SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1562374
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
480 W. Dussel Drive, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
(419) 893-5050
(Telephone Number)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No __
The registrant had 8,161,581 Common shares outstanding, no par value, at May
1, 1999.
THE ANDERSONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31 December 31
1999 1998
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 7,718 $ 3,253
Accounts and notes receivable:
Trade accounts - net 80,114 62,647
Margin deposits 6,246 248
-----------------------
86,360 62,895
Inventories:
Grain 74,571 91,218
Agricultural fertilizer and supplies 40,488 27,127
Agriculture 115,059 118,345
Merchandise 31,785 25,863
Processing 21,474 22,428
Manufacturing 21,919 16,039
Other 2,501 2,315
-----------------------
192,738 184,990
Deferred income taxes 5,787 4,634
Prepaid expenses 4,792 5,502
-----------------------
Total current assets 297,395 261,274
Other assets:
Notes receivable (net) and other assets 7,371 8,435
Investments in and advances to affiliates 1,052 1,057
-----------------------
8,423 9,492
Property, plant and equipment:
Land 12,095 12,095
Land improvements and leasehold improvements 26,144 26,056
Buildings and storage facilities 88,995 88,818
Machinery and equipment 114,677 112,561
Construction in progress 2,539 3,059
-----------------------
244,450 242,589
Less allowances for depreciation and
amortization 154,605 152,532
-----------------------
89,845 90,057
-----------------------
$395,663 $360,823
=======================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED)(IN THOUSANDS)
March 31 December 31
1999 1998
(Unaudited) (Audited)
Current liabilities
Notes payable $ 84,000 $ 7,700
Accounts payable for grain 36,968 88,978
Other accounts payable 89,066 75,301
Accrued expenses 14,766 17,079
Current maturities of long-term debt 5,992 6,318
--------------------------
Total current liabilities 230,792 195,376
Pension and postretirement benefits 3,026 3,113
Long-term debt 71,757 71,565
Deferred income taxes 7,070 7,330
Minority interest 694 705
Shareholders' equity:
Common stock (25,000 shares authorized,
stated value $.01 per share, 8,165 and
8,140 outstanding at 3/31/99 and 12/31/98,
respectively) 84 84
Additional paid-in capital 67,219 67,180
Treasury stock (265 and 290 shares at 3/31/99
and 12/31/98, respectively; at cost) (2,550) (2,665)
Accumulated other comprehensive income (29) (29)
Unearned compensation (283) (83)
Retained earnings 17,883 18,247
------------------------
82,324 82,734
------------------------
$395,663 $360,823
========================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31
1999 1998
Sales and merchandising revenues $ 199,965 $ 221,221
Other income 790 968
-----------------------
200,755 222,189
Cost of sales and merchandising revenues 161,889 188,329
-----------------------
Gross profit 38,866 33,860
Operating, administrative and general expenses 36,734 32,729
Interest expense 2,066 2,458
-----------------------
38,800 35,187
-----------------------
Income (loss) before income taxes 66 (1,327)
Income tax expense (credit) 22 (503)
-----------------------
Net income (loss) $ 44 $ (824)
=======================
Per common share:
Basic $ 0.01 $ (0.10)
=======================
Diluted $ 0.01 $ (0.10)
=======================
Dividends paid $ 0.05 $ 0.04
=======================
Weighted average common shares outstanding
- basic 8,157 7,986
=======================
Weighted average common shares outstanding
- diluted 8,302 7,989
=======================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(IN THOUSANDS)
Three Months Ended March 31
1999 1998
Operating activities
Net income (loss) $ 44 $ (824)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,702 2,567
Provision for losses on accounts and notes
receivable 314 (57)
Deferred income tax (1,039) (835)
Other 28 (39)
--------------------
Cash provided by operations before changes in
operating assets and liabilities 2,049 812
Changes in operating assets and liabilities:
Accounts receivable (23,779) (11,183)
Inventories (7,748) (6,401)
Prepaid expenses 1,268 74
Accounts payable for grain (52,010) (66,158)
Other accounts payable and accrued expenses 11,366 22,490
--------------------
Net cash used in operating activities (68,854) (60,366)
Investing activities
Purchases of property, plant and equipment (2,373) (3,736)
Proceeds from sale of property, plant and equipment 21 8
--------------------
Net cash used in investing activities (2,352) (3,728)
Financing activities
Net increase in short-term borrowings 76,300 59,728
Proceeds from issuance of long-term debt 26,574 20,378
Payments of long-term debt (26,707) (20,993)
Purchase of common stock for the treasury (432) --
Proceeds from sale of treasury stock to employees 346 413
Dividends paid (410) (319)
---------------------
Net cash provided by financing activities 75,671 59,207
---------------------
Increase (decrease) in cash and cash equivalents 4,465 (4,887)
Cash and cash equivalents at beginning of period 3,253 8,278
---------------------
Cash and cash equivalents at end of period $ 7,718 $ 3,391
=====================
See notes to condensed consolidated financial statements.
