning in 2004, due 2016 10,681 -- Note payable, variable rate (1.91% at December 31, 2001), payable $315 first and second quarters and $150 third and fourth quarters of 2002, with decreasing quarterly payments thereafter, due 2005 7,750 9,940 Notes payable, variable rate (2.94% at December 31, 2001), payable $336 quarterly; remainder due 2002 1,657 5,046 Industrial development revenue bonds: Variable rate (1.70% at December 31, 2001), due 2019 4,650 4,650 Variable rate (3.24% at December 31, 2001), payable $882 annually through 2004 1,944 2,826 Variable rate (1.80% at December 31, 2001), due 2025 3,100 3,100 Liabilities related to acquisition, discounted at 8.25%, due in variable quarterly installments through 2005 3,188 3,508 Debenture bonds, 6.30% to 8.75%, due 2002 through 2011 31,250 25,863 Obligations under capital lease 4,473 -- Other notes payable and bonds 582 669 -------- -------- 101,690 89,285 Less current maturities 10,374 9,126 -------- -------- $ 91,316 $ 80,159 ======== ========
The Company has an unsecured $15.0 million revolving line of credit with a bank that bears interest based on LIBOR (effective rate of 3.54% at December 31, 2001). The revolving line of credit expires on January 1, 2003. The notes payable due 2002, 2008 and 2016 and the industrial development revenue bonds are collateralized by first mortgages on certain facilities and related equipment with a book value of $32.0 million. The note payable due 2005 is collateralized by railcars with a book value of $8.0 million. The various underlying loan agreements, including the Company's revolving line of credit, include certain provisions that require the Company to, among other things: - maintain minimum working capital of $32.0 million and net equity (as defined) of $43.0 million; - limit the addition of new long-term debt; - limit its unhedged grain position to 2.0 million bushels; and - restrict the amount of dividends paid. The Company was in compliance with these covenants at December 31, 2001 and 2000. 22 The aggregate annual maturities of long-term debt, including sinking fund requirements and capital lease obligations, are as follows: 2002--$10.4 million; 2003--$24.9 million; 2004--$6.4 million; 2005--$10.8 million; 2006--$12.8 million; and $36.4 million thereafter. Interest paid (including interest on short-term lines of credit) amounted to $10.1 million, $11.5 million and $9.0 million in 2001, 2000 and 1999, respectively. The Company has entered into interest rate contracts to manage interest rate risk on short-term borrowings. The contracts convert variable interest rates to short-term fixed rates, consistent with projected borrowing needs. At December 31, 2001, the Company has two short-term interest rate cap agreements with a total notional amount of $30.0 million to hedge short-term borrowing costs. These agreements provide interest rate caps of between 2.41% and 4.75% and expire between April and July 2002. Also open at December 31, 2001 was an interest rate collar with a notional amount of $10 million that expires in July 2002. This collar provides a floor of 3.98% and a cap of 5.00%. Although these instruments are intended to hedge interest rate risk on short-term borrowings, the Company has elected not to account for them as such. Changes in their fair value are included in interest expense in the statements of income. The Company entered into a long-term interest rate cap in December 1999 with an initial notional amount of $19.4 million to cap the interest rate component of an operating lease at 6.50%. The cap expires in November 2003. The Company also entered into a long-term interest rate cap in June 2000 with an initial notional amount of $12.5 million to cap the interest rate component of a new long-term note payable at 7.66%. The cap expires in June 2005. The notional amounts on these caps amortize monthly to approximate the reduction in the underlying long-term obligations. The Company has also entered into a long-term interest rate swap in October 2001 to convert the floating interest rate component of an operating lease to a fixed rate of 3.27%. The notional amount of this swap equals the underlying lease obligation and amortizes in the same manner. Changes in the fair value of the caps are included in interest expense in the statements of income. The swap is treated as a cash flow hedge with changes in its fair value included as a component of other comprehensive income. The fair value of all derivative instruments is included in other assets and notes receivable. The amount for 2001 was not significant. The mark-to-market effect of long-term and short-term interest rate contracts on interest expense was $0.2 million additional expense for 2001. 23 8. INCOME TAXES Income tax provision (benefit) consists of the following:
YEAR ENDED DECEMBER 31 (in thousands) 2001 2000 1999 ------- ------- ------- Current: Federal $ 3,311 $ 2,219 $ 2,766 State and local 117 (175) (40) ------- ------- ------- 3,428 2,044 2,726 ------- ------- ------- Deferred: Federal (496) 1,935 718 State and local (43) 307 136 ------- ------- ------- (539) 2,242 854 ------- ------- ------- Total: Federal 2,815 4,154 3,484 State and local 74 132 96 ------- ------- ------- $ 2,889 $ 4,286 $ 3,580 ======= ======= =======
In addition, the Company recognized a deferred income tax benefit of $120 thousand upon adoption of Statement 133. This amount is included in the statement of income as an element of the cumulative effect of accounting change. A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:
YEAR ENDED DECEMBER 31 2001 2000 1999 ------------- ------------- ------------- Statutory U.S. federal tax rate 35.0% 35.0% 35.0% Increase (decrease) in rate resulting from: Effect of commissions paid to foreign sales corporation (11.3) (5.8) (5.3) State and local income taxes, net of related federal taxes 0.4 0.6 0.5 Other, net 0.1 -- (0.3) ------------- ------------- ------------- Effective tax rate 24.2% 29.8% 29.9% ============= ============= =============
Income taxes paid in 2001, 2000 and 1999 were $4.3 million, $3.3 million, and $4.3 million, respectively. 24 Significant components of the Company's deferred tax liabilities and assets are as follows:
DECEMBER 31 (in thousands) 2001 2000 -------- -------- Deferred tax liabilities: Property, plant and equipment and railcar assets leased to others $(12,898) $(12,136) Prepaid employee benefits (2,949) (2,727) Other (202) (679) -------- -------- (16,049) (15,542) -------- -------- Deferred tax assets: Employee benefits 5,384 4,726 Deferred income 1,450 1,446 Accounts and notes receivable 1,289 1,296 Inventory 2,456 1,629 Investments 353 552 Other 433 550 -------- -------- 11,365 10,199 -------- -------- Net deferred tax liability $ (4,684) $ (5,343) ======== ========
9. STOCK COMPENSATION PLANS The Company's Amended and Restated Long-Term Performance Compensation Plan (the LT Plan) authorizes the Board of Directors to grant options and share awards to employees and outside directors for up to 1.4 million of the Company's common shares. Options granted under the LT Plan have a maximum term of 10 years. Options granted to outside directors have a fixed term of five years and vest after one year. Options granted to management personnel under the LT Plan have a five-year term and vest 40% immediately, an additional 30% after one year and the remaining 30% after two years. Options granted under the LT Plan are structured as fixed grants with exercise price equal to the market value of the underlying stock on the date of the grant; accordingly, no compensation expense is recognized for these grants. The LT Plan also permits awards of restricted stock. The Company issued 21 thousand, 20 thousand and 21 thousand restricted shares during 2001, 2000 and 1999, respectively, of which 28 thousand remain outstanding at December 31, 2001. These shares carry voting and dividend rights; however, sale of the shares is restricted prior to vesting. Restricted shares vest 50% after one year and the remaining 50% after two years. Shares issued under the LT Plan are recorded at their fair value on the grant date with a corresponding charge to shareholders' equity representing the unearned portion of the award. The unearned portion is amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to this plan amounted to $158 thousand, $228 thousand and $156 thousand during 2001, 2000 and 1999, respectively. Certain Company executives and outside directors have elected to receive a portion of their cash compensation in stock options and/or restricted stock issued under the LT Plan. These options and restricted stock vest immediately. The options have a ten-year term. There were 6 thousand, 4 thousand and 4 thousand restricted shares issued in lieu of cash compensation in 2001, 2000 and 1999, respectively. 25 The Company's Employee Share Purchase Plan (the ESP Plan) allows employees to purchase common shares through payroll withholdings. The Company has reserved 300 thousand common shares for issuance to and purchase by employees under this plan. The ESP Plan also contains an option component. The purchase price per share is the lower of the market price at the beginning or end of the year. Employees purchased 33 thousand, 33 thousand and 39 thousand shares under the ESP Plan in 2001, 2000 and 1999, respectively. The Company records a liability for withholdings not yet applied towards the purchase of common stock. No compensation expense is recognized for stock purchases or options under the ESP Plan. Pro forma information regarding net income and earnings per share required by Statement No. 123, "Accounting for Stock-Based Compensation," is determined as if the Company accounted for its employee stock options granted under the fair value method. The fair value of each option grant is estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions by year.
