SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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
(Address of principal executive offices)
43537 (419) 893-5050
(Zip Code) (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 8,162,513 Common shares outstanding, no par value, at August
1, 1998.
THE ANDERSONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations -
Three months and six months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)(IN THOUSANDS)
December 31
June 30 1997
1998 (Audited)
Current assets
Cash and cash equivalents $ 5,885 $ 8,278
Accounts and notes receivable:
Trade accounts - net 64,035 68,643
Margin deposits 278 771
64,313 69,414
Inventories:
Grain 38,848 113,838
Agricultural fertilizer and supplies 20,941 18,908
Merchandise 32,319 27,674
Lawn and corn cob products 12,352 20,142
Other 16,761 10,905
121,221 191,467
Deferred income taxes 3,957 1,408
Prepaid expenses 2,525 4,521
Total current assets 197,901 275,088
Other assets:
Notes receivable (net) and other assets 6,067 6,333
Investments in and advances to affiliates 1,027 1,026
7,094 7,359
Property, plant and equipment:
Land 11,995 11,763
Land improvements and leasehold improvements 25,299 24,594
Buildings and storage facilities 87,227 85,377
Machinery and equipment 107,549 104,590
Construction in progress 1,892 2,109
233,962 228,433
Less allowances for depreciation and amortization 146,969 142,636
86,993 85,797
$291,988 $368,244
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED)(IN THOUSANDS)
December 31
June 30 1997
1998 (Audited)
Current liabilities
Notes payable $ 9,500 $ 15,572
Accounts payable for grain 34,805 121,233
Other accounts payable 70,077 63,309
Accrued expenses 17,242 12,973
Current maturities of long-term debt 7,136 8,406
Total current liabilities 138,760 221,493
Pension and postretirement benefits 2,825 2,799
Long-term debt
Note payable, 7.84%, payable $398 thousand
quarterly, due 2004 12,508 13,304
Note payable under revolving credit line,
variable rate (6.35% at June 30, 1998) 20,000 20,000
Notes payable, variable rate (6.44% at June 30,
1998), payable $336 quarterly, due 2002 8,409 9,082
Other notes payable 1,116 1,120
Industrial development revenue bonds:
6.5%, sinking fund $1 million payable annually,
due 1999 2,000 2,000
Variable rate (5.70% at June 30, 1998), payable
$882 thousand annually through 2004 5,470 5,470
Variable rate (4.1% at June 30, 1998), due 2025 3,100 3,100
Debenture bonds, 6.5% to 8.7%, due 1998
through 2008 20,743 19,556
Other bonds, 4% to 10% 437 483
73,783 74,115
Less current maturities of long-term debt 7,136 8,406
66,647 65,709
Deferred income taxes 5,931 5,393
Minority interest 647 649
Shareholders' equity:
Common stock (25,000 shares authorized, 8,430 issued,
stated value $.01 per share, 7,950 and 7,939
outstanding at 6/30/98 and 12/31/97,
respectively) 84 84
Additional paid-in capital 66,663 66,660
Retained earnings 14,784 9,875
Treasury stock (480 and 491 shares at 6/30/98 and
12/31/97, respectively; at cost) (4,353) (4,418)
77,178 72,201
$291,988 $368,244
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
Grain sales and revenues $ 123,043 $ 98,721 $ 250,872 $ 192,529
Fertilizer, retail and other sales 159,756 150,719 253,148 242,729
Other income 1,040 750 2,008 1,697
283,839 250,190 506,028 436,955
Cost of grain sales 115,078 92,664 235,311 183,864
Cost of fertilizer, retail and other
sales 119,999 114,642 188,095 182,891
235,077 207,306 423,406 366,755
Gross Profit 48,762 42,884 82,622 70,200
Operating, administrative and
general expenses 37,210 33,603 69,938 65,505
Interest expense 1,886 2,273 4,344 4,412
39,096 35,876 74,282 69,917
Income before income taxes 9,666 7,008 8,340 283
Provision for income taxes (Note B) 3,296 2,749 2,794 106
Net Income $ 6,370 $ 4,259 $ 5,546 $ 177
Per common share:
Basic and diluted $ 0.80 $ 0.52 $ 0.70 $ 0.02
Dividends paid $ 0.04 $ 0.03 $ 0.08 $ 0.06
Weighted average common shares
outstanding 7,960 8,230 7,973 8,287
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(IN THOUSANDS)
Six Months Ended June 30
1998 1997
Operating activities
Net income $ 5,546 $ 177
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,184 4,927
Provision for losses on accounts and notes receivable 1,082 723
Deferred income tax (2,011) (1,221)
Changes in operating assets and liabilities:
Trade receivables 4,019 14,056
Inventories 70,246 42,843
Prepaid expenses and other assets 1,975 2,219
Accounts payable for grain (86,428) (64,433)
Other accounts payable and accrued expenses 11,064 (21,623)
