ANDERSONS, INC.
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Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of registrant as specified in its charter)
|
OHIO
(State or other jurisdiction of incorporation or organization) |
34-1562374
(I.R.S. Employer Identification No.) |
|
480 W. Dussel Drive, Maumee, Ohio
(Address of principal executive offices) |
43537
(Zip Code) |
Registrant’s telephone number, including area code (419) 893-5050
Securities registered pursuant to Section 12(b) of the Act: Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act. Yes
o
No
þ
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 has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files. Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). Yes
o
No
þ
The aggregate market value of the registrant’s voting stock which may be voted by persons
other than affiliates of the registrant was $554.1 million on June 30, 2010, computed by reference
to the last sales price for such stock on that date as reported on the Nasdaq Global
Select Market.
The registrant had 18.5 million common shares outstanding, no par value, at February 9, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 6,
2011, are incorporated by reference into Part III (Items 10, 11, 12 and 14) of this Annual Report
on Form 10-K. The Proxy Statement will be filed with the Commission on or about March 13, 2011.
TABLE OF CONTENTS
Table of Contents
Company Overview
The Andersons, Inc. (the “Company”) is a diversified company with interests in the grain, ethanol
and plant nutrient sectors of U.S. agriculture, as well as in railcar leasing and repair, turf
products production and general merchandise retailing. Founded in Maumee, Ohio in 1947, the Company
now has operations in 16 U.S. States and Puerto Rico, plus railcar leasing interests in Canada and
Mexico.
The Company has experienced significant growth during the year. The Company acquired two grain
cleaning and storage facilities from O’Malley Grain, Inc. (“O’Malley”) for a purchase price of $7.8
million. O’Malley is a supplier of consistent, high quality food-grade corn to the snack food and
tortilla industries with facilities in Nebraska and Illinois. In addition, the Company purchased
two grain storage facilities in Kearney and Riverdale, Nebraska, and took over a third leased
facility in Paxton, Nebraska from B4 Grain, Inc. for a purchase price of $35.1 million. B4 Grain
buys and sells corn, soybeans and wheat. These acquisitions expanded the Company’s footprint
another step westward and contributed to the increase in total storage capacity to about 107 million bushels from 101
million bushels.
In addition, the Company invested $12.6 million for a 49.9% equity stake in Iowa Northern Railway
Company (“IANR”) and $0.5 million for a 49.9% equity stake in an affiliate, Zephyr Holding Company
(“Zephyr”). IANR operates a 163-mile short line railroad that runs diagonally through Iowa from
northwest to southeast. With a fleet of 21 locomotives and 500 railcars, IANR primarily serves
agribusiness customers and moves more than 50,000 car loads per year. Zephyr is involved in the
development of storage and logistics terminals designed to aid the transloading of various products
including ethanol and wind turbine components.
Segment Descriptions
The Company’s operations are classified into five reportable business segments: Grain & Ethanol,
Rail, Plant Nutrient, Turf & Specialty, and Retail. Each of these segments is organized based upon
the nature of products and services offered. See Note 16 to the consolidated financial statements
in Item 8 for information regarding business segments.
Grain & Ethanol Group
The Grain & Ethanol Group provides merchandising and services to the grain industry primarily in
the U.S. Corn Belt. It also is an investor in and operator of three ethanol facilities.
Grain
— The Grain Division operates grain terminals in Ohio, Michigan, Indiana, Illinois,
and Nebraska with storage capacity of approximately 107 million bushels at December 31, 2010. The
division sold more than 353 million bushels in the U.S. and Canada during the year. Income is
earned on grain bought and sold or “put thru” the elevator, grain that is purchased and conditioned
for resale, grain held to earn market value appreciation until sold and grain stored for others
upon which storage fees are earned. The Grain Division also offers a number of unique grain
marketing, origination and risk management services to its customers for which it collects fees.
The Chicago Mercantile Exchange
(“CME”) implemented a new methodology for calculating wheat storage rates. Storage rates are no
longer static but now vary with the storage rate dependent upon the price spread relationship
between the various trading months. The new variable storage rates were implemented by the CME and
provided a significant source of income in 2010.
In 2008, the Company renewed the five-year lease agreement and the five-year marketing agreement
(“the Agreement”) with Cargill, Incorporated (“Cargill”) for Cargill’s Maumee and Toledo, Ohio
grain handling and storage facilities. As part of the agreement, Cargill is given the marketing
rights to grain in the Cargill-
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Table of Contents
owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. This lease
covers 8.3%, or approximately 8.9 million bushels, of the Company’s total storage space. Grain
sales to Cargill totaled $269 million in 2010, and include grain covered by the Agreement as well
as grain sold to Cargill via normal forward sales from locations not covered by the Agreement.
The principal grains sold by the Company are yellow corn, yellow soybeans and soft red and white
wheat. Approximately 85% of the grain bushels sold by the Company in 2010 were purchased by U.S.
grain processors and feeders, and approximately 15% were exported. Most of the Company’s exported
grain sales are done through intermediaries while some grain is shipped directly to foreign
countries, mainly Canada. Almost all grain shipments are by rail or boat. Rail shipments are made
primarily to grain processors and feeders with some rail shipments made to exporters on the Gulf of
Mexico or east coast. Boat shipments are from the Port of Toledo. Grain sales are made on a
negotiated basis by the Company’s merchandising staff, except for grain sales subject to the
Agreement with Cargill which are made on a negotiated basis with Cargill’s merchandising staff.
The Company’s grain operations rely on forward purchase contracts with producers, dealers and
country elevators to ensure an adequate supply of grain to the Company’s facilities throughout the
year. The Company makes grain purchases at prices referenced to the CME. Bushels contracted for future delivery at January 31, 2011 approximated 248.1 million.
The Company competes in the sale of grain with other grain merchants, other elevator operators and
farmer cooperatives that operate elevator facilities. Some of the Company’s competitors are also
its customers. Competition is based primarily on price, service and reliability. Because the
Company generally buys in smaller lots, its competition is generally local or regional in scope,
although there are some large national and international companies that maintain regional grain
purchase and storage facilities. A significant portion of grain bushels purchased and sold are
done so using forward contracts.
The grain business has a seasonal component in that a large portion of the principal grains are
harvested and delivered in July, October and November although the balance of the principal grains
continue to be delivered to The Andersons all year long.
Fixed price purchase and sale commitments for grain and grain held in inventory expose the Company
to risks related to adverse changes in market prices. The Company attempts to manage these risks
by entering into exchange-traded futures and option contracts with the CME. The contracts are
economic hedges of price risk, but are not designated or accounted for as hedging instruments. The
CME is a regulated commodity futures exchange that maintains futures markets for the grains
merchandised by the Company. Futures prices are determined by worldwide supply and demand.
The Company’s grain risk management practices are designed to reduce the risk of changing commodity
prices. In that regard, such practices also limit potential gains from further changes in market
prices. Profitability is primarily derived from margins on grain sold, and revenues generated from
other merchandising activities with its customers (including storage and service income), not from
futures and options transactions. The Company has policies that specify the key controls over its
risk management practices. These policies include a description of the objectives of the programs,
mandatory review of positions by key management outside of the trading function on a biweekly
basis, daily position limits, daily review and reconciliation and other internal controls. The
Company monitors current market conditions and may expand or reduce the purchasing program in
response to changes in those conditions. In addition, the Company monitors the parties to its
purchase contracts on a regular basis for credit worthiness, defaults and non-delivery.
Purchases of grain can be made the day the grain is delivered to a terminal or via a forward
contract made prior to actual delivery. Sales of grain generally are made by contract for delivery
in a future period. When the Company purchases grain at a fixed price or at a price where a
component of the purchase price is fixed via reference to a futures price on the CME, it also
enters into an offsetting sale of a futures contract on the CME. Similarly, when the Company sells
grain at a fixed price, the sale is offset with the purchase of a futures contract on the CME. At
the close of business each day, inventory and open purchase and sale contracts as well as open
futures and option positions are marked-to-market. Gains and losses in the value of the Company’s
ownership positions due to changing market prices are netted with and
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generally offset in the income statement by losses and gains in the value of the Company’s futures
positions.
When a futures contract is entered into, an initial margin deposit must be sent to the CME. The
amount of the margin deposit is set by the CME and varies by commodity. If the market price of a
futures contract moves in a direction that is adverse to the Company’s position, an additional
margin deposit, called a maintenance margin, is required by the CME. Subsequent price changes
could require additional maintenance margin deposits or result in the return of maintenance margin
deposits by the CME. Significant increases in market prices, such as those that occur when grain
supplies are affected by unfavorable weather conditions and/or when increases in demand occur, can
have an effect on the Company’s liquidity and, as a result, require it to maintain appropriate
short-term lines of credit. The Company may utilize CME option contracts to limit its exposure to
potential required margin deposits in the event of a rapidly rising market.
Ethanol
— The Ethanol Division operates three ethanol plants for Limited Liability
Companies (“LLCs”) in Indiana, Michigan, and Ohio that are collectively capable of producing 275
million gallons of ethanol. The division offers facility operations, risk management, corn
origination, ethanol and distiller dried grains marketing to the LLCs it operates as well as third
parties.
The ethanol LLC investments are accounted for using the equity method of accounting. The Company
holds a 50.01% interest in The Andersons Albion Ethanol LLC (“TAAE”) and a 38% interest in The
Andersons Clymers Ethanol LLC (“TACE”). The Company holds a 50% interest The Andersons Marathon
Ethanol LLC (“TAME”) through its majority owned subsidiary The Andersons Ethanol Investment LLC
(“TAEI”). A third party owns 34% of TAEI.