THE ANDERSONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
the results of operations for the periods indicated have been made.
The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in The Andersons,
Inc. Annual Report on Form 10-K for the year ended December 31, 1998.
Note B - Total comprehensive income was $44 thousand for the three months
ended March 31, 1999 and a loss of $824 for the three months ended
March 31, 1998.
Note C -
Results of Operations - Segment Disclosures
(in thousands)
First Quarter, Agri- Manu-
1999 culture facturing Processing Retail Other Total
Revenues from
external
customers $126,601 $6,627 $29,867 $33,700 $3,170 $199,965
Inter-segment 1,635 250 670 -- -- 2,555
sales
Other income 193 34 78 70 415 790
Interest
expense
(credit) (a) 1,360 286 391 419 (390) 2,066
Operating
income (loss) (1,118) 761 2,577 (2,142) (12) 66
Identifiable
assets 215,302 30,786 59,345 63,013 27,217 395,663
First Quarter, Agri- Manu-
1998 culture facturing Processing Retail Other Total
Revenues from
external
customers $154,229 $ 6,766 $ 26,914 $30,753 $2,559 $221,221
Inter-segment
sales 2,329 325 359 -- -- 3,013
Other income 344 49 61 49 465 968
Interest
expense
(credit) (a) 1,873 197 378 525 (515) 2,458
Operating
income (loss) (1,931) 532 3,176 (3,017) (87) (1,327)
Identifiable
assets 228,265 17,554 49,961 65,996 21,272 383,048
(a) The other category of interest expense includes net interest income at
the company level, representing rate differential between the interest rate
on which interest is allocated to the operating segments and the actual rate
at which borrowings were made.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of the three months ended March 31, 1999 with the three months
ended March 31, 1998:
Sales and merchandising revenues for the three months ended March 31,
1999 totaled $200 million, a decrease of $21.2 million, or 10%, from 1998.
Sales in the Agriculture Segment were down $29.7 million, or 20%, due to an 8%
volume decrease in grain and a 21% decrease in the average price per bushel
sold caused by lower market prices and a change in the mix of grain sold by
the Company. Fertilizer sales were up $4.2 million, or 16%, due to a 21%
increase in volume, partially offset by a 4% decrease in the average price per
ton sold. In addition, merchandising revenues were up $2.1 million, or 36%,
due primarily to increases in income from storing grain and fertilizer for
others and fees for custom application. In the first quarter of 1999, the
Company operated two additional grain elevators, two additional fertilizer
distribution facilities and five additional farm centers when compared to the
same quarter in 1998.
The Manufacturing Segment had a slight sales decrease of $.1 million, or
2%. Total revenues in the railcar repair and fabrication shops were down $.2
million while revenues from railcar marketing increased $.1 million.
The Processing Segment had a $3 million, or 11%, increase in sales. Of
this increase, $2.7 million was due to a 16% increase in lawn fertilizer
volume, primarily in the professional and industrial markets. This volume
increase more than offset a 4% reduction in the average price per ton sold.
The remaining increase of $.3 million occurred in the cob-based businesses.
The Retail Segment experienced a $3 million, or 10%, increase in sales,
with all stores showing increases. A portion of this sales increase was due
to weather-related sales in January.
Gross profit for the first quarter of 1999 totaled $38.9 million, an
increase of $5 million, or 15%, from the first quarter of 1998. The
Agriculture Segment had a gross profit increase of $2.9 million, or 26%, due
to the $2.1 million increase in merchandising revenues described above and the
additional sales generated by the new facilities described previously.
Gross profit in the Manufacturing Segment increased $1 million, or 46%,
from the prior year. This was due primarily to the timing of and margins on
railcar sales.
Gross profit for the Processing Segment increased slightly from the first
quarter of 1998. Both cob-based businesses experienced increased gross profit
due to the shift in product mix toward higher margin product and increased
sales. Gross profit in the professional and industrial lawn fertilizer
businesses increased, due to increased volume despite a decrease in gross
profit per ton. In the consumer lawn fertilizer business, gross profit
decreased.
