The Andersons, Inc. 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
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o |
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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 the registrant as specified in its charter
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OHIO
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34-1562374 |
(State of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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480 W. Dussel Drive, Maumee, Ohio
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43614 |
(Address of principal executive offices)
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(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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The registrant had approximately 18.1 million common shares outstanding, no par value, at April 30,
2008.
THE ANDERSONS, INC.
INDEX
2
Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
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March 31, |
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December 31, |
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March 31, |
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2008 |
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2007 |
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2007 |
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Current assets: |
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Cash and cash equivalents |
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$ |
34,765 |
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$ |
22,300 |
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$ |
27,449 |
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Restricted cash |
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3,689 |
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3,726 |
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3,774 |
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Accounts and notes receivable, net |
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177,947 |
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106,257 |
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122,880 |
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Margin deposits, net |
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65,932 |
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20,467 |
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46,894 |
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Inventories: |
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Grain |
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372,644 |
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376,739 |
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182,507 |
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Agricultural fertilizer and supplies |
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121,589 |
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63,325 |
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72,509 |
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Lawn and garden fertilizer and corncob products |
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27,492 |
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29,286 |
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24,895 |
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Railcar repair parts |
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3,382 |
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4,054 |
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3,340 |
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Retail merchandise |
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32,606 |
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29,182 |
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33,281 |
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Other |
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317 |
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318 |
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299 |
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558,030 |
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502,904 |
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316,831 |
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Commodity derivative assets current |
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283,417 |
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205,956 |
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74,959 |
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Railcars available for sale |
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1,888 |
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1,769 |
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4,756 |
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Deferred income taxes |
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3,612 |
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2,936 |
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|
852 |
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Prepaid expenses and other current assets |
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52,579 |
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38,576 |
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42,929 |
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Total current assets |
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1,181,859 |
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904,891 |
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641,324 |
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Other assets: |
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Pension asset |
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10,551 |
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10,714 |
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157 |
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Commodity derivative asset noncurrent |
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50,828 |
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29,458 |
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20,613 |
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Other assets and notes receivable, net |
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8,344 |
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7,892 |
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9,877 |
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Investments in and advances to affiliates |
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137,626 |
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118,912 |
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87,855 |
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207,349 |
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166,976 |
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118,502 |
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Railcar assets leased to others, net |
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172,142 |
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153,235 |
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133,980 |
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Property, plant and equipment: |
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Land |
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11,670 |
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11,670 |
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12,111 |
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Land improvements and leasehold improvements |
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35,851 |
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36,031 |
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33,510 |
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Buildings and storage facilities |
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111,003 |
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109,301 |
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106,811 |
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Machinery and equipment |
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138,721 |
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137,639 |
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132,427 |
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Software |
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8,631 |
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7,450 |
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7,293 |
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Construction in progress |
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3,553 |
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6,133 |
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7,373 |
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309,429 |
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308,224 |
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299,525 |
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Less allowances for depreciation and amortization |
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(209,237 |
) |
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(208,338 |
) |
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(202,973 |
) |
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100,192 |
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99,886 |
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96,552 |
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Total assets |
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$ |
1,661,542 |
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$ |
1,324,988 |
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$ |
990,358 |
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See notes to condensed consolidated financial statements
3
The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
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March 31, |
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December 31, |
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March 31, |
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2008 |
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2007 |
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2007 |
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Current liabilities: |
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Short-term borrowings |
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$ |
390,000 |
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$ |
245,500 |
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$ |
176,000 |
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Accounts payable for grain |
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67,331 |
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153,479 |
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36,890 |
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Other accounts payable |
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154,984 |
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105,016 |
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91,371 |
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Customer prepayments and deferred revenue |
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92,689 |
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38,735 |
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65,489 |
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Commodity derivative liabilities current |
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153,791 |
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122,488 |
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60,894 |
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Accrued expenses |
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24,270 |
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38,176 |
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25,606 |
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Current maturities of long-term debt non-recourse |
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13,681 |
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13,722 |
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13,390 |
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Current maturities of long-term debt |
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9,781 |
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10,096 |
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10,542 |
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Total current liabilities |
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906,527 |
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727,212 |
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480,182 |
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Deferred income and other long-term liabilities |
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4,858 |
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6,172 |
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4,199 |
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Commodity derivative liabilities noncurrent |
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8,734 |
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2,090 |
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25,655 |
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Employee benefit plan obligations |
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18,906 |
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18,705 |
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21,373 |
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Long-term debt non-recourse, less current maturities |
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51,667 |
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56,277 |
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67,973 |
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Long-term debt, less current maturities |
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279,348 |
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133,195 |
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85,848 |
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Deferred income taxes |
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25,655 |
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24,754 |
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13,455 |
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Total liabilities |
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1,295,695 |
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968,405 |
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698,685 |
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Minority interest |
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13,154 |
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12,219 |
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12,837 |
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Shareholders equity: |
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Common shares, without par value (25,000 shares
authorized; 19,198 shares issued and outstanding) |
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96 |
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96 |
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96 |
|
Preferred shares, without par value (1,000 shares
authorized; none issued) |
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Additional paid-in-capital |
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170,297 |
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168,286 |
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162,150 |
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Treasury shares (1,258; 1,492, and 1,567 shares at
3/31/08, 12/31/07 and 3/31/07, respectively; at
cost) |
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(16,414 |
) |
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(16,670 |
) |
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(16,271 |
) |
Accumulated other comprehensive loss |
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(7,555 |
) |
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(7,197 |
) |
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(11,080 |
) |
Retained earnings |
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206,269 |
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199,849 |
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|
143,941 |
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352,693 |
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344,364 |
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278,836 |
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Total liabilities, minority interest and
shareholders equity |
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$ |
1,661,542 |
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$ |
1,324,988 |
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$ |
990,358 |
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|
See notes to condensed consolidated financial statements
4
The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
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Three months ended |
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March 31, |
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2008 |
|
2007 |
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Sales and merchandising revenues |
|
$ |
713,001 |
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$ |
406,503 |
|
Cost of sales and merchandising revenues |
|
|
660,760 |
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|
362,118 |
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Gross profit |
|
|
52,241 |
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|
44,385 |
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Operating, administrative and general expenses |
|
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39,504 |
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|
37,751 |
|
Allowance for doubtful accounts |
|
|
1,787 |
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|
|
233 |
|
Interest expense |
|
|
9,122 |
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|
5,022 |
|
Other income/gains: |
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|
Equity in earnings of affiliates |
|
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8,639 |
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|
2,832 |
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Other income, net |
|
|
2,884 |
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|
9,873 |
|
Minority interest in net (income) loss of subsidiaries |
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(935 |
) |
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|
83 |
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Income before income taxes |
|
|
12,416 |
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|
14,167 |
|
Income tax expense |
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|
4,593 |
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|
4,928 |
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Net income |
|
$ |
7,823 |
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$ |
9,239 |
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Per common share: |
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Basic earnings |
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$ |
0.43 |
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$ |
0.52 |
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Diluted earnings |
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$ |
0.42 |
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$ |
0.51 |
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Dividends paid |
|
$ |
0.0775 |
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$ |
0.0475 |
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|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
18,026 |
|
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|
17,729 |
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|
|
Weighted average shares outstanding diluted |
|
|
18,408 |
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|
|
18,242 |
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|
|
|
See notes to condensed consolidated financial statements
5
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
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Three months ended |
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March 31, |
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2008 |
|
2007 |
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|
Operating Activities |
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|
|
|
|
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|
Net income |
|
$ |
7,823 |
|
|
$ |
9,239 |
|
Adjustments to reconcile net income to cash used in operating
activities: |
|
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|
|
|
|
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|
Depreciation and amortization |
|
|
6,845 |
|
|
|
6,328 |
|
Allowance for doubtful accounts receivable |
|
|
1,681 |
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|
|
10 |
|
Minority interest in income (loss) of subsidiaries |
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|
935 |
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|
(83 |
) |
Equity earnings of unconsolidated affiliates, net of
distributions received |
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|
1,784 |
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|
(894 |
) |
Realized gains on sales of railcars and related leases |
|
|
(2,216 |
) |
|
|
(949 |
) |
Excess tax benefit from share-based payment arrangement |
|
|
(1,143 |
) |
|
|
(1,381 |
) |
Deferred income taxes |
|
|
435 |
|
|
|
(1,662 |
) |
Stock based compensation expense |
|
|
1,606 |
|
|
|
1,004 |
|
Gain on donation of equity securities |
|
|
|
|
|
|
(3,020 |
) |
Other |
|
|
(13 |
) |
|
|
83 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(67,005 |
) |
|
|
(35,192 |
) |
Inventories |
|
|
(55,126 |
) |
|
|
(20,374 |
) |
Commodity derivatives and margin deposits |
|
|
(106,349 |
) |
|
|
(4,148 |
) |
Prepaid expenses and other assets |
|
|
(13,791 |
) |
|
|
(12,479 |
) |
Accounts payable for grain |
|
|
(86,148 |
) |
|
|
(59,025 |
) |
Other accounts payable and accrued expenses |
|
|
88,149 |
|
|
|
36,818 |
|
|
|
|
Net cash used in operating activities |
|
|
(222,533 |
) |
|
|
(85,725 |
) |
|
|
|
|
|
|
|
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|
Investing Activities |
|
|
|
|
|
|
|
|
Purchases of railcars |
|
|
(27,619 |
) |
|
|
(7,098 |
) |
Proceeds from sale or financing of railcars and related leases |
|
|
1,667 |
|
|
|
16,973 |
|
Purchases of property, plant and equipment |
|
|
(3,561 |
) |
|
|
(4,400 |
) |
Proceeds from sale of property, plant and equipment and other |
|
|
86 |
|
|
|
377 |
|
Investments in affiliates |
|
|
(20,500 |
) |
|
|
(27,881 |
) |
|
|
|
Net cash used in investing activities |
|
|
(49,927 |
) |
|
|
(22,029 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net increase in short-term borrowings |
|
|
144,500 |
|
|
|
101,000 |
|
Proceeds received from minority interest |
|
|
|
|
|
|
12,920 |
|
Proceeds received from issuance of long-term debt |
|
|
197,640 |
|
|
|
2,119 |
|
Payments on long-term debt |
|
|
(51,802 |
) |
|
|
(2,127 |
) |
Payments of non-recourse long-term debt |
|
|
(4,651 |
) |
|
|
(3,632 |
) |
Proceeds from sale of treasury shares to employees and
directors |
|
|
661 |
|
|
|
987 |
|
Payments of debt issuance costs |
|
|
(1,167 |
) |
|
|
|
|
Dividends paid |
|
|
(1,399 |
) |
|
|
(843 |
) |
Excess tax benefit from share-based payment arrangement |
|
|
1,143 |
|
|
|
1,381 |
|
|
|
|
Net cash provided by financing activities |
|
|
284,925 |
|
|
|
111,805 |
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
12,465 |
|
|
|
4,051 |
|
Cash and cash equivalents at beginning of period |
|
|
22,300 |
|
|
|
23,398 |
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
34,765 |
|
|
$ |
27,449 |
|
|
|
|
See notes to condensed consolidated financial statements
6
The Andersons, Inc.
