SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] 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)
(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 7.3 million Common shares outstanding, no par value, at August 1, 2001
THE ANDERSONS, INC.
INDEX
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Part I. Financial Information
Item 1. Financial Statements
The Andersons, IncCondensed Consolidated Balance Sheets(Unaudited)(In thousands)
See notes to condensed consolidated financial statements
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The Andersons, IncCondensed Consolidated Balance Sheets (continued)(Unaudited)(In thousands)
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The Andersons, Inc.Condensed Consolidated Statements of Operations(Unaudited)(In thousands, except Per Share Data)
See notes to condensed consolidated financial statements.
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The Andersons, Inc.Condensed Consolidated Statements of Cash Flows(Unaudited)(In thousands)
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The Andersons, IncCondensed Consolidated Statements of Shareholders’ Equity(Unaudited) (In thousands)
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The Andersons, Inc.Notes to Condensed Consolidated Financial Statements
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Results of Operations — Segment Disclosures(in thousands)
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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations
Comparison of the three months ended June 30, 2001 with the three months endedJune 30, 2000:
Sales and merchandising revenues for the three months ended June 30, 2001 totaled $275.2 million, an increase of $12.1 million, or 5%, from the second quarter of 2000. Sales in the Agriculture Group were up $9.1 million, or 6%. Grain sales were down $12 million, or 12%, due primarily to a change in the mix of grain sold and the resulting decrease in the weighted average price per bushel sold. Fertilizer sales were up $21.1 million, or 34% due to a 30% increase in the weighted average price per ton sold and a 2% increase in volume. Merchandising revenues in the Agriculture Group were down $1 million, or 9%, due to reduced storage and drying and mixing income in the grain division partially offset by basis appreciation in grain owned. Grain inventories on hand at June 30, 2001 were 49.6 million bushels, of which 20 million bushels were stored for others. This compares to 46.4 million bushels on hand at June 30, 2000, of which 24 million bushels were stored for others. There were no changes in the number of Agriculture Group facilities operated in the period under review, but an additional 0.8 million bushels of covered storage capacity was added to existing grain facilities during 2000.
The Processing Group had a $2.3 million, or 7% increase in sales, resulting primarily from the professional business of the lawn fertilizer division. Included in this increase are sales from the U.S. ProTurf® product line acquired from The Scotts Company on May 31, 2000. The Cob-based businesses also recognized an increase in sales, while the consumer and industrial lawn fertilizer businesses experienced lower
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sales in the quarter due to volume decreases. All businesses experienced an increase is average price per ton sold, but the ProTurf® product line acquisition was primarily responsible for a 25% increase in the weighted average price per ton sold.
The Rail Group had a $.4 million, or 4%, increase in sales. Gross lease income was up 9% and sales of railcars were flat when compared to the second quarter of 2000. Shop sales were down slightly.
The Retail Group had a $1.4 million, or 3%, increase in same-store sales in the second quarter of 2001 when compared to the second quarter of 2000. All but one store and the Mower Center experienced increases.
Gross profit for the second quarter of 2001 totaled $48.3 million, an increase of 8%. The Agriculture Group had a $4.5 million, or 20%, increase resulting primarily from significantly increased margin per ton in the wholesale fertilizer and farm center divisions. Grain gross profit was also better in the second quarter of 2001 when compared to 2000.
Gross profit for the Processing Group decreased $0.3 million, or 5%. While gross profit was up in the professional lawn and cob-based businesses, volume decreases in the consumer and industrial lawn fertilizer businesses as well as raw materials cost increases that could not be passed on in the consumer business resulted in the decreased gross profit.
Gross profit in the Rail Group decreased $0.9 million, or 44%. This was due primarily to a $1 million non-cash charge to recognize the lower value of certain railcars available for sale.
Gross profit in the Retail Group increased $0.2 million, or 1%, from the second quarter of 2000. Margins were slightly lower but more than offset by the increase in sales.
Operating, administrative and general expenses for 2001 totaled $35.5 million, a $2.2 million, or 7%, increase from the second quarter of 2000. The increase relates primarily to a full quarter of additional costs of the ProTurf® product line in the Processing Group and inflationary increases. The second quarter of 2001 also includes severance pay of $.7 million for structural changes made in the second quarter of 2001. Full-time employees decreased slightly (less than 1%) from the second quarter of 2000.
Interest expense for the second quarter of 2001 was $2.9 million, a $0.3 million, or 11%, increase from 2000. Average 2001 daily short-term borrowings were substantially the same as the second quarter of 2000 while the average daily short-term interest rate decreased from 6.84% for the second quarter of 2000 to 5.48% for the second quarter of 2001. However, the Company increased its outstanding long-term debt (including current maturities) 13% from June 30, 2000 to June 30, 2001.