Gross profit in the Retail Segment improved by $1 million, or 12%, from
the first quarter of 1998. This was due to the increased sales and margin
improvement resulting from changes in the product mix.
Operating, administrative and general expenses for the first quarter of
1999 totaled $36.7 million, a $4 million, or 12%, increase from the first
quarter of 1998. Full time employees increased 10% from the first quarter of
1998 with the majority of the increase due to acquisitions or added capacity
in the Agriculture Segment and growth in other segments. Included in the
total increase are additional labor and benefits charges of $2.5 million and
additional occupancy costs of $.5 million. These increases reflect growth in
the underlying businesses. Additional operating expenses relating
specifically to the facilities added after the first quarter of 1998 were $1.8
million.
Interest expense for the first quarter of 1999 was $2.1 million, a $.4
million, or 16%, decrease from the first quarter of 1998. Although average
short-term borrowings were 10% higher in the first quarter of 1999 when
compared to the first quarter of 1998, the effective interest rate decreased.
Income before income taxes of $.1 million was an improvement of $1.4
million from the 1998 first quarter pretax loss of $1.3 million. Tax expense
has been provided at 32.8%, the Company's expected effective tax rate for
1999.
Net income of $.04 million improved $.86 million from the 1998 first
quarter net loss of $.82 million. Basic and diluted earnings per share were
$.01, an $.11 increase from the 1998 first quarter loss.
Liquidity and Capital Resources
The Company's operations (before changes in working capital) provided
cash of $2 million in the first quarter of 1999, an increase of $1.2 million
from the first quarter of 1998. Working capital at March 31, 1999 was $66.6
million, a slight increase from December 31, 1998. Working capital at March
31, 1998 was $50.8.
The Company utilizes its short-term lines of credit to finance working
capital, primarily inventories and accounts receivable. Lines of credit
available on March 31, 1999 were $225 million. The Company had drawn $84
million on its short-term lines of credit at March 31, 1999, an increase of
$76.3 million from December 31, 1998. Typically, the Company's highest
borrowing occurs in the spring due to seasonal inventory requirements in the
fertilizer and retail businesses, credit sales of fertilizer and a customary
reduction in grain payables due to customer cash needs and market strategies.
A quarterly cash dividend of $0.05 per common share was paid in the first
quarter of 1999. A cash dividend of $0.05 per common share was declared on
April 1, 1999 and was paid on April 21, 1999. Cash dividends of $0.04 per
common share were paid quarterly in 1998. The Company made income tax
payments of $1.7 million in the first quarter and expects to make payments
totaling approximately $6.7 million for the remainder of 1999. Also in the
first quarter, the Company issued 59,416 shares to its employees under stock
compensation plans and purchased 35,000 of its common shares on the open
market at an average of $12.36 per share.
Total cash capital expenditures for 1999 are expected to exceed $20
million and include $6.2 million for additional facilities in the processing
and agriculture segments, $1.5 million for additional grain storage, $3.6
million for the acquisition of additional railcars and $1.6 million to replace
the point-of-sale system in the Company's retail stores. Funding for these
expenditures is expected to come from cash generated from operations and
additional debt. Capital expenditures can be curtailed if cash generated from
operations is less than expected.
Certain of the Company's long-term debt is secured by first mortgages on
various facilities. Some of the long-term borrowings include provisions that
impose minimum levels of working capital and equity, limitations on additional
debt and require the Company to be substantially hedged in its grain
transactions.
The Company's liquidity is enhanced by the fact that grain inventories
are readily marketable. In the opinion of management, the Company's liquidity
is adequate to meet short-term and long-term needs.
Impact of Year 2000
The Company plan to resolve the Year 2000 Issue (the inability of
computers to process date information after 1999) involves four phases:
assessment, remediation, testing and implementation. The Company has
completed its assessment of all systems that could be significantly affected
by the year 2000 and has developed remediation plans that include both
modifications and replacements. These remediation plans have been prioritized
based on the perceived risk of failure or error. The Company interfaces with
third parties in some of its businesses and functional areas. These third
party interfaces have been considered in the assessment and remediation plans
and have been assigned a high priority for completion.