Condensed Consolidated Statements of Shareholders Equity
(Unaudited)(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Treasury |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
Shares |
|
|
Capital |
|
|
Shares |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
|
|
|
Balance at December 31, 2006 |
|
$ |
96 |
|
|
$ |
159,941 |
|
|
$ |
(16,053 |
) |
|
$ |
(9,735 |
) |
|
$ |
135,926 |
|
|
$ |
270,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,784 |
|
|
|
68,784 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial loss
and prior service costs
(net of income tax of
$3,102) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,281 |
|
|
|
|
|
|
|
5,281 |
|
Cash flow hedge activity
(net of income tax of $149) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254 |
) |
|
|
|
|
|
|
(254 |
) |
Unrealized gains on
investment (net of income
tax of $305) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519 |
|
|
|
|
|
|
|
519 |
|
Disposal of equity
securities (net of income
tax of $1,766) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,008 |
) |
|
|
|
|
|
|
(3,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,322 |
|
Impact of adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383 |
) |
|
|
(383 |
) |
Stock awards, stock option
exercises and other shares
issued to employees and
directors, net of income
tax of $5,567 (297
shares) |
|
|
|
|
|
|
8,345 |
|
|
|
(617 |
) |
|
|
|
|
|
|
|
|
|
|
7,728 |
|
Dividends declared ($0.25
per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,478 |
) |
|
|
(4,478 |
) |
|
|
|
Balance at December 31, 2007 |
|
|
96 |
|
|
|
168,286 |
|
|
|
(16,670 |
) |
|
|
(7,197 |
) |
|
|
199,849 |
|
|
|
344,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,823 |
|
|
|
7,823 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial loss
and prior service costs
(net of income tax of $11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) |
Cash flow hedge activity
(net of income tax of $200) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340 |
) |
|
|
|
|
|
|
(340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,465 |
|
Stock awards, stock option
exercises and other shares
issued to employees and
directors, net of income
tax of $1,362 (97
shares) |
|
|
|
|
|
|
2,011 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
2,267 |
|
Dividends declared ($0.0775
per common share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,403 |
) |
|
|
(1,403 |
) |
|
|
|
Balance at March 31, 2008 |
|
$ |
96 |
|
|
$ |
170,297 |
|
|
$ |
(16,414 |
) |
|
$ |
(7,555 |
) |
|
$ |
206,269 |
|
|
$ |
352,693 |
|
|
|
|
See notes to condensed consolidated financial statements
7
The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note A: Basis of Presentation and Consolidation
These consolidated financial statements include the accounts of The Andersons, Inc. and its wholly
and majority-owned subsidiaries (the Company). All significant intercompany accounts and
transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not
control, are accounted for using the equity method of accounting and are recorded at cost plus the
Companys accumulated proportional share of income or loss, less any distributions it has received.
Differences in the basis of the investment and the separate net asset value of the investee, if
any, are amortized into income over the remaining life of the underlying assets, with the exception
of certain permanent basis differences related to entity formation.
In the opinion of management, all adjustments, consisting of normal recurring items, considered
necessary for a fair presentation of the results of operations for the periods indicated, have been
made. Operating results for the three months ended March 31, 2008 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31, 2008.
The year-end condensed consolidated balance sheet data at December 31, 2007 was derived from
audited consolidated financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. A condensed consolidated
balance sheet as of March 31, 2007 has been included as the Company operates in several seasonal
industries.
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, 2007.
FSP FIN 39-1
In the second quarter of 2007, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position No. FIN 39-1 (FSP FIN 39-1), which permits a party to a master netting arrangement to
offset fair value amounts recognized for derivative instruments against the right to reclaim cash
collateral or obligation to return cash collateral under the same master netting arrangement. The
Company has master netting arrangements for its exchange traded futures and options contracts and
certain over-the-counter contracts. When the Company enters into a futures, options or an
over-the-counter contract, an initial margin deposit may be required by the counterparty. The
amount of the margin deposit varies by commodity. If the market price of a futures, options or an
over-the-counter contract moves in a direction that is adverse to the Companys position, an
additional margin deposit, called a maintenance margin, is required. Under FSP 39-1 and consistent
with the balance sheets presented herein, the Company nets its
futures, options, and over-the-counter
positions against the cash collateral provided by customer. The net position is recorded within
margin deposits or other accounts payable depending on whether the net position is an asset or a
liability. At March 31, 2008, December 31, 2007 and March 31, 2007, the margin deposit assets and
margin deposit liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
December 31, 2007 |
|
March 31, 2007 |
|
|
Margin deposit |
|
Margin deposit |
|
Margin deposit |
|
Margin deposit |
|
Margin deposit |
|
Margin deposit |
|
|
assets |
|
liabilities |
|
assets |
|
liabilities |
|
assets |
|
liabilities |
|
|
|
Cash collateral |
|
$ |
131,801 |
|
|
$ |
13,300 |
|
|
$ |
114,933 |
|
|
$ |
11,673 |
|
|
$ |
30,960 |
|
|
$ |
|
|
Fair value of
derivatives |
|
|
(65,869 |
) |
|
|
(31,061 |
) |
|
|
(94,466 |
) |
|
|
(24,466 |
) |
|
|
15,934 |
|
|
|
|
|
Balance at end of
period |
|
$ |
65,932 |
|
|
$ |
(17,761 |
) |
|
$ |
20,467 |
|
|
$ |
(12,793 |
) |
|
$ |
46,894 |
|
|
|
|
|
8
Financial Statement Revision
In the second quarter of 2007, the Company determined that it should revise its classification of
all forward purchase and sale contracts for commodities. Historically, the Company had recorded
its net position in these commodity contracts on the balance sheet within inventory. Although this
presentation had been disclosed in the Companys significant accounting policies, the Company has
revised its presentation to show the commodity contracts in separate line items on the consolidated
balance sheet and display gross positions rather than net positions. As the Companys forward,
futures, options and over the-counter contracts are considered economic hedges of inventory, the
cash flows from these derivatives will remain as part of cash flows from operating activities. The
Company has concluded that the effect of historically reflecting these contracts on a net, rather
than gross, basis did not materially misstate any previously issued consolidated balance sheets or
consolidated statement of cash flows. However, the Company has elected to revise prior period
comparative information presented herein in order to present such information on a basis consistent
with the separate line item disclosure described above. A summary of the effects of these
revisions to our March 31, 2007 balance sheet is presented in the following table. The revisions
have no effect on net income, statement of cash flow or shareholders equity as previously
reported.
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet |
(in thousands) |
|
At March 31, 2007 |
|
|
As Previously Reported |
|
As Revised |
|
|
|
Margin deposits |
|
|
44,036 |
|
|
|
46,894 |
|
Inventory |
|
|
328,712 |
|
|
|
316,831 |
|
Commodity derivative assets current |
|
|
|
|
|
|
74,959 |
|
Total current assets |
|
|
575,388 |
|
|
|
641,324 |
|
Commodity derivative assets noncurrent |
|
|
|
|
|
|
20,613 |
|
Total assets |
|
|
903,809 |
|
|
|
990,358 |
|
Commodity derivative liabilities current |
|
|
|
|
|
|
60,894 |
|
Total current liabilities |
|
|
419,288 |
|
|
|
480,182 |
|
Commodity derivative liabilities noncurrent |
|
|
|
|
|
|
25,655 |
|
Total liabilities |
|
|
612,136 |
|
|
|
698,685 |
|
In addition, in the fourth quarter of 2007, the Company discovered that certain costs within the
Rail Group were erroneously recorded in cost of sales rather than in operating, administrative and
general expense. These amounts have been reclassified to the proper income statement lines and the
income statement for the three months ended March 31, 2007 has been revised to conform to the
current presentation. These reclassifications are not considered material and had no effect on the
balance sheet, net income, statement of cash flows or shareholders equity as previously reported.
