SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1562374
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
480 W. Dussel Drive, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
(419) 893-5050
(Telephone Number)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No __
The registrant had 8,261,992 Common shares outstanding, no par value, at May
1, 1997.
THE ANDERSONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)(IN THOUSANDS)
March 31 December 31
1997 1996
Current assets
Cash and cash equivalents $ 4,850 $ 27,524
Accounts receivable:
Trade accounts - net 78,723 73,694
Margin deposits 10,829 327
89,552 74,021
Inventories:
Grain 80,366 70,762
Agricultural fertilizer and supplies 34,592 21,897
Merchandise 34,020 29,527
Lawn and corn cob products 15,539 17,633
Other 10,440 10,478
174,957 150,297
Deferred income taxes 2,917 1,864
Prepaid expenses 3,348 3,929
Total current assets 275,624 257,635
Other assets:
Notes receivable (net) and other assets 6,253 5,951
Investments in and advances to affiliates 1,332 1,340
7,585 7,291
Property, plant and equipment:
Land 11,261 11,261
Land improvements and leasehold improvements 24,515 24,431
Buildings and storage facilities 80,793 80,669
Machinery and equipment 99,772 99,871
Construction in progress 3,232 1,795
219,573 218,027
Less allowances for depreciation and
amortization 137,602 136,362
81,971 81,665
$365,180 $346,591
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED)(IN THOUSANDS)
March 31 December 31
1997 1996
Current liabilities
Notes payable $ 80,000 $ -
Accounts payable for grain 39,092 96,932
Other accounts payable 80,528 75,713
Accrued expenses 11,002 16,981
Current maturities of long-term debt 5,539 6,360
Total current liabilities 216,161 195,986
Pension and postretirement benefits 2,872 2,804
Long-term debt
Note payable, 7.84%, payable $75 thousand
quarterly through 7/97, and $398
thousand thereafter, due 2004 14,175 14,250
Note payable under revolving credit
line, variable rate (6.635% at
March 31, 1997) 20,000 16,300
Notes payable, variable rate (6.4375%
at March 31, 1997), payable $336
quarterly beginning October 1997, due 2004 9,418 9,418
Other notes payable 1,041 1,036
Industrial development revenue bonds:
6.5%, sinking fund $900 thousand to $1
million payable annually, due 1999 2,900 2,900
Variable rate (5.695% at March 31, 1997),
payable $882 thousand annually
through 2004 6,351 6,351
Variable rate (3.95% at March 31, 1997),
due 2025 3,100 3,100
Debenture bonds, 6.5% to 10%, due 1997
through 2007 20,554 21,030
Other bonds, 4% to 9.6% 509 543
78,048 74,928
Less current maturities of long-term debt 5,539 6,360
72,509 68,568
Deferred income taxes 5,103 5,371
Minority interest 559 613
Shareholders' equity:
Common stock (25,000 shares authorized,
stated value $.01 per share, 8,262 and
8,360 outstanding at 3/31/97 and
12/31/96, respectively) 84 84
Additional paid-in capital 66,659 66,659
Retained earnings 2,772 7,106
Treasury stock (168 and 70 shares at 3/31/97
and 12/31/96, respectively; at cost) (1,539) (600)
67,976 73,249
$365,180 $346,591
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31
1997 1996
Grain sales and revenues $ 93,809 $ 153,363
Fertilizer, retail and other sales 92,009 102,752
Other income 947 599
186,765 256,714
Cost of grain sales 91,200 140,063
Cost of fertilizer, retail and other sales 68,248 76,918
159,448 216,981
Gross profit 27,317 39,733
Operating, administrative and general
expenses 31,902 31,589
Interest expense 2,140 4,698
34,042 36,287
Net (loss) income before income taxes (6,725) 3,446
Income tax (credit) expense (includes
deferred taxes established in connection
with the merger of $812 in 1996 (2,643) 2,177
Net (loss) income $ (4,082) $ 1,269
Earnings (loss) per share $ (0.49) $ 0.15
Weighted average common shares outstanding 8,346 8,430
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(IN THOUSANDS)
Three Months Ended March 31
1997 1996
Operating activities
Net (loss) income $ (4,082) $ 1,269
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Depreciation and amortization 2,404 2,461
Provision for losses on accounts
and notes receivable 234 237
Deferred income tax (1,321) (470)
Other (49) (139)
Changes in operating assets and
liabilities:
Accounts receivable (15,766) (13,660)
Inventories (24,660) 1,792
Prepaid expenses 581 496
Accounts payable for grain (57,840) (66,291)
Other accounts payable and accrued
expenses (1,096) 14,650
Notes receivable and other assets (436) (166)
Net cash used in operating activities (102,031) (59,821)
Investing activities
Purchases of property, plant and equipment (2,645) (2,554)
Proceeds from sale of property, plant
and equipment 72 81
Net cash used in investing activities (2,573) (2,473)
Financing activities
Net increase in short-term borrowings 80,000 62,333
Proceeds from issuance of long-term debt 60,540 9
Payments of long-term debt (57,420) (1,412)
Payments to dissenting partners and for
fractional shares in merger transaction - (64)
Purchase of common stock for the treasury (1,361) -
Proceeds from sale of treasury stock to
employees participating in Employee
Share Purchase Plan 423 -
Dividends paid (252) -
Net cash provided by financing activities 81,930 60,866
Decrease in cash and cash equivalents (22,674) (1,428)
Cash and cash equivalents at beginning of
period 27,524 5,052
Cash and cash equivalents at end of period $ 4,850 $ 3,624
Noncash financing activity
Exchange of employee bonds for common shares $ (275)
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
the results of operations for the periods indicated have been made.
