SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
480 W. Dussel Drive, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (419) 893-5050
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock which may
be voted by persons other than affiliates of the registrant was $82,876,033 on
February 28, 1999, computed by reference to the last sales price for such stock
on that date as reported on the Nasdaq National Market.
The registrant had 8,166,797 Common shares outstanding, no par value,
at February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report of The Andersons, Inc. and Proxy
Statement for the Annual Meeting of Shareholders to be held on April 22, 1999,
are incorporated by reference into Parts II (Items 5, 6, 7 and 8), III (Items
10, 11 and 12) and IV of this Annual Report on Form 10-K. The Proxy Statement
will be filed with the Commission on or about March 16, 1999.
PART I
Item 1. Business
(a) General Development of Business
The Andersons, Inc. is a diversified company with three operating
groups. The Agriculture Group merchandises grain, operates grain elevator
facilities located in Ohio, Michigan, Indiana and Illinois, manufactures
agricultural fertilizer, and distributes agricultural inputs (fertilizer,
chemicals, seed and supplies) to dealers and farmers. The Processing and
Manufacturing Group includes the Processing Segment, which manufactures lawn
fertilizer and corncob based products; the Manufacturing Segment that
purchases, sells, repairs and leases railcars; and several smaller businesses.
The Retail Group operates six retail stores and a distribution center in Ohio.
(b) Financial Information About Industry Segments
See Note 13 to the consolidated financial statements for information
regarding business segments.
(c) Narrative Description of Business
Agriculture Group
The Agriculture Group operates grain elevators, wholesale fertilizer
terminals, and retail farm centers.
The Company's grain operations involve merchandising grain and
operating terminal grain elevator facilities. This includes purchasing,
handling, processing and conditioning grain, storing grain purchased by the
Company as well as grain owned by others, and selling grain. The principal
grains sold by the Company are yellow corn, yellow soybeans and soft red and
white wheat. The Company's total grain storage capacity was approximately 80
million bushels at December 31, 1998.
Grain merchandised by the Company is grown in the midwestern portion
of the United States (the Eastern Corn Belt) and is acquired from country
elevators, dealers and producers. The Company makes grain purchases at prices
referenced to Chicago Board of Trade quotations. The Company competes for the
purchase of grain with grain processors and feeders, as well as with other
grain merchandisers.
In 1998, the Company signed a five-year lease agreement with Cargill,
Inc. for Cargill's Maumee and Toledo, Ohio grain handling and storage
facilities. As part of the agreement, Cargill was given the marketing rights
to grain in the Cargill- owned facilities as well as the adjacent Company-owned
facilities in Maumee and Toledo. These agreements cover 45%, or 35 million
bushels, of the Company's total storage space and became effective on June 1,
1998.
During 1998, approximately 69% of the grain sold by the Company was
purchased domestically by grain processors and feeders, and approximately 31%
was exported. Most of the exported grain was purchased by exporters for
shipment to foreign markets. Some grain is shipped directly to foreign
countries, mainly Canada. Almost all grain shipments are by rail or boat.
Rail shipments are made primarily to grain processors and feeders, with some
rail shipments made to exporters on the Gulf or East Coast. All boat shipments
are from the Port of Toledo. Grain sales, except for grain sales subject to
the marketing agreement with Cargill which are effected on a negotiated basis
with Cargill's merchandising staff, are effected on a negotiated basis by the
Company's merchandising staff.
The Company's grain business may be adversely affected by the grain
supply (both crop quality and quantity) in its principal growing area,
government regulations and policies, conditions in the shipping and rail
industries and commodity price levels. See "Government Regulation". The grain
business is seasonal coinciding with the harvest of the principal grains
purchased and sold by the Company.
Fixed price purchases and sales of cash grain and grain held in
inventory expose the Company to risks related to adverse changes in price. The
Company attempts to manage these risks by hedging fixed price purchase and sale
transactions and inventory through the use of futures and option contracts with
the Chicago Board of Trade ("CBOT"). The CBOT is a regulated commodity
futures exchange that maintains futures markets for the grains merchandised by
the Company. Futures prices are determined by worldwide supply and demand.
The Company's hedging program is designed to reduce the risk of
changing commodity prices. In that regard, hedging transactions also limit
potential gains from further changes in market prices. The grain division's
profitability is primarily derived from margins on grain sold, and revenues
generated from other merchandising activities with its customers, not from
hedging transactions. The Company has a policy which specifies the key
controls over its hedging program. This policy includes a description of the
hedging programs, mandatory review of positions by key management outside of
the trading function on a biweekly basis, daily position limits, modeling of
positions for changes in market conditions, and other internal controls.
Purchases of grain can be made the day the grain is delivered to a
terminal or via a forward contract made prior to actual delivery. Sales of
grain generally are made by contract for delivery in a future period. When the
Company purchases grain at a fixed price, the purchase is hedged with the sale
of a futures contract on the CBOT. Similarly, when the Company sells grain at
a fixed price, the sale is hedged with the purchase of a futures contract on
the CBOT. At the close of business each day the open inventory ownership
positions as well as open futures and option positions are marked-to-the-
market. Gains/losses in the value of the Company's owned inventory positions
due to changing market prices are netted with and generally offset by
losses/gains in the value of the Company's futures positions.
When a futures contract is entered into, an initial margin deposit
must be sent to the CBOT. The amount of the margin deposit is set by the CBOT
and varies by commodity. If the market price of a futures contract moves in a
direction which is adverse to the Company's position, an additional margin
deposit, called a maintenance margin, is required by the CBOT. Subsequent
price changes could require additional maintenance margins or could result in
the return of maintenance margins by the CBOT. Significant increases in market
prices, such as occur when weather conditions are unfavorable for extended
periods, can have an effect on the Company's liquidity and require it to
maintain appropriate short-term lines of credit. The Company may utilize CBOT
option contracts to limit its exposure to potential required margin deposits in
the event of a rapidly rising market.
The Grain operation relies on forward purchase contracts with
producers, dealers and country elevators to ensure an adequate supply of grain
to its facilities throughout the year. Bushels contracted for future delivery
at February 28, 1999 approximated 33 million, 95% of which are to be delivered
to the Company in the 1998 and 1999 crop years (through August 2000). The
Company relies heavily on its hedging program as the method for minimizing
price risk in its grain inventories and contracts. The Company monitors current
market conditions and may expand or reduce the purchasing program in response
to changes in those conditions. In addition, the Company reviews its purchase
contracts and the parties to those contracts on a regular basis for credit
worthiness, defaults and non-delivery.
The Company competes in the sale of grain with other grain merchants,
other elevator operators and farmer cooperatives that operate elevator
facilities. Competition is based primarily on price, service and reliability.
Some of the Company's competitors are also its customers and many of its
competitors have substantially greater financial resources than the Company.
The Company's wholesale fertilizer operations involve purchasing,
storing, formulating, and selling dry and liquid fertilizers; providing
fertilizer warehousing and services to manufacturers and customers; and the
wholesale distribution of seeds and various farm supplies. The major
fertilizer ingredients sold by the Company are nitrogen, phosphate and
potassium, all of which are readily available from various sources.
The Company's wholesale fertilizer market area primarily includes
Illinois, Indiana, Michigan and Ohio and customers for the Company's fertilizer
products are principally retail dealers. Sales of agricultural fertilizer
products are heaviest in the spring and fall.
The Company's aggregate owned storage capacity for dry fertilizer was
12.6 million cubic feet at December 31, 1998. The Company reserves 6 million
cubic feet of this space for various fertilizer manufacturers and customers.
The Company's aggregate storage capacity for liquid fertilizer at December 31,
1998 was 30.4 million gallons and 8.7 million gallons of this space is
reserved for manufacturers and customers. The agreements for reserved space
provide the Company storage and handling fees and, generally, are for an
initial term of one year and are renewable at the end of each term. The
Company also leases 1.1 million cubic feet and 4.4 million gallons of dry and
liquid fertilizer capacity, respectively, under arrangements with various
fertilizer dealers and warehouses.
The Company operates fourteen retail farm centers located throughout
Michigan, Indiana and Ohio. These centers, located within the same regions as
the Company's grain and wholesale fertilizer facilities, offer agricultural
fertilizer, custom application of fertilizer to farms and golf courses, and
chemicals, seeds and supplies to the farmer, many of which are also customers
of the Company's grain division. The Company has signed a letter of intent to
acquire two additional retail farm centers in Michigan. The purchase is
expected to be finalized in the spring of 1999.
In its agricultural fertilizer businesses, the Company competes with
regional cooperatives; fertilizer manufacturers; multi-state retail/wholesale
chain store organizations; and other independent wholesalers of agricultural
products. Many of these competitors have considerably larger resources than
the Company. Competition in the agricultural products business of the Company
is based principally on price, location and service.
Processing and Manufacturing Group
The Processing and Manufacturing Group consists of three business
units: the Processing Segment, the Manufacturing Segment and the ventures
division.
The Processing Segment produces and markets granular lawn fertilizer
and related products to retailers and professional lawn care companies. It
also produces and distributes corncob-based products to the chemical carrier,
pet and industrial markets. Retail lawn products are sold to mass
merchandisers, small independent retailers and other lawn fertilizer
manufacturers. During the off-season, ice melt products are distributed to
many of the same retailers. Professional lawn products are sold both direct
and through distributors to lawn service applicators and to golf courses.
Principal raw materials for the lawn care products are nitrogen, potash and
phosphate, which are purchased primarily from the Company's wholesale
fertilizer division. The lawn products industry is highly seasonal, with the
majority of sales occurring from early spring to early summer. Competition is
based principally on merchandising ability, service and quality.
The Company is one of the largest producers of processed corncob
products in the United States. These products serve the chemical and feed
ingredient carrier, animal litter and industrial markets and are distributed
throughout the United States and Canada and into Europe and Asia. The
principal sources for the corncobs are the Company's grain operations and
seed corn producers.
The Company has signed a letter of intent with International Raw
Materials, LTD, to create a joint venture which will operate a fertilizer and
ice melt processing facility near Philadelphia, Pennsylvania. This transaction
is expected to close in the spring of 1999.
The Company's Manufacturing Segment buys, sells, leases, rebuilds and
repairs various types of used railcars. The division also provides fleet
management services to fleet owners and operates a custom steel fabrication
business. A significant portion of the railcar fleet is leased from financial
lessors and sub-leased to end-users. Some of these leases are nonrecourse to
the Company. Competition for railcar marketing and fleet maintenance services
is based primarily on service, access to used railcars and access to third
party financing. Repair and fabrication shop competition is based primarily on
price, quality and location.
The Company's ventures division includes the joint venture operation
of ten Tireman auto service centers and The Andersons Mower Center, a lawn and
garden power equipment sales and service shop.
Retail Group
The Company's Retail Group consists of six stores operated as "The
Andersons", which are located in the Columbus, Lima and Toledo, Ohio markets
and serve urban, suburban and rural customers. The retail concept is "The
Complete Home Store" and includes a full line of home center products plus a
wide array of other items not available at the more traditional home center
stores. In addition to hardware, home remodeling and lawn & garden products,
The Andersons stores offer housewares, automotive products, sporting goods, pet
products, bath soft goods and food (bakery, deli, produce, wine and specialty
groceries). Each store carries more than 70,000 different items, has 100,000
square feet or more of in-store display space plus 40,000 square feet of
outdoor garden center space, and has a center aisle that features do-it-
yourself clinics, special promotions and varying merchandise displays.
The retail merchandising business is highly competitive. The Company
competes with a variety of retail merchandisers, including home centers,
department and hardware stores. The principal competitive factors are quality
of product, price, service and breadth of selection. The Company's retail
business is affected by seasonal factors with significant sales occurring
during the Christmas season and in the spring.
Research and Development
The Company's research and development program is mainly concerned
with the development of improved products and processes, primarily for the
Processing Segment. The Company expended approximately $340,000, $350,000, and
$320,000 on research and development during 1998, 1997 and 1996,
respectively.
Employees
At December 31, 1998, the Company had 1,235 full-time and 1,800 part-
time or seasonal employees. The Company believes its relations with its
employees are good.
Government Regulation
Grain sold by the Company must conform to official grade standards
imposed under a federal system of grain grading and inspection administered by
the United States Department of Agriculture ("USDA").
The production levels, markets and prices of the grains that the
Company merchandises are materially affected by United States government
programs, including acreage control and price support programs of the USDA.
Also, under federal law, the President may prohibit the export of any product,
the scarcity of which is deemed detrimental to the domestic economy, or under
circumstances relating to national security. Because a portion of the
Company's grain sales is to exporters, the imposition of such restrictions
could have an adverse effect upon the Company's operations.
The Company, like other companies engaged in similar businesses, is
subject to a multitude of federal, state and local environmental protection
laws and regulations including, but not limited to, laws and regulations
relating to air quality, water quality, pesticides and hazardous materials.
The provisions of these various regulations could require modifications of
certain of the Company's existing plant and processing facilities and
could restrict future facilities expansion or significantly increase their cost
of operation. Of the Company's capital expenditures, approximately $650,000,
$945,000 and $720,000 in 1998, 1997 and 1996, respectively, were made in order
to comply with these regulations.
Item 2. Properties
The Company's principal agriculture, retail and other properties are
described below. Except as otherwise indicated, the Company owns all
properties.
Agriculture Facilities
(in thousands) Agricultural Fertilizer
Grain Dry Storage Liquid
Storage Storage
Location (bushels) (cubic feet) (gallons)
Maumee, OH (3) 21,610 4,500 2,646
Toledo, OH Port (4) 13,650 1,800 2,812
Metamora, OH 6,860 -- --
Lyons, OH (2) 380 53 194
Toledo, OH (1) 1,000 -- --
Fremont, OH (2) -- 47 284
Fostoria, OH (2) -- 36 279
Gibsonburg, OH (2) -- 35 307
Pulaski, OH (1)(2) -- 33 250
Lordstown, OH -- 197 --
Champaign, IL 13,500 833 --
Delphi, IN 6,700 923 --
Clymers, IN (2) 4,450 37 2,636
Dunkirk, IN 5,980 992 --
Poneto, IN 620 10 6,298
North Manchester, IN (2) -- 23 127
Waterloo, IN (1)(2) -- 992 1,654
Logansport, IN -- 33 2,231
Walton, IN (2) -- 375 5,962
Albion, MI (2) 2,000 20 128
White Pigeon, MI 2,100 -- --
Webberville, MI -- 1,747 3,916
Litchfield, MI (2) -- 40 252
North Adams, MI (2) -- 20 230
Union City, MI (2) -- 20 40
Munson, MI (2) -- 33 140
78,850 12,640 20,286
(1) Facility leased.