Note B: Stock-Based Compensation
During the first quarter of 2008, the Company granted 153 thousand stock only stock appreciation
rights (SOSARs) to directors and management personnel under the Long-Term Performance
Compensation Plan dated May 6, 2005 (the LT Plan).
The SOSARs provide the holder with the right to receive, in shares of
the Companys stock, the value of any appreciation of shares of
our stock between the grant date and the date the SOSARs are
exercised. The fair value for SOSARs was estimated at
the date of grant, using a Black-Scholes option pricing model, which requires management to make
certain assumptions. The related compensation expense is recognized over
the vesting period. Expected volatility was estimated based on the historical volatility of the Companys
common shares over the past five years. The average expected life was based on the contractual
term of the SOSARs and expected employee exercise and post-vesting employment termination trends.
The risk free rate is based on U.S. Treasury issues with a term equal to the expected life assumed
at the date of the grant. Forfeitures are estimated at the date of grant based on historical
experience. The following table sets forth the assumptions used for the grants issued in the first
quarters of 2008 and 2007.
9
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
Long Term Performance Compensation Plan |
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
2.24 |
% |
|
|
4.34 |
% |
Dividend yield |
|
|
0.67 |
% |
|
|
0.45 |
% |
Volatility factor of the expected market price of the
Companys common shares |
|
|
.410 |
|
|
|
.375 |
|
Expected life for the options (in years) |
|
|
4.10 |
|
|
|
4.50 |
|
The Company also granted 18 thousand restricted shares during the first quarter to members of
management. Total restricted stock expense is equal to the market value of the Companys common
shares on the date of the award and is recognized over the service period.
The LT Plan also allows for the award of performance share units (PSUs). Each PSU gives the
participant the right to receive one common share dependent on achievement of specified performance
results over a three calendar year performance period. At the end of the performance period, the
number of shares of stock issued will be determined by adjusting the award upward or downward from
a target award. Fair value of performance share units issued is based on the market value of the
Companys common shares on the date of the award. The related compensation expense is recognized
over the performance period and adjusted for changes in the number of shares expected to be issued
if changes in performance are expected. During the first quarter, 36 thousand PSUs were granted
and are being expensed based on the assumption that the Company will reach the targeted 7% earnings
per share growth rate at which 50% of the maximum award will be granted.
Total compensation expense recognized in the Condensed Consolidated Statement of Income for all
equity based compensation programs was $1.6 million and $1.0 million in the first quarters of 2008
and 2007, respectively.
Note C: Earnings Per Share
Basic earnings per share is equal to net income divided by weighted average shares outstanding.
Diluted earnings per share is equal to basic earnings per share plus the incremental per share
effect of dilutive options, unvested restricted shares, and other stock-based awards.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Weighted average shares outstanding basic |
|
|
18,026 |
|
|
|
17,729 |
|
Restricted shares and shares contingently issuable
upon exercise of options |
|
|
382 |
|
|
|
513 |
|
|
|
|
Weighted average shares outstanding diluted |
|
|
18,408 |
|
|
|
18,242 |
|
|
|
|
There were approximately 11 thousand and 13 thousand antidilutive stock-based awards outstanding in
the first quarter of 2008 and 2007, respectively.
10
Note D: Employee Benefit Plans
Included as charges against income for the three months ended March 31, 2008 and 2007 are the
following amounts for pension and postretirement benefit plans maintained by the Company:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Service cost |
|
$ |
637 |
|
|
$ |
665 |
|
Interest cost |
|
|
824 |
|
|
|
784 |
|
Expected return on plan assets |
|
|
(1,269 |
) |
|
|
(1,141 |
) |
Amortization of prior service cost |
|
|
(155 |
) |
|
|
(159 |
) |
Recognized net actuarial loss |
|
|
127 |
|
|
|
304 |
|
|
|
|
Benefit cost |
|
$ |
164 |
|
|
$ |
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits |
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Service cost |
|
$ |
88 |
|
|
$ |
109 |
|
Interest cost |
|
|
279 |
|
|
|
291 |
|
Amortization of prior service cost |
|
|
(128 |
) |
|
|
(128 |
) |
Recognized net actuarial loss |
|
|
127 |
|
|
|
198 |
|
|
|
|
Benefit cost |
|
$ |
366 |
|
|
$ |
470 |
|
|
|
|
The Company made no contributions to its defined benefit pension plan in either of the first
quarters of 2008 or 2007. The Company currently expects to make a total contribution of
approximately $5.0 million in fiscal 2008, which exceeds the required minimum contribution. The
Company contributed $7.0 million in fiscal 2007.
The postretirement benefit plan is not funded. Company contributions in the quarter represent
actual claim payments and insurance premiums for covered retirees. In each of the first quarters
of 2008 and 2007, payments of $0.2 million were made by the Company.
Note E: Segment Information
Results of Operations Segment Disclosures
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grain & |
|
|
|
|
|
Plant |
|
Turf & |
|
|
|
|
|
|
First Quarter 2008 |
|
Ethanol |
|
Rail |
|
Nutrient |
|
Specialty |
|
Retail |
|
Other |
|
Total |
|
|
|
Revenues from external
customers |
|
$ |
499,123 |
|
|
$ |
35,011 |
|
|
$ |
105,469 |
|
|
$ |
39,661 |
|
|
$ |
33,737 |
|
|
$ |
|
|
|
$ |
713,001 |
|
Inter-segment sales |
|
|
3 |
|
|
|
129 |
|
|
|
5,456 |
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
6,005 |
|
Equity in earnings of
affiliates |
|
|
8,636 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,639 |
|
Other income (loss), net |
|
|
2,537 |
|
|
|
178 |
|
|
|
143 |
|
|
|
93 |
|
|
|
147 |
|
|
|
(214 |
) |
|
|
2,884 |
|
Interest expense (income) (a) |
|
|
6,303 |
|
|
|
981 |
|
|
|
538 |
|
|
|
425 |
|
|
|
190 |
|
|
|
685 |
|
|
|
9,122 |
|
Operating income (loss) |
|
|
2,233 |
|
|
|
6,426 |
|
|
|
7,540 |
|
|
|
2,000 |
|
|
|
(3,377 |
) |
|
|
(2,406 |
) |
|
|
12,416 |
|
Identifiable assets |
|
|
1,003,776 |
|
|
|
219,343 |
|
|
|
235,622 |
|
|
|
81,216 |
|
|
|
56,568 |
|
|
|
65,017 |
|
|
|
1,661,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grain & |
|
|
|
|
|
Plant |
|
Turf & |
|
|
|
|
|
|
First Quarter 2007 |
|
Ethanol |
|
Rail |
|
Nutrient |
|
Specialty |
|
Retail |
|
Other |
|
Total |
|
|
|
Revenues from external
customers |
|
$ |
243,943 |
|
|
$ |
25,916 |
|
|
$ |
66,560 |
|
|
$ |
36,304 |
|
|
$ |
33,780 |
|
|
$ |
|
|
|
$ |
406,503 |
|
Inter-segment sales |
|
|
|
|
|
|
202 |
|
|
|
3,853 |
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
4,515 |
|
Equity in earnings of
affiliates |
|
|
2,829 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,832 |
|
Other income, net |
|
|
5,985 |
|
|
|
91 |
|
|
|
153 |
|
|
|
62 |
|
|
|
160 |
|
|
|
3,422 |
|
|
|
9,873 |
|
Interest expense (income) (a) |
|
|
3,133 |
|
|
|
1,373 |
|
|
|
354 |
|
|
|
483 |
|
|
|
182 |
|
|
|
(503 |
) |
|
|
5,022 |
|
Operating income (loss) |
|
|
10,170 |
|
|
|
3,008 |
|
|
|
431 |
|
|
|
1,800 |
|
|
|
(2,287 |
) |
|
|
1,045 |
|
|
|
14,167 |
|
Identifiable assets |
|
|
485,034 |
|
|
|
175,492 |
|
|
|
156,651 |
|
|
|
74,722 |
|
|
|
58,227 |
|
|
|
40,232 |
|
|
|
990,358 |
|
11
|
|
|
(a) |
|
The interest income reported in Other includes net interest income at the
corporate level. These amounts result from a rate differential between the interest
rate at which interest is allocated to the operating segments and the actual rate at
which borrowings are made. |
Note F: Equity Method Investments and Related Party Transactions
The Company, directly or indirectly, holds investments in six limited liability companies that are
accounted for under the equity method. The Companys equity in these entities is presented at cost
plus its accumulated proportional share of income or loss, less any distributions it has received.
The Company has marketing agreements with three ethanol LLCs under which the Company markets the
ethanol produced to external customers. As compensation for these marketing services, the Company
earns a fee on each gallon of ethanol sold. For two of the LLCs, the Company purchases 100% of the
ethanol produced and then sells it to external parties. For the third LLC, the Company buys only a
portion of the ethanol produced. The Company acts as the principal in
these ethanol sales transactions to external parties. Substantially all of these purchases and subsequent sales are
done through forward contracts on matching terms and, therefore, the Company does not recognize any
gross profit on the sales transactions. The Companys total ethanol sales include direct ship
sales made on behalf of the LLCs. The direct ship sales are sales of ethanol purchased from
unaffiliated third party producers and traded. For the three months ended March 31, 2008 and 2007,
sales of ethanol for the Company were $102.6 million and $28.7 million, respectively. In addition
to the ethanol marketing agreements, the Company holds corn origination and distillers dried
grains marketing agreements with each of the ethanol LLCs for which it receives a unit based fee.
