-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VS72/MW6N6oRgEu/qzvV0UydxZCzSXJ7pCrM6+WoO1zouzAWTXJXQSTIDbeFFriK +nV5ssbQKo6blHqBXTXpGQ== 0000950152-99-008943.txt : 19991115 0000950152-99-008943.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950152-99-008943 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDERSONS INC CENTRAL INDEX KEY: 0000821026 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] IRS NUMBER: 341562374 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20557 FILM NUMBER: 99748340 BUSINESS ADDRESS: STREET 1: 480 W DUSSEL DR CITY: MAUMEE STATE: OH ZIP: 43537 BUSINESS PHONE: 4198935050 MAIL ADDRESS: STREET 1: 480 W DUSSEL DR CITY: MAUMEE STATE: OH ZIP: 43537 FORMER COMPANY: FORMER CONFORMED NAME: ANDERSONS MANAGEMENT CORP DATE OF NAME CHANGE: 19931119 10-Q 1 THE ANDERSONS INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 000-20557 THE ANDERSONS, INC. (Exact name of registrant as specified in its charter) OHIO 34-1562374 (State of incorporation (I.R.S. Employer or organization) Identification No.) 480 W. Dussel Drive, Maumee, Ohio 43537 (Address of principal executive offices) (Zip Code) (419) 893-5050 (Telephone Number) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The registrant had 7,929,502 common shares outstanding, no par value, at November 1, 1999. 2 THE ANDERSONS, INC. INDEX ----- Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Income - Three months and nine months ended September 30, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1999 and 1998 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 Signatures 15 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ---------------------------- THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30 December 31 1999 1998 (Unaudited) (Note) ---------------------------- Current assets Cash and cash equivalents $ 5,026 $ 3,253 Accounts and notes receivable: Trade accounts - net 44,409 62,647 Margin deposits 5,062 248 ---------------------------- 49,471 62,895 Inventories: Grain 112,647 91,218 Agricultural fertilizer and supplies 24,478 27,127 ---------------------------- Agriculture 137,125 118,345 Retail merchandise 34,411 25,863 Processing 17,777 22,428 Manufacturing 20,398 16,039 Other 2,354 2,315 ---------------------------- 212,065 184,990 Deferred income taxes 2,629 4,634 Prepaid expenses 2,996 5,502 ---------------------------- Total current assets 272,187 261,274 Other assets: Notes receivable (net) and other assets 6,652 8,435 Investments in and advances to affiliates 1,004 1,057 ---------------------------- 7,656 9,492 Property, plant and equipment: Land 12,153 12,095 Land improvements and leasehold improvements 26,454 26,056 Buildings and storage facilities 89,712 88,818 Machinery and equipment 117,075 112,561 Construction in progress 7,653 3,059 ---------------------------- 253,047 242,589 Less allowances for depreciation and amortization 159,165 152,532 ---------------------------- 93,882 90,057 ---------------------------- $373,725 $360,823 ============================
Note: The balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 THE ANDERSONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS - (continued) (IN THOUSANDS)
September 30 December 31 1999 1998 (Unaudited) (Note) ----------------------------- Current liabilities Notes payable $ 95,000 $ 7,700 Accounts payable for grain 33,308 88,978 Other accounts payable 62,846 75,301 Accrued expenses 12,012 17,079 Current maturities of long-term debt 5,407 6,318 ----------------------------- Total current liabilities 208,573 195,376 Pension and postretirement benefits 2,705 3,113 Long-term debt 70,027 71,565 Deferred income taxes 7,333 7,330 Minority interest 1,205 705 Shareholders' equity: Common stock (25,000 shares authorized, stated value $.01 per share, 7,939 and 8,140 outstanding at 9/30/99 and 12/31/98, respectively) 84 84 Additional paid-in capital 67,228 67,180 Treasury stock (491 and 290 shares at 9/30/99 and 12/31/98, respectively; at cost) (5,233) (2,665) Accumulated other comprehensive income (loss) (29) (29) Unearned compensation (200) (83) Retained earnings 22,032 18,247 ----------------------------- 83,882 82,734 ----------------------------- $ 373,725 $ 360,823 =============================
