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 September 30, 1996
[ ] 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 8,430,286 Common Shares outstanding, no par value,
at October 31, 1996.
THE ANDERSONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three months and nine months ended September
30, 1996 and 1995 6
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE ANDERSONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (IN THOUSANDS)
September 30 December 31
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 4,233 $ 5,052
Accounts Receivable:
Trade accounts - net 69,876 68,362
Margin deposits 327 20,753
70,203 89,115
Inventories:
Grain 48,323 186,989
Agricultural fertilizer and supplies 23,401 19,602
Merchandise 34,627 29,909
Lawn and corn cob products 11,704 21,729
Other 12,887 11,701
130,942 269,930
Deferred income taxes 5,233 -
Prepaid expenses 2,605 4,314
TOTAL CURRENT ASSETS 213,216 368,411
OTHER ASSETS
Investments in and advances to affiliates 795 670
Notes receivable (net) and other assets 4,771 4,575
TOTAL OTHER ASSETS 5,566 5,245
PROPERTY, PLANT AND EQUIPMENT
Land 11,198 11,179
Land improvements and leasehold
improvements 24,075 23,926
Buildings and storage facilities 79,762 78,210
Machinery and equipment 99,023 97,970
Construction in progress 2,306 972
216,364 212,257
Less allowances for depreciation and
amortization 134,574 130,395
NET PROPERTY, PLANT AND EQUIPMENT 81,790 81,862
$ 300,572 $ 455,518
NOTE: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
THE ANDERSONS, INC.
CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED) (IN THOUSANDS)
September 30 December 31
1996 1995
CURRENT LIABILITIES
Notes payable $ 58,655 $ 120,267
Accounts payable for grain 29,791 94,084
Other accounts payable 46,172 72,777
Accrued expenses 13,192 14,357
Current maturities of long-term debt 6,262 8,029
TOTAL CURRENT LIABILITIES 154,072 309,514
PENSION AND POSTRETIREMENT BENEFITS 3,221 2,929
LONG-TERM DEBT
Note payable, 7.84%, payable quarterly
($75 thousand through 7/97, $398
thousand thereafter), due 2004 14,325 14,550
Note payable, variable rate (6.56% at
9/30/96) payable $336 thousand
quarterly beginning 10/97, due 2004 9,418 9,418
Notes payable relating to revolving
credit facility, variable rate (6.15%
at 9/30/96), due 1998 20,000 20,000
Other notes payable 1,030 1,101
Industrial development revenue bonds:
6.5%, sinking fund paid annually, due 1999 3,700 3,700
Variable rate (5.5275% at 9/30/96),
due in annual installments of $881
thousand through 2004 6,351 7,233
Variable rate (4.35% at 9/30/96), due 2025 3,100 3,100
Debenture bonds:
9.2% to 10%, due 1996 899 5,868
6.5% to 8%, due 1997 to 1999 5,804 5,815
10% due 1997 and 1998 2,107 2,117
7% to 10% due 2000 and 2001 2,843 2,704
7.5% to 8.7%, due 2002 to 2004 5,684 5,689
7.7% due 2006 91 -
Other bonds, 4% to 9.6% 487 873
75,839 82,168
Less current maturities of long-term debt 6,262 8,029
TOTAL LONG-TERM DEBT 69,577 74,139
THE ANDERSONS
CONSOLIDATED BALANCE SHEETS - (continued)
(UNAUDITED) (IN THOUSANDS)
September 30 December 31
1996 1995
DEFERRED INCOME TAXES 4,563 675
MINORITY INTEREST 814 1,001
SHAREHOLDERS' EQUITY:
Common stock (25,000,000 shares
authorized, stated value $.01 per
share, 8,430,286 outstanding) 84 84
Additional paid-in capital 66,659 66,448
Retained earnings 1,543 699
Unrealized gain on available-for-sale
securities (net of tax) 39 29
TOTAL SHAREHOLDERS' EQUITY 68,325 67,260
$ 300,572 $ 455,518
NOTE: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date. Shareholders' equity at
December 31, 1995 reflects the effects of the merger consummated on
January 2, 1996 of The Andersons, a limited partnership, into The
Andersons Management Corp., the corporate general partner.