In the first quarter of 2008, the Company invested an additional $20.5 million in Lansing Trade
Group, LLC and now holds a 48% interest, an increase of 6% from March 31, 2007. The following
table presents summarized financial information of this investment as it qualified as a significant
subsidiary for the three months ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Sales |
|
$ |
985,074 |
|
|
$ |
834,998 |
|
Gross profit |
|
|
26,521 |
|
|
|
10,745 |
|
Income from continuing operations |
|
|
10,961 |
|
|
|
3,257 |
|
Net income (loss) |
|
|
10,961 |
|
|
|
3,257 |
|
The following table presents summarized financial information of The Andersons Clymers Ethanol LLC
(TACE), as it too qualified as a significant subsidiary for the three months ended March 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Sales |
|
$ |
67,196 |
|
|
$ |
|
|
Gross profit |
|
|
11,917 |
|
|
|
(583 |
) |
Income from continuing operations |
|
|
10,106 |
|
|
|
(2,646 |
) |
Net income (loss) |
|
|
10,106 |
|
|
|
(2,646 |
) |
The following table presents summarized financial information for The Andersons Albion Ethanol LLC,
as it qualified as a significant subsidiary for the three months ended March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Sales |
|
$ |
36,895 |
|
|
$ |
33,762 |
|
Gross profit |
|
|
5,490 |
|
|
|
9,062 |
|
Income from continuing operations |
|
|
4,109 |
|
|
|
7,529 |
|
Net income (loss) |
|
|
4,109 |
|
|
|
7,529 |
|
12
The following table summarizes income earned from the Companys equity method investments by
entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% ownership at |
|
Three months ended |
(in thousands) |
|
March 31, 2008 |
|
March 31, |
|
|
(direct and indirect) |
|
2008 |
|
2007 |
|
|
|
The Andersons Albion Ethanol LLC |
|
|
49 |
% |
|
$ |
2,031 |
|
|
$ |
3,154 |
|
The Andersons Clymers Ethanol LLC |
|
|
37 |
% |
|
|
3,723 |
|
|
|
(959 |
) |
The Andersons Marathon Ethanol LLC |
|
|
50 |
% |
|
|
(2,498 |
) |
|
|
(360 |
) |
Lansing Trade Group LLC |
|
|
48 |
% |
|
|
5,264 |
|
|
|
1,404 |
|
Other |
|
|
23%-33 |
% |
|
|
119 |
|
|
|
(407 |
) |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
8,639 |
|
|
$ |
2,832 |
|
|
|
|
|
|
|
|
In the ordinary course of business, the Company will enter into related party transactions with its
equity method investees. The following table sets forth the related party transactions entered
into for the time periods presented.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Sales and revenues |
|
$ |
115,095 |
|
|
$ |
27,888 |
|
Purchases of product |
|
|
99,415 |
|
|
|
28,311 |
|
Lease income |
|
|
1,479 |
|
|
|
970 |
|
Labor and benefits reimbursement (a) |
|
|
2,491 |
|
|
|
1,184 |
|
Accounts receivable at March 31, |
|
|
15,992 |
|
|
|
4,314 |
|
Accounts payable at March 31, |
|
|
11,128 |
|
|
|
5,791 |
|
|
|
|
(a) |
|
The Company provides employee and administrative support to the ethanol LLCs, and
charges them an allocation of the Companys costs of the related services. |
Note G: Fair Value Measurements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value
as an exit price, establishes a framework for measuring fair value within generally accepted
accounting principles and expands the required disclosures about fair value measurements. The
Company adopted SFAS 157 as of January 1, 2008 for assets and liabilities measured at fair value on
a recurring basis. SFAS 157 is effective for items that are recognized or disclosed at fair value
on a non-recurring basis beginning January 1, 2009.
SFAS 157 defines fair value as an exit price, which represents the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants. Fair value should be determined based on the assumptions that market participants
would use in pricing the asset or liability. As a basis for considering such assumptions, SFAS 157
established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
|
|
|
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in
active markets; |
|
|
|
|
Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability either directly or indirectly; and |
|
|
|
|
Level 3 inputs: Unobservable inputs (e.g., a reporting entitys own data). |
In many cases, a valuation technique used to measure fair value includes inputs from multiple
levels of the fair value hierarchy. The lowest level of significant input determines the placement
of the entire fair value measurement in the hierarchy.
13
The following table presents the Companys assets and liabilities measured at fair value on a
recurring basis under SFAS 157 at March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Assets (liabilities) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Cash and
cash equivalents |
|
$ |
34,765 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
34,765 |
|
Commodity derivatives, net |
|
|
|
|
|
|
164,489 |
|
|
|
7,231 |
|
|
|
171,720 |
|
Net margin deposit assets |
|
|
65,932 |
|
|
|
|
|
|
|
|
|
|
|
65,932 |
|
Net margin deposit liabilities |
|
|
|
|
|
|
(17,761 |
) |
|
|
|
|
|
|
(17,761 |
) |
Other assets and liabilities (a) |
|
|
12,215 |
|
|
|
|
|
|
|
(1,864 |
) |
|
|
10,351 |
|
|
|
|
Total |
|
$ |
112,912 |
|
|
$ |
146,728 |
|
|
$ |
5,367 |
|
|
$ |
265,007 |
|
|
|
|
|
|
|
(a) |
|
Included in other assets and liabilities is restricted cash,
interest rate derivatives, assets held in a VEBA for healthcare benefits and deferred
compensation assets. |
A reconciliation of beginning and ending balances for the Companys fair value measurements using
Level 3 inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Interest rate |
|
Commodity |
|
|
|
|
derivatives |
|
derivatives, net |
|
Total |
|
|
|
Asset (liability) at December 31, 2007 |
|
$ |
(1,167 |
) |
|
$ |
5,561 |
|
|
$ |
4,394 |
|
Realized gains (losses) included in
earnings |
|
|
(152 |
) |
|
|
3,760 |
|
|
|
3,608 |
|
Unrealized losses included in other
comprehensive income |
|
|
(545 |
) |
|
|
|
|
|
|
(545 |
) |
Transfers from level 2 |
|
|
|
|
|
|
161 |
|
|
|
161 |
|
Contracts cancelled, transferred to
accounts receivable |
|
|
|
|
|
|
(1,837 |
) |
|
|
(1,837 |
) |
Impairment included in earnings |
|
|
|
|
|
|
(414 |
) |
|
|
(414 |
) |
|
|
|
Asset (liability) at March 31, 2008 |
|
$ |
(1,864 |
) |
|
$ |
7,231 |
|
|
$ |
5,367 |
|
|
|
|
All of the Companys assets and liabilities measured at fair value are based on the market approach
valuation technique. With the market approach, fair value is derived using prices and other
relevant information generated by market transactions involving identical or comparable assets or
liabilities.
Our net commodity derivatives primarily consist of contracts that we have with our producers or
customers under which the future settlement date and bushels of commodities to be delivered
(primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be
fixed. Depending on the specifics of the individual contracts, the fair value is derived from the
futures or options prices on the Chicago Board of Trade (CBOT) or the New York Merchantile
Exchange (NYMEX) for similar commodities and delivery dates as well as observable quotes for
local basis adjustments (the difference between the futures price and the local cash price).
Although counterparty risk is present in each of these commodity contracts, based on our historical
experience with our producers and customers and our knowledge of their businesses, we do not view
counterparty risk to be a significant input to fair value for the majority of these
commodity contracts. However, in situations where we believe that counterparty risk is higher
(based on our past or present experience with a customer or our knowledge of the customers
operations or financial condition), we classify these commodity contracts as level 3 in the fair
value hierarchy and, accordingly, record estimated fair value adjustments based on our internal
projections and views of these contracts. We review our counterparty risk on commodity contracts
on a quarterly basis.
Net margin deposit assets reflect the fair value of the futures and options contracts that we have
through the CBOT, net of the cash collateral that we have in our margin account with them.
Net margin deposit liabilities reflect the fair value of the Companys over-the-counter,
ethanol-related futures and options contracts that we have with various financial institutions, net
of the cash collateral that we have in our margin account with them. While these contracts
themselves are not exchange-traded, the fair value of these contracts is estimated by reference to
similar exchange-traded contracts. We do not view counterparty risk on these contracts to be
significant.
14
Note H: Change in Estimate of Depreciable Lives
In the first quarter of 2008, the Company changed its estimate for the service lives of depreciable
railcar assets leased to others. Railcars have statutory lives of either 40 or 50 years (measured
from the date built) depending on type and year built. Prior to 2008, the Companys policy for
depreciating railcar assets leased to others was based on the shorter of the railcars remaining
statutory life or 15 years. This was thought to be the most appropriate method as the Company has
historically purchased older cars. Beginning in 2008, the Company has changed its estimation of
the useful lives of railcar assets leased to others that have a statutory life of 50 years. These
cars will be depreciated based on 80% of the railcars remaining statutory life. This change was
driven by an evaluation of our historical disposal data and the fact that the Company has begun to
purchase newer cars. For the first quarter of 2008, this change in estimate had the impact of
reducing depreciation expense by $0.3 million, or less than $0.01 per basic and diluted share.