2001 2000 1999 ---- ---- ---- LONG TERM PERFORMANCE COMPENSATION PLAN Risk free interest rate 4.99% 6.36% 4.58% Dividend yield 3.01% 2.91% 1.73% Volatility factor of the expected market price of the Company's common shares .267 .276 .313 Expected life for the options (in years) 5.00 5.00 5.00 EMPLOYEE SHARE PURCHASE PLAN Risk free interest rate 5.32% 5.98% 4.58% Dividend yield 3.01% 2.91% 1.73% Volatility factor of the expected market price of the Company's common shares .267 .276 .313 Expected life for the options (in years) 1.00 1.00 1.00
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
(in thousands, except for per common share information) 2001 2000 1999 ---------- ---------- ---------- Net income as reported $ 8,857 $ 10,078 $ 8,379 Pro forma net income $ 8,539 $ 9,715 $ 7,936 Pro forma earnings per common share: Basic $ 1.17 $ 1.29 $ 0.99 Diluted $ 1.17 $ 1.29 $ 0.98
26 A summary of the Company's stock option activity and related information for the years ended December 31 follows:
LONG-TERM PERFORMANCE COMPENSATION PLAN (common shares in thousands) 2001 2000 1999 ------------------------ ------------------------- ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- ------------- ---------- -------------- ---------- ------------- Outstanding at beginning of year 862 $ 9.24 671 $ 9.60 499 $ 8.89 Granted 224 8.63 229 8.25 183 11.56 Exercised (93) 8.83 -- -- (6) 9.00 Expired/forfeited (78) 8.68 (38) 9.59 (5) 11.30 ---------- ---------- ---------- Outstanding at end of year 915 $ 9.18 862 $ 9.24 671 $ 9.60 ========== ========== ==========
2001 2000 1999 ----- ----- ----- Weighted average fair value of options granted during year $2.00 $2.18 $3.44 ===== ===== ===== Options exercisable at end of year 732 687 519 ===== ===== ===== Weighted average exercise price of options exercisable at end of year $9.35 $9.27 $9.23 ===== ===== ===== Options available for grant at December 31, 2001 301 Price range of options at December 31, 2001 $8.25 to $12.38 Weighted average remaining contractual life 2.88
10. LEASES AND RELATED COMMITMENTS Railcar leasing activities: The Company is a lessor of railcars. The majority of railcars are leased to customers under operating leases that may be either net leases or full service leases, under which the Company provides maintenance and fleet management services. The Company also provides services to financial intermediaries to which it has sold railcars and locomotives in non-recourse lease transactions. Fleet management services generally include maintenance, escrow, tax filings and car tracking services. Many of the Company's leases provide for renewals. The Company also generally holds purchase options for railcars it has sold and leased-back from a financial intermediary, and railcars sold in non-recourse lease transactions. 27 Lease income from operating leases to customers and rental expense for railcar leases were as follows:
YEAR ENDED DECEMBER 31 (in thousands) 2001 2000 1999 -------------- ------------- -------------- Rental and service income - operating leases $ 9,896 $ 9,497 $ 9,811 ============== ============= ============== Rental expense $ 4,387 $ 4,778 $ 5,405 ============== ============= ==============
Future minimum rentals and service income for all noncancelable railcar operating leases greater than one year are as follows:
FUTURE RENTAL AND FUTURE (in thousands) SERVICE INCOME - MINIMUM OPERATING LEASES RENTAL EXPENSE ---------------------- -------------------- Year ended December 31 2002 $10,150 $ 5,838 2003 8,126 5,431 2004 6,336 3,838 2005 4,988 2,387 2006 3,564 1,417 Future years 12,653 5,656 ---------------------- -------------------- $45,817 $24,567 ====================== ====================
