SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1562374
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
480 W. Dussel Drive, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
(419) 893-5050
(Telephone Number)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
The registrant had 8,031,360 Common shares outstanding, no par value, at August
1, 1999.
THE ANDERSONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three months and six months ended June 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30 December 31
1999 1998
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 6,652 $ 3,253
Accounts and notes receivable:
Trade accounts - net 59,047 62,647
Margin deposits 148 248
----------------------
59,195 62,895
Inventories:
Grain 46,006 91,218
Agricultural fertilizer and supplies 21,307 27,127
----------------------
Agriculture 67,313 118,345
Merchandise 32,333 25,863
Processing 18,223 22,428
Manufacturing 23,116 16,039
Other 2,239 2,315
----------------------
143,224 184,990
Deferred income taxes 4,690 4,634
Prepaid expenses 3,844 5,502
----------------------
Total current assets 217,605 261,274
Other assets:
Notes receivable (net) and other assets 6,726 8,435
Investments in and advances to affiliates 1,042 1,057
----------------------
7,768 9,492
Property, plant and equipment:
Land 12,153 12,095
Land improvements and leasehold improvements 26,444 26,056
Buildings and storage facilities 89,717 88,818
Machinery and equipment 116,606 112,561
Construction in progress 3,955 3,059
----------------------
248,875 242,589
Less allowances for depreciation and amortization 156,923 152,532
----------------------
91,952 90,057
----------------------
$317,325 $360,823
======================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED)(IN THOUSANDS)
June 30 December 31
1999 1998
(Unaudited) (Audited)
Current liabilities
Notes payable $ 35,000 $ 7,700
Accounts payable for grain 28,466 88,978
Other accounts payable 64,906 75,301
Accrued expenses 15,940 17,079
Current maturities of long-term debt 5,426 6,318
----------------------
Total current liabilities 149,738 195,376
Pension and postretirement benefits 2,640 3,113
Long-term debt 68,371 71,565
Deferred income taxes 7,635 7,330
Minority interest 1,167 705
Shareholders' equity:
Common stock (25,000 shares authorized,
stated value $.01 per share, 8,035 and 8,140
outstanding at 6/30/99 and 12/31/98, respectively) 84 84
Additional paid-in capital 67,220 67,180
Treasury stock (395 and 290 shares at 6/30/99 and
12/31/98, respectively; at cost) (4,204) (2,665)
Accumulated other comprehensive income (29) (29)
Unearned compensation (237) (83)
Retained earnings 24,940 18,247
----------------------
87,774 82,734
----------------------
$317,325 $360,823
======================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Six Months
Ended June 30 Ended June 30
1999 1998 1999 1998
Sales and merchandising revenues $ 259,247 $ 282,799 $ 459,212 $ 504,020
Other income 1,078 1,040 1,868 2,008
------------------------------------------
260,325 283,839 461,080 506,028
Cost of sales and merchandising
revenues 208,544 235,077 370,433 423,406
------------------------------------------
Gross Profit 51,781 48,762 90,647 82,622
Operating, administrative and
general expenses 38,602 37,210 75,336 69,938
Interest expense 2,052 1,886 4,118 4,344
------------------------------------------
40,654 39,096 79,454 74,282
------------------------------------------
Income before income taxes 11,127 9,666 11,193 8,340
Provision for income taxes 3,668 3,296 3,690 2,794
------------------------------------------
Net income $ 7,459 $ 6,370 $ 7,503 $ 5,546
==========================================
Per common share:
Basic earnings $ 0.92 $ 0.80 $ 0.92 $ 0.70
==========================================
Diluted earnings $ 0.90 $ 0.80 $ 0.91 $ 0.70
==========================================
Dividends paid $ 0.05 $ 0.04 $ 0.10 $ 0.08
==========================================
Weighted average common shares
Outstanding - basic 8,075 7,960 8,116 7,973
==========================================
Weighted average common shares
Outstanding - diluted 8,243 8,012 8,273 7,979
==========================================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(IN THOUSANDS)
Six Months Ended June 30
1999 1998
Operating activities
Net income $ 7,503 $ 5,546
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,515 5,184