Note: The balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 4 5 THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Nine Months Ended September 30 Ended September 30 1999 1998 1999 1998 --------------------------------------------------------- Sales and merchandising revenues $ 173,911 $ 229,216 $ 633,123 $ 733,236 Other income 763 1,576 2,631 3,584 --------------------------------------------------------- 174,674 230,792 635,754 736,820 Cost of sales and merchandising revenues 139,984 193,875 510,417 617,281 --------------------------------------------------------- Gross profit 34,690 36,917 125,337 119,539 Operating, administrative and general expenses 35,866 36,225 111,202 106,163 Interest expense 2,567 2,153 6,685 6,497 --------------------------------------------------------- 38,433 38,378 117,887 112,660 --------------------------------------------------------- Income (loss) before income taxes (3,743) (1,461) 7,450 6,879 Income taxes (credit) (1,231) (489) 2,458 2,305 --------------------------------------------------------- Net income (loss) $ (2,512) $ (972) $ 4,992 $ 4,574 ========================================================= Per common share: Basic $ (0.32) $ (0.12) $ 0.62 $ 0.57 ========================================================= Diluted $ (0.32) $ (0.12) $ 0.61 $ 0.57 ========================================================= Dividends paid $ 0.05 $ 0.04 $ 0.15 $ 0.12 ========================================================= Weighted average common shares Outstanding - basic 7,968 8,145 8,066 8,033 ========================================================= Weighted average common shares Outstanding - diluted 7,968 8,145 8,205 8,078 =========================================================
See notes to condensed consolidated financial statements. 5 6 THE ANDERSONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine months Ended September 30 1999 1998 ------------------------------ OPERATING ACTIVITIES Net income $ 4,992 $ 4,574 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 8,334 7,884 Provision for losses on accounts and notes receivable 769 2,488 Deferred income tax 2,382 (698) Other 137 -- ------------------------- Cash provided by operations before changes in operating assets and liabilities 16,614 14,248 Changes in operating assets and liabilities: Accounts receivable 12,603 5,459 Inventories (27,075) 28,006 Prepaid expenses and other assets 3,516 3,977 Accounts payable for grain (55,670) (88,455) Other accounts payable and accrued expenses (17,917) 7,332 ------------------------ Net cash used in operating activities (67,929) (29,433) INVESTING ACTIVITIES Purchases of property, plant and equipment (11,352) (7,816) Proceeds from sale of property, plant and equipment 178 251 ------------------------- Net cash used in investing activities (11,174) (7,565) FINANCING ACTIVITIES Net increase in short-term borrowings 87,300 35,360 Proceeds from issuance of long-term debt 82,272 82,722 Payments of long-term debt (84,721) (84,223) Purchase of common stock for the treasury (3,184) (345) Proceeds from sale of treasury stock to employees 429 437 Dividends paid (1,220) (974) ------------------------- Net cash provided by financing activities 80,876 32,977 ------------------------- Increase (decrease) in cash and cash equivalents 1,773 (4,021) Cash and cash equivalents at beginning of period 3,253 8,278 ------------------------- Cash and cash equivalents at end of period $ 5,026 $ 4,257 =========================
See notes to condensed consolidated financial statements. 6 7 THE ANDERSONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for the periods indicated have been made. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 1998. Note B - Total comprehensive income was $5.0 million for the nine months ended September 30, 1999 and $4.6 million for the nine months ended September 30, 1998. Total comprehensive income (loss) for the quarters ended September 30, 1999 and 1998 was ($2.5) million and ($1.0) million, respectively. Note C - RESULTS OF OPERATIONS - SEGMENT DISCLOSURES (in thousands)
THIRD QUARTER, 1999 AGRICULTURE MANUFACTURING PROCESSING RETAIL OTHER TOTAL Revenues from external customers $ 105,263 $ 12,879 $ 13,061 $ 38,992 $ 3,716 $ 173,911 Inter-segment sales 644 233 100 -- -- 977 Other income 8 37 176 75 467 763 Interest expense (credit) (a) 1,832 293 376 462 (396) 2,567 Operating income (loss) (2,329) 1,397 (2,084) (633) (94) (3,743) Identifiable assets at September 30, 1999 217,547 30,010 42,045 65,579 18,544 373,725 THIRD QUARTER, 1998 Revenues from external customers $ 144,911 $ 29,599 $ 11,804 $ 39,102 $ 3,800 $ 229,216 Inter-segment sales 462 235 121 -- -- 818 Other income 761 38 123 34 620 1,576 Interest expense (credit) (a) 1,574 260 253 503 (437) 2,153 Operating income (loss) (2,246) 2,215 (1,021) (478) 69 (1,461) Identifiable assets at September 30, 1998 195,553 23,573 30,987 64,867 19,647 334,627
7 8
FIRST NINE MONTHS, AGRICULTURE MANUFACTURING PROCESSING RETAIL OTHER TOTAL 1999 Revenues from external customers $ 396,387 $ 27,738 $ 70,574 $ 126,776 $ 11,648 $ 633,123 Inter-segment sales 3,114 723 1,195 -- -- 5,032 Other income 520 108 388 248 1,367 2,631 Interest expense (credit) (a) 4,228 853 1,244 1,270 (910) 6,685 Operating income (loss) 2,514 3,280 1,506 992 (842) 7,450 FIRST NINE MONTHS, 1998 Revenues from external customers $ 496,145 $ 42,737 $ 62,770 $ 120,936 $ 10,648 $ 733,236 Inter-segment sales 3,994 825 882 -- -- 5,701 Other income 1,452 128 296 160 1,548 3,584 Interest expense (credit)(a) 4,528 667 955 1,518 (1,171) 6,497 Operating income (loss) 1,725 3,525 3,981 (283) (2,069) 6,879