Note I: Subsequent Event
On April 29, 2008, the Company announced that it had signed an agreement to acquire 100% of the
shares of Douglass Fertilizer & Chemical, Inc. With 2007 sales of $47 million, Douglass Fertilizer
is primarily a specialty liquid nutrient manufacturer, retailer and wholesaler and operates
facilities located in Florida as well as the Caribbean. This acquisition will be a part of the
Plant Nutrient Group and will diversify the Groups product line offering and expand its market
outside of the traditional Midwest row crops and into Floridas rich specialty crops.
Note J: Debt Agreements
During the first quarter of 2008, the Company borrowed $195 million under a long-term note purchase
agreement. The notes were issued in three series. The first series was for $92 million at an
interest rate of 4.8%, payable in full in March of 2011. The second series was for $61.5 million
at an interest rate of 6.12%, payable in full in March of 2015. The last series was for $41.5 million
at an interest rate of 6.78% and is payable in full in March of 2018. In addition, the Company
amended its line of credit arrangement in April 2008 which now provides the Company with $655
million in short-term lines of credit and a temporary flex line, maturing in October 2008, which
allows the Company an additional $247 million.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward Looking Statements
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which relate to future events or future financial
performance and involve known and unknown risks, uncertainties and other factors that may cause
actual results, levels of activity, performance or achievements to be materially different from
those expressed or implied by these forward-looking statements. You are urged to carefully
consider these risks and others, including those risk factors listed under Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2007 (2007 Form 10-K). In some cases, you
can identify forward-looking statements by terminology such as may, anticipates, believes,
estimates, predicts, or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially. These
forward-looking statements relate only to events as of the date on which the statements are made
and the Company undertakes no obligation, other than any imposed by law, to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements.
Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2007 Form
10-K, have not materially changed during the first three months of 2008 other than the changes to
the Companys fair value measurements as described in Note G: Fair Value Measurements, included
elsewhere herein.
15
Executive Overview
Grain & Ethanol Group
The Grain & Ethanol Group operates grain elevators in Ohio, Michigan, Indiana and Illinois. In
addition to storage and merchandising, the Group performs grain trading, risk management and other
services for its customers. The Group is also the developer and significant investor in three
ethanol facilities located in Indiana, Michigan and Ohio with a nameplate capacity of 275 million
gallons. In addition to its investment in these facilities, the Group operates the facilities
under management contracts and provides grain origination, ethanol and distillers dried grains
(DDG) marketing and risk management services for which it is separately compensated. The Group
is also a significant investor in Lansing Trade Group LLC, an established trading business with
offices throughout the country and internationally.
The agricultural commodity-based business is one in which changes in selling prices generally move
in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the
agricultural commodities that the Company deals in, will have a relatively equal impact on sales
and cost of sales and a minimal impact on gross profit. As a result, the significant increase in
sales for the period is not necessarily indicative of the Groups overall performance and more
focus should be placed on changes to merchandising revenues and service income.
Grain inventories on hand at March 31, 2008 were 60.6 million bushels, of which 11.8 million
bushels were stored for others. This compares to 64.2 million bushels on hand at March 31, 2007,
of which 17.8 million bushels were stored for others.
Wheat conditions for 2008, as tracked by the U.S. Department of Agriculture, for unharvested crops,
are much better than 2007 with 73%, on average, rated as good to excellent for the four states
where the Company has facilities, compared to only 44% at this time in 2007. The amount of winter
wheat planted in 2008 increased 4% from 2007, up to 46.8 million acres. The primary harvest period
for winter wheat is in the month of July.
U.S. corn acreage is expected to decrease 8% in 2008. While this is 7.6 million acres less than
the amount planted in 2007, it would still be the second largest area planted since 1949. With
rising commodity prices for other crops, as well as crop rotation considerations and high nutrient
prices, the Company expects that some farmers will switch from corn to soybeans or wheat.
According to the U.S. Department of Agriculture, soybean acreage is expected to jump 18% and wheat
acreage is expected to rise 6%. Currently, the four state (Illinois, Ohio, Indiana, Michigan)
planting progress for both corn and soybeans is slightly behind 2007 and significantly behind the
five year average due to cold and wet weather conditions in April. Weather patterns in the Midwest
during the important agricultural planting and growing season will strongly contribute to the
success of the base grain business.
Unprecedented market conditions have caused grain prices to rise significantly over the past year.
Many customers have forward contracts with the Company to sell grain at lower prices. Because of
this, the risk of counterparty nonperformance has risen substantially. The Company will continue
to monitor the nonperformance risk of its counterparties and will adjust the fair value of their
open contracts if appropriate.
Production at the Greenville, Ohio ethanol plant began in February 2008, slightly behind schedule.
Rail Group
The Rail Group buys, sells, leases, rebuilds and repairs various types of used railcars and rail
equipment. The Group also provides fleet management services to fleet owners and operates a custom
steel fabrication business. The Group has a diversified fleet of car types (boxcars, gondolas,
covered and open top hoppers, tank cars and pressure differential cars) and locomotives and also
serves a diversified customer base.
Railcars and locomotives under management (owned, leased or managed for financial institutions in
non-recourse arrangements) at March 31, 2008 were 23,245 compared to 21,137 at March 31, 2007. The
16
Groups average utilization rate (railcars and locomotives under management that are in lease
services, exclusive of railcars managed for third party investors) has increased slightly from
92.5% for the quarter ended March 31, 2007 to 93.4% for the quarter ended March 31, 2008. There
are some signs that maintenance costs for the Group could be stabilizing although it is too early
to tell. For the first quarter of 2008, the maintenance cost per car actually decreased compared
to the same period last year. The Group will continue to monitor this trend as maintenance costs
have been a significant issue for the Group for the past year.
In April 2008, operations began at the Groups repair shop in Anaconda,
Montana. This brings the total number of repair shops to six. The Group will continue to evaluate
opportunities for additional repair shops in the future.
Plant Nutrient Group
The Companys Plant Nutrient Group purchases, stores, formulates, manufactures and sells dry and
liquid fertilizer to dealers and farmers as well as sells reagents for air pollution control
technologies used in coal-fired power plants. In addition, they provide warehousing and services
to manufacturers and customers, formulate liquid anti-icers and deicers for use on roads and
runways and distribute seeds and various farm supplies. The major fertilizer ingredients sold by
the Company are nitrogen, phosphate and potash.
Weather, as well as the pricing relationship between corn, wheat and soybeans, will play an
important role in the outlook for 2008 as farmers make decisions about the current crop year. High
wheat and soybean prices are expected to cause some producers to switch acres from corn to
soybeans, which require fewer nutrients. The Group will continue to evaluate the availability of
its raw materials, primarily potash, which at this time is in tight supply. A shortage of
available raw materials could impact the Groups ability to meet customer orders.
On April 29, 2008, the Company announced that it had signed an agreement to acquire 100% of the
shares of Douglass Fertilizer & Chemical, Inc. This acquisition will be a part of the Plant
Nutrient Group and will diversify the Groups product line offering and expand its geographic
market outside of the traditional Midwest row crops and into Floridas rich specialty crops.
Turf & Specialty Group
The Turf & Specialty Group produces granular fertilizer products for the professional lawn care and
golf course markets. It also produces private label fertilizer and corncob-based animal bedding
and cat litter for the consumer markets. The turf products industry is highly seasonal, with the
majority of sales occurring from early spring to early summer. Corncob-based products are sold
throughout the year.
At the end of the fourth quarter of 2007, a new manufacturing facility, built to manufacture a
patented fertilizer product primarily for use on golf course greens, became fully operational.
With this increased capacity, the Group has begun the launch of several new products for the 2008
season. As mentioned previously, one of the Groups primary raw materials, potash, is in tight
supply. A shortage of available raw materials could impact the Groups ability to meet customer
orders
The 2007 cob harvest proved to be much better than prior year and the Group is expecting a
reduction in the need to purchase processed cobs at higher prices which had challenged the Group
last year.
Retail Group
The Retail Group includes six stores operated as The Andersons, which are located in the
Columbus, Lima and Toledo, Ohio markets. In the second quarter 2007, the Group opened a new
specialty food store operated as The Andersons Market, located in the Toledo, Ohio market. The
Group also operates a sales and service facility for outdoor power equipment near one of its
conventional retail stores. The retail concept is More for Your Home ® and the conventional retail
stores focus on providing significant product breadth with offerings in home improvement and other
mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden
centers.
17
The retail business is highly competitive. The Company competes with a variety of retail
merchandisers, including home centers, department and hardware stores, as well as local and
national grocers. The focus for 2008 is to increase sales in all of the Groups market areas and
continue to refine its new concept food market to align with customer needs.
Other
The Other business segment of the Company represents corporate functions that provide support and
services to the operating segments. The results contained within this segment include expenses and
benefits not allocated back to the operating segments.
Operating Results
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
713,001 |
|
|
$ |
406,503 |
|
Cost of sales |
|
|
660,760 |
|
|
|
362,118 |
|
|
|
|
Gross profit |
|
|
52,241 |
|
|
|
44,385 |
|
Operating, administrative and general |
|
|
39,504 |
|
|
|
37,751 |
|
Allowance for doubtful accounts |
|
|
1,787 |
|
|
|
233 |
|
Interest expense |
|
|
9,122 |
|
|
|
5,022 |
|
Equity in earnings of affiliates |
|
|
8,639 |
|
|
|
2,832 |
|
Other income, net |
|
|
2,884 |
|
|
|
9,873 |
|
Minority interest in net (income) loss of
subsidiaries |
|
|
(935 |
) |
|
|
83 |
|
|
|
|
Operating income |
|
$ |
12,416 |
|
|
$ |
14,167 |
|
|
|
|
The following discussion focuses on the operating results as shown in the consolidated statements
of income with a separate discussion by segment. Additional segment information is included in the
notes to the condensed consolidated financial statements herein in Note E: Segment Information.