Provision for losses on accounts and notes receivable 532 1,082
Deferred income tax 624 (2,011)
Other 4 --
---------------------
Cash provided by operations before changes in
operating assets and liabilities 14,178 9,801
Changes in operating assets and liabilities:
Accounts receivable 3,168 4,019
Inventories 41,767 70,246
Prepaid expenses and other assets 2,716 1,975
Accounts payable for grain (60,512) (86,428)
Other accounts payable and accrued expenses (11,999) 11,064
---------------------
Net cash provided by (used in) operating activities (10,682) 10,677
Investing activities
Purchases of property, plant and equipment (6,764) (6,116)
Proceeds from sale of property, plant and equipment 184 19
---------------------
Net cash used in investing activities (6,580) (6,097)
Financing activities
Net increase (decrease) in short-term borrowings 27,300 (6,072)
Proceeds from issuance of long-term debt 56,920 61,985
Payments of long-term debt (61,006) (62,316)
Purchase of common stock for the treasury (2,115) (344)
Proceeds from sale of treasury stock to employees 380 413
Dividends paid (818) (639)
---------------------
Net cash provided by (used in) financing activities 20,661 (6,973)
---------------------
Increase (decrease) in cash and cash equivalents 3,399 (2,393)
Cash and cash equivalents at beginning of period 3,253 8,278
---------------------
Cash and cash equivalents at end of period $ 6,652 $ 5,885
=====================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results of operations for the periods indicated have been made.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in The Andersons, Inc. Annual
Report on Form 10-K for the year ended December 31, 1998.
Note B - Total comprehensive income was $7.5 million for the six months ended
June 30, 1999 and $5.5 million for the six months ended June 30, 1998.
Total comprehensive income for the quarters ended June 30, 1999 and
1998 was $7.5 million and $6.4 million, respectively.
Note C - Results of Operations - Segment Disclosures
(in thousands)
Second Quarter, Agriculture Manufacturing Processing Retail Other Total
1999
Revenues from
external
customers $164,523 $ 8,232 $27,646 $54,083 $4,763 $259,247
Inter-segment
sales 835 240 425 -- -- 1,500
Other income 319 37 135 103 484 1,078
Interest expense
(credit) (a) 1,036 274 477 389 (124) 2,052
Operating income
(loss) 5,961 1,122 1,012 3,767 (735) 11,127
Identifiable
assets at
June 30, 1999 149,127 31,828 50,185 63,598 22,587 317,325
Second Quarter,
1998
Revenues from
external $197,005 $ 6,372 $24,052 $51,081 $4,289 $282,799
customers
Inter-segment
sales 1,202 265 402 -- -- 1,869
Other income 347 41 112 77 463 1,040
Interest expense
(credit) (a) 1,081 210 324 490 (219) 1,886
Operating income
(loss) 5,902 779 1,827 3,212 (2,054) 9,666
Identifiable
assets at 148,872 19,839 35,423 64,557 23,297 291,988
June 30, 1998
First Half, 1999 Agriculture Manufacturing Processing Retail Other Total
Revenues from
external
customers $291,124 $14,859 $57,513 $87,784 $7,932 $459,212
Inter-segment 2,470 490 1,095 -- -- 4,055
sales
Other income 512 71 212 173 900 1,868
Interest expense
(credit) (a) 2,396 560 868 808 (514) 4,118
Operating
income (loss) 4,843 1,883 3,590 1,625 (748) 11,193
First Half, 1998
Revenues from
external
customers $351,234 $13,138 $50,966 $81,834 $6,848 $504,020
Inter-segment
sales 3,532 590 761 -- -- 4,883
Other income 691 90 173 126 928 2,008
Interest expense
(credit) (a) 2,954 407 702 1,015 (734) 4,344
Operating
income (loss) 3,971 1,310 5,002 195 (2,138) 8,340
(a) The other category of interest expense includes net interest income at the
company level, representing rate differential between the interest rate on
which interest is allocated to the operating segments and the actual rate
at which borrowings were made.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of the three months ended June 30, 1999 with the three months ended
June 30, 1998:
Sales and merchandising revenues for the three months ended June 30, 1999
totaled $259 million, a decrease of $23.6 million, or 8%, from 1998. Sales in
the Agriculture Segment were down $34.4 million, or 18%, due to a 15% volume
decrease in grain and a 12% decrease in the average price per bushel sold
caused by lower market prices and a change in the mix of grain sold by the
Company. Fertilizer sales were down $4 million, or 6%, due to a 6% decrease in
volume, partially offset by a 2% increase in the average price per ton sold.