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The pretax income of $10.7 million for the second quarter of 2001 was $0.6 million higher than the pretax income of $10.1 million in 2000. Income taxes of $3.4 million were provided using the Company’s expected 2001 annual rate of 32.1%. The rate used for the second quarter 2000 tax provision was 33.5%. The actual 2000 tax rate was 29.8%.
As a result of the above, net income for the second quarter of 2001 increased $.6 million. The basic and diluted earnings per share of $1.00 and $0.99, respectively, for the second quarter of 2001 compares to basic and diluted earnings per share of $0.89 in the second quarter of 2000.
Comparison of the six months ended June 30, 2001 with the six months ended June30, 2000:
Sales and merchandising revenues for the six months ended June 30, 2001 totaled $495.5 million, an increase of $27.8 million, or 6%, from the first six months of 2000. Sales in the Agriculture Group were up $19.2 million, or 7%. Grain sales were down $2.6 million, or 1%, due to a 6% decrease in the weighted average price per bushel sold partially offset by a 5% increase in bushels sold. Fertilizer sales were up $21.8 million, or 23%, due to a 23% increase in the weighted average price per ton. Merchandising revenues in the Agriculture Group were up $1.4 million, or 7%, due primarily to basis appreciation of the grain inventories offset by a reduction in storage income when compared to the strong storage income of 2000.
The Processing Group had a $9.1 million, or 14%, increase in sales. All of this increase related to sales in the professional lawn fertilizer business and, to a much lesser extent, sales in the cob-based businesses. The purchase of the U.S. ProTurf® product line acquired from The Scotts Company on May 31, 2000 was the primary driver of the sales increase. The Processing Group realized an 18% overall increase in the average price per ton, with all businesses showing increases due to both general price levels of fertilizer and the acquired product line. Volumes were down in both the consumer and industrial lawn fertilizer businesses.
The Rail Group had a $1.9 million, or 12%, increase in sales. Car sales accounted for all of the increase. Shop sales were down slightly, while the leasing business experienced a modest increase due to additional cars in service.
The Retail Group had a $1.3 million, or 1%, decrease in same-store sales in the first half of 2001 when compared to the first half of 2000. All Toledo-market stores experienced decreases, while the other stores experienced modest increases.
The Company completed the sale of its interest in The Andersons — Tireman Auto Centers (“Tireman”) on March 31, 2000. Included in the first half 2000 sales for the Company are Tireman sales of $2.5 million.
Gross profit for 2001 totaled $83.4 million, an increase of 4%. The Agriculture Group had a $6.6 million, or 17%, increase. The grain division’s increase of $3.0 million
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resulted from the sales volume increase and increases in merchandising revenues mentioned previously. The wholesale fertilizer and farm center divisions experienced a $3.6 million increase in gross profit resulting from a significant increase in gross profit per ton.
Gross profit for the Processing Group decreased $0.2 million, or 2%. Coupled with the significant sales increase in the Group was a significant increase in the cost of key raw materials that could not be passed on to the customer in the consumer and industrial lawn businesses. The professional lawn business and the cob-based businesses did experience increases in gross profit.
Gross profit in the Rail Group decreased $1.0 million, or 25%. This was due primarily to a $1.0 million non-cash charge to recognize the lower value of certain railcars available for sale.
Gross profit in the Retail Group decreased $0.5 million, or 2%, from the first half of 2000. Margins were relatively unchanged but the lower sales resulted in the gross profit decrease.
Included in the Company’s first half 2000 gross profit is $1.5 million from the first quarter operations of Tireman.
The 2001 first half includes a nonrecurring gain of $0.3 million related to an insurance settlement at its Albion, Michigan facility. The 2000 first half includes a nonrecurring gain of $0.9 million related to Tireman divestiture.
Operating, administrative and general expenses for the first six months of 2001 totaled $68.8 million, a $3.1 million, or 5%, increase from the first six months of 2000. The increase relates primarily to the additional costs of the ProTurf® product line in the Processing Group and inflationary increases offset by expenses no longer incurred for the operations of Tireman. The first six months of 2001 includes severance pay of $.8 million for structural changes made in 2001. Full-time employees decreased slightly (less than 1%) from 2000.
Interest expense for 2001 was $6.5 million, a $1.2 million, or 23%, increase from 2000. Average daily short-term borrowings increased 9% from the first half of 2000 but was more than offset by the decrease in the average short-term interest rate. The Company increased its outstanding long-term debt (including current maturities) 13% from June 30, 2000 to June 30, 2001 and this was the primary reason for the increased interest expense.