(2) Facility is or includes a retail farm center.
(3) Includes leased facilities with a 4,300-bushel capacity.
(4) Includes leased facilities with a 7,100-bushel capacity.
The grain facilities are mostly concrete and steel tanks, with some flat
storage, which is primarily cover-on-first temporary storage. The Company also
owns grain inspection buildings and dryers, a corn sheller plant, maintenance
buildings and truck scales and dumps.
Wholesale fertilizer and retail farm center properties consist mainly of
fertilizer warehouse and distribution facilities for dry and liquid
fertilizers. The Maumee, Ohio and Walton, Indiana locations have fertilizer
mixing, bagging and bag storage facilities. The Company also owns a seed
processing facility in Delta, Ohio. Aggregate storage capacity in the
fourteen retail farm centers located in Michigan, Indiana and Ohio for liquid
fertilizer and dry fertilizer is 2.9 million gallons and 472,500 cubic feet,
respectively.
Retail Store Properties
Name Location Square Feet
Maumee Store Maumee, OH 131,000
Toledo Store Toledo, OH 130,000
Woodville Store (1) Northwood, OH 100,000
Lima Store (1) Lima, OH 117,000
Brice Store Columbus, OH 128,000
Sawmill Store Columbus, OH 134,000
Warehouse (1) Maumee, OH 245,000
(1) Leased
The leases for the two stores and the warehouse facility are long-term
leases with several renewal options and provide for minimum aggregate annual
lease payments approximating $1 million. The two store leases provide for
contingent leases payments based on achieved sales volume. Neither store
achieved a sales level triggering contingent lease payments in 1998, 1997 or
1996.
Other Properties
The Company owns lawn fertilizer production facilities and automated pet
food production and storage facilities in Maumee, Ohio and lawn fertilizer
production facility in Bowling Green, Ohio. It also owns corncob processing
and storage facilities in Maumee, Ohio and Delphi, Indiana. The Company leases
a lawn fertilizer warehouse facility in Toledo, Ohio. The Company's Processing
Segment venture expects to lease space in Pottstown, Pennsylvania.
In its railcar business, the Company owns, leases or controls
approximately 3,800 railcars (primarily covered or open hoppers with some
boxcars, tank cars and gondolas) with lease terms ranging from one to ten years
and future minimum lease payments aggregating $20 million with future minimum
sublease income of approximately $15 million. The Company also owns a railcar
repair facility, a steel fabrication facility, and owns or leases a number of
switch engines, cranes and other equipment.
The Company owns a service and sales facility for outdoor power equipment
and several auto service centers leased to its venture. That venture also
leases other auto service centers and a warehouse directly from third parties.
The Company's administrative office building is leased under a net lease
expiring in 2005. The Company owns approximately 958 acres of land on which
various of the above properties and facilities are located; approximately 415
acres of farmland and land held for future use; approximately 5 acres of
improved land in an office/industrial park held for sale; and certain other
real estate.
Real properties, machinery and equipment of the Company were subject to
aggregate encumbrances of approximately $28 million at December 31, 1998.
Additions to property, including intangible assets, for the years ended
December 31, 1998, 1997 and 1996 amounted to $14 million, $15 million and $10
million, respectively. See Note 10 to the Company's consolidated financial
statements for information as to the Company's leases.
The Company believes that its properties, including its machinery,
equipment and vehicles, are adequate for its business, well maintained and
utilized, suitable for their intended uses and adequately insured.
Item 3. Legal Proceedings
The Company is not involved in any legal proceedings that it believes to
be material.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 4a. Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following
information with respect to the executive officers of the registrant is
included herein in lieu of being included in the Registrant's Proxy Statement
for its Annual Meeting of Shareholders to be held April 22, 1999.
Year
Name Position Age Assumed
Christopher J. President, Processing and Manufacturing Group 44 1996
Anderson Vice President, Business Development Group 1992
General Manager, Ventures & New Business 1990
Development
Daniel T. President, Retail Group 43 1996
Anderson Director of Marketing and Merchandising, 1996
Retail Group 1991
General Merchandise Manager, Retail Group
Michael J. President and Chief Executive Officer 47 1999
Anderson President and Chief Operating Officer 1996
Vice President and General Manager, Retail 1994
Group 1990
Vice President and General Manager, Grain
Group
Richard P. Chairman of the Board 69 1999
Anderson Chairman of the Board and Chief Executive 1996
Officer 1987
President and Chief Executive Officer
Thomas H. Chairman Emeritus 75 1996
Anderson Chairman of the Board 1987
Joseph L. President, Agriculture Group 48 1996
Braker Vice President and General Manager, 1994
Agriculture Group 1990
Vice President and General Manager,
Agricultural Products Group
Joseph C. Vice President, Human Resource Development 50 1996
Christen Director of Human Resource Development 1988
Dale W. Vice President - Corporate Services 54 1992
Fallat Senior Vice President, Corporate Services 1990
Philip C. Vice President, Corporate Planning 56 1996
Fox Director of Company Planning 1988
Charles E. Vice President, Personnel 57 1996
Gallagher Director of Personnel 1988
Richard R. Vice President and Controller 49 1996
George Corporate Controller 1988
Beverly J. Vice President, General Counsel and Secretary 57 1996
McBride General Counsel and Corporate Secretary 1988
Gary L. Vice President, Finance and Treasurer 53 1996
Smith Corporate Treasurer 1988
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information under the caption Selected Quarterly Financial Data and
Market for Common Stock on page 7 and Shareholders on the inside back cover of
The Andersons, Inc. 1998 Annual Report to Shareholders is incorporated herein
by reference. The Company paid quarterly dividends of four cents and three
cents per common share, respectively, in 1998 and 1997. The Company declared
quarterly dividends of five cents per common share to be paid January 21, 1999
and April 21, 1999 to shareholders of record on January 4, 1999 and April 1,
1999.
Item 6. Selected Financial Data
The information under the caption Selected Financial Data on page 7 of The
Andersons, Inc. 1998 Annual Report to Shareholders is incorporated herein by
reference.
Item 7. Management's Discussion & Analysis of Financial Condition and
Results of Operations
The information under the caption Management's Discussion and Analysis
appearing on pages 13 through 15 of The Andersons, Inc. 1998 Annual Report to
Shareholders is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The information under the captions Market Risk Sensitive Instruments and
Positions, Commodities and Interest appearing on page 15 of The Andersons, Inc.
1998 Annual Report to Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information under the caption Selected Quarterly Financial Data and
Market for Common Stock on page 7 of The Andersons, Inc. 1998 Annual Report to
Shareholders, as well as the following consolidated financial statements of The
Andersons, Inc. set forth on pages 9 through 12 and 17 through 28 of The
Andersons, Inc. 1998 Annual Report to Shareholders are incorporated herein by
reference:
* Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
* Consolidated Balance Sheets as of December 31, 1998 and 1997
* Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
* Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
* Notes to Consolidated Financial Statements
Following is the Report of Independent Auditors on the Consolidated
Financial Statements and schedule:
Report of Independent Auditors
Board of Directors
The Andersons, Inc.
We have audited the accompanying consolidated balance sheets of The Andersons,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Andersons, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ERNST & YOUNG LLP
Toledo, Ohio
January 25, 1999
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the executive officers of the registrant,
see "Executive Officers of the Registrant" in Item 4A included in Part I of
this report. For information with respect to the Directors of the registrant,
see "Election of Directors" in the Proxy Statement for the Annual Meeting of
the Shareholders to be held on April 22, 1999 (the "Proxy Statement"), which is
incorporated herein by reference; for information concerning 1934 Securities
and Exchange Act Section 16(a) Compliance, see such section in the Proxy
Statement, incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption "Executive Compensation" in
the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership" in the
Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14. Financial Statement Schedules and Reports on Form 8-K
(a) (1) The consolidated financial statements of the Company, as set forth
under Item 8 of this report on Form 10-K, are incorporated herein by reference
from The Andersons, Inc. 1998 Annual Report to Shareholders.
(2) The following consolidated financial statement schedule is
included in Item 14(d):
Page
II. Consolidated Valuation and Qualifying Accounts - years
ended December 31, 1998, 1997 and 1996 17
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Exhibits:
2.1 Agreement and Plan of Merger, dated April 28, 1995 and amended
as of September 26, 1995, by and between The Andersons
Management Corp. and The Andersons. (Incorporated by reference
to Exhibit 2.1 to Registration Statement No. 33-58963).
3.1 Articles of Incorporation. (Incorporated by reference to Exhibit
3(d) to Registration Statement No. 33-16936).
3.4 Code of Regulations of The Andersons, Inc. (Incorporated by
reference to Exhibit 3.4 to Registration Statement No. 33-
58963).
4.3 Specimen Common Share Certificate. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-58963).
4.4 The Seventeenth Supplemental Indenture dated as of August 14,
1997, between The Andersons, Inc. and The Fifth Third Bank,
successor Trustee to an Indenture between The Andersons and Ohio
Citizens Bank, dated as of October 1, 1985.
10.1 Management Performance Program. * (Incorporated by reference to
Exhibit 10(a) to the Predecessor Partnership's Form 10-K dated
December 31, 1990, File No. 2-55070).
10.2 The Andersons, Inc. Amended Long-Term Performance Compensation
Plan * (Incorporated by reference to Appendix A to the Proxy
Statement for the May 22, 1997 Annual Meeting).
10.3 The Andersons, Inc. Employee Share Purchase Plan * (Incorporated
by reference to Appendix C to Registration Statement No. 33-
58963).
13 The Andersons, Inc. 1998 Annual Report to Shareholders
21 Subsidiaries of The Andersons, Inc.
23.1 Consent of Independent Auditors
* Management contract or compensatory plan.
The Company agrees to furnish to the Securities and Exchange Commission a
copy of any long-term debt instrument or loan agreement that it may request.
(b) Reports on Form 8-K:
A report on Form 8-K was filed with the Securities and Exchange
Commission on December 31, 1998. It contained a December 18, 1998 press
release announcing the naming of Michael J. Anderson as President and Chief
Executive Officer and Richard P. Anderson as Chairman of the Board.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) of this report, and not
incorporated by reference, follow "Financial Statement Schedule" referred to in
(d) below.
(d) Financial Statement Schedule:
The financial statement schedule listed in 14(a)(2) follows
"Signatures".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Maumee, Ohio,
on the 16th day of March, 1999.
THE ANDERSONS, INC. (Registrant)
By /s/Michael J. Anderson
Michael J. Anderson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant on the 16th day of March, 1999.
Signature Title Date
/s/Michael J. Anderson President March 16, 1999
Michael J. Anderson Chief Executive Officer
(Principal Executive Officer)
/s/Richard R. George Vice President and Controller March 16, 1999
Richard R. George (Principal Accounting Officer)
/s/Gary L. Smith Vice President, Finance March 16, 1999
Gary L. Smith and Treasurer
(Principal Financial Officer)
/s/Richard P. Anderson Chairman of the Board March 16, 1999
Richard P. Anderson
Director
Donald E. Anderson
/s/Richard M. Anderson Director March 16, 1999
Richard M. Anderson
/s/Thomas H. Anderson Director March 16, 1999
Thomas H. Anderson
/s/John F. Barrett Director March 16, 1999
John F. Barrett
/s/Paul M. Kraus Director March 16, 1999
Paul M. Kraus
Director
Donald L. Mennel
Director
David L. Nichols
/s/Sidney A. Ribeau Director March 16, 1999
Dr. Sidney A. Ribeau
/s/Charles A. Sullivan Director March 16, 1999
Charles A. Sullivan
Director
Jacqueline F. Woods
Except for those portions of The Andersons, Inc. 1998 Annual Report to
Shareholders specifically incorporated by reference in this report on Form 10-
K, such annual report is furnished solely for the information of the Securities
and Exchange Commission and is not to be deemed "filed" as a part of this
filing.
<TABLE>
<CAPTION>
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THE ANDERSONS, INC.
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions at End
Description of Period Expenses - Describe - Describe of Period
Allowance for doubtful accounts receivable:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998 $2,957,000 $2,913,962 $ 235,500(2) $ 1,651,462(1) $ 4,455,000
Year ended December 31, 1997 3,230,000 1,680,523 - 1,953,523(1) 2,957,000
Year ended December 31, 1996 3,514,000 4,321,994 - 4,605,994(1) 3,230,000
Allowance for doubtful notes receivable:
Year ended December 31, 1998 $ 777,000 $ 530,923 $ - $ 792,923(1) $ 515,000
Year ended December 31, 1997 735,000 86,409 - 44,409(1) 777,000
Year ended December 31, 1996 1,277,000 - - 542,000(1) 735,000
(1) Uncollectible accounts written off, net of recoveries
(2) Allowance for doubtful accounts acquired in acquisition of business
</TABLE>
EXHIBIT INDEX
THE ANDERSONS, INC.
Exhibit
Number
4.4 The Seventeenth Supplemental Indenture dated August 14, 1997, between The
Andersons, Inc. and The Fifth Third Bank
13 The Andersons, Inc. 1998 Annual Report to Shareholders
21 Subsidiaries of The Andersons, Inc.
23.1 Consent of Independent Auditors
The Andersons 1998 Annual Report
Corporate Profile
The Andersons, Inc. (Nasdaq: ANDE) is a diversified Agribusiness and Retailing
Company with annual revenues of $1.1 billion. The Company, which began
operations in Maumee, Ohio in 1947 with one grain elevator and 500,000
bushels of storage capacity, today has three operating groups:
Agriculture, Processing & Manufacturing, and Retail.
