SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the transition period from to
Commission file number 000-20557
THE ANDERSONS, INC.
(419) 893-5050
(Former name, former address and former fiscal year,
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 7,421,096 Common shares outstanding, no par value, at November 1, 2000.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See notes to condensed consolidated financial statements.
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See notes to condensed consolidated financial statements
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Comparison of the three months ended September 30, 2000 with the three months ended September 30, 1999:
Sales and merchandising revenues for the three months ended September 30, 2000 totaled $169.5 million, a decrease of $5.1 million, or 3%, from 1999. Sales in the Agriculture Segment were down $6.8 million, or 7%. Grain sales were down $12.9 million on a 4% increase in volume offset by a 19% decrease in the average price per bushel sold. Fertilizer sales were up $6.1 million with a $5.6 million, or 45%, increase in the wholesale division and a $.5 million, or 11%, increase in the farm center division. Fertilizer tons sold increased significantly, however, the average price per fertilizer ton sold was down 6%.Merchandising revenues for the Agriculture Group were up $.9 million, or 15%, due primarily to increases in income from storing grain and fertilizer for others, increased service income in the farm centers and favorable basis movement in the grain business. Structural changes are in process in the Agriculture Segment to better utilize the farm center assets by more closely tying them in with either the grain or wholesale fertilizer businesses. These changes have resulted in the elimination of the Vice President and General Manager, Farm Center Division.
The Rail Segment had a sales decrease of $6.4 million, or 49%. Total revenues in the railcar repair and fabrication shops were up, while railcar sales and financings completed during the third quarter of 2000 were down $7.6 million, or 95%. Gross lease fleet income was up $1.0 million or 26%. This fleet income growth was due to additional railcars and locomotives controlled and in service as compared to 1999. A cyclical downturn in railcars, primarily grain covered hopper cars, reduced the Group’s long-term lease placements and outright sales during 2000.
The Processing Segment had a $8.6 million, or 66%, increase in sales. Most of this increase was attributable to increased volumes and average price per ton sold in the professional lawn fertilizer business. These significant increases in professional lawn result from the purchased Pro Turf inventory and intangible assets from The Scotts Company, which was closed on May 31, 2000. The cob-based businesses experienced flat volume along with a 6% increase in the average price per ton sold. There is one additional lawn fertilizer blending facility, located in Montgomery, Alabama, being operated in 2000 when compared to 1999.
The Retail Segment experienced a $1.3 million, or 3%, increase in sales, with five of the six stores showing increases. A portion of this increase is due to delayed sales from the unusually wet weather in the second quarter.
Gross profit for the third quarter of 2000 totaled $37.3 million, an increase of $2.6 million, or 8%, over the third quarter of 1999. The Agriculture Segment had a gross profit increase of $.8 million, or 6%, due to the increase in merchandising revenues described previously and additional wholesale fertilizer volume and margin per ton, partially offset by decreases in gross profit on sales in grain and the farm centers.
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Gross profit in the Rail Segment increased $.4 million, or 16%, from the prior year. This was due to the increase in fleet income and better performance in the railcar and fabrication shops.
Gross profit for the Processing Segment increased $2.5 million, or 58%, from the third quarter of 1999. This increase resulted from the additional professional tons and increased margin per ton generated from the ProTurf fertilizer businesses discussed previously. The remaining lawn fertilizer and cob-based businesses experienced flat or decreased gross profit when compared to the third quarter of 1999.
Gross profit in the Retail Segment increased by $.5 million, or 4%, from the third quarter of 1999. This was due primarily to the increased sales noted previously, and a slight increase in the gross margin percentage.
Operating, administrative and general expenses for the third quarter of 2000 totaled $37.7 million, a $1.8 million, or 5%, increase from the third quarter of 1999. Full time employees increased 4% from the third quarter of 1999 due to acquisitions and added capacity in the Processing Segment. The majority of the increase reflects planned growth in the Processing Segment, offset by the reduction of expenses related to the sale of the investment in the Andersons-Tireman joint venture at the end of the first quarter.
Interest expense for the third quarter of 2000 was $3 million, a $.4 million, or 16%, increase from the third quarter of 1999. Average quarterly short-term borrowings were flat when comparing 2000 to 1999, while the effective short-term interest rate increased by nearly one and one half percentage points.
The pretax loss of $3.4 million was $.3 million, or 10%, better than the 1999 third quarter pretax loss of $3.7 million. An income tax credit has been provided at 33.5%, the Company’s expected effective tax rate for 2000.
The net loss of $2.2 million was $.3 million, or 11%, better than the 1999 third quarter net loss of $2.5 million. The basic and diluted loss per share was $.30, a $.02 improvement, from the 1999 third quarter loss per share.
Comparison of the nine months ended September 30, 2000 with the nine months ended September 30, 1999:
Sales and merchandising revenues for the nine months ended September 30, 2000 totaled $623.7 million, a decrease of $9.4 million, or 1%, from 1999. Sales in the Agriculture Segment were down $18.2 million, or 5%. Grain sales were down $22.3 million with a 5% decrease in volume and a 4% decrease in the average price per bushel sold. Fertilizer sales were up $4.1 million with a $5 million increase in the wholesale division and a $.9 million decrease in the farm center division. Average price per fertilizer ton sold was down in both divisions while the wholesale division had a 19% increase in volume and the farm centers experienced a 2% volume increase. Merchandising revenues for the Agriculture Group were up $4.8 million, or 22%, due primarily to increases in income from storing grain and fertilizer for others and
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favorable basis movement in the grain business. This was offset by a decrease in drying and mixing income due to the generally good quality of grain received from the last harvest.