Net cash provided by (used in) operating activities 10,677 (22,332)
Investing activities
Purchases of property, plant and equipment (6,116) (7,602)
Proceeds from sale of property, plant and equipment 19 102
Net cash used in investing activities (6,097) (7,500)
Financing activities
Net increase (decrease) in short-term borrowings (6,072) 20,000
Proceeds from issuance of long-term debt 61,985 113,788
Payments of long-term debt (62,316) (113,086)
Purchase of common stock for the treasury (344) (2,086)
Proceeds from sale of treasury stock to employees
participating in Employee Share Purchase Plan 413 423
Dividends paid (639) (501)
Net cash provided by (used in) financing activities (6,973) 18,538
Decrease in cash and cash equivalents (2,393) (11,294)
Cash and cash equivalents at beginning of period 8,278 27,524
Cash and cash equivalents at end of period $ 5,885 $ 16,230
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, 1997.
Note B - In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, which is required for years beginning after
December 15, 1997. The new rules change the manner in which operating
segments are defined and reported externally to be consistent with the
basis on which they are reported and evaluated internally. This
statement will not have a significant impact on the Company.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which defines
derivatives, requires that derivatives be carried at fair value, and
provides for hedge accounting when certain conditions are met. This
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Although the Company has not fully
assessed the implications of this new statement, the Company does not
believe adoption of this statement will have a material impact on its
financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of the three months ended June 30, 1998 with the three months ended
June 30, 1997:
Sales and revenues for the three months ended June 30, 1998 totaled
$283.8 million, an increase of $33.6 million or 13% from the 1997 second
quarter sales and revenues of $250.2 million. The Agriculture Group had a
total increase of $27.7 million. This includes a $24.3 million increase in
grain sales and revenues due to a 70% increase in bushels shipped and a slight
increase in merchandising revenues (primarily storage income), partially offset
by a 27% decrease in the average price of a bushel sold. On June 30, 1998, the
Company's grain elevators held more than triple the bushels they held at June
30, 1997 - almost double the owned inventory and eight times as much grain
stored for others.
Sales of agricultural fertilizer, supplies and services were also up
from the prior year with a total increase in sales of $3.4 million or 5%.
Wholesale tons sold were up 11% with a 6% decrease in the average selling price
per ton. A wholesale terminal in Eastern Ohio opened at the beginning of the
second quarter. An additional Retail Farm Center ("RFC") and the customer
list and assets of a second RFC were added at the beginning of the second
quarter of 1998. Same location RFC sales were down 3%.
Overall, the Processing & Manufacturing Group contributed increased
sales and revenues of $4.6 million or 15%. The processing business (lawn
fertilizer, cob and pet products) had a sales increase of $3.8 million or 19%.
The sale of lawn fertilizer to a large retailer was the primary source of this
increase. Lawn fertilizer volume sold increased 48% with a 17% decrease in the
average price per ton. The manufacturing business had increased sales of $1.2
million or 22%. This increase resulted primarily from the strength of the
railcar leasing business.
The Retail Group experienced a 2% overall increase in sales from the
second quarter of 1997 with both the Toledo and Columbus markets posting
increases.
Gross profit for the three months ended June 30, 1998 totaled $48.8
million, an increase of $5.9 million or 14% from the 1997 second quarter gross
profit of $42.9 million. The Agriculture Group had a $3.5 million or 21%
increase with $1.9 million related to margins on grain sales and merchandising
activities. Wholesale fertilizer margin per ton increased 10% while the RFC's
same location gross profit was flat. The new RFC location and customers added
$.5 million in gross profit.
Overall, the Processing and Manufacturing Group experienced an increase
in gross profit of $1.4 million or 13%, with $.9 million from the processing
division. This increase is attributable to the volume increases in the lawn
fertilizer business and railcar leasing business in the second quarter.