For more in-depth information about the Company visit our website at
www.andersonsinc.com
[Bar Graph]
Diluted Earnings Per Share
1996 $.76
1997 $.50
1998 $1.20
Table of Contents
Highlights 1
Letter to shareholders 2-3
Agriculture Group 4
Processing & Manufacturing Group 5
Retail Group 6
Selected Financial Data 7
Audited Consolidated Financial Statements 8-12
Management's Discussion & Analysis 13-16
Notes to Consolidated Financial Statements 17-28
Officers & Directors Data Inside Back
1998 Accomplishments
* Shareholders enjoyed total return of over 32%
* Second best total year performance on record
* 1st, 2nd and 3rd quarters show successive year-to-year increases
* Railcar business unit continues to enjoy significant growth in revenue and
earnings
* Increased Railcar lease fleet 36% to over 3,800 railcars
* Lawn fertilizer unit selling to several of the nation's largest lawn and
garden retailers
* Leased two grain elevators from & created marketing alliance with Cargill
* Ended 1998 with higher levels of grain inventory 59 MM bushels vs 1997's
52 MM
* Creating joint venture with Pottstown, PA's IRM to produce lawn fertilizer
& ice melter
* Leased or purchased 5 Retail Farm Centers in Fostoria, Fremont, Gibsonburg
& Pulaski, OH & Waterloo, IN
* Opened a new wholesale fertilizer distribution plant in Lordstown, OH
* Retail Group substantially improved in-stock positions (96%)
* Retail's focus is the "Complete Home Store" - everything you need for your
home including a complete line of domestics
* Cash dividend increased 25% in 1st quarter 1999
* Made significant progress on our your 2000 compliance plans
* Effected strategies to lower the Company's effective tax rate
* Mike Anderson named CEO January 1, 1999
* Jacqueline Woods elected to board of directors February 1999
Financial Highlights
(in thousands, except for per share
& performance data) 1998 1997 % Change
Operations
Grain sales & revenues $ 630,507 $566,373 11.3%
Fertilizer, retail & other sales 468,215 427,373 9.6%
Other income 5,412 5,099 6.1%
Total sales & revenues $1,104,134 $998,845 10.5%
Gross profit - grain 40,748 33,787 20.6%
Gross profit - fertilizer, retail & other 125,893 113,901 10.5%
Total gross profit $166,641 $147,688 12.8%
Income before income taxes & asset impairment 13,006 7,376 76.3%
Asset impairment -- 1,121 -100.0%
Net income 9,752 4,074 139.4%
Effective tax rate 25.0% 34.9% -28.4%
Per Share Data
Net income - basic $1.21 $0.50 142.0%
Net income - diluted 1.20 0.50 140.0%
Dividends per share 0.16 0.12 33.3%
Year end market value 11.56 8.88 30.3%
Performance
Pretax return on beginning equity* 18.0% 10.1%
Net income return on beginning equity** 13.5% 5.6%
Long-term debt to equity ratio*** 0.9-to-1 0.95-to-1
Weighted average shares outstanding - basic 8,059,000 8,160,000
Number of employees 3,035 2,962
*Before asset impairment charge in 1997
**After asset impairment charge in 1997
***Including pension & postretirement benefits
[Pie Charts]
'98 Beginning Allocated Capital '98 Revenues
Total $146.8 million Total $1.1 billion
Agriculture $70.5 71.6%
Retail $43.1 15.4%
Processing 6.7%
Manufacturing 4.8%
Other 1.4%
Processing & Manufacturing $32.9 12.9%
Other $0.3 0.1%
[Bar Graph]
'98 Operating Income
Total $13 million
Processing & Manufacturing $7,420
Agriculture $6,676
Retail $1,655
Corporate Expense ($2,745)
Letter To Our Shareholders
1998 was a very exciting and busy year for The Andersons. Our 1998 operating
income was the second best in the 51-year history of the company. Both net
income and earnings per share more than doubled and we acquired or expanded
capacity to help us grow and secure the future. Our shareholders enjoyed a 32%
total return on their beginning market value. We recently announced an increase
in our cash dividend for the third consecutive year.
Our business is well diversified, allowing us to work through the ups and downs
of the natural business cycles and conditions in our three strategic business
units. We are dedicated to these businesses and our determination to add
value for our customers will allow us to better serve all our stakeholders.
Net income and revenue were both up in 1998. Business conditions in the
Agriculture (AG) and Processing & Manufacturing Groups (PMG) were very good,
while conditions in our Retail Group continued to be challenging. PMG, for
the third year running, turned in the highest operating income of our three
strategic business units. PMG's Lawn and Railcar profit centers exceeded their
targets for the third consecutive year.
Total revenues for 1998 increased 11% from 1997 to $1.1 billion. All three
operating groups reported increases, with PMG showing the most significant
revenue percentage increase of 38%. Pretax income was up $6.8 million, or 108%
over 1997 (including the effects of a one-time non-cash asset impairment charge
recorded in 1997), resulting in a pretax return on beginning equity of 18%
compared with our goal of 25%. 1998's net income was up 139% to $9.8 million
vs. 1997's net income of $4.1 million. Diluted earnings per share was $1.20 vs.
1997's 59 cents before the effects of a one-time non-cash asset impairment
charge.
Starting in the second quarter of 1997 and continuing through the third quarter
of 1998, we recorded six consecutive year-over-year increases in quarterly
earnings per share. Last year's fourth quarter was very good at 63 cents per
share but shy of 1997's exceptional fourth quarter results of 68 cents per
share. Part of this improvement was the continued strength in our Railcar and
Lawn fertilizer businesses and the much-improved crop conditions throughout
our market area. However, a great deal of the credit is due to our 3,000
industries and devoted employees, who pulled together to make 1998 a financial
success.
Our balance sheet has never been stronger. We ended 1998 with $66 million in
working capital and book equity of more than $82 million. Long-term debt and
employee benefit liabilities increased slightly to $75 million. As a result,
we ended the year with a .9 to 1 long-term debt-to-equity ratio (just short of
our .8 to 1 goal). We used $16 million (cash or stock) to fund capital
projects, acquisitions and to purchase software. In addition, we continued our
share repurchase efforts.
One objective for listing our shares on Nasdaq in 1996 was to use our shares as
a currency for acquisitions and mergers. In 1998 we acquired the Crop & Soil
Service's three Retail Farm Centers through an exchange of shares. In
the future, we intend to use our shares to acquire other business entities if
the right opportunity is offered and the owner's interests are compatible. We
like to have former owners hold an equity stake in the newly merged entity, as
it indicates their confidence in the long-term future of The Andersons.
Shareholders were paid a dividend of 4 cents per quarter during the year. We
increased the dividend 25% to 5 cents a share during the first quarter of 1999.
Approximately 20% of our full-time workforce participated in our Employee
Share Purchase Plan in 1998. And, last year we began offering shares of The
Andersons as an investment alternative in our employees' 401(k) plan.
The Processing & Manufacturing Group (PMG) showed the third consecutive year of
record profits, as well as a healthy 38% improvement in total sales. The
Manufacturing Division's railcar business unit buys, repairs, maintains, sells,
and leases railcars for the grain, chemical, plastic, salt, fertilizer, and
mining industries. During the year we increased our fleet by 36% to over 3,800
cars. Our year-end railcar inventory is larger than the previous year.
However, many of these cars are being refurbished for delivery to new lessees
in 1999. We are building a high-quality railcar lease portfolio that should
generate sustainable income for many years to come. Key dimensions of our
portfolio strategy include a healthy diversity of car types and customers,
creditworthy lessees, staggered lease termination dates, and a high proportion
of match-funded assets and liabilities. In addition, many of these lease
transactions are funded non-recourse to The Andersons. We expect the railcar
business unit to maintain its solid rate of profitable growth in 1999.
The Processing Division recorded a 21% revenue increase and a 303% increase in
operating income in 1998. In order to meet the increased demand, our Lawn
Products business unit is adding capacity in the Northeast with the announced
formation of a joint venture in Pottstown, PA, with International Raw
Materials. We are also looking for additional manufacturing capacity in the
Southeast to improve service to our growing customer base. As reported
last year, we added a major national account to our list of lawn products
customers, which now includes five of the top six lawn and garden retailers in
America. Our professional lawn product line, sold under the Tee Time TM label,
continues to be one of the top five golf course fertilizer brands in
America, with approximately 10% of total market share. The lawn and garden
fertilizer industry is consolidating at both the manufacturing and marketing
levels. We see ourselves as a long-term player in this industry. Our future
efforts will be to build stronger relationships with our marketing and
manufacturing partners, to expand our geographical manufacturing and logistical
position, to refine our category management and internal product development
expertise, and to build new customer relationships that effectively leverage
our infrastructure and capabilities.
The Processing Division's corncob products unit continues to focus on value-
added opportunities in the chemical carrier/formulation area, and pet litter
area, and on the development and manufacturing of a proprietary pet litter
product. Primary efforts to date have centered on product development. In
1999, we will concentrate on market assessment, and refinement of manufacturing
and quality assurance processes to support future sales. We will continue to
build in-house developmental capability.
The Agriculture Group achieved a substantial improvement over 1997. Revenue
was up 9% and operating income totaled $6.7 million, 190% more than the $2.3
million reported in 1997. The U. S. grain harvest in 1998 was excellent.
Soybean production was a record, corn production was the second best in history
and wheat production, while not a record, was excellent. Wholesale
Fertilizer's (WF) operating income increased 31% to $2.4 million while the
Retail Farm Centers (RFC) had a disappointing operating loss in 1998. We have
made significant management changes in RFC to gain better gross margin insight
and return the unit to profitability.
Our core grain business carried normal to higher-than-normal inventories during
most of the year. We entered 1998 with 52 million bushels of grain vs. 27
million at the beginning of 1997. At the end of 1998, we held 59 million
bushels of grain, which will have a positive impact on 1999's income.
Our grain capacity increased 16% (to 80 million bushels) when we leased two
neighboring elevators from Cargill in June. The lease agreement gives us
access to Cargill's global grain-marketing network - a network that is
respected worldwide.
The WF and RFC divisions added capacity in 1998. A new wholesale fertilizer
plant in Lordstown, Ohio, was opened in April. We purchased or leased five
retail farm centers in our Northern Ohio and Indiana marketing regions.
We believe worldwide demand for agriculture products will continue to grow,
driven principally by population, higher standards of living, a desire for
improved diets and a long term trend toward an improving worldwide economy.
The weak Asian and Brazilian financial markets are a continued concern for U.S.
grain exporters. Currently, supplies of grain exceed demand. This is pushing
agricultural-commodity prices lower, which unfortunately takes a toll on farm
income. However, over the long haul we remain optimistic. The United States
has decoupled grain price supports from farm production decisions. Farmers are
free to grow the crops that provide them with the highest returns. We expect
a high percentage of tillable acres to be in production in 1999. There will be
shifts from corn to soybeans as farmers seek the most profitable production
mix. We stand ready to provide and serve the industry with farm inputs and
custom application, and assist the farmers and dealers with solid marketing
plans to maximize the value of their grain production.
The North American grain industry continues to go through historic
consolidation, joint venturing, and announcements of strategic alignments.
Added-value food manufacturers, grain processors, and grain exporters are
aligning themselves with grain elevators that can provide the feedstock for
their livelihood. We will continue to watch the industry consolidation closely
to determine our best position for the future.
The Retail Group rolled out "The Complete Home Store" marketing plan in 1998.
Over the last two years, we have put together a mix of goods that offers the
homeowner "more for your home than any other store." The vast majority of
our construction, renovation, resets, and new signage programs were in place
during 1998. The new drive-through customer loading facilities, "we load it"
programs, additional customer entrances, and added checkout facilities
are very popular with our customers. We also focused on our in-stock/on-shelf
position to make the stores more customer friendly. We are proud to report an
overall 96% in-stock, on-shelf inventory position.
Margins held up nicely in 1998. Retail's operating income was up substantially
over 1997. However, we still need to improve both the top and bottom lines to
achieve our earnings targets before we begin to expand this important
group.
In 1999, we are concentrating on our sales processes; using system-wide
marketing intelligence to respond to customer demands quickly. We plan to
redesign and reset the paint/wall-coverings department with new and better
private- label products. Indoor lawn and garden will also be redesigned with a
better product mix and improved merchandise display. These improvements will
clearly improve the shop-ability of the departments. We believe there is
opportunity to improve the margin per square foot in the building supplies and
sporting goods/toy area as well. In addition, we will be installing state-of-
the-art SASI TM point-of-sale systems throughout the Retail Group.
On the administrative front, we are making excellent progress on several
important issues. We are in the testing phase of our year 2000 compliance
(Y2K) initiatives with most of the necessary software modifications completed
by January 1999. We believe we have adequate time to make additional Y2K
modifications if necessary. Secondly, our effective tax rate improved
significantly in 1998. This was a result of several initiatives started a few
years ago that have begun to produce results. This year we are recognizing
additional tax savings from multiple years, as we were able to favorably re-
determine the tax impact of these initiatives. For our shareholders, we plan
to introduce a dividend reinvestment plan (DRIP) for The Andersons' common
shares in 1999. DRIPs are a convenient way for shareholders to reinvest their
dividends as well as invest new monies. The net result should benefit all
investors as it has the potential of increasing demand and liquidity.
1998 was an excellent year at The Andersons, especially when compared with the
two difficult years we faced in 1997 and 1996. Based on the strong
fundamentals in our industries, we expect 1999 to be even better than 1998.
Last year at our annual management meeting, where we share our ideas and
strategies and gain insight from our front-line management people, we set a
$14-$17-$20 million pretax income goal for 1998, 1999, and 2000, respectively.
We were just short of meeting the pretax income goal in 1998; however, through
lower tax rates, we were able to successfully meet our net income goal. We
believe these goals are well within our grasp in 1999 and 2000. We are
confident our diversification strategy will lessen the normal seasonal and
cyclical earnings trends in our various industries. Over the past few years we
have invested more capital in business units that potentially provide
consistent and sustainable earnings with the aim of taking some of the seasonal
bumps out of our earnings.
We are greeting the new millennium with an orderly and set management
succession plan. Dick will remain Chairman of the Board and Mike accepted the
Chief Executive Officer position effective January 1, 1999. This transition
has been in process for several years so it comes as no surprise to our
customers and employees. Dick has 51 years of experience at The Andersons; a
life-long passion of service to customers, employees, shareholders, and our
communities. We appreciate his guidance and counsel and wish him well as
he spends more time on his many avocations.