The Company has a management agreement with each of the LLCs. As part of these agreements, the
Company runs the day-to-day operations of the plants and provides all administrative functions.
The Company is separately compensated for these services. In addition to the management
agreements, the Company also has entered into ethanol and distillers dried grains (“DDG”) marketing
agreements in which the Company markets the ethanol and DDG produced to external customers. As
compensation for these services, the Company receives a fee based on each gallon of ethanol and
each ton of DDG sold. Finally, the Company has entered into corn origination agreements with each
of the LLCs under which the Company originates 100% of the corn used in the production of ethanol.
For this service, the Company also receives a unit based fee.
Lansing
— The Company also owns 52% of the equity in Lansing Trade Group LLC (“LTG”). LTG
is an established grain merchandising business which continues to increase its trading
capabilities, including ethanol trading and is exposed to the some of the same risks as the
Company’s grain and ethanol businesses. LTG also trades in other commodities that the Company’s
grain and ethanol business does not trade in, some of which are not exchange traded. In addition,
they have a separate proprietary trading business. This investment provides the Company with
further opportunity to expand outside of its traditional geographic regions. This investment is
accounted for under the equity method.
Sales of grain and related service and merchandising revenues totaled $1,937.7 million, $1,734.6
million and $1,944.8 million for the years ended December 31, 2010, 2009 and 2008. Sales of
ethanol and related service revenue totaled $467.8 million, $419.4 million and $466.3 million in
2010, 2009 and 2008.
The Company intends to further expand its trading and direct ship operations, increase its service
offerings to the ethanol industry and grow its traditional grain business through business
acquisitions. The Company may make additional investments in the ethanol and other grain
processing industries through joint venture agreements and by providing origination, management,
logistics, merchandising and other services.
Rail Group
The Company’s Rail Group ranks eighth in fleet size among privately-owned fleets in the U.S. This
group repairs, sells, manages, and leases a fleet of almost 23,000 railcars of various types. There
are eight railcar repair facilities across the country. It also offers fleet management services to
private railcar owners and
operates a custom steel fabrication business. The Rail Group is also an investor in the short-line
railroad, IANR.
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Table of Contents
The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers,
tank cars and pressure differential cars) and locomotives serving a broad customer base. The
Company operates in the used car market — purchasing used cars and repairing and refurbishing them
for specific markets and customers. The Company plans to continue to diversify its fleet both in
terms of car types and industries. The Rail Group will execute its strategy through expansion of
its fleet of railcars and locomotives through targeted portfolio acquisitions and open market
purchases as well as strategic selling or scrapping of railcars. The Company also plans to expand
its repair and refurbishment operations by adding fixed and mobile facilities.
A significant portion of our railcars and locomotives managed by the Company are included on the
balance sheet as long-lived assets. The others are either in off-balance sheet operating leases
(with the Company leasing railcars from financial intermediaries and leasing those same railcars to
the end-users of the railcars) or non-recourse arrangements (where the Company is not subject to
any lease arrangement related to the railcars, but provides management services to the owner of the
railcars). The Company generally holds purchase options on most railcars owned by financial
intermediaries. We are under contract to provide maintenance services for many of the railcars
that we own or manage. Refer to the Off-Balance Sheet Transactions section of Management’s
Discussion and Analysis for a breakdown of our railcar and locomotive positions at December 31,
2010.
In the case of our off-balance sheet railcars, the risk management philosophy of the Company is to
match-fund the lease commitments where possible. Match-funding (in relation to rail lease
transactions) means matching the terms of the financial intermediary funding arrangement with the
lease terms of the customer where the Company is both lessee and sublessor. If the Company is
unable to match-fund, it will try to get an early buyout provision within the funding arrangement
to match the underlying customer lease. The Company does not attempt to match-fund lease
commitments for railcars that are on our balance sheet.
Competition for railcar marketing and fleet maintenance services is based primarily on service
ability, and access to both used rail equipment and third party financing. Repair and fabrication
shop competition is based primarily on price, quality and location.
For the years ended December 31, 2010, 2009 and 2008, lease revenues and railcar sales in the
Company’s railcar marketing business were $82.6 million, $82.5 million and $117.2 million,
respectively. Sales in the railcar repair and fabrication shops were $12.2 million, $10.3 million
and $16.7 million for 2010, 2009 and 2008, respectively.
Plant Nutrient Group
The Company’s Plant Nutrient Group is a leading manufacturer and distributor of agricultural plant
nutrients in the U.S. Corn Belt and Florida. It operates 30 facilities in Ohio, Michigan, Indiana,
Illinois, Florida, Wisconsin, Minnesota and Puerto Rico.
Wholesale
— The Wholesale business manufactures, stores, and distributes about 2 million
tons of dry and liquid agricultural nutrients, and pelleted lime and gypsum products primarily to
agricultural farm supply dealers. The Group purchases basic nitrogen, phosphate, potassium and
sulfur materials for resale and uses some of these same materials in its manufactured nutrient
products.
Farm Centers
— The Farm Centers offer a variety of essential crop nutrients, crop
protection chemicals and seed products in addition to application and agronomic services to
commercial and family farmers. Soil and tissue sampling along with global satellite assisted
services provide for pinpointing crop or soil deficiencies and prescriptive agronomic advice is
provided to farmer customers.
Industrial Products
— The Plant Nutrient Group also manufactures and distributes a variety
of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air
pollution control systems
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Table of Contents
used in coal-fired power plants, water treatment and dust abatement products, and de-icers and
anti-icers for airport runways, roadways, and other commercial applications.
Storage capacity at the Company’s wholesale and farm center facilities was approximately 15.2
million cubic feet for dry nutrients and approximately 69.9 million gallons for liquid nutrients at
December 31, 2010. The Company reserves 7.9 million cubic feet of its dry storage capacity and
24.5 million gallons of its liquid nutrient capacity for basic manufacturers and customers. The
agreements for reserved space provide the Company storage and handling fees and are generally for
one to three year terms, renewable at the end of each term. The Company also leases 0.8 million
gallons of liquid fertilizer capacity under arrangements with other distributors, farm supply
dealers and public warehouses where the Company does not have facilities. Sales and warehouse
shipments of agricultural nutrients are heaviest in the spring and fall.
In its plant nutrient businesses, the Company competes with regional and local cooperatives
wholesalers and retailers, predominantly publicly owned basic manufacturers and privately owned
retailers, wholesalers and importers. Some of these competitors are also suppliers and have
considerably larger resources than the Company. Competition in the nutrient business of the
Company is based largely on depth of product offering, price, location and service.
For the years ended December 31, 2010, 2009 and 2008, sales and service revenues in the wholesale
business totaled $509.8 million, $381.1 million and $547.8 million, respectively. Sales of crop
production inputs and service revenues in the farm center business totaled $109.5 million, 110.2
million and $104.7 million in 2010, 2009 and 2008, respectively.
Turf & Specialty Group
The Turf & Specialty Group produces granular fertilizer and control products for the turf and
ornamental markets. It also produces private label fertilizer and control products, and
corncob-based animal bedding and cat litter for the consumer markets.
Turf Products
— Proprietary professional turf care products are produced for the golf
course and professional turf care markets, serving both U.S. and international customers. These
products are sold both directly and through distributors to golf courses under The Andersons Golf
Products
TM
label and lawn service applicators. The Company also produces and sells
fertilizer and control products for “do-it-yourself” application, to mass merchandisers, small
independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing
of fertilizer and control products.
The turf products industry is seasonal with the majority of sales occurring from early spring to
early summer. Principal raw materials for the turf care products are nitrogen, phosphate and
potash, which are purchased primarily from the Company’s Plant Nutrient Group. Competition is
based principally on merchandising ability, logistics, service, quality and technology.
The Company attempts to minimize the amount of finished goods inventory it must maintain for
customers, however, because demand is highly seasonal and influenced by local weather conditions,
it may be required to carry inventory that it has produced into the next season. Also, because a
majority of the consumer and industrial businesses use private label packaging, the Company closely
manages production to anticipated orders by product and customer.
The Company intends to focus on leveraging its position in the golf fertilizer market and its
research and development capabilities to develop higher value, proprietary products.
For the years ended December 31, 2010, 2009 and 2008, sales of granular plant fertilizer and
control products totaled $104.0 million, $109.5 million and $103.1 million, respectively.
Cob Products
- The Company is one of a limited number of processors of corncob-based
products in the United States. These products serve the chemical and feed ingredient carrier,
animal litter and industrial
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Table of Contents
markets, and are distributed throughout the United States and Canada and into Europe and Asia. The
principal sources for corncobs are seed corn producers.
For the years ended December 31, 2010, 2009 and 2008, sales of corncob and related products totaled
$19.6 million, $15.8 million and $15.8 million, respectively.
Retail Group
The Company’s Retail Group includes large retail stores operated as “The Andersons,” which are
located in the Columbus and Toledo, Ohio markets. The retail concept is
More for Your Home
®
and
the 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. Each store carries more than 80,000 different items, has 100,000 square feet or more of
in-store display space plus 40,000 or more square feet of outdoor garden center space, and features
do-it-yourself clinics, special promotions and varying merchandise displays. The Company also
operates a specialty food store operated as “The Andersons
Market”™ located in the Toledo, Ohio
market area. The specialty food store concept has product offerings with a strong emphasis on
“freshness” that features produce, deli and bakery items, fresh meats, specialty and conventional
dry goods and wine. The majority of the Company’s non-perishable merchandise is received at a
distribution center located in Maumee, Ohio.