In addition, merchandising revenues for the Ag Segment were up $1.9 million, or
34%, due primarily to increases in income from storing grain and fertilizer for
others and fees for custom application. Total acres, on which custom
application was performed, increased 55% from the second quarter of 1998. The
second quarter of 1998 includes partial period operations of two grain
elevators (one month). There were five additional farm centers and two
additional fertilizer distribution facilities in operation in the second
quarter of 1999 when compared to the same quarter in 1998.
The Manufacturing Segment had a sales increase of $1.9 million, or 29%,
due primarily to a revenue increase of $2.7 million from the sale of railcars.
Total revenues in the railcar repair and fabrication shops were down $.4
million while revenues from the railcar lease portfolio decreased $.4 million.
The Processing Segment had a $3.6 million, or 15%, increase in sales
primarily due to a 16% increase in lawn fertilizer volume, primarily in the
professional and industrial markets. In addition, there was a 1% increase in
the average price per ton sold. The cob-based businesses had a slight decrease
in sales.
The Retail Segment experienced a $3 million, or 6%, increase in sales,
with all stores showing increases. Strong demand for lawn and garden, nursery
and home improvement merchandise was the primary reason for the sales increase
in the second quarter.
Gross profit for the second quarter of 1999 totaled $51.8 million, an
increase of $3 million, or 6%, from the second quarter of 1998. The
Agriculture Segment had a gross profit increase of $1 million, or 5%, due
primarily to the increase in merchandising revenues described above.
Gross profit in the Manufacturing Segment increased $.7 million, or 26%,
from the prior year. This was due primarily to the timing of and margins on
railcar sales.
Gross profit for the Processing Segment increased $.1 million, or 1%, from
the second quarter of 1998. The lawn fertilizer and pet businesses showed
slight increases in gross profit, while the cob business had a gross profit
decrease.
Gross profit in the Retail Segment improved by $1.1 million, or 7%, from
the second quarter of 1998. This was due to the increased sales and margin
improvement resulting from changes in the product mix.
Operating, administrative and general expenses for the second quarter of
1999 totaled $38.6 million, a $1.4 million, or 4%, increase from the second
quarter of 1998. Operating, administrative and general expenses as a percent
of gross profit, however, decreased from 76% for the second quarter of 1998 to
75% in the second quarter of 1999. Full time employees increased 8% from the
second quarter of 1998 with the majority of the increase due to acquisitions or
added capacity in the Agriculture Segment and growth in other segments.
Included in the total increase are additional labor and benefits costs of $2.2
million and additional occupancy costs of $.5 million. These increases
reflect growth in the underlying businesses.
Interest expense for the second quarter of 1999 was $2.1 million, a $.2
million, or 9%, increase from the second quarter of 1998. Although average
short-term borrowings were higher in the second quarter of 1999 when compared
to the second quarter of 1998, the effective interest rate decreased.
Income before income taxes of $11.1 million was an improvement of $1.4
million from the 1998 second quarter pretax income of $9.7 million. Tax
expense has been provided at 33%, the Company's expected effective tax rate for
1999.
Net income of $7.5 million improved $1.1 million from the 1998 second
quarter net income of $6.4 million. Basic earnings per share were $.92, a $.12
increase from the 1998 second quarter. Diluted earnings per share were $.90, a
$.10 increase from the 1998 second quarter.
Comparison of the six months ended June 30, 1999 with the six
months ended June 30, 1998:
Sales and merchandising revenues for the six months ended June 30, 1999
totaled $459 million, a decrease of $44.8 million, or 9%, from 1998. Sales in
the Agriculture Segment were down $64.1 million, or 19%, due to a 12% volume
decrease in grain and a 16% decrease in the average price per bushel sold
caused by lower market prices and a change in the mix of grain sold by the
Company. Fertilizer sales were up very slightly, $.2 million, and include a 3%
increase in volume offset by a 3% decrease in the average price per ton sold.