Gross profit on sales in the Retail Group increased 5% or $0.7 million
on higher margins and increased sales. The margin improvement was due to a
shift in the product mix sold during the quarter. The addition of home soft
goods and similar products in the recent reset of the stores has resulted in
improvements to the overall store margins.
Operating, administrative and general expenses for the second quarter
of 1998 totaled $37.2 million, an increase of $3.6 million or 11% from the
second quarter of 1997. Full time employees increased 3% in the same period
and the resulting labor and benefits expense for the three month period
increased 8%. The staffing increases occurred primarily in the Agriculture
and Processing and Manufacturing groups.
Interest expense for the second quarter of 1998 was $1.9 million, a
$0.4 million decrease from the second quarter of 1997. Short-term borrowings
at June 30, 1998 were $9.5 million as compared to $20.0 million at June 30,
1997.
The pretax income of $9.7 million represents an improvement of $2.7
million or 38% from the second quarter of 1997. The net income of $6.4 million
represents an improvement of $2.1 million from the 1997 second quarter net
income. The quarterly effective tax rate decreased from 39% in 1997 to 34% in
1998. The actual tax rate for the year ended December 31, 1997 was 35%. Basic
and dilutive earnings per share of $0.80 are a $0.28 improvement from the
second quarter of 1997 earnings per share of $0.52.
Comparison of the six months ended June 30, 1998 with the six months ended June
30, 1997:
Sales and revenues for the six months ended June 30, 1998 totaled
$506.0 million, an increase of $69.1 million or 16% from the 1997 sales and
revenues of $437.0 million. The Agriculture Group had a total increase of
$64.5 million. This includes a $58.3 million increase in grain sales
and revenues due to a 62% increase in bushels shipped and a significant
increase in merchandising revenues (primarily storage income), partially offset
by a 21% decrease in the average price of a bushel sold. On June 30, 1998, the
Company's grain elevators held more than triple the bushels they held at June
30, 1997 - almost double the owned inventory and eight times as much grain
stored for others.
Sales of agricultural fertilizer, supplies and services were also up
from the prior year with a total increase in sales of $6.2 million or 7%.
Wholesale tons sold were up 13% with a 7% decrease in the average selling price
per ton. A wholesale terminal in Eastern Ohio was opened at the beginning of
the second quarter. An additional Retail Farm Center and the customer list
and assets of a second RFC were added at the beginning of the second quarter of
1998. Same location RFC sales were up 3%.
Overall, the Processing & Manufacturing Group contributed increased
sales and revenues of $5.1 million or 8%. All of this increase came from the
processing business. The sale of lawn fertilizer to a large retailer was the
primary source of this increase. Lawn fertilizer volume sold increased 39%
with a 16% decrease in the average price per ton. The manufacturing business
had flat sales and revenues for the six month period. Sales of railcars were
down but revenues from the railcar leasing business were up significantly.
The Retail Group experienced a 1% overall decrease in sales from 1997
with only the Columbus market posting a small increase.
Gross profit for the six months ended June 30, 1998 totaled $82.6
million, an increase of $12.4 million or 18% from the 1997 gross profit of
$70.2 million. The Agriculture Group had a $9.2 million or 41% increase with
$6.9 million related to margins on grain sales and merchandising activities.
Wholesale fertilizer margin per ton increased 9% while the RFC's same location
gross profit was flat. The new RFC location and customers added $.5 million in
gross profit.
Overall, the Processing and Manufacturing Group experienced an increase
in gross profit of $2.8 million or 12%, with $1.9 million from the processing
division. This increase is attributable to the volume increases in the lawn
fertilizer business and railcar leasing business.
Gross profit on sales in the Retail Group increased 1% or $0.2 million
on higher margins. The margin improvement was due to a shift in the product
mix sold during the quarter. The addition of home soft goods and similar
products in the recent reset of the stores has resulted in improvements to the
overall store margins.
Operating, administrative and general expenses for the six months ended
June 30, 1998 totaled $69.9 million, an increase of $4.4 million or 7% from
1997. Full time employees increased 3% in the same period and the resulting
labor and benefits expense for the period increased 4%. The staffing
increases occurred primarily in the Agriculture and Processing and
Manufacturing groups.
Interest expense for the six months ended June 30, 1998 was $4.3
million, a $0.1 million decrease from 1997. Short-term borrowings at June 30,
1998 were $9.5 million as compared to $20 million at June 30, 1997.