The retail merchandising business is highly competitive. The Company competes with a variety of
retail merchandisers, including grocery stores, home centers, department and hardware stores. Many
of these competitors have substantially greater financial resources and purchasing power than the
Company. The principal competitive factors are location, quality of product, price, service,
reputation and breadth of selection. The Company’s retail business is affected by seasonal factors
with significant sales occurring in the spring and during the Christmas season.
The Company also operates a sales and service facility for outdoor power equipment near one of its
retail stores.
For the years ended December 31, 2010, 2009 and 2008, sales of retail merchandise including
commissions on third party sales totaled $150.6 million, $161.9 million and $173.1 million
respectively.
The Company intends to continue to refine its
More for Your Home
®
concept and focus on expense
control and customer service.
Employees
The Andersons offers a broad range of full-time and part-time career opportunities. Each position
in the Company is important to our success, and we recognize the worth and dignity of every
individual. We strive to treat each person with respect and utilize his or her unique talents. At
December 31, 2010 the Company had 1,614 full-time and 1,329 part-time or seasonal employees.
Government Regulation
Grain sold by the Company must conform to official grade standards imposed under a federal system
of grain grading and inspection administered by the United States Department of Agriculture
(“USDA”).
The production levels, markets and prices of the grains that the Company merchandises are
materially affected by United States government programs, which include acreage control and price
support programs of the USDA. For our investments in ethanol production facilities, the U.S.
Government provides incentives to the ethanol blender, has mandated certain volumes of ethanol be
produced and has imposed tariffs on ethanol imported from other countries. Also, under federal
law, the President may prohibit the export of any product, the scarcity of which is deemed
detrimental to the domestic economy, or under circumstances relating to national security. Because
a portion of the Company’s grain sales is to exporters, the imposition of such restrictions could
have an adverse effect upon the Company’s operations.
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The U.S. Food and Drug Administration (“FDA”) has developed bioterrorism prevention regulations for
food facilities, which require that we register our grain operations with the FDA, provide prior
notice of any imports of food or other agricultural commodities coming into the United States and
maintain records to be made available upon request that identifies the immediate previous sources
and immediate subsequent recipients of our grain commodities.
The Company, like other companies engaged in similar businesses, is subject to a multitude of
federal, state and local environmental protection laws and regulations including, but not limited
to, laws and regulations relating to air quality, water quality, pesticides and hazardous
materials. The provisions of these various regulations could require modifications of certain of
the Company’s existing facilities and could restrict the expansion of future facilities or
significantly increase the cost of their operations. The Company spent approximately $1.9 million,
$1.8 million and $4.1 million in both capital and expense in order to comply with these regulations
in 2010, 2009 and 2008, respectively.
Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports are available on our Company website soon after filing with the
Securities and Exchange Commission. Our Company website is http://www.andersonsinc.com. The public
may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. These reports are also available
at the SEC’s website:
http://www.sec.gov
.
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Our operations are subject to risks and uncertainties that could cause actual results to differ
materially from those discussed in this Form 10-K 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 following risk factors should be read carefully in connection with
evaluating our business and the forward-looking statements contained elsewhere in this Form 10-K.
Certain of our business segments are affected by the supply and demand of commodities, and are
sensitive to factors outside of our control. Adverse price movements could negatively affect our
profitability and results of operations.
Our Grain & Ethanol and Plant Nutrient Groups buy, sell and hold inventories of various
commodities, some of which are readily traded on commodity futures exchanges. In addition, our Turf
& Specialty Group uses some of these same fertilizer commodities as base raw materials in
manufacturing golf course and landscape fertilizer. Unfavorable weather conditions, both local and
worldwide, as well as other factors beyond our control, can affect the supply and demand of these
commodities and expose us to liquidity pressures to finance hedges in the Grain business in rapidly
rising markets. In our Plant Nutrient and Turf & Specialty Groups, changes in the supply and demand
of these commodities can also affect the value of inventories that we hold, as well as the price of
raw materials as we are unable to effectively hedge these commodities. Increased costs of
inventory and prices of raw material would decrease our profit margins and adversely affect our
results of operations.
Corn
— The principal raw material the ethanol LLCs use to produce ethanol and co-products,
including DDG, is corn. As a result, changes in the price of corn can significantly affect our
business. In general, rising corn prices will produce lower profit margins for our ethanol
business. Because ethanol competes with non-corn-based fuels, we generally will be unable to pass
along increased corn costs to our customers. At certain levels, corn prices may make ethanol
uneconomical to use in fuel markets. The price of corn is influenced by weather conditions and
other factors affecting crop yields, farmer planting decisions and general economic, market and
regulatory factors. These factors include government policies and subsidies with respect to
agriculture and international trade, and global and local demand and supply. The significance and
relative effect of these factors on the price of corn is difficult to predict. Any event that tends
to negatively affect the supply of corn, such as adverse weather or crop disease, could increase
corn prices and potentially harm our share of the ethanol LLC results. The Company will attempt to
lock in ethanol margins as far out as practical in order to secure reasonable returns using
whatever risk management tools are available in the marketplace. In addition, we may also have
difficulty, from time to time, in physically sourcing corn on economical terms due to supply
shortages. High costs or shortages could require us to suspend our ethanol operations until corn is
available on economical terms, which would have a material adverse effect on our operating results.
Grains
— While we attempt to manage the risk associated with commodity price changes for
our grain inventory positions with derivative instruments, including purchase and sale contracts,
we are unable to offset 100% of the price risk of each transaction due to timing, availability of
futures and options contracts and third party credit risk. Furthermore, there is a risk that the
derivatives we employ will not be effective in offsetting the changes associated with the risks we
are trying to manage. This can happen when the derivative and the underlying value of grain
inventories and purchase and sale contracts are not perfectly matched. Our grain derivatives, for
example, do not perfectly correlate with the basis pricing component of our grain inventory and
contracts. (Basis is defined as the difference between the cash price of a commodity in our
facility and the nearest exchange-traded futures price.) Differences can reflect time periods,
locations or product forms. Although the basis component is smaller and generally less volatile
than the futures component of our grain market price, significant unfavorable basis moves on a
grain position as large as ours can significantly impact the profitability of the Grain & Ethanol
Group and our business as a whole.
Our futures, options and over-the-counter contracts are subject to margin calls. If there is a
significant movement in the commodities market, we could be required to post significant levels of
margin, which would impact our liquidity. There is no assurance that the efforts we have taken to
mitigate the impact of
9
Table of Contents
the volatility of the prices of commodities upon which we rely will be successful and any sudden
change in the price of these commodities could have an adverse affect on our business and results
of operations.
Natural Gas
— We rely on third parties for our supply of natural gas, which is consumed in
the manufacturing of ethanol, dry wet grain, and plant nutrients. The prices for and availability
of natural gas are subject to volatile market conditions. These market conditions often are
affected by factors beyond our control such as higher prices resulting from colder than average
weather conditions and overall economic conditions. Significant disruptions in the supply of
natural gas could impair our ability to manufacture ethanol for our customers. Furthermore,
increases in natural gas prices or changes in our natural gas costs relative to natural gas costs
paid by competitors may adversely affect our future results of operations and financial position.
Gasoline
— In addition, we market ethanol as a fuel additive to reduce vehicle emissions
from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is
blended and as a substitute for oil derived gasoline. As a result, ethanol prices will be
influenced by the supply and demand for gasoline and our future results of operations and financial
position may be adversely affected if gasoline demand or price decreases.
Potash, phosphate and nitrogen
— Raw materials used by our Plant Nutrient Group include
potash, phosphate and nitrogen, for which prices are volatile and driven by global and local supply
and demand. Significant increases in the price of these commodities may result in lower customer
demand and higher than optimal inventory levels. In contrast, reductions in the price of these
commodities may create lower-of-cost-or-market inventory adjustments to inventories.
Some of our business segments operate in highly regulated industries. Changes in government
regulations or trade association policies could adversely affect our results of operations.
Many of our business segments are subject to government regulation and regulation by certain
private sector associations, compliance with which can impose significant costs on our business.
Failure to comply with such regulations can result in additional costs, fines or criminal action.
A significant part of our operations is regulated by environmental laws and regulations, including
those governing the labeling, use, storage, discharge and disposal of hazardous materials. Because
we use and handle hazardous substances in our businesses, changes in environmental requirements or
an unanticipated significant adverse environmental event could have a material adverse effect on
our business. We cannot assure you that we have been, or will at all times be, in compliance with
all environmental requirements, or that we will not incur material costs or liabilities in
connection with these requirements. Private parties, including current and former employees, could
bring personal injury or other claims against us due to the presence of, or exposure to, hazardous
substances used, stored or disposed of by us, or contained in our products. We are also exposed to
residual risk because some of the facilities and land which we have acquired may have environmental
liabilities arising from their prior use. In addition, changes to environmental regulations may
require us to modify our existing plant and processing facilities and could significantly increase
the cost of those operations.
Grain & Ethanol
— In our Grain & Ethanol Group, agricultural production and trade flows can
be affected by government programs and legislation. Production levels, markets and prices of the
grains we merchandise can be affected by U.S. government programs, which include acreage controls
and price support programs administered by the USDA. Other examples of government policies that can
have an impact on our business include tariffs, duties, subsidies, import and export restrictions
and outright embargoes. Because a portion of our grain sales are to exporters, the imposition of
export restrictions could limit our sales opportunities. In addition, we have invested in the
ethanol industry where development has been stimulated by Federal mandates for refiners to blend
ethanol and excise tax credits paid to those blenders to encourage the use of ethanol. Future
changes in those mandates and tax credits can have an impact on ethanol processing margins.