Other leasing activities: The Company, as lessee, leases real property, vehicles and other equipment under operating leases. Certain of these agreements contain lease renewal and purchase options. Net rental expenses under these agreements was $6.4 million, $6.1 million and $5.6 million in 2001, 2000 and 1999, respectively. Future minimum lease payments under these agreements are as follows: 2002--$4.6 million; 2003--$3.4 million; 2004--$2.4 million; 2005--$2.1 million; 2006--$0.8 million; and $0.6 million thereafter. 11. PENSION AND OTHER POSTRETIREMENT BENEFITS The Company provides retirement benefits for substantially all of its employees under several defined benefit and defined contribution plans. The Company's expense for its defined contribution plans amounted to $1.4 million, $1.4 million and $1.3 million in 2001, 2000 and 1999, respectively. The Company also provides certain health insurance benefits to employees including retirees. 28 Following are the details of the liability and funding status of the pension and postretirement benefit plans:
(in thousands) PENSION BENEFITS POSTRETIREMENT BENEFITS 2001 2000 2001 2000 --------------- -------------- ------------ ------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $25,151 $21,376 $ 11,372 $ 9,390 Service cost 1,884 2,062 610 434 Interest cost 1,560 1,625 1,224 766 Actuarial (gains)/losses (121) 1,232 6,493 1,232 Plan amendment -- -- -- 185 Participant contributions -- -- 73 44 Benefits paid (1,515) (1,144) (822) (679) --------------- -------------- ------------ ------------ Benefit obligation at end of year 26,959 25,151 18,950 11,372 --------------- -------------- ------------ ------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 26,117 26,364 -- -- Actual losses on plan assets (1,671) (850) -- -- Company contributions 1,549 1,747 749 635 Participant contributions -- -- 73 44 Benefits paid (1,515) (1,144) (822) (679) --------------- -------------- ------------ ------------ Fair value of plan assets at end of year 24,480 26,117 -- -- --------------- -------------- ------------ ------------ Funded (underfunded) status of plans at end of year (2,479) 966 (18,950) (11,372) Unrecognized net actuarial loss 5,369 1,478 9,825 3,735 Unrecognized prior service cost 115 142 -- -- Unrecognized net transition obligation -- -- 1,217 1,328 --------------- -------------- ------------ ------------ Prepaid (accrued) benefit cost $ 3,005 $ 2,586 $ (7,908) $ (6,309) =============== ============== ============ ============
Amounts recognized in the consolidated balance sheets at December 31 consist of:
(in thousands) PENSION BENEFITS POSTRETIREMENT BENEFITS 2001 2000 2001 2000 --------------- -------------- ------------ ------------ Accrued expenses $ (1,243) $ (1,273) $ -- $ -- Pension and postretirement asset (liability) 4,248 3,859 (7,908) (6,309) --------------- -------------- ------------ ------------ Net amount recognized $ 3,005 $ 2,586 $ (7,908) $ (6,309) =============== ============== ============ ============
In 2000, as part of its purchase of the U.S. ProTurf(R) assets, the Company assumed certain postretirement benefit obligations with regard to a group of employees that were hired. This additional obligation of $185 thousand is shown above as a plan amendment in 2000. Included in pension and postretirement benefits are $1.6 million and $1.2 million at December 31, 2001 and 2000, respectively, of deferred compensation for certain employees who, due to Internal Revenue Service guidelines, may not take full 29 advantage of the Company's primary defined contribution plan. Assets funding this plan are recorded at fair value in prepaid expenses and other current assets. Amounts applicable to a Company defined benefit plan with accumulated benefit obligations in excess of plan assets are as follows:
(in thousands) 2001 2000 ------- ------- Projected benefit obligation $ 933 $ 1,026 ======= ======= Accumulated benefit obligation and additional liability $ 137 $ 192 ======= ======= Minimum liability reduction $ -- $ (407) Intangible asset adjustment -- 167 ------- ------- -- (240) Tax benefit -- 96 ------- ------- Other comprehensive income $ -- $ (144) ======= =======
Following are components of the net periodic benefit cost for each year:
PENSION BENEFITS POSTRETIREMENT BENEFITS (in thousands) 2001 2000 1999 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- Service cost $ 1,884 $ 2,062 $ 1,996 $ 610 $ 434 $ 343 Interest cost 1,560 1,625 1,359 1,224 766 604 Expected return on plan assets (2,366) (2,353) (1,956) -- -- -- Amortization of prior service cost 26 26 26 -- -- -- Recognized net actuarial loss 25 73 32 420 157 112 Amortization of net transition obligation -- -- -- 111 111 111 ---------- ---------- ---------- ---------- ---------- ---------- Benefit cost $ 1,129 $ 1,433 $ 1,457 $2,365 $1,468 $1,170 ========== ========== ========== ========== ========== ==========
PENSION BENEFITS POSTRETIREMENT BENEFITS 2001 2000 2001 2000 --------------- -------------- ------------ ------------- WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.25% 7.5% 7.25% 7.5% Expected return on plan assets 9.0% 9.0% -- -- Rate of compensation increases 4.0% 4.0% -- -- Health care cost trend rate -- -- 8.0% 5.5%
The health care cost trend rate of 8.0% is assumed to decline 0.5% per year to 5.0% and remain at that level thereafter. 30 The assumed health care cost trend rate has a significant effect on the amounts reported for postretirement benefits. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
(in thousands) ONE-PERCENTAGE-POINT INCREASE DECREASE ---------- ---------- Effect on total service and interest cost components in 2001 $ 373 $ (291) Effect on postretirement benefit obligation as of December 31, 2001 3,272 (2,616)
To partially fund self-insured health care and other employee benefits, the Company makes payments to a trust. Assets of the trust amounted to $4.5 million and $3.0 million at December 31, 2001 and 2000, respectively, and are included in prepaid expenses and other current assets. 12. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of the Company's cash equivalents, margin deposits, short-term borrowings and certain long-term borrowings approximate their carrying values since the instruments are close to maturity and/or carry variable interest rates based on market indices. The Company accounts for investments in affiliates on the equity method. The estimated fair value of these investments could not be obtained without incurring excessive costs as they have no quoted market price. Certain long-term notes payable and the Company's debenture bonds bear fixed rates of interest and terms of up to fifteen 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 estimates the fair values of its long-term debt instruments outstanding at December 2001 and 2000 as follows:
--------------- ---------- (in thousands) CARRYING AMOUNT FAIR VALUE --------------- ---------- 2001: Long-term notes payable $31,284 $32,695 Debenture bonds 31,250 32,189 ------- ------- $62,534 $64,884 ======= ======= 2000: Long-term notes payable $22,191 $22,424 Debenture bonds 25,863 24,773 ------- ------- $48,054 $47,197 ======= =======