In addition, merchandising revenues for the Ag Segment were up $4 million, or
35%, due primarily to increases in income from storing grain and fertilizer for
others and fees for custom application. Total acres, on which custom
application was performed, increased 55% from 1998. The 1998 results include
partial period operations of two grain elevators (one month), one distribution
facility (three months) and a farm center (three months). The 1999 first half
results include the operations of five additional farm centers and two
additional fertilizer distribution facilities (one for one month).
The Manufacturing Segment had a sales increase of $1.7 million, or 13% due
primarily to a $2.8 million increase in the sales of railcars. Total revenues
in the railcar repair and fabrication shops were down $.6 million while
revenues from the railcar lease portfolio decreased $.5 million.
The Processing Segment had a $6.5 million, or 13%, increase in sales. Of
this increase, $6.3 million was from increases in the lawn fertilizer business,
including a 16% increase in lawn fertilizer volume, primarily in the
professional and industrial markets. This volume increase more than offset a
2% reduction in the average price per ton sold. The remaining increase of $.2
million, or 3%, occurred in the cob-based businesses.
The Retail Segment experienced a $5.9 million, or 7%, increase in sales,
with all stores showing increases. Sales increases were due primarily to
weather-related sales in January and strong demand for lawn and garden, nursery
and home improvement merchandise in the second quarter.
Gross profit for the first half of 1999 totaled $90.6 million, an increase
of $8 million, or 10%, from the first half of 1998. The Agriculture Segment
had a gross profit increase of $3.9 million, or 12%, due largely to the
increase in merchandising revenues described above.
Gross profit in the Manufacturing Segment increased $1.6 million, or 35%,
from the prior year. This was due primarily to the timing of and margins on
railcar sales.
Gross profit for the Processing Segment increased slightly from the first
six months of 1998. Gross profit for the lawn fertilizer business and the cob
business was flat while gross profit for the much smaller pet business showed a
significant increase.
Gross profit in the Retail Segment improved by $2.1 million, or 9%, from
the first half of 1998. This was due to the increased sales and margin
improvement resulting from changes in the product mix.
Operating, administrative and general expenses for the first half of 1999
totaled $75.3 million, a $5.4 million, or 8%, increase from the first half of
1998. Operating, administrative and general expenses as a percent of gross
profit, however, decreased from 85% for the first half of 1998 to 83% in the
first half of 1999. Full time employees increased 8% from 1998 with the
majority of the increase due to acquisitions or added capacity in the
Agriculture Segment and growth in other segments. Included in the total
increase are additional labor and benefits costs of $4.6 million and additional
occupancy costs of $1 million. These increases reflect growth in the
underlying businesses.
Interest expense for the first half of 1999 was $4.1 million, a $.2
million, or 5%, decrease from the first half of 1998. Although average short-
term borrowings were higher in the first half of 1999 when compared to the
first half of 1998, the effective interest rate decreased.
Income before income taxes of $11.2 million was an improvement of $2.9
million from the 1998 first half pretax income of $8.3 million. Tax expense
has been provided at 33%, the Company's expected effective tax rate for 1999.
Net income of $7.5 million improved $2 million from the 1998 first half
net income of $5.5 million. Basic earnings per share were $.92, a $.22
increase from 1998. Diluted earnings per share were $.91, a $.21 increase from
1998.
Liquidity and Capital Resources
The Company's operations (before changes in operating assets and
liabilities) provided cash of $14.2 million in the first half of 1999, an
increase of $4.4 million from the first half of 1998. Working capital at June
30, 1999 was $67.9 million, a $2 million increase from December 31, 1998.
Working capital at June 30, 1998 was $59.1.
The Company utilizes its short-term lines of credit to finance working
capital, primarily inventories and accounts receivable. Lines of credit
available on June 30, 1999 were $155 million. The Company had $111 million
outstanding on its short- term lines of credit on April 26, its peak for the
quarter and the year to date. Typically, the Company's highest borrowing
occurs in the spring due to seasonal inventory requirements in the fertilizer
and retail businesses, credit sales of fertilizer and a customary reduction in
grain payables due to customer cash needs and market strategies.