Furthermore, there is a risk that if the CME repealed the variable storage rates in the wheat
futures contracts, there could be a negative impact on liquidity.
10
Table of Contents
Rail
- Our Rail Group is subject to regulation by the American Association of Railroads and
the Federal Railroad Administration. These agencies regulate rail operations with respect to health
and safety matters. New regulatory rulings could negatively impact financial results through higher
maintenance costs or reduced economic value of railcar assets.
The Rail Group is also subject to risks associated with the demands and restrictions of the Class 1
railroads, a group of rail companies owning a high percentage of the existing rail lines. These
companies exercise a high degree of control over whether private railcars can be allowed on their
lines and may reject certain railcars or require maintenance or improvements to the railcars. This
presents risk and uncertainty for our Rail Group and it can increase the Group’s maintenance costs.
In addition, a shift in the railroad strategy to investing in new rail cars and improvements to
existing railcars, instead of investing in locomotives and infrastructure, could adversely impact
our business by causing increased competition and creating an oversupply of railcars. Our rail
fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank
cars and pressure differential cars) and locomotives. However a large concentration of a particular
type of railcar could expose us to risk if demand were to decrease for that railcar type. Failure
on our part to identify and assess risks and uncertainties such as these could negatively impact
our business.
Turf & Specialty
— Our Turf & Specialty Group manufactures lawn fertilizers and weed and
pest control products and uses potentially hazardous materials. All products containing pesticides,
fungicides and herbicides must be registered with the U.S. Environmental Protection Agency (“EPA”)
and state regulatory bodies before they can be sold. The inability to obtain or the cancellation
of such registrations could have an adverse impact on our business. In the past, regulations
governing the use and registration of these materials have required us to adjust the raw material
content of our products and make formulation changes. Future regulatory changes may have similar
consequences. Regulatory agencies, such as the EPA, may at any time reassess the safety of our
products based on new scientific knowledge or other factors. If it were determined that any of our
products were no longer considered to be safe, it could result in the amendment or withdrawal of
existing approvals, which, in turn, could result in a loss of revenue, cause our inventory to
become obsolete or give rise to potential lawsuits against us. Consequently, changes in existing
and future government or trade association polices may restrict our ability to do business and
cause our financial results to suffer.
We are required to carry significant amounts of inventory across all of our businesses. If a
substantial portion of our inventory becomes damaged or obsolete, its value would decrease and our
profit margins would suffer.
We are exposed to the risk of a decrease in the value of our inventories due to a variety of
circumstances in all of our businesses. For example, within our Grain & Ethanol Group, there is the
risk that the quality of our grain inventory could deteriorate due to damage, moisture, insects,
disease or foreign material. If the quality of our grain were to deteriorate below an acceptable
level, the value of our inventory could decrease significantly. In our Plant Nutrient Group,
planted acreage, and consequently the volume of fertilizer and crop protection products applied, is
partially dependent upon government programs and the perception held by the producer of demand for
production. Technological advances in agriculture, such as genetically engineered seeds that resist
disease and insects, or that meet certain nutritional requirements, could also affect the demand
for our crop nutrients and crop protection products. Either of these factors could render some of
our inventory obsolete or reduce its value. Within our Rail Group, major design improvements to
loading, unloading and transporting of certain products can render existing (especially old)
equipment obsolete. A significant portion of our rail fleet is composed of older railcars. In
addition, in our Turf & Specialty Group, we build substantial amounts of inventory in advance of
the season to prepare for customer demand. If we were to forecast our customer demand incorrectly,
we could build up excess inventory which could cause the value of our inventory to decrease.
Our substantial indebtedness could negatively affect our financial condition, decrease our
liquidity and impair our ability to operate the business.
If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time
when we are unable to draw on our credit facility, it could have an adverse effect on our ability
to conduct our
11
Table of Contents
business. Our ability to make payments on and to refinance our indebtedness will depend on our
ability to generate cash in the future. Our ability to generate cash is dependent on various
factors. These factors include general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. Certain of our long-term borrowings include
provisions that require minimum levels of working capital and equity, and impose limitations on
additional debt. Our ability to satisfy these provisions can be affected by events beyond our
control, such as the demand for and fluctuating price of grain. Although we are and have been in
compliance with these provisions, noncompliance could result in default and acceleration of
long-term debt payments.
Adoption of new accounting rules can affect our financial position and results of operations.
The Company’s implementation of and compliance with changes in accounting rules and interpretations
could adversely affect its operating results or cause unanticipated fluctuations in its results in
future periods. The accounting rules and regulations that the Company must comply with are complex
and continually changing. The Financial Accounting Standards Board has recently introduced several
new or proposed accounting standards, or is developing new proposed standards, such as
International Financial Reporting Standards convergence projects, which would represent a
significant change from current industry practices. Potential changes in accounting for leases, for
example, will eliminate the accounting classification of operating leases, which would not only
impact the way we account for leases, but may also impact our customers lease versus buy decisions
and could have a negative impact on demand for our rail leases.
The Company cannot predict the impact of future changes to accounting principles or its accounting
policies on its financial statements going forward.
We face increasing competition and pricing pressure from other companies in our industries. If we
are unable to compete effectively with these companies, our sales and profit margins would
decrease, and our earnings and cash flows would be adversely affected.
The markets for our products in each of our business segments are highly competitive. While we have
substantial operations in our region, some of our competitors are significantly larger, compete in
wider markets, have greater purchasing power, and have considerably larger financial resources. We
also may enter into new markets where our brand is not recognized and do not have an established
customer base. Competitive pressures in all of our businesses could affect the price of, and
customer demand for, our products, thereby negatively impacting our profit margins and resulting in
a loss of market share.
Our grain and ethanol business uses derivative contracts to reduce volatility in the commodity
markets. Non-performance by the counter-parties to those contracts could adversely affect our
future results of operations and financial position.
A significant amount of our grain and ethanol purchases and sales are done through forward
contracting. In addition, the Company uses exchange traded and over-the-counter contracts to
reduce volatility in changing commodity prices. A significant adverse change in commodity prices
could cause a counter-party to one or more of our derivative contracts not to perform on their
obligation.
We rely on a limited number of suppliers for certain of our raw materials and other products and
the loss of one or several of these suppliers could increase our costs and have a material adverse
effect on any one of our business segments.
We rely on a limited number of suppliers for certain of our raw materials and other products. If we
were unable to obtain these raw materials and products from our current vendors, or if there were
significant increases in our supplier’s prices, it could significantly increase our costs and
reduce our profit margins.
Our investments in limited liability companies are subject to risks beyond our control.
We currently have investments in six limited liability companies. By operating a business through
this arrangement, we have less control over operating decisions than if we were to own the business
outright.
12
Table of Contents
Specifically, we cannot act on major business initiatives without the consent of the other
investors who may not always be in agreement with our ideas.
The Company may not be able to effectively integrate additional businesses it acquires in the
future.
We continuously look for opportunities to enhance our existing business through strategic
acquisitions. The process of integrating an acquired business into our existing business and
operations may result in unforeseen operating difficulties and expenditures as well as require a
significant amount of management resources. There is also the risk that our due diligence efforts
may not uncover significant business flaws or hidden liabilities. In addition, we may not realize
the anticipated benefits of an acquisition and they may not generate the anticipated financial
results. Additional risks may include the inability to effectively integrate the operations,
products, technologies and personnel of the acquired companies. The inability to maintain uniform
standards, controls, procedures and policies would also negatively impact operations.
Our business involves considerable safety risks. Significant unexpected costs and liabilities
would have a material adverse effect on our profitability and overall financial position.
Due to the nature of some of the businesses in which we operate, we are exposed to significant
safety risks such as grain dust explosions, fires, malfunction of equipment, abnormal pressures,
blowouts, pipeline ruptures, chemical spills or run-off, transportation accidents and natural
disasters. Some of these operational hazards may cause personal injury or loss of life, severe
damage to or destruction of property and equipment or environmental damage, and may result in
suspension of operations and the imposition of civil or criminal penalties. If one of our
elevators were to experience a grain dust explosion or if one of our pieces of equipment were to
fail or malfunction due to an accident or improper maintenance, it could put our employees and
others at serious risk.
The Company’s information technology systems may impose limitations or failures which may affect
the Company’s ability to conduct its business.
The Company’s information technology systems, some of which are dependent on services provided by
third-parties, provide critical data connectivity, information and services for internal and
external users. These interactions include, but are not limited to, ordering and managing
materials from suppliers, converting raw materials to finished products, inventory management,
shipping products to customers, processing transactions, summarizing and reporting results of
operations, complying with regulatory, legal or tax requirements, and other processes necessary to
manage the business. The Company has put in place business continuity plans for its critical
systems. However, if the Company’s information technology systems are damaged, or cease to
function properly due to any number of causes, such as catastrophic events, power outages, security
breaches, and the Company’s business continuity plans do not effectively recover on a timely basis,
the Company may suffer interruptions in the ability to manage its operations, which may adversely
impact the Company’s revenues and operating results. In addition, although the system has been
refreshed periodically, the infrastructure is outdated and may not be adequate to support new
business processes, accounting for new transactions, or implementation of new accounting standards
if requirements are complex or materially different than what is currently in place. In addition,
the Company is exploring new ERP systems, which could pose risks relating to implementation.