More than 3,000 dedicated employees are the primary source of our Company's
success and creativity. We applaud their efforts, thank them for their
service, and we know we can count on them to meet the challenges of the future.
The 21st century will include ups and downs, just as the 20th century has. We
are confident that, over the long term, The Andersons will continue to provide
its customers, shareholders and employees with real value and growth through
excellent products, great service, and fair prices. We thank you for your
confidence and look forward to serving you in the future!
Sincerely,
/s/Mike /s/Dick
Michael J. Anderson Richard P. Anderson
President & Chief Executive Officer Chairman
Agriculture Group
The Agriculture Group operates grain elevators and wholesale fertilizer
distribution facilities in the four eastern corn belt states of Ohio, Michigan,
Indiana and Illinois. Its elevators purchase large quantities of grain and
oilseeds (primarily corn, soybeans and wheat) from farms and country elevators
in the region, store and condition it, then market it via rail or ship to
domestic and export processors. Its wholesale fertilizer facilities store and
market large volumes of dry and liquid agricultural fertilizers to dealers in
the four-state region. The group also operates retail farm centers in Ohio,
Michigan and Indiana, which sell fertilizer, crop protection chemicals, seed
and field application services to farmers.
The group's total revenue increased by $68 million in 1998, primarily because
of improved grain volume, but also due to growth from additional retail farm
centers. Total operating income rebounded in 1998, following three years of
decline. The $6.7 million earned for the year was almost triple the amount
generated in 1997, even after start-up costs incurred in the acquisition of
several additional retail farm centers.
Following successive poor grain harvests in 1995 and 1996, we have now
experienced two good growing seasons and excellent yields in most of our
region. This has resulted in improved demand for grain storage and enhanced
our ability to earn a return on our elevators. As a result, our 1998
operating income from grain exceeded the past three-year total. During the
year, we leased two Toledo-area elevators from Cargill, increasing our total
storage capacity to 80 million bushels and providing access to their worldwide
grain marketing system.
Wholesale fertilizer tonnage and revenues were relatively flat for the year.
With grain prices remaining fairly low, the farm community has been cautious
about making early commitments for crop production inputs. Operating income in
1998 grew slightly, however. During the year, we opened a new distribution
facility in Lordstown, Ohio, acquired another, in Waterloo, Indiana, and
invested in innovative environmental technology.
This year, we acquired five additional retail farm centers - four in northwest
Ohio and one in northeast Indiana. In total, application acreage and revenues
in this unit increased by approximately 20%. Operating income was heavily
impacted by costs associated with the acquisitions, however. As a result, this
unit incurred a loss for the year.
[Bar Graphs] ($ Millions)
1994 1995 1996 1997 1998
Sales & Revenue
Grain $552 $660 $701 $567 $632
Wholesale Fertilizer 138 143 139 131 128
Retail Farm Centers 21 28 29 30 36
Total $711 $831 $869 $728 $796
Operating Income $12.3 $6.0 $3.7 $2.3 $6.7
Unit Volume
1994 1995 1996 1997 1998
Grain bushels received (millions) 144 162 126 145 157
Grain bushels shipped (millions) 152 168 136 124 192
Wh. Fertilizer tons sold (thousands) 977 879 908 845 850
RFC Application Acres (thousands) 196 241 273 319 383
Processing & Manufacturing Group
The Processing Division produces granular lawn car products for retailers,
professional lawn care operators and golf courses. It also produces ice melt
products, corncob-based chemical and feed ingredient carriers, animal bedding
and litter products. Our primary lawn products manufacturing facilities are
located in Maumee and Bowling Green, Ohio. During 1998, we announced the
addition of capacity in eastern Pennsylvania and we are now evaluating possible
production opportunities in the south to better service our growing customer
base in this rapidly consolidating industry. The focus in our cob business
continues to be the steady shift to higher value-added product applications
including a proprietary cat litter.
Driven by volume increases in lawn products and average margin growth in cob
products, division revenue and operating income both rebounded in 1998 after
declining somewhat the previous year. The capacity expansion projects and
product development efforts we have outlined reflect our confidence in
continued profitable growth in this business.
The Manufacturing Division repairs, reconfigures, sells and leases various
types of railcars. It also operates a custom steel fabrication business. In
the past year, we added 1000 cars to our fleet, a 36% increase, and now
control in excess of 3800 railcars. Our intent is to continue to profitably
build our fleet, diversifying it in terms of our car types, industries and
customer types; to monitor credit quality diligently, and to match fund assets
and liabilities as much as possible to effectively manage risk.
PMG has grown dramatically in the past few years. In 1998, revenues and
operating income increased by 38% and 54% respectively.
Clearly, the Company's primary initiatives to achieve profitable growth are
focused on these two businesses - Processing and Manufacturing.
Also indicated on the graphs are some "Other" businesses. This category
includes our ten Tireman Auto Centers, a lawnmower and power equipment sales
and service center and the Company's real estate activity. Both Tireman and
the Mower Center achieved modest gains in 1998, but sales from our declining
portfolio of excess real estate were lower than the previous year.
[Bar Graphs] ($ Millions)
1994 1995 1996 1997 1998
Sales Mix
Processing $63.3 $66.5 $75.4 $62.5 $75.3
Manufacturing $14.5 $21.6 $22.4 $26.4 $54.3
Ventures & Other $17.3 $17.7 $15.9 $16.5 $15.4
Total $95.1 $105.8 $113.7 $105.4 $145.0
Operating Income
Processing $1.6 $0.0 $2.9 $0.7 $2.8
Manufacturing $1.9 $1.7 $2.3 $3.3 $4.4
Ventures & Other ($0.3) $2.0 ($0.3) $0.8 $0.2
Total $3.2 $3.7 $4.8 $4.8 $7.4
Retail Group
The Retail Group operates six large stores in Ohio. Three are located in the
Toledo area, two in Columbus and one in Lima. Four are stand-alone facilities,
each of which has in-store selling space of 130,000 square feet or more. Two
mall-based units are slightly smaller. Our retail concept is "The Complete
Home Store" with "more for your home than any other store." The product
offering includes a broad array of traditional home center merchandise -
building supplies, plumbing, electrical, flooring, paint and lighting products
- - but, in addition, features lawn and garden products, extensive lines of
housewares and domestics, pet supplies, automotive supplies, sporting goods and
a very unique offering of specialty foods and wine.
Total sales for the group rose very modestly in 1998, up 0.3% from 1997.
Average gross margins were higher than year-earlier levels, led by volume
increases in higher-margin product lines. Thus, total gross profit was up. In
addition, expenses were held relatively flat for the year. As a result, the
group's operating income rebounded somewhat from the disappointing results of
the prior year.
It goes without saying that retailing is an extremely competitive industry.
Nevertheless, we're encouraged by the progress we made in 1998. Throughout the
year, we devoted a lot of time and attention to many of the basics of retailing
such as in-stock percentages, fill-rate measurement, in-store signage and
appearance. All of these efforts were designed to make our stores easier for
the consumer to shop. Our drive-through merchandise pickup facilities and "We
Load It" programs are additional examples of this emphasis.
These programs are being well received by our customers. Sales increases late
in the year were encouraging. The Christmas season was very good, and total
fourth quarter sales were up 2.7%. Performance in the early weeks of 1999
has been even stronger.
In 1999, we will be installing new point-of-sale equipment which, in addition
to being Y2K compliant, will improve customer service and operating efficiency.
While our retail business is a concept our customers like, generates a profit
and is a positive cash contributor, it is not yet where it needs to be.
Future growth in retail will depend on continued operating improvement and a
higher return on invested capital. In the meantime, because of the emphasis
on funding growth in our more profitable businesses, retail is becoming
proportionally a smaller segment of our overall business portfolio.
[Bar Graphs] ($ Millions)
1994 1995 1996 1997 1998
Sales Volume $169 $168 $176 $170 $171
Operating Income $2.3 $1.8 $3.8 $0.5 $1.7
1997 results before asset impairment charge.
Selected Financial Data
1998 1997 1996 1995 1994
(in thousands, except for
per share data)
Operating Results
Total sales & revenues $1,104,134 $998,845 $1,154,956 $1,097,730 $971,638
Income from continuing
operations (a) 9,752 4,074(d) 6,406(e) 6,273 9,285
Per share data:
Income from continuing
operations(b) 1.21 0.50 0.76 0.74 1.10
Dividends paid (c) 0.16 0.12 -- -- --
Balance Sheet Data
Total assets $360,823 $368,244 $346,591 $455,518 $344,809
Working capital 65,898 53,595 61,649 58,897 57,623
Long-term debt 71,565 65,709 68,568 74,139 71,217
Shareholders' equity (c) 82,734 72,201 73,249 67,260 64,870
(a) Includes pro forma income taxes of $3,915 thousand and $5,886 thousand
for 1995 and 1994, respectively.
(b) Amounts are net of pro forma income taxes of $0.47 and $0.70 for 1995 and
1994, respectively. Amounts for 1995 and 1994 were calculated using the
actual number of shares outstanding on the date of the merger. See note
1 to the Consolidated Financial Statements.
(c) There were no dividends paid in 1996. Distributions made to partners
prior to 1996 are not included in this table.
(d) Non-recurring charge of $1.1 million for asset impairment is included
($0.7 million after tax).
(e) Income taxes for 1996 include a charge of $0.8 million to establish
deferred income taxes on assets and liabilities of the partnership at the
time of the merger.
Selected Quarterly Financial Data and Market for Common Stock
(in thousands, except for per share data)
Net Income (Loss) Common
Net Gross Per Share Stock Quote Dividends
Quarter Ended Sales Profit Amount - Basic High Low Declared
1998
March 31 $222,189 $33,860 $ (824) $(0.10) $9.25 $8.25 $0.04
June 30 283,839 48,762 6,370 0.80 11.00 8.94 0.04
September 30 230,792 36,917 (972) (0.12) 11.25 10.19 0.04
December 31 367,314 47,102 5,178 0.64 11.56 9.75 0.05
Year 1,104,134 166,641 9,752 1.21 0.17
1997
March 31 186,765 27,317 (4,082) (0.49) 9.63 8.63 0.03
June 30 250,109 42,884 4,259 0.52 9.50 8.63 0.03
September 161,929 30,797 (1,529) (0.19) 9.50 8.13 0.03
December 399,961 46,690 5,426 0.68 9.50 8.75 0.04
Year 998,845 147,688 4,074 0.50 0.13
Report of Independent Auditors
Board of Directors
The Andersons, Inc.
We have audited the accompanying consolidated balance sheets of The Andersons,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Andersons, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Toledo, Ohio
January 25, 1999
The Andersons, Inc.
Consolidated Statements of Income
Year ended December 31
(in thousands, except per 1998 1997 1996
share data)
Sales and merchandising revenues $ 1,098,722 $ 993,746 $ 1,150,304
Other income 5,412 5,099 4,652
1,104,134 998,845 1,154,956
Cost of sales and
merchandising revenues 937,493 851,157 995,725
Gross profit 166,641 147,688 159,231
Operating, administrative and
general expenses 144,681 131,818 133,637
Asset impairment charge -- 1,121 --
Interest expense 8,954 8,494 13,703
153,635 141,433 147,340
Income before income taxes 13,006 6,255 11,891
Income taxes 3,254 2,181 5,485
Net income $ 9,752 $ 4,074 $ 6,406
Per common share
Basic earnings $ 1.21 $ .50 $ .76
Diluted earnings $ 1.20 $ .50 $ .76
Dividends paid $ .16 $ .12 $ --
The Notes to Consolidated Financial Statements on pages
17-28 are an integral part of this statement.
The Andersons, Inc.
Consolidated Balance Sheets
December 31
(in thousands) 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 3,253 $ 8,278
Accounts and notes receivable:
Trade receivables, less allowance for
doubtful accounts of $4,455 in 1998;
$2,957 in 1997 62,647 68,643
Margin deposits 248 771
62,895 69,414
Inventories 184,990 191,467
Deferred income taxes 4,634 1,408
Prepaid expenses 5,502 4,521
Total current assets 261,274 275,088
Other assets:
Notes receivable and other assets, less
allowance for doubtful notes receivable of
$515 in 1998; $777 in 1997 8,435 6,333
Investments in and advances to affiliates 1,057 1,026
9,492 7,359
Property, plant and equipment, net 90,057 85,797
$360,823 $368,244
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 7,700 $ 15,572
Accounts payable for grain 88,978 121,233
Other accounts payable 75,301 63,309
Accrued expenses 17,079 12,973
Current maturities of long-term debt 6,318 8,406
Total current liabilities 195,376 221,493
Pension and postretirement benefits 3,113 2,799
Long-term debt, less current maturities 71,565 65,709
Deferred income taxes 7,330 5,393
Minority interest 705 649
Shareholders' equity
Common shares, without par value
Authorized -- 25,000 shares
Issued -- 8,430 shares at stated value of
$.01 per share 84 84
Additional paid-in capital 67,180 66,660
Treasury shares (290 and 491 in 1998 and (2,665) (4,418)
1997, respectively)
Accumulated other comprehensive income (29) --
Unearned compensation (83) --
Retained earnings 18,247 9,875
82,734 72,201
$360,823 $368,244
The Notes to Consolidated Financial Statements on pages 17-
28 are an integral part of this statement.