Comparison of the three months ended March 31, 2008 with the three months ended March 31, 2007:
Grain & Ethanol Group
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
499,123 |
|
|
$ |
243,943 |
|
Cost of sales |
|
|
487,744 |
|
|
|
228,523 |
|
|
|
|
Gross profit |
|
|
11,379 |
|
|
|
15,420 |
|
Operating, administrative and general |
|
|
11,866 |
|
|
|
10,941 |
|
Allowance for doubtful accounts |
|
|
1,215 |
|
|
|
73 |
|
Interest expense |
|
|
6,303 |
|
|
|
3,133 |
|
Equity in earnings of affiliates |
|
|
8,636 |
|
|
|
2,829 |
|
Other income, net |
|
|
2,537 |
|
|
|
5,985 |
|
Minority interest in net (income) loss of
subsidiaries |
|
|
(935 |
) |
|
|
83 |
|
|
|
|
Operating income |
|
$ |
2,233 |
|
|
$ |
10,170 |
|
|
|
|
Operating results for the Grain & Ethanol Group decreased $7.9 million over the results from the
same period last year. Sales for the Group increased $268.0 million, or 114%, and is the result of
a 34% increase in the average price per bushel of grain sold and 45% increase in volume of grain
sold and a 254% increase in volume of ethanol sold. The average price per gallon of ethanol sold
only increased 1%. The increase
in volume is a result of sales into the ethanol industry (both sales of corn input and sales of
ethanol output). Gross profit on these sales is limited to the service fees earned from
origination and marketing agreements. Merchandising revenues for the Group decreased $15.0 million
over the first quarter of 2007 and is the result of a decrease in basis income. Basis is the
difference between the local market price of a commodity and the Chicago Board of Trade futures
price. During the first quarter of 2008, the futures prices rose at a
18
substantially higher rate
than the local spot prices. This caused the Group to incur losses on its forward purchase and sale
contracts as well as its inventory. The Company expects the futures prices and the spot prices to
move to a more normal historical relationship as harvest nears, and the Group expects to recover a
substantial amount of this basis loss. Revenues from services provided to the Companys ethanol
LLCs increased $2.2 million and is the result of having three operational plants versus just one in
the first quarter of 2007. The decrease in gross profit is a result of the decrease in basis
income mentioned previously, partially offset by gains on derivative activities entered into to
manage some of the risk related the Groups investment in The Andersons Marathon Ethanol LLC
(TAME).
Operating expenses for the Group increased $0.9 million, or 8%, over the same period in 2007 and
are spread amongst several expense items and relate to growth within the Group. The allowance for
doubtful accounts increased $1.1 million and relates to reserves taken against customer accounts
receivable balances for contracts that were cancelled due to non-delivery.
Interest expense for the Group increased $3.2 million, or 101%, over the same period in 2007.
Short-term interest on inventory space increased $2.3 million and short-term interest on borrowings
used primarily to cover margin deposits increased $1.2 million. The significant increase in
commodity prices is the main driver for the increased interest costs for the Group. Long-term
interest for the Group decreased $0.4 million.
Equity in earnings of affiliates increased $5.8 million over the same period in 2007. The
Andersons Clymers Ethanol LLC began producing ethanol in the second quarter of 2007 and the Groups
income earned from this investment increased $4.7 million over the first quarter of 2007. Lansing
Trade Group LLC also had a better quarter compared to the same period last year and the Groups
income from this investment increased $3.9 million. Decreases were seen from the Groups
investments in The Andersons Albion Ethanol LLC and TAME. TAME does not manage price risk
associated with its production inputs and outputs. To mitigate the Companys share of this risk,
the Company has entered into derivative contracts with external parties, the impact of which is
included in gross profit. This has helped to offset a substantial portion of the Companys $2.5
million loss realized on its investment in TAME.
Other income decreased $3.4 million over the same period last year and relates primarily to
development fees earned for formation of one of the Companys ethanol joint ventures.
Minority interest in earnings from the Groups consolidated subsidiary increased $1.0 million. The
Andersons Ethanol Investment LLC was formed in February 2007. The Company holds a 66% interest in
this entity.
Rail Group
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
35,011 |
|
|
$ |
25,916 |
|
Cost of sales |
|
|
23,860 |
|
|
|
18,287 |
|
|
|
|
Gross profit |
|
|
11,151 |
|
|
|
7,629 |
|
Operating, administrative and general |
|
|
3,466 |
|
|
|
3,352 |
|
Allowance for doubtful accounts |
|
|
456 |
|
|
|
(13 |
) |
Interest expense |
|
|
981 |
|
|
|
1,373 |
|
Other income, net |
|
|
178 |
|
|
|
91 |
|
|
|
|
Operating income |
|
$ |
6,426 |
|
|
$ |
3,008 |
|
|
|
|
Operating results for the Rail Group increased $3.4 million over the results from the same period
last year. Leasing revenues increased $1.9 million, car sales increased $4.5 million and sales in
the Groups repair and fabrication shops increased $2.7 million. The increase in leasing revenues
is attributable to the increase in the number of cars in the Groups rail fleet and has been
partially offset by decreasing lease rates for renewals. The Group sold several railcars in a
non-recourse financing deal during the quarter, which explains the significant increase in car
sales. The increase in sales in the Groups repair and
19
fabrication shops is due partially to the
addition of a new shop in the second half of 2007 as well as a significant increase in the Groups
fabrication business.
Gross profit for the Group increased $3.5 million, or 46% over the same period last year. Gross
profit in the leasing business increased $1.6 million and can be attributed to the increased cars
in the Groups rail fleet. In spite of the increased number of cars, maintenance expense remained
flat compared to the first quarter of 2007, and we believe is a positive sign that maintenance
costs per car have started to stabilize and even decrease. It is too early to tell at this point
if this will be an ongoing trend. This decrease for the quarter contributed to an increase in the
margin percentage of over 4%. Gross profit on car sales increased $1.3 million for the quarter and
is entirely attributable to the increase in sales. Margin on these sales remained flat. Gross
profit in the repair and fabrication shops increased $0.7 million
Operating expenses for the Group increased $0.1 million, or 3%, over the same period last year.
The Groups allowance for doubtful accounts increased $0.5 million. Interest expense decreased
$0.4 million as the Group continues to pay off its long-term debt.
Plant Nutrient Group
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
105,469 |
|
|
$ |
66,560 |
|
Cost of sales |
|
|
91,791 |
|
|
|
61,135 |
|
|
|
|
Gross profit |
|
|
13,678 |
|
|
|
5,425 |
|
Operating, administrative and general |
|
|
5,716 |
|
|
|
4,663 |
|
Allowance for doubtful accounts |
|
|
30 |
|
|
|
133 |
|
Interest expense |
|
|
538 |
|
|
|
354 |
|
Equity in earnings of affiliates |
|
|
3 |
|
|
|
3 |
|
Other income, net |
|
|
143 |
|
|
|
153 |
|
|
|
|
Operating income |
|
|
7,540 |
|
|
$ |
431 |
|
|
|
|
Operating results for the Plant Nutrient Group increased $7.1 million over the same period last
year. Sales increased $38.4 million, or 59%, due to a combination of a 65% increase in the average
price per ton sold partially offset by a 4% decrease in volume. The significant increase in the
commodities markets for the fertilizers that the Group sells has caused the substantial increase in
average selling price per ton. Merchandising revenues increased $0.5 million, or 40%, due to
increased storage income. Gross profit for the Group increased $8.3 million, or 152%, due to a 5%
increase in the gross margin percentage, driven primarily by the increased selling price.
Operating expenses for the Group increased $1.0 million, or 23%, over the same period last year.
Approximately half of this increase relates to increased performance incentives due to the Groups
significantly improved operating results. The remaining increase is spread across several expense
categories.
Interest expense for the Group increased $0.2 million, or 52%, due to the Groups increased use of
working capital.
20
Turf & Specialty Group
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
39,661 |
|
|
$ |
36,304 |
|
Cost of sales |
|
|
32,735 |
|
|
|
30,233 |
|
|
|
|
Gross profit |
|
|
6,926 |
|
|
|
6,071 |
|
Operating, administrative and general |
|
|
4,525 |
|
|
|
3,813 |
|
Allowance for doubtful accounts |
|
|
69 |
|
|
|
37 |
|
Interest expense |
|
|
425 |
|
|
|
483 |
|
Other income, net |
|
|
93 |
|
|
|
62 |
|
|
|
|
Operating income |
|
$ |
2,000 |
|
|
$ |
1,800 |
|
|
|
|
Operating results for the Turf & Specialty Group increased $0.2 million over results from the same
period last year. Sales and merchandising revenues in the lawn fertilizer business increased $3.4
million, or 10%, due to a combination of increased volume and an increase in the average price per
ton sold. The new product lines introduced in 2007 are been favorably received and are
contributing to the increase in volume. Sales in the cob business remained flat compared to the
first quarter of 2007. While volume decreased 14%, the Group was able to offset this with a 15%
increase in the average price per ton sold. Gross profit for the Group increased $0.9 million, or
14%, over the same period last year and is attributable to a nearly 1% increase in margin due to
the product mix change.