Costs incurred to date have totaled approximately $1.6 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 $1.4 million, which includes $1.2 million for
the purchase of software and hardware and $.2 million representing existing
internal resources that will be expensed as incurred. This cost information
includes an enterprise resource planning (ERP) solution installation in the
wholesale fertilizer division initially planned to be completed before the
year 2000. The existing fertilizer software has been found to be Year 2000
compliant and while the ERP installation continues, it is not necessary for
Year 2000 compliance.
Year 2000 modification plans and software installations are under way and
are substantially complete at the end of the first quarter of 1999 for all
significant high risk systems except for the following:
System Modification Completion Date
Farm center system replacement 3rd Quarter 1999
Retail point-of-sale replacement 4th Quarter 1999
Railcar marketing system 2nd Quarter 1999
Processing electronic data interchange 2nd Quarter 1999
The Company has made significant progress in testing its remediated
systems. Except for the systems identified above, the Company expects to have
its testing of significant high-risk systems completed by the end of the
second quarter of 1999. For the systems identified above testing will be
completed immediately following the 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 Company queried its significant suppliers and subcontractors that do
not share information systems with the Company (its "external agents") and
received responses from 76% of them. The Company is in the process of
updating this survey for new external agents added after the initial mailing
and throughout 1999. To date, the Company is not aware of any external agent
with a Year 2000 Issue that would materially impact the Company's results of
operations, liquidity or capital resources. However, the Company has no means
of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution processes in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
While the Company is monitoring its external agents, it may also be
affected by Year 2000 failures at other 3rd parties such as utilities and the
railroads. The Company can not identify all possible worst-case scenarios,
however, the most reasonable worst-case scenario would be the failure of
utilities and/or transportation systems that are critical to the Company's
operations and that couldn't quickly be replaced by other suppliers or through
internal resources. In such situations, operations at the affected facility
or facilities could be interrupted with adverse effects on the Company's
financial results. The Company has no contingency plans for this scenario,
except to the extent that it can operate at another unaffected facility.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
Forward Looking Statements
The preceding Management's Discussion and Analysis contains various
"forward-looking statements" which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including but not
limited to those identified below, which could cause actual results to
differ materially from historical results or those anticipated. The words
"believe," "expect," "anticipate" and similar expressions identify forward-
looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
The following factors could cause actual results to differ materially
from historical results or those anticipated; weather, supply and demand of
commodities including grains, fertilizer and other basic raw materials, market
prices for grains and the potential for increased margin requirements,
competition, economic conditions, risks associated with acquisitions, interest
rates and income taxes.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from adverse changes
in commodity prices and interest rates as discussed below.
Commodities
The availability and price of agricultural commodities are subject to
wide fluctuations due to unpredictable factors such as weather, plantings,
government (domestic and foreign) farm programs and policies, changes in
global demand created by population growth and higher standards of living, and
global production of similar and competitive crops. To reduce price risk
caused by market fluctuations, the Company follows a policy of hedging its
inventories and related purchase and sale contracts. The instruments used are
readily marketable exchange-traded futures contracts that are designated as
hedges. To a lesser degree, the Company uses exchange-traded option
contracts, also designated as hedges. The changes in market value of such
contracts have a high correlation to the price changes of the hedged
commodity. The Company's accounting policy for these hedges, as well as the
underlying inventory positions, and purchase and sale contracts is to mark
them to the market price daily and include gains and losses in the statement
of income in sales and merchandising revenues.
A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk of its commodity position. The Company's daily net
commodity position consists of inventories, related purchase and sale
contracts and exchange traded contracts. The fair value of such position is a
summation of the fair values calculated for each commodity by valuing each net
position at quoted futures market prices. Market risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse change
in such prices. The result of this analysis, which may differ from actual
results, is as follows:
(in thousands) March 31, December 31,
1999 1998
Net long (short) position $1,128 $ (1,961)
Market risk 113 196
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) March 31, December 31,
1999 1998
Fair value of long-term debt and $78,794 $78,521
interest rate contracts
Excess of fair value over carrying 1,045 638
value
Market risk 348 403
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. A report on Form 8-K was filed with the SEC
containing a January 12, 1999 press release announcing the settlement with the
Commodity Futures Trading Commission relating to its review of the Company's
grain contracting activity.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ANDERSONS, INC.
(Registrant)
Date: May 14, 1999 By /s/Michael J. Anderson
Michael J. Anderson
President and Chief Executive Officer
Date: May 14, 1999 By /s/Richard R. George
Richard R. George
Vice President and Controller
(Principal Accounting Officer)
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