The Andersons, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
(in thousands) 1998 1997 1996
Operating activities
Net income $ 9,752 $ 4,074 $ 6,406
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 10,575 10,065 9,730
Provision for losses on accounts and
notes receivable 3,757 1,767 4,322
Asset impairment charge -- 1,121 --
Gain on sale of property, plant and
equipment (116) (529) (182)
Deferred income taxes (1,696) 478 2,766
Other 98 36 (491)
Changes in operating assets and
liabilities:
Trade accounts receivable 4,953 2,839 10,772
Inventories 6,810 (41,170) 119,633
Prepaid expenses and other assets (849) (1,242) (1,875)
Accounts payable for grain (32,254) 24,301 2,848
Other accounts payable and accrued
expenses 14,381 (16,737) 5,335
Net cash provided by (used in)
operating activities 15,411 (14,997) 159,264
Investing activities
Purchases of property, plant and
equipment (11,218) (15,427) (9,955)
Proceeds from sale of property, plant
and equipment 347 1,221 720
Sales and maturities of investments -- -- 366
Advances to affiliates -- -- (29)
Net cash used in investing activities (10,871) (14,206) (8,898)
Financing activities
Net increase (decrease) in short-term
borrowings (11,940) 15,572 (120,267)
Proceeds from issuance of long-term
debt 110,157 150,982 140,780
Payments of long-term debt (106,389) (151,795) (147,743)
Proceeds from sale of treasury shares
to employees 440 423 --
Dividends paid (1,291) (985) --
Purchase of common shares for the
treasury (542) (4,240) (600)
Payments to partners and shareholders -- -- (64)
Net cash provided by (used in)
financing activities (9,565) 9,957 (127,894)
Increase (decrease) in cash and cash
equivalents (5,025) (19,246) 22,472
Cash and cash equivalents at beginning
of year 8,278 27,524 5,052
Cash and cash equivalents at end of
year $ 3,253 $ 8,278 $ 27,524
The Notes to Consolidated Financial Statements on pages 17-
28 are an integral part of this statement.
<TABLE>
<CAPTION>
The Andersons, Inc.
Consolidated Statements of Shareholders' Equity
Accumulated
Converted Additional Other
Equity Common Paid-in Treasury Comprehensive Unearned Retained
(in thousands) (See Note 1) Shares Capital Shares Income Compensation Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1996 $ 66,532 $ -- $ -- $ -- $ -- $ -- $ 728 $67,260
Merger transaction:
Issuance of 8,399
shares to convert
equity (66,468) 84 66,384 --
Payments to dissenting
partners and for
fractional shares (64) (64)
Issuance of 31 shares
to convert employee
bonds 275 275
Balances at
January 2, 1996 -- 84 66,659 -- -- -- 728 67,471
Net and comprehensive
income 6,406 6,406
Purchase of 70 shares
for treasury (600) (600)
Other (28) (28)
Balances at
December 31, 1996 -- 84 66,659 (600) -- -- 7,106 73,249
Net and comprehensive
income 4,074 4,074
Sale of 49 shares to
Employee Share Purchase
Plan participants 1 422 423
Purchase of 470
shares for
treasury (4,240) (4,240)
Dividends declared (1,305) (1,305)
Balances at
December 31, 1997 -- 84 66,660 (4,418) -- -- 9,875 72,201
Net income 9,752 9,752
Other comprehensive
income
Minimum pension
liability, net of
$19 income taxes (29) (29)
Comprehensive income 9,723
Sale of 47 shares to
Employee Share Purchase
Plan participants 3 410 413
Exercise of share
options (1) 27 26
Restricted stock issued
net of forfeitures 13 90 (103) --
Amortization of
unearned compensation 20 20
Issuance of 193 shares
in an acquisition 502 1,748 2,250
Issuance of common
shares to directors
in lieu of retainer 3 20 23
Purchase of 54 shares
for treasury (542) (542)
Dividends declared (1,380) (1,380)
Balances at
December 31, 1998 $ -- $ 84 $67,180 $(2,665) $ (29) $ (83) $ 18.247 $82,734
The Notes to Consolidated Financial Statements on pages 17-28
are an integral part of this statement.
</TABLE>
Management's Discussion and Analysis
Operating Results
Operating results for The Andersons, Inc. business segments are discussed in
the Business Review on pages 4-6 of this annual report. In addition, Note 13
to the consolidated financial statements displays sales and revenues to
external customers, intersegment sales, other income, interest expense,
operating income, identifiable assets, capital expenditures and depreciation
and amortization for each of the Company's business segments. The following
discussion focuses on the operating results as shown in the consolidated
statements of income.
Comparison of 1998 with 1997
Sales and merchandising revenues for 1998 totaled $1.1 billion, an increase of
$105 million, or 11%, from 1997. Sales in the Agriculture Segment were up
$58.5 million, or 8%, due to a 55% volume increase in grain. This significant
volume increase was offset by a 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 relatively constant from year to year as a
decrease in average price per wholesale ton sold offset sales from additional
locations. In addition, merchandising revenues were up $6.3 million, or 25%,
due to increases in income from storing grain and fertilizer for others and
fees for custom application. During 1998, the Company leased two grain
elevators (increasing total grain storage capacity from 69 million to 80
million bushels), added a fertilizer distribution facility and leased or
purchased four retail farm centers. Near the end of 1998, it completed the
purchase of a combined fertilizer distribution / retail farm center facility.
The Company had 59 million bushels of grain owned or stored for others at
December 31, 1998 as compared to 52 million at December 31, 1997. These added
bushels may provide for increased storage revenues in 1999. In addition, the
lease agreement with Cargill provides added storage capacity and marketing
opportunities in 1999 that were available for only a portion of 1998. The
additional fertilizer sales and warehousing facilities should also provide
opportunities for increased revenue in 1999.
The Processing Segment had a $13 million, or 21%, increase in sales. The
majority of this increase, or $10.8 million, was due to a 74% increase in lawn
fertilizer volume sold into the consumer market. This volume increase more
than offset a 13% reduction in the average price per consumer market ton sold.
Sales were up $2.5 million in the other fertilizer market segments while the
cob-based businesses had decreased sales and revenues of $.3 million.
The Manufacturing Segment had a significant sales increase of $27.6 million, or
111%. Of this increase, $22.8 million was due to a 59% increase in railcars
sold in 1998. The Segment's leasing and service business generated additional
revenues of $4.3 million due to its steadily increasing railcar fleet. The
remaining increase was due to additional revenue in the Manufacturing Segment's
railcar repair shop.
The Retail Segment experienced a slight increase in sales, with both the Toledo
and Columbus, Ohio markets up. The Segment ended 1998 with a strong Christmas
season including a 6% increase in December same-store sales. This sales
increase carried into January due primarily to weather-related sales.
Gross profit for 1998 totaled $166.6 million, an increase of $19 million, or
13%, from 1997. The Agriculture Segment had a gross profit increase of $9.9
million or 17% due to the $6.3 million increase in merchandising revenues
described above and improved margins on sales of grain and fertilizer.
Gross profit for the Processing Segment increased $3.9 million, or 17%, from
the prior year. All operations of the Processing Segment experienced increased
gross profit. In the lawn fertilizer businesses, the increase was due to
increased volume, even though gross profit per ton decreased. The cob-based
businesses are transitioning to higher margin, value-added products and had a
gross profit increase of $.3 million in spite of decreased volumes.
Gross profit in the Manufacturing Segment increased $3.8 million, or 50%, from
the prior year. This was due primarily to higher railcar sales, greater volume
of railcars repaired and higher gross profit per railcar repaired.
Gross profit in the Retail Segment improved by $1 million, or 2%, from 1997.
This was due primarily to a 2% increase in margins resulting from changes in
the product mix, including the addition of home soft goods and similar
products in the 1998 reset of the stores.
Operating, administrative and general expenses for 1998 totaled $144.7 million,
a $12.9 million, or 10%, increase from 1997. Full time employees increased
over 10% from the prior year with the majority of the increase due to
acquisitions or added capacity in the Agriculture Segment and growth in the
Manufacturing Segment. Included in the total increase are additional labor and
benefits charges of $5.5 million, maintenance charges of $2.5 million, an
increase in the provision for bad debts of $2 million and an increase in
depreciation and amortization of $.5 million. All of these increases reflect
growth in the underlying businesses. Additional operating expenses relating
specifically to the facilities added in 1998 were $3.5 million.
In 1997, the Retail Segment took a pretax, non-cash charge of $1.1 million to
write down store assets to their fair value. There was no comparable charge in
1998.
Interest expense for 1998 was $9 million, a $.5 million, or 5%, increase from
1997. Average daily short-term borrowings increased 12% from 1997 while the
average interest rate decreased slightly.
Income before income taxes of $13 million increased $6.8 million, or 108%, from
the 1997 pretax income of $6.3 million. Income tax expense was $3.3 million, a
$1.1 million, or 49%, increase from 1997. The effective tax rate of 25%
represents a significant decrease from the 1997 effective tax rate of 35%.
This was due to refinements in the method used to calculate the benefit from
the captive foreign sales corporation.
Net income more than doubled to $9.8 million from $4.1 million. Basic and
diluted earnings per share also more than doubled from the 1997 amounts.
Comparison of 1997 with 1996
Sales and merchandising revenues for 1997 totaled $994 million, a decrease of
$157 million, or 14%, from 1996. Sales in the Agriculture Segment were down
$143.4 million, or 17%, due to a 9% volume decrease in grain coupled with an
11% decrease in the average price of a bushel sold. Most significant was the
impact of 25 million fewer bushels of corn sold along with a drop in the
average price of a corn bushel sold from over $4 in 1996 to less than $3 in
1997. This was offset by more sales of higher priced soybeans. Fertilizer
sales for the same period also decreased $8.7 million on 5% fewer tons sold and
a slight decrease in the average price of a ton sold. Offsetting the decrease
in sales, merchandising revenues were up $1.4 million, or 6%, primarily due to
improved income from storing and conditioning grain. Poor harvests in both
1995 and 1996 not only reduced the farmers' revenues and profitability, but
also limited the Company's opportunities to sell and merchandise grain due to
volume shortages and reduced the sales volume of fertilizer as farmers were
forced to limit their applications.
The Processing Segment had a $12.2 million, or 17%, decrease in sales. Of this
decrease $9.4 million represented the 1996 sales of the Sorbents TM business
which was sold in the fourth quarter of 1996 and lawn fertilizer retail
businesses that are no longer being operated by the Company. The remainder of
the decrease resulted from lower volumes.
The Manufacturing Segment had increased sales of $3.9 million, or 19%. The
majority of this increase resulted from additional railcar sales and increases
in the leasing and service business.
.
The Retail Segment experienced a $6.1 million, or 3%, decrease in sales, with
all markets down. This was due to increased competition and a slow Christmas
selling season.
Gross profit for 1997 totaled $147.7 million, a decrease of $11.5 million, or
7%, from 1996. The Agriculture Segment had a gross profit decrease of $7.8
million, or 12%, resulting primarily from the reduced sales of grain and
lower margins on those sales due to decreasing market prices in 1997. Margins
on fertilizer also decreased in 1997 when compared to 1996. As noted
previously, merchandising revenues increased over the prior two years, which
had low bushel volumes due to the weak harvests.
Gross profit for the Processing Segment decreased $3.9 million, or 15%, from
the prior year. When excluding the 1996 gross profit related to the businesses
no longer operated (as described previously), the Processing Segment had a
gross profit decrease of $1 million, or 4%.
Gross profit for the Manufacturing Segment increased $1.8 million, or 31%, from
the prior year due to the increases in railcar sales and the leasing and
service business.
Gross profit for the Retail Segment decreased 6%. This was due to both sales
decreases and a 2% decrease in the average margin.
Operating, administrative and general expenses for 1997 totaled $131.8 million,
a $1.8 million, or 1%, decrease from 1996. This reduction includes
approximately $2.6 million for businesses no longer operated and a return to a
more normal level of expense for bad debts and grain contract nonperformance
than in the prior two years.
In 1997, the Retail Segment took a pretax, non-cash charge of $1.1 million to
write down store assets to their fair value. There was no comparable charge in
1996.
Interest expense for 1997 was $8.5 million, a $5.2 million, or 38%, decrease
from 1996. Average daily short-term borrowings decreased 57% from 1996 and the
average interest rate decreased slightly. Borrowings were unusually high in
1996 due to the extraordinarily high commodity prices from the third quarter of
1995 until their decrease in mid-1996.
Income before income taxes of $6.3 million represented a decrease of $5.6
million, or 47%, from the 1996 pretax income of $11.9 million. Income tax
expenses was $2.2 million, a $3.3 million, or 60%, decrease from 1996. The
decrease is attributable to the significant decrease in pretax income in 1997
and a decrease in the effective tax rate from 46% to 34%. The 1996 tax expense
includes a non- recurring charge of $0.8 million (6.8%) to establish
deferred income taxes on the assets and liabilities of the Partnership. In
addition, state and local taxes decreased in 1997.
Net income decreased 36% to $4.1 million from $6.4 million. Earnings per share
decreased 34% from $0.76 per share in 1996 to $0.50 per share in 1997.
Liquidity and Capital Resources
The Company's operations provided cash of $15.4 million in 1998, a change from
1997's operating use of cash of $15 million. Working capital at December 31,
1998 was $65.9 million, a significant improvement of $12.3 million or 23%
from December 31, 1997 primarily due to a reduction in accounts payable for
grain.
The Company has significant short-term lines of credit available to finance
working capital, primarily inventories and accounts receivable. Lines of
credit available on December 31, 1998 were $225 million. The Company had drawn
$7.7 million on its short-term lines of credit at December 31, 1998, with $15.6
million drawn on its short-term lines at December 31, 1997. Typically, the
Company's highest borrowing occurs in the spring due to seasonal inventory
requirements in several of the Company's businesses, credit sales of fertilizer
and a customary reduction in grain payables due to customer cash needs and
market strategies.
The Company utilizes interest rate contracts to manage a portion of its
interest rate risk on both its long and short term debt and lease commitments.
As of December 31, 1998, the Company had swaps with a total notional amount of
$27.7 million that convert variable rates to fixed rates on long
and short-term borrowings. The Company also held treasury locks with a total
notional amount of $8.4 million to hedge the interest component of firm
commitment railcar lease transactions that it will close in 1999.
Cash dividends of $1.3 million were paid in 1998 ($.16 per share). The Company
made income tax payments of $4 million in 1998. The Company also purchased
54,000 of its common shares on the open market at an average price of $10 per
share. The Company issued approximately 62,000 shares to employees, directors
and former employees under stock compensation plans. It also issued 193,000
shares to complete an acquisition.
During 1998, the Company acquired property, plant, equipment and intangible
assets (customer lists, goodwill, software) with a value of $15.7 million. To
accomplish this, it paid cash, gave up working capital and common shares and
assumed existing debt. Included in these assets are $1.9 million in
retail store improvements, $.5 million in computer and communication equipment,
$3.1 million in railcars and railcar improvements, $.7 million in additions and
improvements to its processing facilities, $5.2 million in additional
facilities, equipment and businesses in the Agriculture Segment and $.5 million
in safety and environmental improvements. Approximately $20 million is
budgeted for capital spending in 1999 including $4.3 million for additional
facilities, $3.6 million to increase the railcar fleet and $1.6 million to
replace the point-of-sale systems in the Company's retail stores. These
expenditures are expected to be funded by cash generated from operations
or additional debt.
