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 March 31, 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 7,372,700 Common shares outstanding, no par value, at May 1, 2001.
THE ANDERSONS, INC.
INDEX
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Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc
See notes to condensed consolidated financial statements
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The Andersons, Inc.
See notes to condensed consolidated financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Comparison of the three months ended March 31, 2001 with the three months ended March 31, 2000:
Sales and merchandising revenues for the three months ended March 31, 2001 totaled $220.2 million, an increase of $15.6 million, or 8%, from the first quarter of 2000. Sales in the Agriculture Group were up $10.1 million, or 9%. Grain sales were up $9.3 million, or 11%, due to a 14% increase in the volume of bushels sold partially offset by a 2% decrease in the weighted average price per bushel sold. Fertilizer sales were up $0.7 million or 2% due to an 8% increase in the weighted average price per ton sold partially offset by a 5% reduction in volume. Merchandising revenues in the Agriculture Group were up $2.4 million, or 27%, due primarily to basis appreciation of the grain inventories. Storage income dropped from the first quarter of 2000 levels, but was still a significant portion of the merchandising revenues. Grain inventories on hand at March 31, 2001 were 62.6 million bushels, of which 18 million bushels were stored for others. This compares to 66.8 bushels on hand at March 31, 2000, of which 30 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 $6.8 million, or 19% increase in sales. The majority of this increase, or $6.4 million, was in the professional business of the lawn fertilizer division and represents a 40% increase in tons sold resulting primarily from the addition of the U.S. ProTurf® product line acquired from The Scotts Company on May 31, 2000. The Processing Group realized a 13% increase in the average price per ton, primarily related to this same product line acquisition. The lawn consumer business experienced a modest sales increase while the lawn industrial business was down 7% on lower volume. The cob-based businesses experienced a 16% increase in sales due to improvements in both volume and price.
The Rail Group had a $1.5 million, or 23%, increase in sales. The Rail Group completed sales of railcars totaling $1.9 million in the first quarter of 2001 as compared to no sales completed in the first quarter of 2000. Shop sales and lease income were down due to general market conditions.
The Retail Group had a $2.7 million, or 8%, decrease in sales in the first quarter of 2001 when compared to the first quarter of 2000. All but one of the stores experienced decreases which resulted from high cold-weather sales in January 2000 and delayed spring sales in March 2001. Weather in March 2000 was very mild and allowed the Retail Group to get an early start on the spring selling season. This weather pattern was not repeated in 2001.
The Company completed the sale of its interest in The Andersons – Tireman Auto Centers (“Tireman”) on March 31, 2000. Included in the first quarter 2000 sales for the Company are Tireman sales of $2.5 million.
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Gross profit for 2001 totaled $35.1 million, an increase of less than 1%. The Agriculture Group had a $2.2 million, or 13%, increase resulting primarily from increases in merchandising revenues in the grain division. The wholesale fertilizer division also experienced an increase in gross profit while farm center division gross profit was down slightly.
Gross profit for the Processing Group increased $0.1 million, or 1%. 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 business did experience increases in gross profit.
Gross profit in the Rail Group decreased $0.1 million, or 4%. This was due primarily to the decrease in demand for railcars and resulted in reduced margins on both lease transactions and outright sales.
Gross profit in the Retail Group decreased $0.6 million, or 7%, from the first quarter of 2000. Margins were relatively unchanged but the decrease in sales resulted in the gross profit drop.
Included in the Company’s first quarter 2000 gross profit is $1.5 million from the first quarter operations of Tireman.
The 2001 first quarter includes a nonrecurring gain of $0.3 million related to an insurance settlement at its Albion, Michigan facility. The 2000 first quarter includes a nonrecurring gain of $0.9 million related to Tireman divestiture.
Operating, administrative and general expenses for 2001 totaled $33.3 million, a $0.9 million, or 3%, increase from the first quarter 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. Full-time employees increased 2% from the first quarter of 2000, with most of the growth occurring in the Processing Group due to the ProTurf® product line acquisition.
Interest expense for 2001 was $3.6 million, a $0.9 million, or 35%, increase from 2000. Average daily short-term borrowings increased 18% from the first quarter of 2000 while the average daily short-term interest rate increased only slightly from 6.45% for the first quarter of 2000 to 6.48% for the first quarter of 2001. In addition, the Company increased its outstanding long-term debt (including current maturities) 14% from March 31, 2000 to March 31, 2001.
The pretax loss of $0.9 million for the first quarter of 2001 was $2.7 million lower than the pretax income of $1.8 million in 2000. Included in these results is a non-recurring gain in the first quarter of 2001 of $0.3 million from an insurance settlement
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and a $0.9 million non-recurring gain in the first quarter of 2000 from the sale of its Tireman interest. An income tax benefit of $0.3 million was provided using the Company’s expected 2001 annual rate of 32.1%. The rate used for the first quarter 2000 expense provision was 33.5%. The actual 2000 tax rate was 29.8%.
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 quarter of 2001 decreased $2.0 million. The basic and diluted loss per share of $0.11 for the first quarter of 2001 compares to a basic and diluted earnings per share of $0.16 in the first quarter of 2000.
Liquidity and Capital Resources
The Company’s operations (before changes in operating assets and liabilities) provided cash of $2.5 million in the first quarter of 2001, a decrease of $.1 million from the same quarter of 2000. Net working capital at March 31, 2001 was $50.1 million, a decrease of $5.1 million and $1.2 million from December 31, 2000 and March 31, 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 March 31, 2001 were $175.0 million. The Company had drawn $114.6 million on its short-term lines of credit at March 31, 2001. Peak short-term borrowing in the quarter was $125.0 million on March 15, 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 March 31, 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 to other comprehensive income consistent with the SFAS 133 adoption.
A quarterly cash dividend of $.065 per common share was paid in the first quarter of 2001. A cash dividend of $.065 per common share was declared on April 2, 2001 and was paid on April 23, 2001. Cash dividends of $0.06 per common share were paid quarterly in 2000. The Company made income tax payments of $0.1 million in the first quarter and expects to make payments totaling approximately $3.1 million for the remainder of 2001. During the first quarter of 2001, the Company repurchased
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approximately 20 thousand of its common shares on the open market at an average price of $8.49 per share and issued approximately 54 thousand shares to employees under its share compensation plans.
Total capital spending for 2001 is expected to approximate $16.0 million and includes $1.5 million for purchase options on railcars, $2.0 million for improvements to existing and additional storage in the Agriculture Group, $0.5 million for a dryer in the Agriculture Group, $1.7 million for Processing Group manufacturing and warehouse improvements and $0.4 million for facility improvements in the Rail Group. The remaining amount of $9.9 million will be spent on numerous assets and projects; no single such project is expected to cost more than $0.3 million. In addition, the Company expects to spend up to $5.3 million for the purchase of railcars that may then be sold, financed off-balance sheet or capitalized.
Certain of the Company’s long-term debt is secured by first mortgages on various facilities or is 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 March 31, 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
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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 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 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,” “will” and similar expressions identify forward-looking statements. Readers are cautioned not to place
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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.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
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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