13
Table of Contents
The Company’s principal agriculture, retail and other properties are described below.
Agriculture Facilities
| Agricultural Fertilizer | ||||||||||||
| (in thousands) | Grain Storage | Dry Storage | Liquid Storage | |||||||||
| Location | (bushels) | (cubic feet) | (gallons) | |||||||||
|
Florida
|
— | 134 | 4,021 | |||||||||
|
Illinois
|
17,497 | 2,233 | — | |||||||||
|
Indiana
|
24,489 | 4,207 | 22,364 | |||||||||
|
Michigan
|
15,381 | 1,787 | 5,293 | |||||||||
|
Minnesota
|
— | — | 10,794 | |||||||||
|
Nebraska
|
3,967 | — | — | |||||||||
|
Ohio
|
46,023 | 6,759 | 9,204 | |||||||||
|
Puerto Rico
|
— | — | 3,339 | |||||||||
|
Wisconsin
|
— | 57 | 14,932 | |||||||||
|
|
107,357 | 15,177 | 69,947 | |||||||||
The grain facilities are mostly concrete and steel tanks, with some flat storage, which is
primarily cover-on-first temporary storage. The Company also owns grain inspection buildings and
dryers, maintenance buildings and truck scales and dumps. Approximately 92% of the total storage
capacity is owned, while the remaining 8% of the total capacity is leased from third parties.
The Plant Nutrient Group’s wholesale fertilizer and farm center properties consist mainly of
fertilizer warehouse and distribution facilities for dry and liquid fertilizers. The Maumee, Ohio;
Champaign, Illinois; Seymour, Indiana; Lordstown, Ohio; and Walton, Indiana locations have
fertilizer mixing, bagging and bag storage facilities. The Maumee, Ohio; Webberville, Michigan;
Logansport, Walton and Poneto, Indiana; Wisconsin Rapids, Arena and Kaukauna, Wisconsin and all of
the Florida locations also include liquid manufacturing facilities. The Company owns all dry
storage facilities and owns ninety-five percent of the total liquid storage facilities. The tanks
located in Puerto Rico are leased.
Retail Store Properties
| Name | Location | Square Feet | ||||
|
Maumee Store
|
Maumee, OH | 166,000 | ||||
|
Toledo Store
|
Toledo, OH | 162,000 | ||||
|
Woodville Store (1)
|
Northwood, OH | 120,000 | ||||
|
Sawmill Store
|
Columbus, OH | 159,000 | ||||
|
Brice Store
|
Columbus, OH | 159,000 | ||||
|
The Andersons Market (1)
|
Sylvania, OH | 30,000 | ||||
|
Distribution Center (1)
|
Maumee, OH | 245,000 | ||||
| (1) | Facility leased |
The leases for the two stores and the distribution center are operating leases with several renewal
options and provide for minimum aggregate annual lease payments approximating $1.4 million. In
addition, the Company owns a service and sales facility for outdoor power equipment adjacent to its
Maumee, Ohio retail store.
Other Properties
The Company also operates railcar repair facilities in Maumee, Ohio; Darlington, South Carolina;
Macon, Georgia; Valdosta, Georgia; Bay St. Louis, Mississippi; Ogden, Utah; North Las Vegas,
Nevada; and Woodland, California, and a steel fabrication facility in Maumee, Ohio.
14
Table of Contents
The Company owns lawn fertilizer production facilities in Maumee, Ohio; Bowling Green, Ohio; and
Montgomery, Alabama. It also owns a corncob processing and storage facility in Delphi, Indiana.
The Company leases a lawn fertilizer warehouse facility in Toledo, Ohio.
The Company also owns an auto service center that is leased to its former venture partner. The
Company’s administrative office building is leased under a net lease expiring in 2015. The Company
owns approximately 1,233 acres of land on which the above properties and facilities are located and
approximately 327 acres of farmland and land held for sale or future use.
The Company believes that its properties are adequate for its business, well maintained and
utilized, suitable for their intended uses and adequately insured.
The Company has received, and is cooperating fully with, a request for information from the United
States Environmental Protection Agency (“U.S. EPA”) regarding the history of its grain and
fertilizer facility along the Maumee River in Toledo, Ohio. The U.S. EPA is investigating the
possible introduction into the Maumee River of hazardous materials potentially leaching from rouge
piles deposited along the riverfront by glass manufacturing operations that existed in the area
prior to the Company’s initial acquisition of its land in 1960. The Company has on several prior
occasions cooperated with local, state and federal regulators to install or improve drainage
systems to contain storm water runoff and sewer discharges along its riverfront property to
minimize the potential for such leaching. Other area land owners and the successor to the original
glass making operations have also been contacted by the U.S. EPA for information. No claim or
finding has been asserted thus far.
The Company is also currently subject to various claims and suits arising in the ordinary course of
business, which include environmental issues, employment claims, contractual disputes, and
defensive counter claims. The Company accrues expenses where litigation losses are deemed probable
and estimable. The Company believes it is unlikely that the results of its current legal
proceedings, even if unfavorable, will be materially different from what it currently has accrued.
There can be no assurance, however, that any claims or suits arising in the future, whether taken
individually or in the aggregate, will not have a material adverse effect on our financial
condition or results of operations.
15
Table of Contents
Executive Officers of the Registrant
The information is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The
executive officers of The Andersons, Inc., their positions and ages
(as of March 1, 2011) are
presented in the table below.
| Year | ||||||||||
| Name | Position | Age | Assumed | |||||||
|
Dennis J. Addis
|
President, Plant Nutrient Group | 58 | 2000 | |||||||
|
|
||||||||||
|
Daniel T. Anderson
|
President, Retail Group and Vice President, Corporate
Operations Services
President, Retail Group |
55 |
2009
1996 |
|||||||
|
|
||||||||||
|
Michael J. Anderson
|
President and Chief Executive Officer | 59 | 1999 | |||||||
|
|
||||||||||
|
Naran U. Burchinow
|
Vice President, General Counsel and Secretary | 57 | 2005 | |||||||
|
|
||||||||||
|
Tamara S. Sparks
|
Vice President, Corporate Business /Financial Analysis Internal Audit Manager | 42 |
2007
1999 |
|||||||
|
|
||||||||||
|
Arthur D. DePompei
|
Vice President, Human Resources | 57 | 2008 | |||||||
|
|
||||||||||
|
Richard R. George
|
Vice President, Controller and CIO | 61 | 2002 | |||||||
|
|
||||||||||
|
Harold M. Reed
|
President, Grain & Ethanol Group | 54 | 2000 | |||||||
|
|
||||||||||
|
Rasesh H. Shah
|
President, Rail Group | 56 | 1999 | |||||||
|
|
||||||||||
|
Nicholas C. Conrad
|
Vice President, Finance and Treasurer
Assistant Treasurer |
58 |
2009
1996 |
|||||||
|
|
||||||||||
|
Thomas L. Waggoner
|
President, Turf & Specialty Group
Vice President, Sales & Marketing, Turf & Specialty Group |
56 |
2005
2002 |
|||||||
16
Table of Contents
The Common Shares of The Andersons, Inc. trade on the Nasdaq Global Select Market under the symbol
“ANDE.” On February 9, 2011, the closing price for the Company’s Common Shares was $44.69 per
share. The following table sets forth the high and low bid prices for the Company’s Common Shares
for the four fiscal quarters in each of 2010 and 2009.
| 2010 | 2009 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
Quarter Ended
|
||||||||||||||||
|
March 31
|
$ | 35.36 | $ | 24.59 | $ | 18.38 | $ | 11.00 | ||||||||
|
June 30
|
37.99 | 29.90 | 31.88 | 13.24 | ||||||||||||
|
September 30
|
40.16 | 31.28 | 36.82 | 26.48 | ||||||||||||
|
December 31
|
42.44 | 32.01 | 37.56 | 24.00 | ||||||||||||
The Company’s transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle
Street, Chicago, IL 60602. Telephone: 312-588-4991.
Shareholders
At February 9, 2011, there were approximately 18.5 million common shares outstanding, 1,312
shareholders of record and approximately 16,000 shareholders for whom security firms acted as
nominees.
Dividends
The Company has declared and paid 57 consecutive quarterly dividends since the end of 1996, its
first year of trading on the Nasdaq market. Dividends paid from January 2009 to January 2011 are as
follows:
| Dividend | Amount | |||
|
01/23/09
|
$ | 0.0850 | ||
|
04/22/09
|
$ | 0.0875 | ||
|
07/22/09
|
$ | 0.0875 | ||
|
10/22/09
|
$ | 0.0875 | ||
|
01/25/10
|
$ | 0.0875 | ||
|
04/22/10
|
$ | 0.0900 | ||
|
07/22/10
|
$ | 0.0900 | ||
|
10/22/10
|
$ | 0.0900 | ||
|
01/24/11
|
$ | 0.1100 | ||
While the Company’s objective is to pay a quarterly cash dividend, dividends are subject to Board
of Director approval and loan covenant restrictions.