The pretax income of $8.3 million represents an improvement of $8.1
million from 1997. The net income of $5.5 million represents an improvement of
$5.4 million. The effective tax rate for the six month period decreased from
37% in 1997 to 34% in 1998. The actual tax rate for the year ended December
31, 1997 was 35%. Basic and dilutive earnings per share of $0.70 is a $0.68
improvement from the 1997 earnings per share of $0.02
Liquidity and Capital Resources
Cash flow generated from operations provided $10.7 million for the
first six months of 1998 as compared to the first six months of 1997 when
operations used $22.3 million. The Company has significant short-term lines of
credit available to finance working capital, primarily inventories and accounts
receivable. Lines of credit available at August 1, 1998 were $250 million, of
which $9.5 million was borrowed at June 30, 1998. 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 and lawn fertilizer businesses 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 $0.04 per common share was paid in each of
the first two quarters of 1998. A cash dividend of $0.04 per common share was
declared on July 1, 1998 and was paid on July 21, 1998. Cash dividends of
$0.03 per common share were paid quarterly in 1997. The Company made income
tax payments of $1.1 million in the first half of 1998 and expects to make
additional payments totaling approximately $1.3 million in 1998. Also in the
first six months of 1998, the Company issued 46,600 shares to its employees as
part of the Employee Share Purchase Plan and repurchased 36,000 shares for the
treasury.
Capital expenditures for the first half of 1998 total $6 million.
Total cash capital expenditures for 1998 are expected to approximate $15
million and include additional production capacity in the processing division,
plant upgrades and improvements in the agriculture group and the acquisition of
additional railcars. 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. The Company also closed a
stock for stock acquisition of a corporation operating three retail farm
centers in Northwest Ohio with an effective date of July 1, 1998.
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
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs may have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations.
The Company completed an assessment and developed modification plans in
early 1998 for all software except the Retail Group cash register systems.
Subsequently, the Company determined that its cash register systems could not
be easily modified and it has estimated a cost of approximately $1.5 million to
replace the systems. The existing cash register systems have minimal book
value and were expected to be replaced in the years 1999-2002.
Costs incurred to date have totaled approximately $.7 million for the
purchase of new software and $.5 million representing existing internal
resources that were expensed as incurred. The remaining cost of compliance for
the Company is estimated at $2.1 million, which includes $1.7 million for the
purchase of software and hardware and $.4 million representing existing
internal resources that will be expensed as incurred.
Year 2000 modification plans and software installations are under way
and are expected to be substantially complete in early 1999, allowing for
testing and revisions prior to the end of 1999. The retail cash register
systems will be installed in the first and third quarters of 1999. There have
been no substantial changes to the plans as previously reported, except for the
retail cash register systems. 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 next step in the Company's Year
2000 compliance efforts will be to develop contingency plans for its major
systems applications.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
Forward Looking Statements
The preceding Management's Discussion and Analysis 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, competition, economic conditions,
risks associated with acquisitions, interest rates and income taxes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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." There can be no assurance 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 CFTC
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of The Andersons, Inc. was held
on May 14, 1998 to elect eleven directors and to ratify the appointment of the
Company's independent auditors. Results of the voting follow:
Director For Against Withheld Not Voted
Donald E. Anderson 7,659,381 0 9,575 317,109
Michael J. Anderson 7,665,081 0 3,875 317,109
Richard M. Anderson 7,665,081 0 3,875 317,109
Richard P. Anderson 7,659,981 0 8,975 317,109
Thomas H. Anderson 7,664,081 0 4,875 317,109
John F. Barrett 7,661,131 0 7,825 317,109
Paul M. Kraus 7,664,181 0 4,775 317,109
Donald L. Mennel 7,661,231 0 7,725 317,109
David L. Nichols 7,665,481 0 3,475 317,109
Dr. Sidney A. Ribeau 7,664,281 0 4,675 317,109
Charles A. Sullivan 7,665,481 0 3,475 317,109
Independent Auditors 7,555,428 5,380 108,148 317,109
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
three months ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ANDERSONS, INC.
(Registrant)
Date: August 13, 1998 By /s/Richard P. Anderson
Richard P. Anderson
Chairman of the Board and Chief
Executive Officer
Date: August 13, 1998 By /s/Richard R. George
Richard R. George
Vice President and Controller
(Principal Accounting Officer)
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