(a) The other category of interest expense includes net interest income at the company level, representing rate differential between the interest rate on which interest is allocated to the operating segments and the actual rate at which borrowings were made. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998: Sales and merchandising revenues for the three months ended September 30, 1999 totaled $173.9 million, a decrease of $55.3 million, or 24%, from 1998. Sales in the Agriculture Segment were down $39.9 million, or 29%. Grain sales were down $36.7 million, or 31%, due to a 27% volume decrease and a 6% decrease in the average price per bushel sold. This was caused by lower market prices and a change in the mix of grain sold by the Company. Fertilizer sales were down $3.2 million, or 16%, due to a 4% decrease in volume and a 12% decrease in the average price per ton sold. Merchandising revenues for the Ag Segment were up $.3 million, or 5% resulting in a total decrease in Agriculture revenues of $39.6 million. There were two additional fertilizer distribution facilities and one additional farm center in operation in the third quarter of 1999 when compared to the same quarter in 1998. The Manufacturing Segment had a sales decrease of $16.7 million, or 56%, due primarily to reduced sales of railcars. Total revenues in the railcar repair and fabrication shops were down $.3 million while revenues from the railcar lease portfolio increased only slightly. 8 9 The Processing Segment had a $1.3 million, or 11%, increase in sales primarily due to a 16% increase in lawn fertilizer volume, partially offset by a 2% decrease in the average price per ton sold. The cob-based businesses had a slight decrease in sales. An additional processing facility was in operation in the 1999 third quarter and a fourth facility was purchased and will be operational in the fourth quarter of 1999. The Retail Segment had flat sales in the aggregate. Four stores had increased sales while two stores had decreases when comparing the third quarter of 1999 to the same period in 1998. Gross profit for the third quarter of 1999 totaled $34.7 million, a decrease of $2.2 million, or 6%, from the third quarter of 1998. The Agriculture Segment had a gross profit increase of $.5 million, or 4%, due primarily to increases in gross profit in the farm centers. Gross profit in the Manufacturing Segment decreased $2.2 million, or 45%, from the prior year. This was due primarily to the timing of and margins on railcar sales. Gross profit for the Processing Segment increased $.2 million, or 5%, from the third quarter of 1998. The lawn fertilizer business showed increased gross profit, while the cob and pet businesses had gross profit decreases. Gross profit in the Retail Segment improved by $.1 million, or 1%, from the third quarter of 1998. This was due to margin improvements resulting from changes in the product mix. Operating, administrative and general expenses for the third quarter of 1999 totaled $35.9 million, a $.4 million, or 1%, decrease from the third quarter of 1998. Operating, administrative and general expenses as a percent of gross profit, however, increased from 98% for the third quarter of 1998 to 103% in the third quarter of 1999. New 1999 facilities required additional labor and benefits expense of $.5 million, occupancy expenses of $.4 million and other expenses of $.1 million. In addition, approximately $.6 million was invested in increasing productivity in the Processing Group's Maumee, Ohio plant. These increases were more than offset by overall reductions in certain variable expenses. Interest expense for the third quarter of 1999 was $2.6 million, a $.4 million, or 19%, increase from the third quarter of 1998. The impact of higher average short-term borrowings in the third quarter of 1999 when compared to the third quarter of 1998, was mitigated by the lower effective interest rate. The pretax loss of $3.7 million was $2.3 million worse than the 1998 third quarter pretax loss of $1.5 million. A tax credit has been provided at 33%, the Company's expected effective tax rate for 1999. The net loss of $2.5 million was $1.5 million worse than the 1998 third quarter net loss of $1.0 million. The basic and diluted loss per share were $.32, a $.20 decrease from the 1998 third quarter. 