17
Table of Contents
Equity Plans
The following table gives information as of December 31, 2010 about the Company’s Common Shares
that may be issued upon the exercise of options under all of its existing equity compensation
plans.
| Equity Compensation Plan Information | ||||||||||||
| (a) | Number of securities remaining | |||||||||||
| Number of securities to be | Weighted-average | available for future issuance | ||||||||||
| issued upon exercise of | exercise price of | under equity compensation | ||||||||||
| outstanding options, | outstanding options, | plans (excluding securities | ||||||||||
| Plan category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
|
Equity compensation
plans approved by
security holders
|
1,039,552 | (1) | $ | 32.18 | 526,708 | (2) | ||||||
|
Equity compensation
plans not
approved by
security holders
|
— | — | — | |||||||||
|
Total
|
1,039,552 | $ | 32.18 | 526,708 | ||||||||
| (1) | This number includes options and SOSARs (851,177), performance share units (123,748) and restricted shares (64,627) outstanding under The Andersons, Inc. 2005 Long-Term Performance Compensation Plan dated May 6, 2005. This number does not include any shares related to the Employee Share Purchase Plan. The Employee Share Purchase Plan allows employees to purchase common shares at the lower of the market value on the beginning or end of the calendar year through payroll withholdings. These purchases are completed as of December 31. | |
| (2) | This number includes 306,674 Common Shares available to be purchased under the Employee Share Purchase Plan. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In 1996, the Company’s Board of Directors approved the repurchase of 2.8 million shares of common
stock for use in employee, officer and director stock purchase and stock compensation plans. This
resolution was superseded by the Board in October 2007 to add an additional 0.3 million shares.
Since the beginning of this repurchase program, the Company has purchased 2.2 million shares in the
open market.
Performance Graph
The graph below compares the total shareholder return on the Corporation’s Common Shares to the
cumulative total return for the Nasdaq U.S. Index and a Peer Group Index. The indices reflect the
year-end market value of an investment in the stock of each company in the index, including
additional shares assumed to have been acquired with cash dividends, if any. The Peer Group Index,
weighted for market capitalization, includes the following companies:
|
•
|
Agrium, Inc. | • | Greenbrier Companies, Inc. | |||
|
•
|
Archer-Daniels-Midland Co. | • | The Scott’s Miracle-Gro Company | |||
|
•
|
Corn Products International, Inc. | • | Lowes Companies, Inc. | |||
|
•
|
GATX Corp. |
The graph assumes a $100 investment in The Andersons, Inc. Common Shares on December 31, 2005 and
also assumes investments of $100 in each of the Nasdaq U.S. and Peer Group indices, respectively,
on December 31 of the first year of the graph. The value of these investments as of the following
calendar year-ends is shown in the table below the graph.
18
Table of Contents
| Base Period | Cumulative Returns | |||||||||||||||||||||||
| December 31, 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
|
The Andersons, Inc.
|
$ | 100.00 | $ | 197.68 | $ | 210.09 | $ | 78.16 | $ | 124.29 | $ | 176.88 | ||||||||||||
|
NASDAQ U.S.
|
100.00 | 110.38 | 122.14 | 73.31 | 106.57 | 125.92 | ||||||||||||||||||
|
Peer Group Index
|
100.00 | 106.19 | 108.71 | 82.60 | 96.67 | 110.68 | ||||||||||||||||||
The following table sets forth selected consolidated financial data of the Company. The data
for each of the five years in the period ended December 31, 2010 are derived from the consolidated
financial statements of the Company. The data presented below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included
in Item 7, and the Consolidated Financial Statements and notes thereto included in Item 8.
| For the years ended December 31, | ||||||||||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Operating results
|
||||||||||||||||||||
|
Grain and ethanol sales and revenues (a)
|
$ | 2,405,452 | $ | 2,153,978 | $ | 2,411,144 | $ | 1,498,652 | $ | 791,207 | ||||||||||
|
Fertilizer, rail, retail and other sales
|
988,339 | 871,326 | 1,078,334 | 880,407 | 666,846 | |||||||||||||||
|
Total sales and revenues
|
3,393,791 | 3,025,304 | 3,489,478 | 2,379,059 | 1,458,053 | |||||||||||||||
|
Gross profit — grain & ethanol
|
118,490 | 106,804 | 110,954 | 79,367 | 62,809 | |||||||||||||||
|
Gross profit — fertilizer, rail, retail and other (b)
|
163,189 | 148,702 | 146,875 | 160,345 | 136,431 | |||||||||||||||
|
Total gross profit
|
281,679 | 255,506 | 257,829 | 239,712 | 199,240 | |||||||||||||||
|
Equity in earnings of affiliates
|
26,007 | 17,463 | 4,033 | 31,863 | 8,190 | |||||||||||||||
|
Other income, net (c)
|
11,652 | 8,331 | 6,170 | 21,731 | 13,914 | |||||||||||||||
|
Net income
|
64,881 | 39,566 | 30,097 | 67,428 | 36,347 | |||||||||||||||
|
Net income attributable to The Andersons, Inc.
|
64,662 | 38,351 | 32,900 | 68,784 | 36,347 | |||||||||||||||
19
Table of Contents
| (in thousands, except for per share and | For the years ended December 31, | |||||||||||||||||||
| ratios and other data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Financial position
|
||||||||||||||||||||
|
Total assets
|
$ | 1,699,390 | $ | 1,284,391 | $ | 1,308,773 | $ | 1,324,988 | $ | 879,048 | ||||||||||
|
Working capital
|
301,815 | 307,702 | 330,699 | 177,679 | 162,077 | |||||||||||||||
|
Long-term debt (d)
|
263,675 | 288,756 | 293,955 | 133,195 | 86,238 | |||||||||||||||
|
Long-term debt, non-recourse (d)
|
13,150 | 19,270 | 40,055 | 56,277 | 71,624 | |||||||||||||||
|
Shareholders’ equity
|
464,559 | 406,276 | 365,107 | 356,583 | 270,175 | |||||||||||||||
|
Cash flows / liquidity
|
||||||||||||||||||||
|
Cash flows from (used in) operations
|
(239,285 | ) | 180,241 | 278,664 | (158,395 | ) | (54,283 | ) | ||||||||||||
|
Depreciation and amortization
|
38,913 | 36,020 | 29,767 | 26,253 | 24,737 | |||||||||||||||
|
Cash invested in acquisitions / investments
in affiliates
|
39,688 | 31,680 | 60,370 | 36,249 | 34,255 | |||||||||||||||
|
Investments in property, plant and equipment
|
30,897 | 16,560 | 20,315 | 20,346 | 16,031 | |||||||||||||||
|
Net investment in (proceeds from) railcars (e)
|
(1,748 | ) | 16,512 | 29,533 | 8,751 | 20,643 | ||||||||||||||
|
EBITDA (f)
|
162,702 | 116,989 | 110,372 | 151,162 | 95,505 | |||||||||||||||
|
Per share data:
(g)
|
||||||||||||||||||||
|
Net income — basic
|
3.51 | 2.10 | 1.82 | 3.85 | 2.27 | |||||||||||||||
|
Net income — diluted
|
3.48 | 2.08 | 1.79 | 3.75 | 2.19 | |||||||||||||||
|
Dividends paid
|
0.3575 | 0.3475 | 0.325 | 0.220 | 0.178 | |||||||||||||||
|
Year-end market value
|
36.35 | 25.82 | 16.48 | 44.80 | 42.39 | |||||||||||||||
|
Ratios and other data
|
||||||||||||||||||||
|
Net income attributable to The Andersons,
Inc. return on beginning equity attributable
to The Andersons, Inc.
|
16.4 | % | 10.9 | % | 9.6 | % | 25.4 | % | 22.9 | % | ||||||||||
|
Funded long-term debt to equity ratio (h)
|
0.6-to-1 | 0.8-to-1 | 0.9-to-1 | 0.5-to-1 | 0.6-to-1 | |||||||||||||||
|
Weighted average shares outstanding (000’s)
|
18,356 | 18,190 | 18,068 | 17,833 | 16,007 | |||||||||||||||
|
Effective tax rate
|
37.7 | % | 35.7 | % | 35.4 | % | 35.5 | % | 33.3 | % | ||||||||||
| (a) | Includes sales of $928.2 million in 2010, $806.3 million in 2009, $865.8 million in 2008, $407.4 million in 2007 and $23.5 million in 2006 pursuant to marketing and originations agreements between the Company and its ethanol LLCs. | |
| (b) | Gross profit in 2008 includes a $97.2 million write down in the Plant Nutrient Group for lower-of-cost-or-market inventory adjustments for inventory on hand and firm purchase commitments that was valued higher than the market. (c) Includes $1.1 million of dividend income from IANR and $2.2 million in Rail end of lease settlements in 2010. Includes gains on insurance settlements of $0.1 million in 2010, $0.1 million in 2008, $3.1 million in 2007 and $4.6 million in 2006. Includes development fees related to ethanol joint venture formation of $1.3 million in 2008, $5.4 million in 2007 and $1.9 million in 2006. Includes $4.9 million in gain on available for sale securities in 2007. | |
| (d) | Excludes current portion of long-term debt. (e) Represents the net of purchases of railcars offset by proceeds on sales of railcars. | |
| (f) | Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measure. We believe that EBITDA provides additional information important to investors and others in determining our ability to meet debt service obligations. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements, for debt service obligations or otherwise. Because EBITDA, as determined by us, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies. | |
| (g) | Earnings per share are calculated based on Income attributable to The Andersons, Inc. | |
| (h) | Calculated by dividing long-term debt by total year-end equity as stated under “Financial position.” |
The following table sets forth (1) our calculation of EBITDA and (2) a reconciliation of EBITDA to our net cash flow provided by
(used in) operations.