The accompanying unaudited Condensed Consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in The Andersons,
Inc. annual report on Form 10-K for the year ended December 31, 1996.
Note B - Prior to 1996, the majority of the Company's operations were
conducted as a partnership and the income from those operations was
included in the individual tax returns of its partners. Since
January 2, 1996, the date that The Andersons (the "Partnership")
merged into its corporate general partner, income from operations is
taxed at the corporate level. In conjunction with the merger, the
Company recorded the deferred tax assets and liabilities of the
partnership that had not previously been recognized. The net excess
of deferred tax liabilities over deferred tax assets ($812,000) was
recorded in the first quarter of 1996 and included as a component of
the provision for income taxes.
Note C - In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. This standard will have no impact on
the Company's presentation of earnings per share.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of the three months ended March 31, 1997 with the three months
ended March 31, 1996:
Sales and revenues for the three months ended March 31, 1997 totaled $186.8
million, a decrease of $69.9 million or 27% from the 1996 first quarter sales
and revenues of $256.7 million. The Agriculture Group had a total decrease of
$73.8 million. This includes a $59.5 million decrease in grain sales and
revenues due to a 25% decrease in bushels shipped, a 14% decrease in the
average price of bushels sold and decreased merchandising revenues. The grain
business began the year with less grain available for sale than in prior years
(due to a poor fall harvest in certain of the primary growing areas served by
the Company) and could continue to experience decreased revenues until the
1997 fall harvest. Sales of agricultural fertilizer were also off with a
total decrease in sales of $14.3 million. Wholesale tons sold were down 41%
with a 2% increase in the average selling price per ton. The Company expects
that a significant portion of the wholesale fertilizer volume lost in the
first quarter will be recovered in the second quarter of 1997. The Retail
Group experienced a 7% overall increase in sales from the first quarter of
1996 with the three Toledo area stores contributing to the increase. Overall,
the Processing & Manufacturing Group contributed increased sales and revenues
of $1.6 million or 5%. The manufacturing business had the largest increase
with a $4 million or 114% increase in sales, due primarily from the repair and
sale of railcars. The processing business (lawn fertilizer and industrial
products) had a sales decrease of $2.6 million or 10%. Of this decrease, $1.6
million represented 1996 sales and revenues of the sorbents business which was
sold in the fourth quarter of 1996.
Gross profit for the three months ended March 31, 1997 totaled $27.3 million,
a decrease of $12.4 million or 31% from the 1996 first quarter gross profit of
$39.7 million. The Agriculture Group had a $13.1 million or 71% decrease with
$10.7 million related to margins on grain sales and merchandising activities.
The remaining $2.4 million decrease in the Agriculture Group resulted
primarily from wholesale fertilizer volume and margin per ton decreases. Gross
profit on sales in the Retail Group increased 6% or $0.5 million. Overall,
the Processing and Manufacturing Group experienced a decrease of 9% or $0.9
million. However, when excluding the 1996 gross profit related to the
sorbents business, the decrease was 3% or $0.3 million.
Operating, administrative and general expenses for the first quarter of 1997
totaled $31.9 million, an increase of $0.3 million or 1% from the first
quarter of 1996. As a percent of total sales and revenues, operating,
administrative and general expenses increased from 12% to 17%, due to the
significant decrease in total sales.
Interest expense for the first quarter of 1997 was $2.1 million, a $2.6
million decrease from the first quarter of 1996. Short-term borrowings at
March 31, 1996 were $183 million as compared to $80 million at March 31, 1997.