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 that the Company be substantially
hedged in its grain transactions.
The Company's liquidity is enhanced by the fact that grain inventories are
readily marketable and the lines of credit that it has available. In the
opinion of management, the Company's liquidity is adequate to meet short-term
and long-term needs.
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company' 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) December 31, 1998
Net short position $1,961
Market risk 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. Such
fair value exceeded the long-term debt carrying value. 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) December 31, 1998
Fair value of long-term debt and
interest rate contracts $78,521
Excess of fair value over carrying
value 638
Market risk 403
Impact of Year 2000
The Company plan to resolve the Year 2000 Issue 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.
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 plans to update this survey for new
external agents added after the initial mailing and throughout 1999. 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.
Costs incurred to date have totaled approximately $1.4 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 $1.5 million, which includes $1.3 million for the purchase of
software and hardware and $.2 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 by the end of the first quarter of 1999
for all significant high risk systems except for the following:
System Modification Completion Date
Wholesale fertilizer system replacement 2nd Quarter 1999
Retail farm center system replacement 2nd Quarter 1999
Retail point-of-sale system replacement 3rd Quarter 1999
Railcar marketing system 2nd Quarter 1999
Processing EDI systems 2nd Quarter 1999
Testing of remediated systems has begun as well and will be completed for the
remaining systems upon completion of modifications.
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 is now in the process of developing contingency
plans for its major systems applications and other high-risk systems. This
process will both determine the need for a contingency plan based on the
current status of remediation and testing as well as determine manual
workarounds or other actions for these critical 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 Letter to Shareholders, Business Review and Management's
Discussion and Analysis contain various "forward-looking statements" which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including but not limited to those identified below, which could
cause actual results to differ materially from historical results or those
anticipated. The words "believe," "expect," "anticipate" 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.
The Andersons, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
1. Basis of Financial Presentation
On January 2, 1996, The Andersons, an Ohio limited partnership (the
"Partnership") merged with and into The Andersons Management Corp. (the
"Company") and the partnership was dissolved. Concurrent with the merger, the
Company changed its name to The Andersons, Inc. Prior to the merger, the
Company was the sole general partner of the Partnership, and the Company and
the Partnership shared common ownership.
The merger was accounted for as a reorganization of entities under common
control similar to a pooling of interests. In the merger transaction, 8.1
million shares were issued to the partners of the Partnership and the remainder
(.3 million shares) to shareholders of the Company and employees who held
convertible bonds of the Partnership.
These consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain previously reported
amounts have been reclassified to conform to the 1998 presentation.
On July 1, 1998, the Company issued 193 thousand of its common shares to
effect an acquisition of a retail farm center operation. The acquisition was
accounted for as a purchase, and the results of operations have been included
in the statement of income from July 1, 1998.
2. Significant Accounting Policies
Estimates and Assumptions
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid debt instruments
purchased with an initial maturity of three months or less. The carrying value
of these assets approximate their fair values.
Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when there is positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Inventories and Inventory Commitments
Grain inventories in the Company's balance sheet are hedged to the extent
practicable and are valued on the basis of replacement market prices prevailing
at the end of the year. Such inventories are adjusted for the amount of gain
or loss (also based on year-end market price quotations) on open commodity
contracts at the end of the year. These contracts require performance in future
periods. Contracts to purchase grain from producers generally relate to the
current or future crop years for delivery periods quoted by regulated commodity
exchanges. Contracts for the sale of grain to processors or other consumers
generally do not extend beyond one year. The terms of contracts for the
purchase and sale of grain are consistent with industry standards.
All other inventories are stated at the lower of cost or market. Cost is
determined by the average cost method.
Commodity and Interest Rate Contracts
For the purpose of hedging its market price risk exposure on grain owned and
related forward grain purchase and sale contracts, the Company holds regulated
commodity contracts in the form of futures and options contracts for corn,
soybeans and wheat. The Company accounts for all commodity contracts using a
daily mark-to-the-market method; the same method it uses to value grain
inventory and forward purchase and sale contracts. Company policy limits the
Company's unhedged grain position.
Gains and losses in the value of commodity contracts (whether due to changes in
commodity prices or due to sale, maturity, or extinguishment of the commodity
contract) and grain inventories and related forward grain contracts are
included in sales and merchandising revenues in the statement of income.
The Company also periodically enters into interest rate contracts to manage
interest rate risk on borrowing or financing activities. Income or expense
associated with interest rate swap contracts is recognized on the accrual
basis over the life of the agreement as a component of interest expense. The
Company expenses the cost of interest rate caps at the date of purchase. Gains
or losses upon settlement of treasury rate locks hedging the interest
component of firm commitment lease transactions are recognized over the life of
the ensuing lease transaction. At December 31, 1998, the balance of deferred
losses on settled treasury locks totaled $1.7 million. There was no
corresponding amount at December 31, 1997. All interest rate contracts are
entered into for hedging purposes. The fair market value of interest rate
contracts is not recognized in the balance sheet.
Property, Plant and Equipment
Land, buildings and equipment are carried at cost. Depreciation is provided
over the estimated economic useful lives of the individual assets principally
by the straight-line method.
Internal Use Software
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed for or Obtained for Internal Use" (SOP 98-1). The Company adopted
SOP 98-1 as of the beginning of 1998. Certain costs incurred in the
development of internal use software that were previously expensed are now
being capitalized. The effect of this accounting change was not material to
net income or earnings per share for 1998.
Accounts Payable for Grain
The liability for grain purchases on which price has not been established
(delayed price) has been computed on the basis of replacement market at the end
of the year, adjusted for the applicable premium or discount.
Revenue Recognition
Sales of grain and other products are recognized at the time of shipment.
Revenues from merchandising activities are recognized as open contracts are
marked-to-the-market or as services are provided.
Income Taxes
Deferred income taxes are determined based on temporary differences between
financial reporting and tax bases of assets and liabilities and are measured
using the tax rates and laws that will be in effect when the differences are
expected to reverse.
Advertising
Advertising costs are expensed as incurred. Advertising expense of $2.9
million, $3.2 million and $3.1 million is included in operating, administrative
and general expense in 1998, 1997 and 1996, respectively.
Goodwill
Goodwill, representing the excess of purchase cost over the fair value of net
assets of acquired companies, is amortized over the estimated period of benefit
(currently 12 years) by the straight-line method. At December 31, 1998,
goodwill of $.7 million was included in notes receivable and other
assets in the balance sheet.
Earnings per Share
The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" in 1997. Under Statement No. 128, the Company is required
to calculate basic and diluted earnings per share. Basic earnings per share is
equal to net income divided by weighted average shares outstanding. Diluted
earnings per share is equal to basic earnings per share plus the incremental
share effect of dilutive options.
(in thousands) 1998 1997 1996
Net income available for common
shareholders $ 9,752 $ 4,074 $6,406
Weighted average shares
outstanding - basic 8,059 8,160 8,425
Additional shares contingently
issuable upon exercise of options 59 7 14
Weighted average shares
outstanding - diluted 8,118 8,167 8,439
Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement No. 130 requires the
effect of changes in the minimum pension liability to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of Statement No. 130.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities", which is
effective for fiscal years beginning after June 15, 1999. The impact that
this statement will have on the Company has not been determined.
3. Inventories
Major classes of inventories are as follows:
December 31
(in thousands) 1998 1997
Grain $ 91,218 $113,838
Agricultural fertilizer and
supplies 27,127 18,908
Agriculture 118,345 132,746
Processing 22,428 20,142
Manufacturing 16,039 8,754
Retail 25,863 27,674
Other 2,315 2,151
$ 184,990 $191,467
4. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
December 31
(in thousands) 1998 1997
Land $ 12,095 $ 11,763
Land improvements and leasehold
improvements 26,056 24,594
Buildings and storage facilities 88,818 85,377
Machinery and equipment 112,561 104,590
Construction in progress 3,059 2,109
242,589 228,433
Less allowances for depreciation and
amortization 152,532 142,636
$ 90,057 $ 85,797
5. Asset Impairment Charge
Based upon an assessment of historical and projected operating results, the
Company determined in 1997 that the carrying value of certain retail store
assets were impaired under the criteria defined in FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." As a result, the Company recorded a pretax impairment
charge of $1.1 million ($.7 million after tax or $.09 per share) to write down
the carrying value of these assets to their estimated fair value. Fair value
was estimated through market price comparisons for similar assets.
6. Banking and Credit Arrangements
The Company has available lines of credit for unsecured short-term debt with
banks aggregating $225 million. The credit arrangements, the amounts of which
are adjusted from time to time to meet the Company's needs, do not have
termination dates but are reviewed at least annually for renewal. The terms of
certain of the lines of credit provide for annual commitment fees.
The following information relates to borrowings under short-term lines of
credit during the year indicated.
(in thousands, except for 1998 1997 1996
interest rate)
Maximum borrowed $94,100 $110,500 $207,800
Average daily amount
borrowed (total of daily
borrowings divided by
number of days in period) 57,134 51,237 119,187
Average interest rate
(computed by dividing
interest expense by
average daily amount
outstanding) 5.92% 5.98% 6.10%
7. Long-Term Debt
Long-term debt consists of the following:
December 31
(in thousands) 1998 1997
Note payable under revolving line of credit $25,500 $20,000
Note payable, 7.8%, payable $398 thousand
quarterly, due 2004 11,712 13,304
Notes payable, variable rate (6.3% at
December 31, 1998), payable $336
thousand quarterly, due 2002 7,737 9,082
Other notes payable 762 1,120
Industrial development revenue bonds:
6.5%, payable $1 million annually, due 1999 1,000 2,000
Variable rate (5.4% at December 31,
1998), payable $882 thousand annually
through 2004 4,588 5,470
Variable rate (4.7% at December 31,
1998), due 2025 3,100 3,100
Debenture bonds, 6.5% to 8.7%, due
1999 through 2008 23,049 19,556
Other bonds, 4% to 10% 435 483
77,883 74,115
Less current maturities 6,318 8,406
$71,565 $65,709
The Company has a $40 million revolving line of credit with a bank which bears
interest based on the LIBOR rate (effective rate of 6% at December 31, 1998).
The revolving line of credit expires on July 1, 2001.
The variable rate notes payable due 2002, the note payable due 2004, and the
industrial development revenue bonds re collateralized by first mortgages on
certain facilities and related property with a book value of approximately
$30 million.
The various underlying loan agreements, including the Company's revolving
credit line, contain certain provisions which require the Company to, among
other things, maintain minimum working capital of $32 million and net equity
(as defined) of $43 million, limit the addition of new long-term debt, limit
its unhedged grain position to 2 million bushels, and restrict the amount of
dividends. The Company was in compliance with these covenants at December 31,
1998.
The aggregate annual maturities of long-term debt, including sinking fund
requirements, are as follows: 1999--$6 million; 2000--$4 million; 2001--$32
million; 2002--$11 million and 2003--$9 million.
Interest paid (including short-term lines of credit) amounted to $9 million in
1998 and 1997 and $15 million in 1996.
The Company periodically utilizes interest rate contracts to manage interest
rate risk on short-term borrowings by converting variable interest rates to
short-term fixed rates consistent with projected borrowing needs. At December
31, 1998, the Company was participating in two short-term interest rate swap
agreements, with a total notional amount of $20 million. The interest rate
swaps expire in May and July, 1999 and convert variable interest rates to a
fixed rate of 6.22%.
The Company entered into a long-term interest rate swap in December 1996 to
convert its variable rate note payable to a fixed rate of 6.84%. This swap
expires in October 2002. The notional amount of this swap equals the
outstanding balance of the long-term note and amortizes in the same manner as
the note principal. The Company also has entered into a long-term treasury
lock with a total notional amount of $8.4 million. This instrument hedges the
interest component on firm commitment lease transactions that are projected to
close in 1999. The effect of long-term and short-term interest rate contracts
on interest expense was not significant in 1998, 1997 and 1996.
8. Income Taxes
Income tax expense (credit) consists of the following:
Year ended December 31
(in thousands) 1998 1997 1996
Current:
Federal $4,919 $1,728 $2,268
State and local 31 (25) 451
4,950 1,703 2,719
Deferred:
Federal (1,415) 393 2,134
State and local (281) 85 632
(1,696) 478 2,766
Total:
Federal 3,504 2,121 4,402
State and local (250) 60 1,083
$3,254 $2,181 $5,485
A reconciliation from the statutory U.S. federal tax rate of 35% to the
effective tax rate is as follows:
1998 1997 1996
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in rate resulting from:
Effect of commissions paid to
foreign sales corporation (10.3) (1.4) (0.4)
State and local income taxes net of
related federal taxes 0.4 0.6 4.4
Net basis differences of partnership -- -- 6.8
Other (net) (0.1) 0.7 0.3
Effective tax rate 25.0% 34.9% 46.1%
In 1998, the Company refined its method for calculating commissions payable to
its foreign sales corporation as provided under current regulations of the
Internal Revenue Service. As a result of this refinement in calculation, the
Company reduced its federal income tax liability for 1997 and 1996 by
approximately $.5 million and $.3 million, respectively. These reductions are
reflected in 1998 income taxes as an increased effect of commissions paid to
its foreign sales corporation.
Income taxes paid in 1998, 1997 and 1996 were $4 million, $4.1 million, and $.1
million.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
December 31
(in thousands)
1998 1997
Deferred tax liabilities:
Tax depreciation in excess of book depreciation $(8,968) $(7,555)
Prepaid employee benefits (2,122) (1,682)
Deferred income (570) (692)
Other (408) (463)
(12,068) (10,392)
Deferred tax assets:
Employee benefits accrual 3,366 2,919
Deferred income 1,776 217
Allowance for doubtful accounts and notes
receivable 1,636 1,138
Inventory reserve 1,337 1,086
Investments 495 857
Other 762 190
9,372 6,407
Net deferred tax liability $(2,696) $(3,985)
9. Stock Compensation Plans
The Company has elected to account for its two stock compensation plans using
the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related Interpretations because the alternative fair value accounting provided
for under FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
("Statement 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense is recognized
for either of its plans.