13. BUSINESS SEGMENTS The Company's operations include four reportable business segments that are distinguished primarily on the basis of products and services offered. The Agriculture segment includes grain merchandising, the operation of terminal grain elevator facilities and the manufacture and distribution of agricultural inputs, primarily fertilizer, to dealers and farmers. The Processing segment includes the production and 31 distribution of lawn care and corncob-based products. The Rail segment includes the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Retail segment includes the operation of six large retail stores, a distribution center and a lawn and garden equipment sales and service shop. Included in the Other segment are the operations of several smaller businesses and corporate level amounts not attributable to an operating segment. These smaller businesses included the operations of ten auto service centers (a joint venture that was sold in March 2000) and the marketing of the Company's excess real estate. The segment information below (in thousands) 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. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. Operating income (loss) for each segment is based on net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets. Capital expenditures include additions to property, plant and equipment, software and intangible assets. 32
2001 AGRICULTURE PROCESSING RAIL RETAIL OTHER TOTAL ---------------------------- -------------- ------------- ---------------- ------------ ----------- ------------- REVENUES FROM EXTERNAL CUSTOMERS $ 662,790 $ 112,827 $ 31,061 $ 177,949 -- $ 984,627 INTER-SEGMENT SALES 5,645 1,212 930 -- -- 7,787 OTHER INCOME 1,196 300 248 618 1,141 3,503 GAIN ON INSURANCE SETTLEMENT 338 -- -- -- -- 338 INTEREST EXPENSE (INCOME) (a) 6,179 3,428 1,846 1,900 (1,783) 11,570 OPERATING INCOME (LOSS) 19,765 (7,654) (349) 1,868 (1,699) 11,931 IDENTIFIABLE ASSETS 244,289 84,709 45,037 57,289 22,752 454,076 CAPITAL EXPENDITURES 5,845 1,549 166 907 688 9,155 RAILCAR EXPENDITURES -- -- 21,790 -- -- 21,790 DEPRECIATION AND AMORTIZATION 6,399 2,341 2,432 2,426 666 14,264 2000 AGRICULTURE PROCESSING RAIL RETAIL OTHER TOTAL ---------------------------- -------------- ------------- ---------------- ------------ ----------- ------------- Revenues from external customers $ 648,410 $ 107,434 $ 18,972 $ 183,817 $ 2,489 $ 961,122 Inter-segment sales 5,896 1,280 1,029 -- -- 8,205 Other income 1,204 358 233 611 1,583 3,989 Gain on sale of business -- -- -- -- 992 992 Gain on insurance settlement 2,088 -- -- -- -- 2,088 Interest expense (income) (a) 6,186 3,424 1,748 1,706 (1,235) 11,829 Operating income (loss) 14,301 (3,470) 1,003 3,246 (716) 14,364 Identifiable assets 215,927 87,092 41,548 60,178 28,451 433,196 Capital expenditures (b) 9,648 9,276 72 1,484 488 20,968 Railcar expenditures -- -- 16,245 -- -- 16,245 Depreciation and amortization 6,223 2,032 1,417 2,755 692 13,119
33
1999 AGRICULTURE PROCESSING RAIL RETAIL OTHER TOTAL ---------------------------- -------------- ------------- ---------------- ------------ ----------- ------------- Revenues from external customers $673,523 $84,990 $55,325 $180,887 $11,197 $1,005,922 Inter-segment sales 3,867 1,373 969 -- -- 6,209 Other income 761 471 161 435 2,367 4,195 Interest expense (income) (a) 6,036 1,720 1,132 1,712 (1,083) 9,517 Operating income (loss) 6,054 (95) 4,225 2,645 (870) 11,959 Identifiable assets 183,370 58,416 31,653 61,311 42,026 376,776 Capital expenditures 8,181 6,589 266 2,140 1,008 18,184 Railcar expenditures -- -- 40,209 -- -- 40,209 Depreciation and amortization 5,787 1,285 764 2,433 1,013 11,282