See notes to consolidated financial statements.
THE ANDERSONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
Grain sales and revenues $ 135,328 $ 190,300 $ 490,386 $ 427,487
Fertilizer, retail and
other sales 91,261 92,814 336,742 323,876
Other income 1,062 664 2,465 2,378
227,651 283,778 829,593 753,741
Cost of grain sales and revenue 127,996 181,204 463,527 402,319
Cost of fertilizer, retail and
other sales 68,546 71,478 253,245 245,847
196,542 252,682 716,772 648,166
GROSS PROFIT 31,109 31,096 112,821 105,575
Operating, administrative and
general expenses 30,531 30,988 94,654 94,036
Provision for bad debts 995 287 3,718 753
Interest expense 2,592 3,300 11,754 9,617
34,118 34,575 110,126 104,406
INCOME (LOSS) BEFORE INCOME TAXES (3,009) (3,479) 2,695 1,169
Income tax provision (benefit)
(Note B) (1,203) (63) 1,851 51
NET INCOME (LOSS) $ (1,806) (3,416) $ 844 1,118
Pro forma income taxes (benefit)
(Note B) (1,390) 332
Pro forma net income (loss) $ (2,026) $ 786
Earnings (loss) per share
(Note B) $ (0.21) $ (0.24) $ 0.10 $ 0.09
Average shares outstanding 8,430 8,430 8,430 8,430
See notes to consolidated financial statements.
THE ANDERSONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
Nine Months
Ended September 30
1996 1995
OPERATING ACTIVITIES
Net income $ 844 $ 1,118
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,311 6,847
Minority interest in net loss of
subsidiaries (131) (20)
Payments to minority interests (75) (143)
Provision for losses on accounts
and notes receivable 3,369 620
Gain on sale of property, plant
and equipment (194) (298)
Deferred income taxes (1,410) -
Changes in operating assets and liabilities:
Accounts receivable 15,544 (33,594)
Inventories 138,988 26,820
Prepaid expenses and other assets 1,609 1,084
Accounts payable for grain (64,294) (46,655)
Other accounts payable and accrued
expenses (27,578) 1,860
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 73,983 (42,361)
INVESTING ACTIVITIES
Purchases of property, plant, equipment (7,587) (9,349)
Proceeds from sale of property, plant
and equipment 514 490
Business acquisition - net of cash - (1,426)
Purchases of investments - (81)
Payments received from affiliates - 850
NET CASH USED IN INVESTING ACTIVITIES (7,073) (9,516)
FINANCING ACTIVITIES
Net increase (decrease) in short-term
borrowings (61,612) 48,619
Proceeds from issuance of long-term debt 80,222 36,519
Payments of long-term debt (86,275) (32,175)
Payments to partners and other deductions
from capital accounts (64) (5,259)
Capital invested by partners and shareholders - 1,350
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (67,729) 49,054
DECREASE IN CASH AND CASH EQUIVALENTS (819) (2,823)
Cash and cash equivalents at beginning of year 5,052 6,923
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,233 $ 4,100
See notes to consolidated financial statements.
THE ANDERSONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED) (IN THOUSANDS)
Nine Months
Ended September 30
1996 1995
Noncash investing and financing activities:
Exchange of fixed assets for investment in LLC $ 513
Exchange of employee bonds for common shares $ 276
Acquisition of business:
Working capital - other than cash $ 90
Property, plant and equipment (net) 4,095
Short and long-term debt assumed (2,070)
Other long-term liabilities assumed (689)
Net cash expended $ 1,426
See notes to consolidated financial statements.
THE ANDERSONS, INC.
NOTES TO 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 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, 1995.