The Rail Segment had a sales decrease of $5.7 million, or 20%. Total revenues in the railcar repair and fabrication shops were flat. Railcar sales and financings completed during 2000 were down $9.7 million, or 73%, however lease fleet income was up $4 million or 35%. This fleet income growth was due to additional railcars and locomotives controlled and in service as compared to 1999. A cyclical downturn in railcars, primarily grain covered hopper cars, reduced the Group’s long-term lease placements and outright sales during 2000.
The Processing Segment had a $15.6 million, or 22%, increase in sales. All of this increase was attributable to increased volumes and price per ton sold in the lawn fertilizer division. The cob-based businesses experienced a reduction of volume partially offset by a 5% increase in the average price per ton sold. The increased sales reflect four months of activity of the ProTurf product line, formerly owned by The Scotts Company.
The Retail Segment experienced flat sales, with mixed results — some stores showing increases and other stores decreases. The lack of revenue growth is partially attributable to increased competition and heavy road construction in certain markets.
Gross profit for the first nine months of 2000 totaled $133.5 million, an increase of $8.1 million, or 6%, from 1999. Included in Other Income is a $.9 million gain on the sale of the Company’s investment in The Andersons-Tireman joint venture. The Agriculture Segment had a gross profit increase of $4.6 million, or 9%, due primarily to the increase in merchandising revenues described previously and additional wholesale fertilizer volume and margin per ton, offset by decreases in gross profit on sales in grain and the farm centers.
Gross profit in the Rail Segment was unchanged from the prior year. This was due to reduced railcar sales and a soft lease market for the segment’s primary car type — the covered hopper was mostly offset by the increased fleet income.
Gross profit for the Processing Segment increased $5.3 million, or 24%, from 1999. This increase resulted from a 21% increase in gross profit per ton and an 11% increase in lawn fertilizer volume, again resulting primarily from the purchase of the ProTurf product line.
Gross profit in the Retail Segment for the first nine months of 2000 increased $.5 million, or 1%, when compared to 1999. This was due primarily a slightly improved gross margin percentage.
Operating, administrative and general expenses for the first nine months of 2000 totaled $116.6 million, a $5.4 million, or 5%, increase from 1999. Full time employees increased 4% from 1999 due to acquisitions and added capacity in the Processing Segment. The increase includes a $1.7 million increase in labor and benefits and a $3.5 million increase in occupancy expenses. The Processing Segment accounted for the majority of this increase.
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Interest expense for the first nine months of 2000 was $8.2 million, a $1.6 million, or 23%, increase from 1999. Average short-term borrowings increased 9% when comparing 2000 to 1999 and the effective short-term interest rate increased by more than a full percentage point.
Income before income taxes of $8.6 million increased 15% from the 1999 pretax income of $7.5 million. Income tax expense has been provided at 33.5%, the Company’s expected effective tax rate for 2000.
Net income of $5.7 million increased $.7 million from the 1999 net income of $5 million. Basic and diluted earnings per share were $.76 and $.75, respectively. This represents $.14 increases from the 1999 basic and diluted earnings per share.
Liquidity and Capital Resources
The Company’s operations (before changes in working capital) provided cash of $15.8 million in the first nine months of 2000, a decrease of $.9 million from the first nine months of 1999. Working capital at September 30, 2000 was $55.6 million, a $12.3 million and $8 million decrease from December 31, 1999 and September 30, 1999, respectively.
The Company utilizes its short-term lines of credit to finance working capital, primarily inventories and accounts receivable. Lines of credit available on September 30, 2000 were $155 million. The Company had drawn $88.6 million on its short-term lines of credit at September 30, 2000, an increase of $43.6 million and a decrease of $6.4 million from December 31, 1999 and September 30, 1999, respectively. The Company’s peak short-term borrowing occurred on March 23, 2000 and amounted to $113.8 million. 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 market strategies of grain customers.
A quarterly cash dividend of $0.06 per common share was paid in each of the first three quarters of 2000. A cash dividend of $0.06 per common share was declared on October 2, 2000 and was paid on October 23, 2000. Cash dividends of $0.05 per common share were paid quarterly in 1999. The Company made income tax payments of $3.3 million in the first nine months of 2000 and expects to make payments totaling approximately $.1 million for the remainder of the year. Also, in the first nine months, the Company issued 62,740 shares to its employees and directors under stock compensation plans and purchased 390,100 of its common shares on the open market at an average of $8.16 per share. The Company also issued 68,934 common shares to complete its 1998 acquisition of Crop and Soil, Inc.
Total capital expenditures for 2000 are expected to approximate $24 million and include $6.2 million for additional facilities and businesses in the Processing Segment, $2.8 million for the replacement of wholesale fertilizer and grain storage assets, $5.2 million for the acquisition of additional railcars, and $1.2 million for information systems hardware and software. Funding for these expenditures is expected to come from cash generated from operations and additional debt. Capital expenditures may be curtailed if cash generated from operations is less than expected.
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Certain of the Company’s long-term debt is secured by first mortgages on various facilities and/or collateralized by railcars owned by the Company. 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
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
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.
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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
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:
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Interest
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 2000.
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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