The loss before income tax credits of $6.7 million represents an unfavorable
change of $10.1 million from the first quarter of 1996. The net loss of $4.1
million represents a $5.4 million decrease from the 1996 first quarter net
income. Income tax expense and net income in the first quarter of 1996
include a non-recurring charge of $0.8 million which established deferred
income taxes on the assets and liabilities of the Partnership. The loss of
$0.49 per share is a $0.64 decrease from the first quarter of 1996 earnings
per share of $0.15.
Liquidity and Capital Resources
The Company used $102 million in its operations in the first quarter of 1997
as compared to the first quarter of 1996 operations which used $60 million in
cash. The Company has significant short-term lines of credit available to
finance working capital, primarily inventories and accounts receivable. Lines
of credit available at May 1, 1997 were $250 million, of which $80 million was
borrowed at March 31, 1997. Typically the Company's highest borrowings occur
in the spring due to seasonal inventory requirements in the wholesale
fertilizer and retail businesses, credit sales in the wholesale fertilizer and
lawn products business and a customary reduction in the liability for grain
due to the cash needs of grain producers and market strategies.
A quarterly cash dividend of $0.03 per common share was paid in the first
quarter of 1997. A cash dividend of $0.03 per common share was declared on
April 1, 1997 and was paid on April 21, 1997. No cash dividends were paid in
1996, but the final payment of $64 thousand to former partners electing not to
participate in the merger and for fractional shares was paid in the first
quarter of 1996. The Company made income tax payments of $2.4 million in the
first quarter and expects to make payments totaling approximately $3.7 million
for the remainder of 1997. Also in the first quarter, the Company purchased
147 thousand shares of its common stock for the treasury and reissued 49
thousand shares to its employees as part of the Employee Share Purchase Plan.
Total capital expenditures for 1997 are expected to approximate $15 million,
including $6 million for renovations to retail stores, $4 million for plant
upgrades and improvements and the purchase of a retail farm center business
that the Company has leased for several years. Funding for these expenditures
is expected to come from cash generated from operations. 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. In addition, 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.
Forward Looking Statements
The preceding 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" 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,
regulatory agency review of grain contracts and related contract default
litigation, competition, interest rates and income taxes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company, like others in the agriculture industry, utilizes
different types of contracts with producers (including contracts commonly
referred to as "Hedged To-Arrive" or "HTA" contracts) to purchase grain. Some
grain producers have defaulted or threatened default on certain of these
contracts, arguing that their contracts are unenforceable. The Company
believes that this is due, in large part, to unprecedented high grain prices
experienced in 1996 and in come cases, crop shortages due to poor weather in
some of the primary growing areas served by the Company. The Company
currently is engaged in litigation and/or arbitration with several defaulting
producers, including one purported class action filed on May 16, 1996 in the
United States District Court for the Northern District of Illinois, Eastern
Division, Case no. 96C2936, Harter, et. al., v. Iowa Grain Company and The
Andersons Investment Services Corp., d.b.a. The Andersons, Inc., wherein
enforceability of the delivery obligation under certain grain contracts has
been raised as an issue. The Harter lawsuit seeks declaratory and injunctive
relief and compensatory, exemplary and punitive damages of an unspecified
amount. The Court, in Harter, ordered arbitration by the National Grain and
Feed Association and dismissed Iowa Grain Company as a defendant. The Company
currently has several arbitration cases before the National Grain and Feed
Association. The Company believes its grain contracts are enforceable
obligations and intends to enforce them. Although no assurance can be given
that the current litigation and arbitration will not result in liability or
loss, the Company continues to believe that it has valid claims and defenses
in the lawsuits and proceedings in which it is involved.
Pursuant to subpoenas duces tecum served by the Commodities Futures
Trading Commission (the "CFTC"), the Company has produced certain records,
including names and phone numbers of certain customers, and the depositions of
certain employees and former employees have been taken in the matter of
"Certain Transactions and Practices Among Grain Elevators, et. al., Involving
Futures Contracts."
In light of the Company's current and prior use of Hedged To-Arrive
contracts, related industry-wide litigation, and current conditions of the
industry as a whole, there can be no assurance that other litigation will not
be brought, that a class will not be certified or that other CFTC proceedings
will not be instituted. There currently is no reasonable basis to predict
the amount of future liability or loss, if any, that may arise from such
litigation or CFTC proceedings.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. A report on Form 8-K was filed with the SEC
containing a March 21, 1997 press release discussing the Chicago Board of
Trade's proposed changes to delivery locations for its corn and soybean
futures contracts and the potential effect that this change may have on the
Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ANDERSONS, INC.
(Registrant)
Date: May 14, 1997 By /s/Richard P. Anderson
Richard P. Anderson
Chairman of the Board and Chief
Executive Officer
Date: May 14, 1997 By /s/Richard R. George
Richard R. George
Vice President and Controller
(Principal Accounting Officer)
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