Pretax income of $9.8 million for the first half of 2001 was $2.1 million lower than the pretax income of $11.9 million in 2000. Income tax expense of $3.1 million was provided using the Company’s expected 2001 annual rate of 32.1%. The rate used for the first half 2000 tax provision was 33.5%. The actual 2000 tax rate was 29.8%.
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An adjustment to recognize the cumulative effect of adopting Financial Accounting Standards Board No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, (“SFAS 133”) was made in the first quarter of 2001. This adjustment of $.2 million was made to recognize the after-tax impact of valuing certain of the Company’s interest rate contracts to their fair value as of January 1, 2001.
As a result of the above, net income for the first half of 2001 decreased $1.5 million. The basic and diluted earnings per share of $0.88 for the first half of 2001 compares to basic and diluted earnings per share of $1.04 and $1.05, respectively, in the first half of 2000.
Liquidity and Capital Resources
The Company’s operations (before changes in operating assets and liabilities) provided cash of $13.8 million in the first half of 2001, a decrease of $0.1 million from the same period in 2000. Net working capital at June 30, 2001 was $61.7 million, an increase of $6.4 million and $15.1 million from December 31, 2000 and June 30, 2000, respectively.
The Company has significant short-term lines of credit available to finance working capital, primarily inventories and accounts receivable. Lines of credit available at June 30, 2001 were $150.0 million. The Company had drawn $50.3 million on its short-term lines of credit at June 30, 2001. Peak short-term borrowing for the six months to date was $125.0 million on March 14, 2001. 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 cash needs and the market strategies of grain customers.
The Company utilizes interest rate contracts to manage a portion of its interest rate risk on both its short- and long-term debt and lease commitments. At June 30, 2001, the Company owned a long interest rate swap that converts variable-rate debt to fixed-rate debt. The Company also holds various open short-term and long-term interest rate caps; the market value (less than $0.1 million) is included in other assets. Finally, the Company has moved the unamortized values of its long-term closed interest rate caps and locks to other comprehensive income consistent with the SFAS 133 adoption.
A quarterly cash dividend of $0.065 per common share was paid in each of the first and second quarters of 2001. A cash dividend of $0.065 per common share was declared on July 2, 2001 and was paid on July 23, 2001. Cash dividends of $0.06 per common share were paid quarterly in 2000. The Company made income tax payments of $0.5 million in the first six months and expects to make payments totaling approximately $3.4 million for the remainder of 2001. During the first six months of 2001, the Company repurchased 165.5 thousand of its common shares on the open market at an average price of $8.38 per share and issued approximately 54 thousand shares to employees under its share compensation plans.
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Total capital spending for 2001 is expected to approximate $14.6 million and includes $1.4 million for purchase options on railcars, $1.8 million for improvements to existing and additional storage in the Agriculture Group and $0.5 million for a dryer in the Agriculture Group. The remaining amount of $10.9 million will be spent on numerous assets and projects; no single such project is expected to cost more than $0.3 million. The Company also expects to spend up to $6.0 million for the purchase of additional railcars that may then be sold, financed off-balance sheet or capitalized.
Certain of the Company’s long-term debt are secured by first mortgages on various facilities or are collateralized by railcar assets. In addition, some of the long-term borrowings include provisions that impose minimum levels of working capital and equity, impose limitations on additional debt and require that grain inventory positions be substantially hedged. The Company was in compliance with all of these provisions at June 30, 2001.
The fact that grain inventories are readily marketable and the availability of short-term lines of credit enhance the Company’s liquidity. In the opinion of management, the Company’s liquidity is adequate to meet short-term and long-term needs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
Commodity Prices
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. The market value of exchange-traded futures contracts used for hedging has a high but not perfect correlation to the underlying market value of grain inventories and related purchase and sales contracts. The less correlated portion of inventory and purchase and sale contract market value (known as basis) is much less volatile than that of exchange-traded futures and tends to follow historical patterns. The Company manages this less volatile risk using its daily grain position report to constantly monitor its position relative to price changes in the market. 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
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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 (exclusive of basis risk). The Company’s daily net commodity position consists of inventories, related purchase and sale contracts and exchange-traded contracts. The fair value of the 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:
Interest Rates
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. In addition, the Company has off-balance sheet interest rate contracts established as hedges. The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:
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,” “will” 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
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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.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of The Andersons, Inc. was held on April 26, 2001 to elect twelve directors and to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors. Results of the voting follow:
Item 6. Exhibits and Reports on Form 8-K
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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.
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