9 10 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998: Sales and merchandising revenues for the nine months ended September 30, 1999 totaled $636 million, a decrease of $101.1 million, or 14%, from 1998. Sales in the Agriculture Segment were down $104.1 million, or 22%. Grain sales were down $101 million, or 28%, due to a 17% volume decrease in grain and a 13% decrease in the average price per bushel sold caused by lower market prices and a change in the mix of grain sold by the Company. Fertilizer sales were down $3 million, and include a 3% increase in volume offset by a 6% decrease in the average price per ton sold. Merchandising revenues for the Ag Segment were up $4.3 million, or 25%, due primarily to increases in income from storing grain and fertilizer for others and fees for custom application. Total acres, on which custom application was performed, increased 51% from 1998. The 1998 results include partial period operations of two grain elevators (four months), one fertilizer distribution facility (six months) and four farm centers (three for three months, one for six months). The 1999 results include the operations of one additional farm center and two additional fertilizer distribution facilities (one for four months). The Manufacturing Segment had a sales decrease of $15 million, or 35% due primarily to a $13.6 million decrease in the sales of railcars. Total revenues in the railcar repair and fabrication shops were down $.9 million while revenues from the railcar lease portfolio decreased $.5 million. The Processing Segment had a $7.8 million, or 12%, increase in sales. Of this increase, $7.7 million was primarily from a 16% increase in volume in the lawn fertilizer business. This volume increase more than offset a 2% reduction in the average price per ton sold. The remaining increase of $.1 million, or 1%, occurred in the cob-based businesses. The lawn fertilizer business began operations at a third facility in mid-1999 and will begin operations at a fourth processing and distribution facility in the fourth quarter. The Retail Segment experienced a $5.9 million, or 5%, increase in sales, with most stores showing increases. Sales increases were due primarily to weather-related sales in January and strong demand for lawn and garden, nursery and home improvement merchandise in the second quarter. Gross profit for the first nine months of 1999 totaled $125.3 million, an increase of $5.8 million, or 5%, from the first nine months of 1998. The Agriculture Segment had a gross profit increase of $4.5 million, or 10%, due largely to the increase in merchandising revenues described previously. Gross profit in the Manufacturing Segment decreased $.6 million, or 6%, from the prior year. This was due primarily to the timing of and margins on railcar sales. Gross profit for the Processing Segment increased $.3 million, or 2%, from the first nine months of 1998. Gross profit for the lawn fertilizer business and the much smaller pet business was up while the cob business had a 2% decrease in gross profit. Gross profit in the Retail Segment improved by $2.2 million, or 6%, from the first nine months of 1998. This was due to the increased sales and margin improvement resulting from changes in the product mix. 10 11 Operating, administrative and general expenses for the first nine months of 1999 totaled $111.2 million, a $5.0 million, or 5%, increase from the first nine months of 1998. Operating, administrative and general expenses as a percent of gross profit, however, stayed flat at 89% for both the first nine months of 1998 and 1999. New facilities required additional labor and benefits expense of $1.8 million, occupancy expense of $1.8 million and other expense of $1.4 million. Interest expense for the first nine months of 1999 was $6.7 million, a $.2 million, or 3%, increase from the first nine months of 1998. The impact of higher average short-term borrowings in the first nine months of 1999 when compared to the same period in 1998, was mitigated by the lower effective interest rate. Income before income taxes of $7.5 million was an improvement of $.6 million from the 1998 first nine months pretax income of $6.9 million. Tax expense has been provided at 33%, the Company's expected effective tax rate for 1999. Net income of $5 million improved $.4 million from the 1998 first nine months net income of $4.6 million. Basic earnings per share were $.62, a $.05 increase from 1998. Diluted earnings per share were $.61, a $.04 increase from 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's operations (before changes in operating assets and liabilities) provided cash of $16.6 million in the first nine months of 1999, an increase of $2.4 million from the first nine months of 1998. Working capital at September 30, 1999 was $63.6 million, a $2.3 million decrease from December 31, 1998. Working capital at September 30, 1998 was $58.9. The Company utilizes its short-term lines of credit to finance working capital, primarily inventories and accounts receivable. At September 30, 1999, the Company had borrowed $95 million against its $155 million available short-term lines of credit. The Company had $111 million outstanding on its short-term lines of credit on April 26, its peak for the year to date. Typically, the Company's highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary reduction in grain payables due to customer cash needs and market strategies. A quarterly cash dividend of $0.05 per common share was paid in the first, second and third quarters of 1999. A cash dividend of $0.05 per common share was declared on October 1, 1999 and was paid on October 21, 1999. Cash dividends of $0.04 per common share were paid quarterly in 1998. The Company made income tax payments of $4.2 million in the first nine months and expects to make payments totaling approximately $.1 million for the remainder of 1999. Also in the first nine months, the Company issued 66,081 shares to its employees under stock compensation plans and purchased 267,100 its common shares on the open market at an average of $11.92 per share. Total cash capital expenditures for 1999 are expected to exceed $20 million and include $1.6 million for additional agricultural fertilizer and storage facilities, $5.1 million for additional processing lines and facilities in the processing division, $1.5 million for additional grain storage, $3.8 million for the acquisition of additional railcars and $1.6 million to replace 11 12 the point-of-sale system in the Company's retail stores. Funding for these expenditures is expected to come from cash generated from operations and additional debt. Certain capital expenditures can be curtailed if cash generated from operations is less than expected. Certain of the Company's long-term debt is secured by first mortgages on various facilities. Some of the long-term borrowings include provisions that impose minimum levels of working capital and equity, limitations on additional debt and require the Company to be substantially hedged in its grain transactions. The Company's liquidity is enhanced by the fact that grain inventories are readily marketable. In the opinion of management, the Company's liquidity is adequate to meet short-term and long-term needs. IMPACT OF YEAR 2000 The Company plan to resolve the Year 2000 Issue (the inability of computers to process date information after 1999) involves four phases: assessment, remediation, testing and implementation. The Company has completed its assessment of all systems that could be significantly affected by the year 2000 and has developed remediation plans that include both modifications and replacements. These remediation plans have been prioritized based on the perceived risk of failure or error. The Company interfaces with third parties in some of its businesses and functional areas. These third party interfaces have been considered in the assessment and remediation plans and have been assigned a high priority for completion. Costs incurred to date have totaled approximately $2.8 million for the purchase of new software and $.8 million representing existing internal resources that were expensed as incurred. The remaining cost of remediation is negligible. This cost information includes an enterprise resource planning (ERP) solution installation in the wholesale fertilizer division initially planned to be completed before the year 2000. The existing software used in the wholesale fertilizer division has been found to be Year 2000 compliant and while the ERP installation continues, it is not necessary for Year 2000 compliance. Costs of approximately $.2 million are required to complete the wholesale fertilizer ERP installation. Year 2000 modification plans and software installations are substantially complete at the end of the third quarter of 1999 for all significant high risk systems. The two systems modifications noted below each have installations to be completed in certain locations, however, the modification has been successfully completed and installed for other Company locations. These installations will be completed in 1999 as noted below:
SYSTEM REMAINING LOCATIONS MODIFICATION COMPLETION DATE - --------------------------------------------------------------------------------------- Farm center system replacement 1 Farm Center December, 1999 Retail point-of-sale replacement 3 Retail Stores November, 1999