Note B - Prior to 1996, the majority of the Company's operations were
conducted as a partnership and the income from those operations was
included in the individual tax returns of its partners. Since
January 2, 1996, the date that The Andersons (the "Partnership")
merged into its corporate general partner, income from operations
is taxed at the corporate level. Prior year financial statements
were restated to reflect the effects of the merger. The pro forma
provision for income taxes and pro forma earnings per common share
for 1995 are presented for comparison purposes.
In conjunction with the merger, the Company recorded the deferred
tax assets and liabilities of the partnership that had not
previously been recognized. The net excess of deferred tax
liabilities over deferred tax assets ($812,000) was recorded in the
first quarter and included as a component of the provision for
income taxes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of the three months ended September 30, 1996 with the three months
ended September 30, 1995:
Sales and revenues for the three months ended September 30, 1996 totaled
$227.7 million, a decrease of $56.1 million or 20% from the 1995 third quarter
sales and revenue of $283.8 million. The Agriculture Group accounted for all
of the decrease, and the grain division in particular, had a decrease in grain
sales and revenues of $55 million. Grain shipment volume was approximately
half that of the third quarter of 1995. This was partially offset by a 46%
increase in average price per bushel. The majority of the volume decrease
resulted from a poor 1996 wheat harvest (as compared to 1995's record harvest)
and a smaller corn inventory carried into the third quarter due to 1996
sales occurring earlier in the calendar year than in 1995. Wholesale
fertilizer also experienced decreased sales of $5.6 million, or 19%, on volume
decreases, while the retail agricultural business experienced increases in
sales of $1.6 million.
The Retail Group experienced a 8.9% increase in sales, with mixed
results. The Toledo area and Lima stores posted increases while the Columbus
stores continue to feel the impact of strong competition in that market. The
Toledo area stores have benefited from the closure of some competitors and
remodeling of two of the three Toledo area stores resulting in 18.1% higher
sales in the third quarter of 1996 as compared to the third quarter of 1995.
New competition is expected in the Toledo market in the first quarter of 1997.
Sales and revenue in the Business Development Group decreased $1.2
million with the lawn and industrial products businesses (the Processing
Division of the Business Development Group) showing a decrease of $0.3 million
or 2%. The rail business had the largest decrease within the Group with a 29%
or $1 million decrease in sales due to fewer car sales in the 3rd quarter of
1996 as compared to 1995.
Gross profit for the three months ended September 30, 1996 totaled
$31.1 million, unchanged from the 1995 third quarter gross profit. The
Agriculture Group had a $1.6 million decrease, all of which occurred in the
grain division. The decrease in grain sales and revenues, due to the
significant volume decreases, also resulted in a decrease in gross profit.
Gross profit on sales in the Retail Group was up $1.1 million or 9.9%. All
major businesses in the Business Development Group showed comparable or
slightly favorable gross profit results with the rail business posting a 17%
or $0.2 million increase due to higher fleet income and the lawn and
industrial products divisions posting no significant changes. In total, the
Business Development Group had a gross profit increase of $0.2 million or
2.5%.
Operating, administrative and general expenses for the three months
ended June 30, 1996 totaled $30.5 million, a slight decrease from the 1995
third quarter expense of $31 million.
The provision for bad debts increased $0.7 million from $0.3 million in
the third quarter of 1995 to $1 million for the third quarter of 1996. The
additional provision for bad debts resulted from further analysis of grain
contract receivables as harvest began and as specific customer grain shortages
became evident during the quarter. As of October 8, 1996, 84% of all forward
purchase contracts were for delivery in the 1996 harvest period which began in
September 1996. The Company is working with each grain producer to ensure
contract delivery and subsequent payment of accounts receivable. However, the
Company does anticipate some additional amounts will be written off after
completion of the 1996 harvest and has recorded a provision for bad debts for
them in the third quarter of 1996.
Interest expense for the three months ended September 30, 1996 totaled
$2.6 million, a decrease of $0.7 million or 21% from the 1995 third quarter
expense of $3.3 million due to lower average borrowings for the quarter.
Short-term borrowings, used to finance working capital, were $59 million at
September 30, 1996 as compared to $100 million at September 30, 1995.