20
Table of Contents
| For the years ended December 31, | ||||||||||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Net income attributable to The Andersons, Inc.
|
$ | 64,662 | $ | 38,351 | $ | 32,900 | $ | 68,784 | $ | 36,347 | ||||||||||
|
Add:
|
||||||||||||||||||||
|
Provision for income taxes
|
39,262 | 21,930 | 16,466 | 37,077 | 18,122 | |||||||||||||||
|
Interest expense
|
19,865 | 20,688 | 31,239 | 19,048 | 16,299 | |||||||||||||||
|
Depreciation and amortization
|
38,913 | 36,020 | 29,767 | 26,253 | 24,737 | |||||||||||||||
|
EBITDA
|
162,702 | 116,989 | 110,372 | 151,162 | 95,505 | |||||||||||||||
|
Add/(subtract):
|
||||||||||||||||||||
|
Provision for income taxes
|
(39,262 | ) | (21,930 | ) | (16,466 | ) | (37,077 | ) | (18,122 | ) | ||||||||||
|
Interest expense
|
(19,865 | ) | (20,688 | ) | (31,239 | ) | (19,048 | ) | (16,299 | ) | ||||||||||
|
Realized gains on railcars and related leases
|
(7,771 | ) | (1,758 | ) | (4,040 | ) | (8,103 | ) | (5,887 | ) | ||||||||||
|
Deferred income taxes
|
12,205 | 16,430 | 4,124 | 5,274 | 7,371 | |||||||||||||||
|
Excess tax benefit from share-based payment
arrangement
|
(876 | ) | (566 | ) | (2,620 | ) | (5,399 | ) | (5,921 | ) | ||||||||||
|
Equity in earnings of unconsolidated
affiliates, net of distributions received
|
(17,594 | ) | (15,105 | ) | 19,307 | (23,583 | ) | (4,340 | ) | |||||||||||
|
Minority interest in income (loss) of affiliates
|
219 | 1,215 | (2,803 | ) | (1,356 | ) | — | |||||||||||||
|
Changes in working capital and other
|
(329,043 | ) | 105,654 | 202,029 | (220,265 | ) | (106,590 | ) | ||||||||||||
|
Net cash
(used in) provided by operations
|
$ | (239,285 | ) | $ | 180,241 | $ | 278,664 | $ | (158,395 | ) | $ | (54,283 | ) | |||||||
The Company has included its Computation of Earnings to Fixed Charges in Item 15. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K as Exhibit 12.
Forward Looking Statements
The following “Management’s 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 factors, including those listed under Item 1A, “Risk Factors.” 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.
Executive Overview
Grain & Ethanol Group
The Grain & Ethanol Group operates grain elevators in various states, primarily in the U.S. Corn
Belt. In addition to storage, merchandising and grain trading, the Group performs risk management
and other services for its customers. During 2010, the Group increased its grain storage capacity
by approximately 6.4 million bushels through business acquisitions and expansion at existing
locations. The Group now has over 107 million bushels of storage capacity. The Group is a
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
(“LTG”), an established grain merchandising business with operations throughout the country and
21
Table of Contents
internationally. LTG continues to increase its capabilities, including ethanol trading, and is
exposed to many of the same risks as the Company’s Grain & Ethanol Group. This investment provides
the Group a further opportunity to expand outside of its traditional geographic regions.
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, changes in sales for the period
may not necessarily be indicative of the Group’s overall performance and more focus should be
placed on changes to merchandising revenues and service income.
The ethanol industry has been impacted by the rising corn prices during the year caused by global
supply and demand. Several existing factors that contribute to greater ethanol production and use
are tax credits for blending corn ethanol into gasoline and tariffs that limit the importation of
sugar ethanol. In addition, subsequent to year-end, the EPA approved an increase in the use of
ethanol blends from 10% to 15% for light vehicle models 2001 and newer. As the high demand for corn
continues into 2011, the Company will continue to monitor the volatility in corn and ethanol prices
and its impact on the ethanol LLCs closely.
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 wide range of customers.
During the year, the Company purchased a 49.9% equity stake in the Iowa Northern Railway Company
(“IANR”) and an affiliate, Zephyr Holding Company (“Zephyr”). IANR operates a 163-mile short line
railroad that runs diagonally through Iowa from northwest to southeast. With a fleet of 21
locomotives and 500 railcars, IANR primarily serves agribusiness customers and moves more than
50,000 car load per year. Zephyr is involved in the development of storage and logistics terminals
designed to aid the transloading of various products including ethanol and wind turbine components.
Railcars and locomotives under management (owned, leased or managed for financial institutions in
non-recourse arrangements) at December 31, 2010 were 22,475 compared to 23,804 at December 31,
2009. The Group’s average utilization rate (railcars and locomotives under management that are in
lease service, exclusive of railcars managed for third party investors) has decreased from 78.1%
for the year ended December 31, 2009 to 73.6% for the year ended December 31, 2010. However, the
Group ended the year with an improved utilization rate of 81.7%. After registering nearly a 20%
drop during all of 2009, rail traffic during all of 2010 posted gains of over 7% compared to 2009,
but still remains over 12% behind 2008. We expect the upward trend to continue as the U.S. and
world economies continue their recovery .
Although the Company has experienced a decline in utilization in its railcar business, due to the
nature of these long-lived assets (low carrying values and 17 year average remaining useful lives),
the current economic environment impacting the rail industry would have to persist on a long-term
basis for the Company’s railcar assets to be impaired and the Company does not believe this will
occur. The Company is optimistic about future utilization as the Group ended the year with an
improved utilization rate of 81.7%. The Company also continues to evaluate its railcar portfolio to
determine if it would be more cost effective to scrap certain cars rather than continue to incur
storage costs. The Company is currently, and expects to continue to scrap additional railcars
throughout 2011, however, the Company does not expect that this will have a significant financial
impact to the Company’s results of operations.
Plant Nutrient Group
The Company’s Plant Nutrient Group is a leading manufacturer, distributor and retailer principally
of agricultural plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt and
Florida. It operates 30 facilities in Ohio, Michigan, Indiana, Illinois, Florida, Wisconsin,
Minnesota and Puerto Rico. The Group provides warehousing, packaging and manufacturing services to
basic manufacturers and other
22
Table of Contents
distributors. The Group also manufactures and distributes a variety of industrial products in the
U.S. including nitrogen reagents for air pollution control systems used in coal-fired power plants,
water treatment products, and de-icers and anti-icers for airport runways,
roadways, and other commercial applications. The major nutrient products sold by the Company
principally contain nitrogen, phosphate, potassium and sulfur.
The Group saw the continuation of a tight pipeline for most major ingredients through the fourth
quarter of 2010 due to high demand. Fall application for dry materials along with ammonia was
significantly higher due to the early fall harvest, good weather conditions and high grain prices.
It is our belief that the strong fourth quarter volume will have limited downward impact on volume
in the first half of 2011. We expect 2011 to be a good volume year as the demand for nutrients is
high and acres planted are expected to increase. Margins should be strong as well as a result of
tight supplies of the basic nutrients and strong price trends.
Turf & Specialty Group
The Turf & Specialty Group produces granular fertilizer products for the professional lawn care and
golf course markets. It also sells consumer fertilizer and control products for “do-it-yourself”
application, to mass merchandisers, small independent retailers and other lawn fertilizer
manufacturers and performs contract manufacturing of fertilizer and control products. The Group is
one of a limited number of processors of corncob-based products in the United States. These
products serve the chemical and feed ingredient carrier, animal litter and industrial markets, and
are distributed throughout the United States and Canada and into Europe and Asia. 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.
The Group continues to see positive results from its focus on proprietary products and expanded
product lines. The Group has spent considerable time marketing the A+ program which will boost
liquid and dispersible granular sales and is planning several other productivity initiatives in
operations, including automation, which will likely lead to continued growth.
Retail Group
The Retail Group includes large retail stores operated as “The Andersons” and a specialty food
market operated as “The Andersons Market”. The Group also operates a sales and service facility
for outdoor power equipment. 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.
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. Food reset projects were completed during the year in three of the stores, which
we expect will increase traffic in the stores and increase sales.
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
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
Note 16 to the Company’s consolidated financial statements in Item 8.
23
Table of Contents
| Year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Sales and merchandising revenues
|
$ | 3,393,791 | $ | 3,025,304 | $ | 3,489,478 | ||||||
|
Cost of sales
|
3,112,112 | 2,769,798 | 3,231,649 | |||||||||
|
Gross profit
|
281,679 | 255,506 | 257,829 | |||||||||
|
Operating, administrative and general
|
195,330 | 199,116 | 190,230 | |||||||||
|
Interest expense
|
19,865 | 20,688 | 31,239 | |||||||||
|
Equity in earnings of affiliates
|
26,007 | 17,463 | 4,033 | |||||||||
|
Other income, net
|
11,652 | 8,331 | 6,170 | |||||||||
|
Operating income before noncontrolling interest
|
104,143 | 61,496 | 46,563 | |||||||||
|
(Income) loss attributable to noncontrolling interest
|
(219 | ) | (1,215 | ) | 2,803 | |||||||
|
Operating income
|
$ | 103,924 | $ | 60,281 | $ | 49,366 | ||||||
Comparison of 2010 with 2009
Grain & Ethanol Group
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | 2,405,452 | $ | 2,153,978 | ||||
|
Cost of sales
|
2,286,962 | 2,047,174 | ||||||
|
Gross profit
|
118,490 | 106,804 | ||||||
|
Operating, administrative and general
|
57,301 | 64,643 | ||||||
|
Interest expense
|
8,315 | 9,363 | ||||||
|
Equity in earnings of affiliates
|
25,999 | 17,452 | ||||||
|
Other income, net
|
2,733 | 2,319 | ||||||
|
Operating income before noncontrolling interest
|
81,606 | 52,569 | ||||||
|
(Income) loss attributable to noncontrolling interest
|
(219 | ) | (1,215 | ) | ||||
|
Operating income
|
$ | 81,387 | $ | 51,354 | ||||
Operating results for the Grain & Ethanol Group increased $30 million over 2009. Sales of grain
increased $174 million, or 10.5%, over 2009 and is the result of an 11% increase in volume. Sales
of ethanol increased $80.4 million, or 20%, and is the result of an increase in the overall volume
by 7 million gallons and a 16.5% increase in the average price per gallon sold. Fees for services
provided to the ethanol industry increased $0.9 million, or 4.2%.