The Company has made significant progress in testing its remediated systems. The Company has completed its testing of significant high-risk systems at the end of the third quarter of 1999. 12 13 There have been no substantial changes to the plans as previously reported. The Company believes that with the planned modifications and conversions, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not completed before the year 2000, there could be an impact on the operations of the Company. The Company has developed contingency plans for its major systems applications and other high-risk systems. The contingency plans will determine manual workarounds or other actions for critical applications. The Company has queried its significant suppliers and subcontractors that do not share information systems with the Company (its "external agents"). The Company has continued to update this survey for new external agents added after the initial mailing and throughout 1999 and followed up on business critical suppliers that had not responded. To date, the Company is not aware of any external agent with a Year 2000 Issue that would materially impact the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution processes in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. While the Company is monitoring its external agents, it may also be affected by Year 2000 failures at other 3rd parties such as utilities and the railroads. The Company can not identify all possible worst-case scenarios, however, the most reasonable worst-case scenario would be the failure of utilities and/or transportation systems that are critical to the Company's operations and that could not be replaced in a timely manner by other suppliers or through internal resources. In such situations, operations at the affected facility or facilities could be interrupted with adverse effects on the Company's financial results. The Company has no contingency plans for this scenario, except to the extent that it can operate at another unaffected facility or utilize the services of another carrier. FORWARD LOOKING STATEMENTS The preceding Management's Discussion and Analysis contains various "forward-looking statements" which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including but not limited to those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "believe," "expect," "anticipate" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following factors could cause actual results to differ materially from historical results or those anticipated; weather, supply and demand of commodities including grains, fertilizer and other basic raw materials, market prices for grains and the potential for increased margin requirements, competition, economic conditions, risks associated with acquisitions, interest rates and income taxes. 13 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - ------- --------------------------------------------------------- MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS The market risk inherent in the Company's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below. Commodities The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are readily marketable exchange-traded futures contracts that are designated as hedges. To a lesser degree, the Company uses exchange-traded option contracts, also designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of the hedged commodity. The Company's accounting policy for these hedges, as well as the underlying inventory positions, and purchase and sale contracts is to mark them to the market price daily and include gains and losses in the statement of operations in sales and merchandising revenues. A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its commodity position. The Company's daily net commodity position consists of inventories, related purchase and sale contracts and exchange traded contracts. The fair value of such position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The result of this analysis, which may differ from actual results, is as follows:
(in thousands) SEPTEMBER 30, 1999 DECEMBER 31, 1998 --------------------------------------- Net long (short) position $ (1,458) $ (1,961) Market risk 146 196
14 15 Interest The fair value of the Company's long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. In addition, the Company has off-balance sheet interest rate contracts established as hedges. The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:
SEPTEMBER 30, DECEMBER 31, (in thousands) 1999 1998 ------------------------------- Fair value of long-term debt and interest rate contracts $75,402 $78,521 Excess (deficit) of fair value over carrying value (32) 638 Market risk 50 403
PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ANDERSONS, INC. (Registrant) Date: November 12, 1999 By /s/Michael J. Anderson Michael J. Anderson President and Chief Executive Officer Date: November 12, 1999 By /s/Richard R. George Richard R. George Vice President and Controller (Principal Accounting Officer) 15 EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 5,026 0 54,276 4,805 212,065 272,187 253,047 159,165 373,725 208,573 70,027 0 0 84 83,798 373,725 633,123 635,754 510,417 510,417 111,202 0 6,685 7,450 2,458 4,992 0 0 0 4,992 .62 .61
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