A quarterly cash dividend of $0.05 per common share was paid in the first
and second quarters of 1999. A cash dividend of $0.05 per common share was
declared on July 1, 1999 and was paid on July 21, 1999. Cash dividends of
$0.04 per common share were paid quarterly in 1998. The Company made income
tax payments of $2.1 million in the first half and expects to make payments
totaling approximately $3.6 million for the remainder of 1999. Also in the
first half, the Company issued 63,126 shares to its employees under stock
compensation plans and purchased 168,000 of its common shares on the open
market at an average of $12.59 per share.
Total cash capital expenditures for 1999 are expected to exceed $20
million and include $6.2 million for additional facilities in the processing
and agriculture segments, $1.5 million for additional grain storage, $4.4
million for the acquisition of additional railcars and $1.6 million to replace
the point-of-sale system in the Company's retail stores. Funding for these
expenditures is expected to come from cash generated from operations and
additional debt. Capital expenditures can be curtailed if cash generated from
operations is less than expected.
Certain of the Company's long-term debt is secured by first mortgages on
various facilities. Some of the long-term borrowings include provisions that
impose minimum levels of working capital and equity, limitations on additional
debt and require the Company to be substantially hedged in its grain
transactions.
The Company's liquidity is enhanced by the fact that grain inventories are
readily marketable. In the opinion of management, the Company's liquidity is
adequate to meet short-term and long-term needs.
Impact of Year 2000
The Company plan to resolve the Year 2000 Issue (the inability of
computers to process date information after 1999) involves four phases:
assessment, remediation, testing and implementation. The Company has completed
its assessment of all systems that could be significantly affected by the year
2000 and has developed remediation plans that include both modifications
and replacements. These remediation plans have been prioritized based on the
perceived risk of failure or error. The Company interfaces with third parties
in some of its businesses and functional areas. These third party interfaces
have been considered in the assessment and remediation plans and have been
assigned a high priority for completion.
Costs incurred to date have totaled approximately $1.9 million for the
purchase of new software and $.8 million representing existing internal
resources that were expensed as incurred. The remaining cost of remediation
for the Company is estimated at $1 million, which includes $.9 million for the
purchase of software and hardware and $.1 million representing existing
internal resources that will be expensed as incurred. This cost information
includes an enterprise resource planning (ERP) solution installation in the
wholesale fertilizer division initially planned to be completed before the year
2000. The existing fertilizer software has been found to be Year 2000
compliant and while the ERP installation continues, it is not necessary for
Year 2000 compliance.
Year 2000 modification plans and software installations are under way and
are substantially complete at the end of the second quarter of 1999 for all
significant high risk. The only significant systems still being worked on are
the following:
System Modification Completion Date
Farm center system replacement 3rd Quarter 1999
Retail point-of-sale replacement 4th Quarter 1999
Railcar marketing system 3rd Quarter 1999
The Company has made significant progress in testing its remediated
systems. Except for the systems identified above and certain centralized
accounting systems, the Company has completed its testing of significant high-
risk systems at the end of the second quarter of 1999. For the systems
identified above testing will be completed immediately following the completion
of modifications. Testing of the high-risk centralized accounting systems will
be completed in the third quarter of 1999.
There have been no substantial changes to the plans as previously
reported. The Company believes that with the planned modifications and
conversions, the Year 2000 Issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are
not completed before the year 2000, there could be an impact on the operations
of the Company. The Company has developed contingency plans for its major
systems applications and other high-risk systems. This process determined the
need for a contingency plan based on the current status of remediation and
testing. The contingency plans will determine manual workarounds or other
actions for critical applications.