(a) The interest income reported in the Other segment includes net interest income at the corporate level. These amounts result from a rate differential between the interest rate on which interest is allocated to the operating segments and the actual rate at which borrowings are made. (b) Capital expenditures in 2000 include assets purchased in exchange for common stock and long-term liabilities. Grain sales for export to foreign markets amounted to approximately $191 million, $172 million and $146 million in 2001, 2000 and 1999, respectively. In 1999, sales of rail equipment totaling $18 million were made to a foreign customer. Grain sales of $122 million, $153 million and $162 million in 2001, 2000, and 1999, respectively, were made to an unaffiliated customer. 34
THE ANDERSONS 2001 ANNUAL REPORT CORPORATE OFFICERS BOARD OF DR. SIDNEY RIBEAU(2)(3) INVESTOR ------------------ DIRECTORS President INFORMATION DENNIS J. ADDIS --------- Bowling Green State ------------ President, DONALD E. ANDERSON(3) University CORPORATE OFFICES Wholesale Fertilizer Director of Science, The Andersons, Inc Division Retired CHARLES A. 480 West Dussel Drive The Andersons, Inc. SULLIVAN(1)(3) Maumee, OH 43537 DANIEL T. ANDERSON Chairman & Chief 419-893-5050 President, Retail Group MICHAEL J. ANDERSON(3) Executive Officer www.andersonsinc.com President & Chief Interstate Bakeries Corp -------------------- MICHAEL J. ANDERSON Executive Officer TRANSFER AGENT & President & Chief The Andersons, Inc. JACQUELINE F. REGISTRAR Executive Officer WOODS(2)(3) RICHARD M. ANDERSON(3) Retired President Computershare Investor RICHARD M. ANDERSON President, Processing Ameritech Ohio Services, LLC President, Processing Group 2 North LaSalle Street Group The Andersons, Inc. (1) Audit Committee Chicago, IL 60602 (2) Compensation 312-588-4991 RICHARD P. ANDERSON RICHARD P. ANDERSON(3) Committee Chairman Chairman (3) Nominating FORM 10-K The Andersons, Inc. Committee The Andersons' 2001 DALE W. FALLAT Form 10-K, filed in mid- Vice President, THOMAS H. INDEPENDENT March 2002 with the Corporate Services ANDERSON(3) ACCOUNTANTS SEC, is available to Chairman Emeritus stockholders and PHILIP C. FOX The Andersons, Inc. PricewaterhouseCoopers interested individuals Vice President, LLP, Toledo, OH without charge by Corporate Planning JOHN F. BARRETT(2) (3) writing or calling President & Chief NASDAQ SYMBOL Investor Relations. CHARLES E. GALLAGHER Executive Officer The Andersons, Inc. Vice President Human The Western & Southern common shares are INVESTOR RELATIONS Resources Life Insurance Co. traded on the Nasdaq Gary L. Smith National Market tier of Vice President, Finance RICHARD R. GEORGE PAUL M. KRAUS(3) The Nasdaq Stock & Treasurer Vice President & Attorney Market under the symbol 419-891-6417 Controller Marshall & Melhorn ANDE gary_smith@andersonsinc.com LLC BEVERLY J. MCBRIDE SHAREHOLDERS ANNUAL MEETING Vice President, General DONALD L. MENNEL(1)(3) The annual Counsel & Corporate President & Treasurer As of March 1, 2001, shareholders' meeting Secretary The Mennel Milling there were 7,317,446 of The Andersons, Inc. Company shares of common stock will be held at The HAROLD M. REED outstanding: 864 Andersons' President, Grain DAVID L. NICHOLS(1)(3) shareholders of record Conference Center, Division President & Chief and approximately 1,600 535 Illinois Ave, Operating Officer, shareholders for whom Maumee, OH at 10:30 RASESH H. SHAH Rich's/Lazarus/ security firms acted as a.m. on April 25, President, Rail Group Goldsmith's Division nominees. 2002. of Federated GARY L. SMITH Department Stores, Inc. Vice President, Finance & Treasurer
35 OUR MISSION 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 The Andersons, Inc. 480 West Dussel Drive Maumee, Ohio 43537 36