The loss before income taxes for the three months ended September 30,
1996 totaled $3 million, an improvement of $0.5 million or 14% from the 1995
third quarter loss of $3.5 million. Net income also improved from a loss of
$2 million in the three months ended September 30, 1995 to a loss of $1.8
million for the same period in 1996.
Comparison of the nine months ended September 30, 1996 with the nine months
ended September 30, 1995:
Sales and revenues for the nine months ended September 30, 1996 totaled
$829.6 million, an increase of $75.9 million or 10% from the 1995 first nine
month's sales and revenue of $753.7 million. The Agriculture Group
contributed the majority of the increase, with $62.9 million increase in grain
sales and revenues. While grain shipment volume decreased 22% from the first
nine months of 1995, a 46% increase in the average price of bushels sold,
reflecting sales made at the high market prices earlier in the year, more than
offset the volume decrease. Sales of wholesale fertilizer decreased $3.1
million, or 3%, on volume decreases, while the retail agricultural business
experienced increases in sales of $0.4 million.
The Retail Group experienced a 5.7% increase in sales, with mixed
results. The Toledo area and Lima stores posted increases while the Columbus
stores continue to feel the impact of strong competition in that market. The
Toledo area stores have benefited from the closure of some competitors and
remodeling of two of the three stores resulting in 13% higher sales in the
first nine months of 1996 when compared to the same period in 1995. New
competition is expected in the Toledo market in the first quarter of 1997.
The Business Development Group contributed sales and revenue increases of
$8.9 million with all major businesses showing improvement. The lawn products
business had the majority of the Group's increase with a 15% or $6.5 million
increase in sales on higher volume and increased prices.
Gross profit for the nine months ended September 30, 1996 totaled $112.8
million, an increase of $7.2 million or 6.9% from the 1995 first nine month's
gross profit of $105.6 million. The Agriculture Group contributed $2.5
million of the increase, with $1.7 originating in the grain division and $0.8
in wholesale and retail fertilizer. Gross profit on sales in the Retail Group
was up $1.6 million or 4.6%. All major businesses in the Business Development
Group showed favorable results with the lawn products business posting a 21%
or $2.4 million increase, the railcar business up 17% or $0.5 million, the
industrial products business up 1.9% or $0.1 million and the automotive
service shop venture up 15% or $0.5 million. In total, the Business
Development Group had a gross profit increase of $3.1 million or 12%.
Operating, administrative and general expenses for the nine months
ended September 30, 1996 totaled $94.7 million, a slight increase from the
1995 expense of $94 million.
The provision for bad debts increased $2.9 million from $0.8 million in
1995 to $3.7 million for the nine months ended September 30, 1996. The
combination of high cash prices and lower than average yields in 1995 and the
expectation of lower than average yields in 1996 in certain of the Company's
markets, have caused the Company to examine closely its grain producers'
ability to perform on their grain contracts. The Company has taken steps to
minimize its exposure to credit losses in accordance with accepted grain trade
practices, including, among other things, limiting a producer's percentage of
production that can be contracted for both current and future crop years. As
of October 8, 1996, 84% of all forward purchase contracts were for delivery in
the 1996 harvest period. In addition to reserving for probable losses, the
Company is working with each grain producer to ensure contract delivery and
subsequent payment of accounts receivable. However, the Company does
anticipate some amounts will be written off after completion of the current
1996 harvest and has recorded a provision for bad debts for them in 1996.
Interest expense for the nine months ended September 30, 1996 totaled
$11.7 million, an increase of $2.1 million or 22% from the 1995 expense for
the same period of $9.6 million. Increased grain inventory values, because of
the high market prices in the first half of the year, required additional
short-term borrowings and resulted in increased interest expense for that time
period.
Income before income taxes for the nine months ended September 30, 1996
totaled $2.7 million, an increase of $1.5 million or 131% from the 1995 first
nine month's income of $1.2 million. Net income increased slightly for that
same period. Income tax expense for the first quarter of 1996 included a
charge of $0.8 million to establish deferred taxes on the conversion from a
partnership to a corporation.