The Company queried its significant suppliers and subcontractors that do
not share information systems with the Company (its "external agents") and
received responses from 76% of them. The Company is in the process of updating
this survey for new external agents added after the initial mailing and
throughout 1999 and following up on business critical suppliers that have not
yet responded. To date, the Company is not aware of any external agent with a
Year 2000 Issue that would materially impact the Company's results of
operations, liquidity or capital resources. However, the Company has no means
of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution processes in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
While the Company is monitoring its external agents, it may also be
affected by Year 2000 failures at other 3rd parties such as utilities and the
railroads. The Company can not identify all possible worst-case scenarios,
however, the most reasonable worst-case scenario would be the failure of
utilities and/or transportation systems that are critical to the Company's
operations and that couldn't quickly be replaced by other suppliers or through
internal resources. In such situations, operations at the affected facility or
facilities could be interrupted with adverse effects on the Company's financial
results. The Company has no contingency plans for this scenario, except to the
extent that it can operate at another unaffected facility or utilize the
services of another carrier.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
Forward Looking Statements
The preceding Management's Discussion and Analysis contains various
"forward-looking statements" which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including but not
limited to those identified below, which could cause actual results to
differ materially from historical results or those anticipated. The words
"believe," "expect," "anticipate" and similar expressions identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially from
historical results or those anticipated; weather, supply and demand of
commodities including grains, fertilizer and other basic raw materials, market
prices for grains and the potential for increased margin requirements,
competition, economic conditions, risks associated with acquisitions, interest
rates and income taxes.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices and interest rates as discussed below.
Commodities
The availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather, plantings,
government (domestic and foreign) farm programs and policies, changes in global
demand created by population growth and higher standards of living, and global
production of similar and competitive crops. To reduce price risk caused by
market fluctuations, the Company follows a policy of hedging its inventories
and related purchase and sale contracts. The instruments used are readily
marketable exchange- traded futures contracts that are designated as hedges.
To a lesser degree, the Company uses exchange-traded option contracts, also
designated as hedges. The changes in market value of such contracts have a
high correlation to the price changes of the hedged commodity. The Company's
accounting policy for these hedges, as well as the underlying inventory
positions, and purchase and sale contracts is to mark them to the market price
daily and include gains and losses in the statement of income in sales and
merchandising revenues.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk of its commodity position. The Company's daily net
commodity position consists of inventories, related purchase and sale contracts
and exchange traded contracts. The fair value of such position is a summation
of the fair values calculated for each commodity by valuing each net position
at quoted futures market prices. Market risk is estimated as the potential
loss in fair value resulting from a hypothetical 10% adverse change in such
prices. The result of this analysis, which may differ from actual results, is
as follows:
(in thousands) June 30, 1999 December 31, 1998
Net long (short) position $ 1,451 $ (1,961)
Market risk 145 196
Interest
The fair value of the Company's long-term debt is estimated using quoted
market prices or discounted future cash flows based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. In
addition, the Company has off-balance sheet interest rate contracts established
as hedges. The fair value of these contracts is estimated based on quoted
market termination values. Market risk, which is estimated as the potential
increase in fair value resulting from a hypothetical one-half percent decrease
in interest rates, is summarized below:
(in thousands) June 30, 1999 December 31, 1998
Fair value of long-term debt and
interest rate contracts $73,231 $78,521
Excess (deficit) of fair value over
carrying value (566) 638
Market risk 458 403
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of The Andersons, Inc. was held on
May 15, 1999 to elect twelve directors, to approve an amendment to the
Company's Long-Term Performance Compensation Plan and to ratify the appointment
of the Company's independent auditors. Results of the voting follow:
Director For Against Withheld Not Voted
Donald E. Anderson 7,465,940 0 76,999 623,858
Michael J. Anderson 7,466,240 0 76,699 623,858
Richard M. Anderson 7,466,240 0 76,699 623,858
Richard P. Anderson 7,466,240 0 76,699 623,858
Thomas H. Anderson 7,466,240 0 76,699 623,858
John F. Barrett 7,493,540 0 49,399 623,858
Paul M. Kraus 7,493,540 0 49,399 623,858
Donald L. Mennel 7,493,540 0 49,399 623,858
David L. Nichols 7,493,540 0 49,399 623,858
Dr. Sidney A. Ribeau 7,493,340 0 49,599 623,858
Charles A. Sullivan 7,493,540 0 49,399 623,858
Jacqueline F. Woods 7,493,540 0 49,399 623,858
Plan Amendment 4,669,607 607,686 2,171,003 718,501
Independent Auditors 7,463,451 550 78,938 623,858
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ANDERSONS, INC.
(Registrant)
Date: August 13, 1999 By /s/Michael J. Anderson
Michael J. Anderson
President and Chief Executive Officer
Date: August 13, 1999 By /s/Richard R. George
Richard R. George
Vice President and Controller
(Principal Accounting Officer)
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