Operating expenses for the Group increased $0.7 million, or 19%, over the same period last year.
This increase is spread across several expense categories and relate primarily to the new product
lines added last year.
Retail Group
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
33,737 |
|
|
$ |
33,780 |
|
Cost of sales |
|
|
24,630 |
|
|
|
23,940 |
|
|
|
|
Gross profit |
|
|
9,107 |
|
|
|
9,840 |
|
Operating, administrative and general |
|
|
12,424 |
|
|
|
12,102 |
|
Allowance for doubtful accounts |
|
|
17 |
|
|
|
3 |
|
Interest expense |
|
|
190 |
|
|
|
182 |
|
Other income, net |
|
|
147 |
|
|
|
160 |
|
|
|
|
Operating loss |
|
$ |
(3,377 |
) |
|
$ |
(2,287 |
) |
|
|
|
Operating results for the Retail Group decreased $1.1 million over results from the same period
last year. Sales and merchandising revenues remained relatively flat in spite of the addition of
the new market store which opened in the second quarter of 2007. Same
store sales were down 4.9% and
decreases were experienced in each of the Groups market areas. Customer counts were down 6% for
the quarter, however, the average sale per customer increased 5%. Gross profit decreased $0.7
million, or 7%. A 2% decrease in margin, as well as weak economic conditions and local
competition, all played a significant role in the decreased results for the quarter. Operating
expenses for the Group increased only 3% in spite of the addition of the new market store due to
the Groups continued efforts to reduce costs.
21
Other
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
(in thousands) |
|
March 31, |
|
|
2008 |
|
2007 |
Sales and merchandising revenues |
|
$ |
|
|
|
$ |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
Operating, administrative and general |
|
|
1,507 |
|
|
|
2,880 |
|
Interest expense (income) |
|
|
685 |
|
|
|
(503 |
) |
Other income (loss), net |
|
|
(214 |
) |
|
|
3,422 |
|
|
|
|
Operating income |
|
$ |
(2,406 |
) |
|
$ |
1,045 |
|
|
|
|
Net corporate operating expenses not allocated to business segments decreased $1.4 million over the
same period last year due primarily to the increased charitable contribution expense recorded in
the first quarter of 2007 with the donation of the Companys available-for-sale securities. The
Company normally expenses its charitable giving donation throughout the year as the Company
recognizes income. The charitable donation in 2007 accelerated that recognition.
The increase in interest expense is a result of significantly increased borrowings as well as the
timing of certain interest expenses that are passed back to the operating Groups.
Other income decreased $3.6 million and is primarily a combination of a $3.0 million gain realized
in the first quarter of 2007 on the donation of the Companys available-for-sale securities, as
well as current period losses of $0.4 million on the Companys Deferred Compensation Plan assets.
As a result of the above, pretax income of $12.4 million for the first quarter of 2008 was $1.8
million lower than pretax income of $14.2 million recognized in the first quarter of 2007. Income
tax expense of $4.6 million was provided at 37.0%. The Company anticipates that its 2008 effective
annual rate will be 36.9%. In the first quarter of 2007, income tax expense of $4.9 million was
provided at a rate of 34.8%. The Companys actual 2007 effective tax rate was 35%. The primary
driver behind the change in the effective tax rate for the quarter and the anticipated annual rate
as compared to the same periods last year relate to tax benefits received from the charitable
donation of certain available-for-sale securities.
Liquidity and Capital Resources
Operating Activities and Liquidity
The
Companys operations used cash of $222.5 million in the first three months of 2008, a change
from a use of cash of $89.0 million in the first three months of 2007. Net working capital at
March 31, 2008 was $275.3 million, a $97.6 million increase from December 31, 2007 and a $114.2
million increase from March 31, 2007. Short-term borrowings used to fund operations increased
$214.0 million compared to the same period in 2007. The substantial working capital increase is
due to the borrowing of additional long-term debt to fund current liabilities as well as the
significant increase in commodity and fertilizer values.
The Company made income tax payments of $7.7 million in the first quarter of 2008 and expects to
make payments totaling approximately $30.2 million for the remainder of 2008.
Investing Activities
Total capital spending for 2008 on property, plant and equipment within the Companys base
businesses is expected to be approximately $36.7 million and include $4.7 million and $3.7 million
for expansion and improvements in the Plant Nutrient Group and Rail Group, respectively. The
remaining amount of $28.3 million will be spent on numerous assets and projects, none of which the
Company expects to be in excess of $1.0 million.
In addition, the Company invested $27.6 million in the purchase of additional railcars and related
leases, partially offset by financings of $1.7 million, and expects continued investments
throughout the remainder of the year.
22
The Company increased its investment in Lansing Trade Group LLC in the first quarter of 2008 by
$20.5 million. The Company now holds a 48% interest.
Financing Arrangements
The Company has significant short-term lines of credit available to finance working capital,
primarily inventories, margin calls on commodity contracts and accounts receivable. The Company is
party to a borrowing arrangement with a syndicate of banks, which was amended in April 2008, to
provide the Company with $655 million in short-term lines of credit. The agreement also includes a
temporary flex line, maturing October 2008, allowing the Company an additional $247 million. The
Company had drawn $390.0 million on its short-term line of credit at March 31, 2008. Peak
short-term borrowings for the Company to date are $666.9 million on March 12, 2008. Typically, the
Companys 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 the cash needs and market strategies of grain
customers. In addition, the Company entered into a $195 million
long-term note purchase agreement during the first quarter of 2008. Escalating commodity
and fertilizer prices have created the significant increase in cash needs for the Company.
A cash dividend of $0.0475 per common share was paid in the first three quarters of 2007. A cash
dividend of $0.0775 was paid in the fourth quarter of 2007 and the first quarter of 2008. On
February 22, 2008, the Company declared a cash dividend of $0.0775 per common share payable on
April 22, 2008 to shareholders of record on April 1, 2008. During the first three months of 2008,
the Company issued approximately 97 thousand shares to employees and directors under its
equity-based compensation plans.
Certain of the Companys long-term borrowings include covenants that, among other things, impose
minimum levels of working capital and equity, and impose limitations on additional debt. The
Company was in compliance with all such covenants at March 31, 2008. In addition, certain of the
long-term borrowings are collateralized by first mortgages on various facilities or are
collateralized by railcar assets. The Companys non-recourse long-term debt is collateralized by
railcar and locomotive assets.
Because the Company is a significant consumer of short-term debt in peak seasons and the majority
of this is variable rate debt, increases in interest rates could have a significant impact on the
profitability of the Company. In addition, periods of high grain prices and/or unfavorable market
conditions could require the Company to make additional margin deposits on its exchange traded
futures contracts. Conversely, in periods of declining prices, the Company receives a return of
cash. The marketability of Companys grain inventories and the availability of short-term lines of
credit enhance the Companys liquidity. In the opinion of management, the Companys liquidity is
adequate to meet short-term and long-term needs.
Contractual Obligations
Future payments due under debt and lease obligations and other commitments as of March 31, 2008 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
Contractual Obligations |
|
Less than 1 |
|
|
|
|
|
|
|
|
|
After 5 |
|
|
(in thousands) |
|
year |
|
1-3 years |
|
4-5 years |
|
years |
|
Total |
Long-term debt |
|
$ |
9,627 |
|
|
$ |
119,189 |
|
|
$ |
25,376 |
|
|
$ |
134,783 |
|
|
$ |
288,975 |
|
Long-term debt, securitized
non-recourse |
|
|
13,681 |
|
|
|
26,047 |
|
|
|
24,485 |
|
|
|
1,135 |
|
|
|
65,348 |
|
Interest obligations |
|
|
19,151 |
|
|
|
34,527 |
|
|
|
20,496 |
|
|
|
27,332 |
|
|
|
101,506 |
|
Uncertain tax positions |
|
|
725 |
|
|
|
705 |
|
|
|
1 |
|
|
|
|
|
|
|
1,431 |
|
Capital lease obligations |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154 |
|
Operating leases |
|
|
26,556 |
|
|
|
45,998 |
|
|
|
29,202 |
|
|
|
25,578 |
|
|
|
127,334 |
|
Purchase commitments (a) |
|
|
1,343,953 |
|
|
|
242,447 |
|
|
|
2,950 |
|
|
|
|
|
|
|
1,589,350 |
|
Other long-term liabilities (b) |
|
|
6,462 |
|
|
|
3,139 |
|
|
|
3,339 |
|
|
|
6,821 |
|
|
|
19,761 |
|
|
|
|
Total contractual cash
obligations |
|
$ |
1,420,309 |
|
|
$ |
472,052 |
|
|
$ |
105,849 |
|
|
$ |
195,649 |
|
|
$ |
2,193,859 |
|
|
|
|
23
|
|
|
(a) |
|
Includes the value of purchase obligations in the Companys operating units,
including $1,090.5 million for the purchase of grain from producers and $414.0 million for
the purchase of ethanol from our ethanol joint ventures. There are also forward grain and
ethanol sales contracts to consumers and traders. The net of the forward grain purchase
and sale contracts are substantially offset by exchange-traded futures and options
contracts. |
|
(b) |
|
Other long-term liabilities include estimated obligations under our retiree
healthcare programs and the estimated 2008 contribution to our defined benefit pension
plan. Obligations under the retiree healthcare programs are fixed commitments and will
vary depending on various factors, including the level of participant utilization and
inflation. The Company has considered recent payment trends and actuarial assumptions in
its estimates of postretirement payments through March 2013. We have not estimated
pension contributions beyond 2008 due to the significant impact that return on plan assets
and changes in discount rates might have on such amounts. |
The Company had standby letters of credit outstanding of $9.2 million at March 31, 2008, of which
$8.1 million represents a credit enhancement for industrial revenue bonds included in the
contractual obligations table above within long-term debt.