The Long-Term Performance Compensation Plan (the "LT Plan") authorizes the
Board of Directors to grant options and share awards to employees and outside
directors for up to 900,000 common shares of the Company. Options granted
under the LT Plan have a maximum term of 10 years. Options granted to
outside directors have a fixed term of five years and vest after one year.
Options granted to management personnel under the LT Plan have a five year term
and vest 40% immediately, 30% after one year and the remaining 30% after
two years. In addition, certain Company executives and outside directors have
elected to receive a portion of their cash compensation in stock options issued
under the LT Plan. These options vest immediately and have a ten-year term.
There were 57,958 and 50,756 options issued in lieu of cash compensation in
1998 and 1997, respectively.
The Company issued 17,445 restricted shares during 1998 of which 9,923 remain
outstanding at December 31, 1998. These shares carry voting and dividend
rights; however, sale of the shares is restricted prior to vesting. Shares
issued under the plan were recorded at their fair market value on the grant
date with a corresponding charge to shareholders' equity representing the
unearned portion of the award. The unearned portion is being amortized as
compensation expense on a straight-line basis over the related vesting period.
Compensation expense related to this plan amounted to $20 thousand during 1998.
The Company's Employee Share Purchase Plan (the "ES Plan") allows employees
to purchase common shares through payroll withholdings. It also contains an
option component. The share purchase price is the lower of the market price at
the beginning or end of the year. The Company records a liability for
withholdings not yet applied towards the purchase of common stock.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and also requires that the information be determined as if
the Company has accounted for its employee stock options granted under the
fair value method of that Statement. The fair value of each option grant is
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions by year.
1998 1997 1996
Long Term Performance
Compensation Plan
Risk free interest rate 5.61% 6.22% 5.55%
Dividend yield 1.79% 1.33% 1.30%
Volatility factor of the
expected market price of the
Company's common shares .266 .272 .389
Expected life for the options
(in years) 6.43 6.49 5.00
Employee Share Purchase Plan
Risk free interest rate 5.46% 6.08% 5.07%
Dividend yield 1.80% 1.35% 1.30%
Volatility factor of the
expected market price of the
Company's common shares .266 .272 .389
Expected life for the options
(in years) 1.00 1.00 1.00
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for per share information):
1998 1997 1996
Pro forma net income $9,348 $3,700 $6,154
Pro forma earnings per
share:
Basic $1.16 $.45 $.73
Diluted $1.15 $.45 $.73
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows (in thousands, except for prices):
Long Term Performance Compensation Plan
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 305 $8.85 137 $8.60 -- --
Granted / subscribed 202 8.93 170 9.05 137 $8.60
Exercised (3) 8.76 -- -- -- --
Expired/forfeited (5) 8.63 (2) 8.60 -- --
Outstanding at end of
year 499 $8.89 305 $8.85 137 $8.60
1998
Options available for
grant at end of year 386
Options price range at
end of year $8.60 to $10.375
Weighted average
remaining contractual
life (in years) 4.30
Weighted average fair
value of options
granted during the
year $2.80
Options exercisable at
end of year 375
Weighted average
exercise price of
options exercisable
at end of year $8.86
Employee Share Purchase Plan
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 47 $8.875 49 $8.60 -- --
Granted / subscribed 38 8.875 52 8.875 59 $8.60
Exercised (47) 8.875 (49) 8.60 -- --
Expired (2) 8.875 (5) 8.875 (10) 8.60
Outstanding at end of
year 36 $8.875 47 $8.875 49 $8.60
1998
Options available for
grant at end of year 168
Options price range at
end of year $8.875
Weighted average fair
value of options
granted during the year 1.06
Options exercisable at
end of year 36
10. Leases and Related Commitments
The Company leases certain equipment and real property under operating leases,
including railcars. Many of the Company's leasing arrangements provide for
renewals and purchase options, including a majority of the railcar leases.
Rental expense and rental income under operating leases was as follows:
(in thousands) 1998 1997 1996
Rental expense - railcars $8,883 $7,160 $6,683
Rental expense - other 4,522 4,819 5,251
Total rental expense $13,405 $11,979 $11,934
Rental income - railcars $11,198 $8,545 $7,844
Rental income - other 69 69 80
Total rental income $11,267 $8,614 $7,924
At December 31, 1998, the Company had commitments for railcar lease and
sublease transactions that are scheduled to close in 1999. Future minimum
rentals and sublease income that will result from these transactions have not
been reflected in the following table, however, the Company anticipates that
these leases will result in sublease income in excess of future minimum rentals
over the ensuing lease terms.
Future minimum rentals for all noncancelable operating leases and future rental
income from subleases are as follows:
(in thousands) Future Future Rental
Minimum Income
Rentals
1999 $ 8,193 $ 3,702
2000 5,951 2,191
2001 4,926 1,915
2002 4,149 1,661
2003 3,404 1,187
Future years 7,384 4,899
$34,007 $15,555
11. Pension and Other Postretirement Benefits
In February, 1998, Statement of Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," was
issued. Statement No. 132 revises employers' disclosures about pension and
other postretirement benefit plans and is effective for 1998. The 1997 and
1996 pension and postretirement benefits disclosures have been restated to
conform to the 1998 presentation.
The Company provides retirement benefits for substantially all of its employees
under several defined benefit and defined contribution pension plans. The
Company's expense for its defined contribution plans amounted to $1.1 million,
$1.1 million, and $1 million in 1998, 1997 and 1996, respectively. The Company
also provides certain health insurance benefits to employees including
retirees. The Company elected to recognize the accrued benefits earned by
employees, as of January 1, 1993 (transition obligation) prospectively, which
means this cost will be recognized as a component of the net periodic
postretirement benefit cost over a period of approximately 20 years.
Following are the details of the defined benefit pension (Pension Benefits)
plans and postretirement benefit plan liability and funding status.
Postretirement
(in thousands) Pension Benefits Benefits
1998 1997 1998 1997
Change in benefit obligation
Benefit obligation at
beginning of year $16,440 $14,082 $10,294 $9,595
Service cost 1,679 1,536 298 302
Interest cost 1,169 1,000 613 711
Actuarial losses 2,832 827 2,555 219
Plan amendment -- -- (4,585) --
Participant contributions -- -- 15 14
Benefits paid (1,090) (1,006) (605) (547)
Benefit obligation at end of
year 21,030 16,439 8,585 10,294
Change in plan assets
Fair value of plan assets at
beginning of year 16,800 13,017 -- --
Actual return on plan assets 3,925 2,446 -- --
Company contributions 2,147 2,343 590 533
Participant contributions -- -- 15 14
Benefits paid (1,090) (1,006) (605) (547)
Fair value of plan assets at
end of year 21,782 16,800 -- --
Funded status of plans
(underfunded) 752 361 (8,585) (10,294)
Unrecognized net actuarial
loss (gain) 240 (54) 2,344 (180)
Unrecognized prior service
cost 195 222 -- --
Unrecognized net transition
obligation -- (42) 1,550 6,309
Additional minimum liability (244) (191) -- --
Prepaid (accrued) benefit
cost $ 943 $ 296 $(4,691) $(4,165)
Amounts recognized in the consolidated balance sheets consist of:
Postretirement
(in thousands) Pension Benefits Benefits
1998 1997 1998 1997
Accrued expenses $ (897) $(1,070) $ -- $ --
Pension and postretirement
asset (liability) 1,840 1,366 (4,691) (4,165)
Net amount recognized $ 943 $ 296 $(4,691) $(4.165)
Included in pension and postretirement benefits at December 31, 1998 is $262
thousand of deferred compensation for certain employees who, due to Internal
Revenue Service guidelines, may not take full advantage of the Company's
defined contribution plan. Assets funding this plan are recorded at fair value
in prepaid expenses. There are no comparable amounts for December 31, 1997.
In March 1998, the Company amended its postretirement benefit plan to provide
eligible retirees the option of enrolling in a Medicare HMO. Subsequent to the
initial enrollment period, the Company re-measured its accumulated benefit
obligation incorporating the Medicare HMO enrollment and cost assumptions. The
$4.6 million reduction in the accumulated benefit obligation resulting from the
re-measurement has been netted with the unrecognized net transition obligation.
The plan amendment will result in a reduction in future annual benefit cost by
approximately $.6 million and reduced the 1998 benefit cost by approximately
$.2 million.
Amounts applicable to a Company pension plan with accumulated benefit
obligations in excess of plan assets are as follows:
(in thousands) 1998 1997
Projected benefit obligation $1,160 $ 1,039
Accumulated benefit obligation and
additional liability 760 498
Fair value of plan assets -- --
Minimum liability adjustment $ (244) $ (191)
Intangible asset 195 191
49 --
Tax benefit 20 --
Other comprehensive income $ 29 $ --
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
Weighted average assumptions
as of December 31
Discount rate 6.8% 7.5% 6.8% 7.5%
Expected return on plan
assets 8.0% 8.0% -- --
Rate of compensation
increases 4.0% 4.0% -- --
Health care cost trend rate -- -- 5.0% 5.0%
The health care cost trend rate of 5% is assumed to remain at that level.
Pension Benefits Postretirement
Benefits
(in thousands) 1998 1997 1996 1998 1997 1996
Components of net periodic
benefit cost
Service cost $1,679 $1,536 $1,503 $298 $302 $272
Interest cost 1,169 1,000 796 613 711 666
Expected return on plan
assets (1,422) (1,085) (835) -- -- --
Amortization of prior
service cost 27 32 38 -- -- --
Recognized net actuarial
loss 35 20 -- 31 -- --
Amortization of net
transition obligation (42) (50) (50) 175 421 421
Benefit cost $1,446 $1,453 $1,452 $1,117 $1,434 $1,359
The assumed health care cost trend rate has a significant effect on the amounts
reported for postretirement benefits. A one-percentage-point change in the
assumed health care cost trend rate would have the following effects:
One-Percentage-Point
(in thousands)
Increase Decrease
Effect on total of service
and interest cost
components in 1998 $ 177 $ (149)
Effect on postretirement
benefit obligation as of
December 31, 1998 $1,545 $(1,227)
To partially fund self-insured health care and other employee benefits, the
Company makes payments to a trust. Assets of the trust amounted to $2.8
million and $2.6 million at December 31, 1998 and 1997, respectively, and are
included in prepaid expenses.
12. Fair Values of Financial Instruments
The fair values of the Company's cash equivalents, margin deposits and long and
short-term debt, approximate their carrying values since the instruments
provide for short terms to maturity and/or variable interest rates based on
market indexes. The Company's investments in affiliates are accounted for on
the equity method which approximates fair value.
The Company believes the fair value of its notes receivable, long-term notes
payable and debentures, some of which bear fixed rates and terms of five or ten
years, approximate their carrying values, based upon interest rates offered by
the Company on similar notes receivable and bonds and rates currently available
to the Company. The fair value of off-balance sheet interest rate contracts
as described in Note 7, which are not recognized in the balance sheet, is
estimated based on quoted market termination values. Fair values of these
contracts amount to liabilities of $.7 million and $.6 million at December 31,
1998 and 1997, respectively. The fair value of these interest rate contracts
are substantially offset by unrealized appreciation and depreciation in the
hedged items.
13. Business Segments
In June 1997, Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information," was issued.
Statement No. 131 establishes new standards for reporting information about
operating segments and is effective for 1998. The 1997 and 1996 business
segment presentations have been restated to conform with the 1998 presentation.
The Company has evaluated its operations in accordance with Statement No. 131
and has determined that its operations include four reportable business
segments. This determination was made primarily on the basis of services
offered and does include aggregation of operating segments. The Agriculture
segment includes grain merchandising and the operation of terminal grain
elevator facilities and the manufacture and distribution of agricultural
inputs, primarily fertilizer, to dealers and farmers. The Processing segment
includes the production and distribution of lawn care and corncob based
products. The Manufacturing segment includes the leasing, marketing and fleet
management of railcars, railcar repair and metal fabrication. The
Retail segment includes the operation of six large retail stores and a
distribution center.
Included in the Other classification are the operations of several smaller
businesses and corporate level amounts not attributable to an operating
segment. These smaller businesses include the operations of ten auto service
centers (a joint venture), a lawn and garden equipment sales and service shop
and the marketing of the Company's excess real estate.
The segment information that follows (in thousands) includes the allocation of
expenses shared by one or more segments. Although management believes such
allocations are reasonable, the operating information does not necessarily
reflect how such data might appear if the segments were operated as separate
businesses. Intersegment sales are made at prices comparable to normal,
unaffiliated customer sales. Operating income (loss) for each segment is based
on net sales and merchandising revenues plus identifiable other income less all
identifiable operating expenses, including interest expense for carrying
working capital and long-term assets.
<TABLE>
<CAPTION>
1998 Agriculture Processing Manufacturing Retail Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external
customers $788,133 $73,942 $52,324 $170,363 $13,960 $1,098,722
Inter-segment
sales 5,753 1,001 1,073 -- -- 7,827
Other income 1,907 407 871 219 2,008 5,412
Interest expense
(credit)(a) 6,212 1,231 907 1,974 (1,370) 8,954
Operating
income (loss) 6,676 2,810 4,365 1,655 (2,500) 13,006
Identifiable
assets 211,777 42,499 25,780 57,331 23,436 360,823
Capital
expenditures 6,727 1,351 3,466 1,930 968 14,442
Depreciation and
amortization 5,224 1,170 454 2,714 1,013 10,575
</TABLE>
<TABLE>
<CAPTION>
1997 Agriculture Processing Manufacturing Retail Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external
customers $723,335 $60,920 $24,760 $169,907 $14,824 $993,746
Inter-segment
sales 3,071 940 1,202 -- -- 5,213
Other income 1,577 606 421 239 2,256 5,099
Interest expense
(credit)(a) 6,002 1,201 589 2,163 (1,461) 8,494
Asset
impairment -- -- -- 1,121 -- 1,121
Operating
income (loss)(b) 2,302 698 3,310 (624) 569 6,255
Identifiable
assets 232,769 37,690 13,599 59,508 24,678 368,244
Capital
expenditures 8,381 1,170 243 4,316 1,317 15,427
Depreciation and
amortization 4,728 1,131 427 2,823 956 10,065
</TABLE>
<TABLE>
<caption
1996 Agriculture Processing Manufacturing Retail Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external
customers $865,333 $73,155 $20,856 $175,957 $15,003 $1,150,304
Inter-segment
sales 2,314 950 1,166 -- -- 4,430
Other income 1,402 1,340 389 177 1,344 4,652
Interest expense
(credit) (a) 10,628 1,381 635 2,262 (1,203) 13,703
Operating
income (loss) 3,689 2,858 2,266 3,800 (722) 11,891
Identifiable
assets 190,932 33,913 16,290 61,799 43,657 346,591
Capital
expenditures 4,359 1,040 649 3,042 1,030 10,120
Depreciation and
amortization 4,336 1,250 455 2,870 819 9,730
</TABLE>
(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.