Liquidity and Capital Resources
The Company's operations provided cash of $74 million in the first nine
months of 1996 as compared to using $42 million in cash in the first nine
months of 1995. The significant change in cash provided by operations is due
to the liquidation of a portion of the Company's grain inventories. The
Company has significant short-term lines of credit available to finance
working capital, primarily inventories and accounts receivable. Lines of
credit available at August 1, 1996 were $385 million, of which $59 million was
used at September 30, 1996. Typically, the Company's highest borrowing occurs
in the spring due to seasonal inventory requirements in several of the
Company's businesses, credit sales in the lawn products and agricultural
fertilizer business and a customary reduction in grain payables due to
customer cash needs and market strategies.
The final payments to former partners electing not to participate in the
merger were made in the first quarter of 1996. No cash dividends have been
declared since the merger, however the Company's Board of Directors reviews
this dividend policy quarterly. The Company will be required to pay income
taxes at the corporate level beginning with 1996 income from operations. As
the majority of the income was previously earned in a partnership, corporate
taxes prior to 1996 were minimal and as such, the Company must only make tax
deposits at that level for 1996.
Total capital expenditures for 1996 are expected to approximate $13
million, including $2.5 million for renovations to the Maumee and Toledo
General Stores and $1 million for plant upgrades and improvements. Funding for
these expenditures is expected to come from cash generated from operations.
Capital expenditures can be, and in the past have been, 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. 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 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 and the Maumee and Toledo,
Ohio elevators serve as delivery points for Chicago Board of Trade contracts.
In the opinion of management, the Company's liquidity is adequate to meet
short-term and long-term needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company, like others in the agricultural industry, utilizes
different types of contracts with producers (including contracts commonly
referred to as "Hedged To-Arrive" or "HTA" contracts) to purchase grain. Some
producers have defaulted or threatened default on certain of these contracts,
arguing that their contracts are unenforceable. The Company believes that
this is due, in large part, to unprecedented high grain prices experienced
earlier this year. The Company currently is engaged in litigation with
several defaulting grain producers, including one purported class action
filed on May 16, 1996 in the United States District Court for the Northern
District of Illinois, Eastern Division, Case no. 96C2936, Harter, et. al., v.
Iowa Grain Company and The Andersons Investment Services Corp., d.b.a. The
Andersons, Inc., wherein enforceability of the delivery obligation under
certain grain contracts has been raised as an issue. The Harter lawsuit seeks
declaratory and injunctive relief and compensatory, exemplary and punitive
damages of an unspecified amount. The Court, in Harter, recently ordered
arbitration by the National Grain and Feed Association and dismissed Iowa
Grain Company as a defendant. The Company believes its grain contracts are
enforceable obligations and intends to enforce them. Although no assurance
can be given that the current litigation and proceedings will not result in
liability or loss, the Company continues to believe that it has valid claims
and defenses in the lawsuits and proceedings in which it is involved.
Pursuant to subpoenas duces tecum served by the Commodities Futures
Trading Commission (the "CFTC"), the Company has produced certain records and
the depositions of certain employees have been taken in the matter of "Certain
Transactions and Practices Among Grain Elevators, et. al., Involving Futures
Contracts."
In light of the Company's current and prior use of Hedged To-Arrive
contracts, related industry-wide litigation, and current conditions of the
industry as a whole, there can be no assurance that other litigation will not
be brought, that a class will not be certified or that other CFTC proceedings
will not be instituted. There currently is no reasonable basis to predict the
amount of future liability or loss, if any, that may arise from such
litigation or CFTC proceedings.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. There were no reports on Form 8-K for
the three months ended September 30, 1996.
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: November 13, 1996 By /s/Richard P. Anderson
Richard P. Anderson
Chairman of the Board and Chief Executive
Officer
Date: November 13, 1996 By /s/Richard R. George
Richard R. George
Vice President and Controller (Principal
Accounting Officer)