Approximately 86% of the operating lease commitments above relate to 8,186 railcars and 17
locomotives that the Company leases from financial intermediaries. See Off-Balance Sheet
Transactions.
The Company is subject to various loan covenants highlighted previously. The Company is and has
been in compliance with such covenants. Noncompliance could result in default under the documents
governing such indebtedness and acceleration of long-term debt payments. The Company anticipates
it will continue to be in compliance with all of its covenants.
Off-Balance Sheet Transactions
The Companys Rail Group utilizes leasing arrangements that provide off-balance sheet financing for
its activities. The Company leases railcars from financial intermediaries through sale-leaseback
transactions, the majority of which involve operating leasebacks. Railcars owned by the Company or
leased by the Company from a financial intermediary are generally leased to a customer under an
operating lease. The Company also arranges non-recourse lease transactions under which it sells
railcars or locomotives to a financial intermediary and assigns the related operating lease to the
financial intermediary on a non-recourse basis. In such arrangements, the Company generally
provides ongoing railcar maintenance and management services for the financial intermediary and
receives a fee for such services. On most of the railcars and locomotives that are not on its
balance sheet, the Company holds an option to purchase at the end of the lease.
The following table describes the Companys railcar and locomotive positions at March 31, 2008:
|
|
|
|
|
|
|
Method of Control |
|
Financial Statement |
|
Number |
Owned-railcars available for sale |
|
On balance sheet current |
|
|
142 |
|
Owned-railcar assets leased to others |
|
On balance sheet noncurrent |
|
|
12,360 |
|
Railcars leased from financial intermediaries |
|
Off balance sheet |
|
|
8,186 |
|
Railcars non-recourse arrangements |
|
Off balance sheet |
|
|
2,476 |
|
|
|
|
|
|
|
|
Total Railcars |
|
|
|
|
23,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Locomotive assets leased to others |
|
On balance sheet - noncurrent |
|
|
25 |
|
Locomotives leased from financial
intermediaries under limited recourse
arrangements |
|
Off balance sheet |
|
|
17 |
|
Locomotives non-recourse arrangements |
|
Off balance sheet |
|
|
39 |
|
|
|
|
|
|
|
|
Total Locomotives |
|
|
|
|
81 |
|
|
|
|
|
|
|
|
In addition, the Company manages 586 railcars for third-party customers or owners for which it
receives a fee.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in the Companys market risk-sensitive instruments and positions is the
potential loss arising from adverse changes in commodity prices and interest rates as discussed
below.
24
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 demand for ethanol, population growth and higher
standards of living, and global production of similar competitive crops. To reduce price risk
caused by market fluctuations, the Company follows a policy of
entering into economic hedges of its inventories
and related purchase and sale contracts. The instruments used are exchange-traded futures and
options contracts that function as hedges. The market value of exchange-traded futures and options
used for economic hedging has historically had a high, but not perfect correlation, to the
underlying market value of grain inventories and related purchase and sale contracts. The less
correlated portion of inventory and purchase and sale contract market value (known as basis) is
managed by the Company using a daily grain position report to constantly monitor the Companys
position relative to the price changes in the market. In addition, inventory values are affected
by the month-to-month spread relationships in the regulated futures markets, as the Company carries
inventories over time. These spread relationships are also less volatile than the overall market
value and tend to follow historical patterns but also represent risk that cannot be directly
hedged. The Companys accounting policy for its futures and options contracts, 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 Companys exposure to market risk of its
commodity position (exclusive of basis risk). The Companys 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:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31, 2008 |
|
December 31, 2007 |
Net long (short) position |
|
$ |
1,639 |
|
|
$ |
5 |
|
Market risk |
|
|
164 |
|
|
|
1 |
|
Interest Rates
The fair value of the Companys long-term debt is estimated using quoted market prices or
discounted future cash flows based on the Companys current incremental borrowing rates for similar
types of borrowing arrangements. In addition, the Company has derivative interest rate contracts
recorded on its balance sheet at their fair values. 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, 2008 |
|
December 31, 2007 |
Fair value of long-term debt and interest rate
contracts |
|
$ |
355,880 |
|
|
$ |
211,661 |
|
Fair value in excess of (less than) carrying value |
|
|
(461 |
) |
|
|
(2,795 |
) |
Market risk |
|
|
873 |
|
|
|
3,339 |
|
Item 4. Controls and Procedures
The Company is not organized with one Chief Financial Officer. Our Vice President, Controller and
CIO is responsible for all accounting and information technology decisions while our Vice
President, Finance and Treasurer is responsible for all treasury functions and financing decisions.
Each of them, along with the President and Chief Executive Officer (Certifying Officers), are
responsible for evaluating our disclosure controls and procedures. These Certifying Officers have
evaluated our disclosure controls and procedures as defined in the rules of the Securities and
Exchange Commission, as of March 31, 2008, and have determined that such controls and procedures
were effective.
Our Certifying Officers are primarily responsible for the accuracy of the financial information
that is presented in this report. To meet their responsibility for financial reporting, they have
established internal
25
controls and procedures which they believe are adequate to provide reasonable
assurance that the Companys assets are protected from loss. These procedures are reviewed by the
Companys internal auditors in order to monitor compliance. In addition, our Board of Directors
Audit Committee, which is composed entirely of independent directors, meets regularly with each of
management and our internal auditors to review accounting, auditing and financial matters.
There were no changes in internal controls over financial reporting or in other factors that have
materially affected or could materially affect internal controls over financial reporting, in each
case, during the first quarter of 2008.
Part II. Other Information
Item 1A. Risk Factors
Our operations are subject to risks and uncertainties that could cause actual results to differ
materially from those discussed in this Form 10-Q and could have a material adverse impact on our
financial results. These risks can be impacted by factors beyond our control as well as by errors
and omissions on our part. The significant factors known to us that could materially adversely
affect our business, financial condition or operating results are described in the 2007 10-K (Item
1A). There have been no material changes in the risk factors set forth therein.
Item 5. Other Information
(a) |
|
On March 1, 2008, the Company granted stock only stock appreciation rights (SOSARs) with an
exercise price of $46.26 per share to its officers, directors and other members of management
and performance share units (PSUs) valued at $46.26 to its officers. The Company also
granted restricted shares to employees who were not executive officers. These grants were
made under the Companys Long-Term Performance Compensation Plan. These grants were made as
follows to the named executive officers, all officers as a group, directors and all other
employees. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOSARs |
|
PSUs |
|
Restricted Shares |
Michael J. Anderson |
|
|
20,000 |
|
|
|
12,000 |
|
|
|
|
|
Richard R. George |
|
|
3,150 |
|
|
|
1,890 |
|
|
|
|
|
Gary L. Smith |
|
|
3,150 |
|
|
|
1,890 |
|
|
|
|
|
Harold M Reed |
|
|
6,675 |
|
|
|
4,100 |
|
|
|
|
|
Rasesh H. Shah |
|
|
6,000 |
|
|
|
3,600 |
|
|
|
|
|
Executive Group |
|
|
60,025 |
|
|
|
36,005 |
|
|
|
|
|
Non-executive director group |
|
|
33,000 |
|
|
|
|
|
|
|
|
|
Non-executive officer employee group |
|
|
59,105 |
|
|
|
|
|
|
|
17,900 |
|
(b) None.
Item 6. Exhibits
(a) Exhibits
|
|
|
No. |
|
Description |
|
|
|
10.31
|
|
Form of Stock Only Stock Appreciation Rights Agreement |
|
|
|
10.32
|
|
Form of Performance Share Award Agreement |
|
|
|
31.1
|
|
Certification of the President and Chief Executive Officer under Rule
13(a)-14(a)/15d-14(a) |
|
|
|
31.2
|
|
Certification of the Vice President, Controller and CIO under Rule
13(a)-14(a)/15d-14(a) |
|
|
|
31.3
|
|
Certification of the Vice President, Finance and Treasurer under Rule
13(a)-14(a)/15d-14(a) |
|
|
|
32.1
|
|
Certifications Pursuant to 18 U.S.C. Section 1350 |
26
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 9, 2008
|
|
By
|
|
/s/ Michael J. Anderson |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Anderson |
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: May 9, 2008
|
|
By
|
|
/s/ Richard R. George |
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard R. George |
|
|
|
|
|
|
Vice President, Controller and CIO |
|
|
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
Date: May 9, 2008
|
|
By
|
|
/s/ Gary L. Smith |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary L. Smith |
|
|
|
|
|
|
Vice President, Finance and Treasurer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
27
Exhibit Index
The Andersons, Inc.
|
|
|
No. |
|
Description |
|
|
|
10.31
|
|
Form of Stock Only Stock Appreciation Rights Agreement |
|
|
|
10.32
|
|
Form of Performance Share Award Agreement |
|
|
|
31.1
|
|
Certification of the President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) |
|
|
|
31.2
|
|
Certification of the Vice President, Controller and CIO under Rule 13(a)-14(a)/15d-14(a) |
|
|
|
31.3
|
|
Certification of the Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a) |
|
|
|
32.1
|
|
Certifications Pursuant to 18 U.S.C. Section 1350 |
28