(b) Operating loss for the retail segment includes the impairment writedown
of $1.1 million in 1997.
Grain sales for export to foreign markets amounted to approximately $171
million, $177 million and $193 million in 1998, 1997 and 1996, respectively.
In 1998, grain sales of $162 million were made to an unaffiliated customer. No
unaffiliated customer accounted for more than 10% of sales and merchandising
revenues in 1997 or 1996.
Board of Directors
Richard P. Anderson (3)
Chairman
The Andersons, Inc.
Thomas H. Anderson (3)
Chairman Emeritus
The Andersons, Inc.
Donald E. Anderson (3)
Director of Science, retired
The Andersons, Inc.
Michael J. Anderson (3)
President & Chief Executive Officer
The Andersons, Inc.
Richard M. Anderson (3)
Vice President & General Manager
Processing Division
The Andersons, Inc.
John F. Barrett (2), (3)
President & Chief Executive Officer
The Western & Southern Life Insurance Co.
Paul M. Kraus (3)
Attorney
Marshall & Melhorn
Donald L. Mennel (1), (3)
President & Treasurer
The Mennel Milling Company
David L. Nichols (1), (2), (3)
Retired Chairman & Chief Executive Officer
Mercantile Stores Company, Inc.
Dr. Sidney A. Ribeau (1), (3)
President
Bowling Green State University
Charles A. Sullivan (1), (2), (3)
Chairman & Chief Executive Officer
Interstate Bakeries Corp.
Jacqueline F. Woods (3)
President & Chief Executive Officer
Ameritech Ohio
(1) Audit Committee
(2) Compensation Committee
(3) Nominating Committee
Independent Auditors
Ernst & Young LLP, Toledo, Ohio
Nasdaq Symbol
The Andersons, Inc. common shares are traded on the Nasdaq
National Market tier of The Nasdaq Stock Market under the
symbol: ANDE
Shareholders
As of March 1, 1999 there were 8,166,797 shares of common
stock outstanding. At that date, there were 751
shareholders of record and approximately 2,500 shareholders
for whom securities firms acted as nominees.
Corporate Officers
Thomas H. Anderson
Chairman Emeritus
Richard P. Anderson
Chairman
Michael J. Anderson
President & Chief Executive Officer
Christopher J. Anderson
President, Processing & Manufacturing Group
Daniel T. Anderson
President, Retail Group
Joseph L. Braker
President, Agriculture Group
Joseph C. Christen
Vice President, Human Resource Development
Dale W. Fallat
Vice President, Corporate Services
Philip C. Fox
Vice President, Corporate Planning
Charles E. Gallagher
Vice President, Personnel
Richard R. George
Vice President & Controller
Beverly J. McBride
Vice President, General Counsel & Secretary
Gary L. Smith
Vice President, Finance & Treasurer
Investor Information
Corporate Offices
The Andersons, Inc.
480 West Dussel Drive
Maumee, Ohio 43537
419-893-5050
Internet: www.andersonsinc.com
Transfer Agent & Registrar
Harris Trust & Savings Bank
Shareholder Services Division
311 West Monroe
PO Box A-3504
Chicago, Illinois 60690-3504
312-360-5260
Form 10K
The Andersons' 1998 Form 10-K filed in late March 1999 with
the SEC, is available to stockholders and interested
individuals without charge by writing or calling Investor
Relations.
Investor Relations
Gary Smith
Vice President, Finance & Treasurer
419-891-6417
email: [email protected]
Annual Meeting
The annual shareholders' meeting of The Andersons, Inc. will
be held at The Andersons' Activities building, 1833 S.
Holland-Sylvania Rd., Toledo, Ohio at 7:00 p.m. on April 22,
1999.
Our Mission
We firmly believe that our company is a powerful vehicle through which we
channel our time, talent and energy in pursuit of the fundamental goal of
serving God by serving others.
Through our collective action we greatly magnify the impact of our individual
efforts to:
Provide extraordinary service to our customers
Help each other improve
Support our communities
Increase the value of our Company
[Logo]
The Andersons, Inc.
480 West Dussel Drive
Maumee, Ohio 43537
Exhibit 21
SUBSIDIARIES OF THE ANDERSONS
Subsidiary State of Organization
The Andersons Agriservices, Inc. Illinois
(a corporation owned 100% by The Andersons, Inc.)
The Andersons Export Sales Corp. Barbados
(a corporation owned 100% by The Andersons, Inc.)
The Andersons Investment Services Corp. Ohio
(a corporation owned 100% by The Andersons, Inc.)
The Andersons Mower Center, Inc. Ohio
(a corporation owned 100% by The Andersons, Inc.)
The Andersons White Pigeon Terminal (a limited Ohio
partnership of which The Andersons, Inc. is the
sole general partner)
The Andersons World Tire, d.b.a. The Andersons - Tireman Ohio
Auto Centers (a joint venture owned 52.5% by The Andersons,
Inc.)
Crop & Soil Service, Inc. Ohio
(a corporation owned 100% by The Andersons, Inc.)
Kass Products, Inc. Ohio
(a joint venture owned 50% by The Andersons, Inc.)
Metamora Commodity Company Incorporated Ohio
(a corporation owned 100% by The Andersons, Inc.)
Poneto Tank Company, LLC Indiana
(a limited liability company owned 67% by The Andersons,
Inc.)
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-01249) pertaining to The Andersons, Inc. Long-Term
Performance Compensation Plan, (Form S-8 No. 333-00233) pertaining to The
Andersons, Inc. Employee Share Purchase Plan, (Form S-8 No. 333-53137)
pertaining to The Andersons, Inc. Retirement Savings and Investment Plan and
(Form S-2 No. 333-35269) pertaining to the registration of debenture bonds of
The Andersons, Inc. of our report dated January 25, 1999, with respect to the
consolidated financial statements and schedule of The Andersons, Inc. and
Subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/Ernst & Young LLP
Toledo, Ohio
March 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3253
<SECURITIES> 0
<RECEIVABLES> 67350
<ALLOWANCES> 4455
<INVENTORY> 184990
<CURRENT-ASSETS> 261274
<PP&E> 242589
<DEPRECIATION> 152532
<TOTAL-ASSETS> 360823
<CURRENT-LIABILITIES> 195376
<BONDS> 71565
0
0
<COMMON> 84
<OTHER-SE> 82650
<TOTAL-LIABILITY-AND-EQUITY> 360823
<SALES> 1098722
<TOTAL-REVENUES> 1104134
<CGS> 937493
<TOTAL-COSTS> 937493
<OTHER-EXPENSES> 144681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8954
<INCOME-PRETAX> 13006
<INCOME-TAX> 3254
<INCOME-CONTINUING> 9752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9752
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
</TABLE>
Exhibit 4.4
THE ANDERSONS, INC.
AND
THE FIFTH THIRD BANK,
Trustee.
__________________
SEVENTEENTH SUPPLEMENTAL INDENTURE
dated effective as of August 14, 1997
Supplementing Indenture Dated as of October 1, 1985
__________________
Debentures
Due Five Years or Ten Years
from Original Issue Date
THIS SEVENTEENTH SUPPLEMENTAL INDENTURE, dated effective as of
August 14, 1997, between The Andersons, Inc., an Ohio corporation having its
principal office at 480 W. Dussel Drive, City of Maumee, Lucas County, Ohio
(hereinafter called the "Corporation"), and The Fifth Third Bank, a state
banking association organized and existing under the laws of the state of Ohio
(hereinafter called the "Trustee");
W I T N E S S E T H
WHEREAS, the Corporation and Trustee are parties to a certain
indenture dated as of October 1, 1985 (hereinafter called the "Indenture"),
providing for the issuance of debentures (hereinafter called the "Debentures")
as therein provided; and
WHEREAS, the Corporation heretofore executed and delivered to the
Trustee a Seventeenth Supplemental Indenture dated as of January 16, 1997; and
WHEREAS, the Corporation and the Trustee may enter into supplemental
indentures to the Indenture without the consent of the holders of Debentures,
pursuant to Section 901(1) of the Indenture, to provide for the creation of a
new series of Debentures; and
WHEREAS, no Event of Default, as defined in Section 501 of the
Indenture, and no event which after notice or lapse of time, or both, would
become an Event of Default, has happened or is continuing; and
WHEREAS, the Corporation has delivered to the Trustee a Resolution
requesting the Trustee to authenticate and deliver, effective August 14, 1997,
a new series of Debentures, designated as "7.7% Ten-Year Debentures" and "7.0%
Five-Year Debentures" in the aggregate principal amounts of $5,000,000 for the
Ten-Year Debentures and $5,000,000 for the Five-Year Debentures; and all other
terms of the new series shall remain the same as for the original series of
Debentures issued under the Indenture; and
WHEREAS, the Corporation has delivered to the Trustee a Corporate
Certificate and an Opinion of Counsel, stating that the issuance of a new
series of Debentures and this Seventeenth Supplemental Indenture comply with
the Indenture and that all conditions precedent therein provided for relating
to such issuance of a new series of Debentures have been complied with; and
WHEREAS, the Corporation has been authorized by its Board of
Directors to enter into this Seventeenth Supplemental Indenture in accordance
with Section 901 of the Indenture;
NOW, THEREFORE,
The Corporation, hereby expressly assumes the due and punctual
payment of the principal of, including each installment thereof (and premium,
if any), and interest on all the Debentures and the performance of every
covenant of the Indenture on the part of the Corporation to be performed or
observed.
IN WITNESS WHEREOF, the parties hereto have caused this Seventeenth
Supplemental Indenture to be duly executed as of the day and year first above
written.
THE FIFTH THIRD BANK THE ANDERSONS, INC., an Ohio
corporation
By: /s/Christine M. Schaub By: /s/Michael J. Anderson
Christine M. Schaub Michael J. Anderson
Trust Officer President and Chief
Operating Officer
[Corporate Seal] By: /s/Gary Smith
Gary Smith
Vice President and Treasurer
Attest:
/s/Greg Hahn
STATE OF OHIO )
COUNTY OF LUCAS ) SS:
Before me, a Notary Public, in and for said county and state, personally
appeared Michael J. Anderson and Gary Smith, President and Chief Operating
Officer and Vice President and Treasurer, respectively, of The Andersons,
Inc., an Ohio corporation, who acknowledged that, they being thereunto duly
authorized, did sign the foregoing instrument in behalf of said corporation
and by authority of its board of directors and that the same is the free act
and deed of said officers and of said corporation.
In Testimony Whereof, I have hereunto set my hand and official seal at
Maumee, Ohio this 16th day of March, 1998.
/s/Cathy L. Redford
Notary Public
My Commission Expires: 4-10-99
[Notarial Seal]
STATE OF OHIO )
COUNTY OF LUCAS ) SS:
On the 18th day of March, 1998, before me personally came Christine M.
Schaub, Trust Officer, and Greg Hahn, Trust Officer, to me known, who, being
by me duly sworn, did depose and say that they are Trust Officers of THE
FIFTH THIRD BANK, a bank organized under the laws of the state of Ohio,
described in and which executed the foregoing instrument; that they know the
seal of said corporation; that the seal affixed to said instrument is such
corporation seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that they signed their names hereto by like
authority.
/s/Amy L. Hartung
Notary Public
My Commission Expires: 4-7-03
[Notarial Seal]
CORPORATE CERTIFICATE
This is to certify that The Andersons, Inc., an Ohio corporation, has
examined the above-mentioned Indenture, Seventeenth Supplemental Indenture,
the foregoing Opinion of Counsel and all other documents and matters as it
deemed necessary to express an informed opinion on compliance by the
corporation with the conditions precedent provided in said Indenture and that
it concurs with the aforesaid Opinion of Counsel.
THE ANDERSONS, INC., an Ohio corporation
By: /s/Michael J. Anderson
Michael J. Anderson
President and Chief Operating
Officer
By: /s/Gary Smith
Gary Smith, Vice President and
Treasurer
March 17, 1998
The Fifth Third Bank, Trustee
Mail Drop 1090D2
Fifth Third Center
Cincinnati, Ohio 45263
Re: Indenture Dated As Of October 1, 1985 ("Indenture") and
Seventeenth Supplemental Indenture Thereto Dated
Effective As Of August 14, 1997; Opinion of Counsel and
Corporate Certificate
According to the terms of the Indenture dated October 1, 1985, please be
advised that I have examined the aforementioned Indenture and Supplemental
Indenture thereto and all other documents and matters as I deemed necessary
under the circumstances to render the within opinion, and it is my opinion
that the instruments which have been or are herewith delivered to the Trustee
conform to the requirements of this Indenture, and it is my opinion that the
instruments which have been or are herewith delivered to the Trustee conform
to the requirements of this Indenture and constitute sufficient authority
under this Indenture for the authentication and delivery by the Trustee of
the Debentures applied for, and the issuance of a new series of Debentures,
effective August 14, 1997, complies with and is authorized by the Indenture
and that The Andersons, Inc. has complied with all conditions precedent
therein provided for relating to said transfer and Seventeenth Supplemental
Indenture. Further, it is my opinion that there are no tax laws applicable to
the issuance of the new series of Debentures with which The Andersons, Inc.
need comply and no state or federal commission or other governmental body need
give authorization approval or consent to the issuance of these Debentures.
/s/Beverly J. McBride
Beverly J. McBride, General Counsel