Gross profit increased $11.7 million, or 11%, for the Group. Basis income was higher than 2009 by
$18.6 million due to earlier than normal 2010 harvest causing significant basis appreciation.
Position income increased by $7.9 million from 2009 to 2010 primarily as a result of the growth of
the ingredient trading area. The harvest occurred earlier in 2010 than 2009 and grain was drier
which resulted in $11.5 million less service fees than prior year from drying and mixing services
(when wet grain is received into the elevator and dried to an acceptable moisture level). In
addition, the market value adjustment for customer credit exposure was $4.6 million higher for 2010
due to higher grain prices.
Operating expenses for the Group decreased $7.3 million, or 11%, from 2009. Bad debt expense
decreased approximately $14.6 million due to reductions in amounts reserved for customer
receivables and the net reversal of $6.7 million of reserves following the settlement of a long
standing collection matter. Approximately $2.7 million of the decrease in operating expenses is the
result of a decline in utilities expense due to the early and dry harvest in comparison with 2009.
These expense decreases were partially offset by increases in labor, benefits, and depreciation and
amortization expense due to the acquisition of O’Malley Grain during the second quarter of 2010.
Performance incentives expense was also up year-over-year due to higher overall division earnings.
Interest expense for the Group decreased $1.0 million, or 11%, from 2009 due to lower rates on
outstanding borrowings.
24
Table of Contents
Equity in earnings of affiliates increased $8.5 million, or 49%, over 2009. Income from the
Group’s investment in LTG increased $9.4 million. Income from the
Group’s investment in the three ethanol LLCs decreased $1.3 million, primarily as a result of
rising corn prices.
Rail Group
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | 94,816 | $ | 92,789 | ||||
|
Cost of sales
|
81,437 | 75,973 | ||||||
|
Gross profit
|
13,379 | 16,816 | ||||||
|
Operating, administrative and general
|
12,846 | 13,867 | ||||||
|
Interest expense
|
4,928 | 4,468 | ||||||
|
Other income, net
|
4,502 | 485 | ||||||
|
Operating income (loss)
|
$ | 107 | $ | (1,034 | ) | |||
Operating results for the Rail Group increased $1.1 million over 2009. Sales of railcars increased
$12.6 million, which includes $4.3 million related to intentional scrapping of railcars, nearly
offset by leasing revenues which decreased $12.5 million. Sales relating to the repair and
fabrication businesses increased $1.9 million. Gross profit for the Group decreased $3.4 million, or
20%, and is the result of more idle cars and increased storage costs during the first half of 2010
coupled with increased freight and maintenance costs, as cars were repaired and moved into service
during the second half of 2010. Storage expenses for the Group increased $1.1 million in 2010
compared to 2009.
Other income increased by $4.0 million over 2009 primarily due to $2.2 million in settlements
received from customers for railcars returned at the end of a lease that were not in the required
operating condition. These settlements may be negotiated in lieu of a customer performing the
required repairs. In addition, IANR dividends began accruing in May 2010 and amounted to
approximately $1.1 million at year end.
Plant Nutrient Group
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | 619,330 | $ | 491,293 | ||||
|
Cost of sales
|
539,793 | 431,874 | ||||||
|
Gross profit
|
79,537 | 59,419 | ||||||
|
Operating, administrative and general
|
46,880 | 45,955 | ||||||
|
Interest expense
|
3,901 | 3,933 | ||||||
|
Equity in earnings of affiliates
|
8 | 8 | ||||||
|
Other income, net
|
1,298 | 1,755 | ||||||
|
Operating income
|
$ | 30,062 | $ | 11,294 | ||||
Operating results for the Plant Nutrient Group increased $18.8 million over its 2009 results.
Sales increased $128 million, or 26%, over 2009 due to an increase in tons sold by 31% offset by a
3% decrease in average price per ton sold for the year. Volume increased almost twenty percent in
the fourth quarter alone due to excellent fall application conditions and the continued restocking
of the retail fertilizer pipeline. The overall margin per ton was approximately 6% higher
than prior year.
Operating expenses increased $1.0 million over prior year due to incremental expenses relating to
an August 2009 acquisition.
25
Table of Contents
Turf & Specialty Group
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | 123,549 | $ | 125,306 | ||||
|
Cost of sales
|
96,612 | 99,849 | ||||||
|
Gross profit
|
26,937 | 25,457 | ||||||
|
Operating, administrative and general
|
23,225 | 20,424 | ||||||
|
Interest expense
|
1,604 | 1,429 | ||||||
|
Other income, net
|
1,335 | 1,131 | ||||||
|
Operating income
|
$ | 3,443 | $ | 4,735 | ||||
Operating results for the Turf & Specialty Group decreased $1.3 million from its 2009 results.
Sales decreased $1.8 million, or 1%. Sales in the lawn fertilizer business decreased $5.6 million,
or 5%, due to a 3% decrease in volume along with a 2% decrease in average price per ton sold.
Sales in the cob business increased $3.7 million, or 24% as tonnage sold was up 24% over 2009.
Gross profit for the Group increased $1.5 million, or 6% due to an overall increase in volume and
margin.
Operating expenses for the Group increased $2.8 million, or 14%, from 2009, and is primarily
related to the 2009 recognition of a pension curtailment gain that was not repeated in 2010 and
more maintenance projects in 2010.
Retail Group
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | 150,644 | $ | 161,938 | ||||
|
Cost of sales
|
107,308 | 114,928 | ||||||
|
Gross profit
|
43,336 | 47,010 | ||||||
|
Operating, administrative and general
|
45,439 | 49,575 | ||||||
|
Interest expense
|
1,039 | 961 | ||||||
|
Other income, net
|
608 | 683 | ||||||
|
Operating (loss)
|
$ | (2,534 | ) | $ | (2,843 | ) | ||
Operating results for the Retail Group increased $0.3 million over its 2009 results. Sales
decreased $11.4 million, or 7%, from 2009 and were experienced in all of the Group’s market areas,
but the majority was due to the Lima store closing in late 2009. Customer counts decreased 3% and
the average sale per customer decreased by nearly 5%. Gross profit decreased $3.7 million, or 8%,
due to the decreased sales as well as a slight decrease in gross margin percentage.
Operating expenses for the Group decreased $4.1 million, or 8%. As noted above, the Lima, Ohio
store was closed in the fourth quarter of 2009 which contributed to the decrease in both sales and
expenses year-over-year.
Other
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Sales and merchandising revenues
|
$ | — | $ | — | ||||
|
Cost of sales
|
— | — | ||||||
|
Gross profit
|
— | — | ||||||
|
Operating, administrative and general
|
9,639 | 4,652 | ||||||
|
Interest expense
|
78 | 534 | ||||||
|
Equity in earnings of affiliates
|
— | 3 | ||||||
|
Other income, net
|
1,176 | 1,958 | ||||||
|
Operating (loss)
|
$ | (8,541 | ) | $ | (3,225 | ) | ||
26
Table of Contents
The Corporate operating loss (costs not allocated back to the business units) increased $5.3
million, or 165%, over 2009 and relates primarily to an increase in performance incentives due to
favorable operating performance, an increase in charitable contributions, and increased expenses
for the Company’s deferred compensation plan.
As a result of the operating performances noted above, income attributable to The Andersons, Inc.
of $64.7 million for 2010 was 69% higher than the income attributable to The Andersons, Inc. of
$38.4 million in 2009. Income tax expense of $39.3 million was recorded in 2010 at an effective
rate of 37.7% which is an increase from the 2009 effective rate of 35.7% due primarily to the
impact of Federal legislation on Medicare Part D.
Comparison of 2009 with 2008
Grain & Ethanol Group
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | 2,153,978 | $ | 2,411,144 | ||||
|
Cost of sales
|
2,047,174 | 2,300,190 | ||||||
|
Gross profit
|
106,804 | 110,954 | ||||||
|
Operating, administrative and general
|
64,643 | 60,281 | ||||||
|
Interest expense
|
9,363 | 18,667 | ||||||
|
Equity in earnings of affiliates
|
17,452 | 4,027 | ||||||
|
Other income, net
|
2,319 | 4,751 | ||||||
|
Operating income before noncontrolling interest
|
52,569 | 40,784 | ||||||
|
(Income) loss attributable to noncontrolling interest
|
(1,215 | ) | 2,803 | |||||
|
Operating income
|
$ | 51,354 | $ | 43,587 | ||||
Operating results for the Grain & Ethanol Group increased $7.8 million over 2008. Sales of grain
decreased $234.7 million, or 12%, over 2008 and is the result of a 16% decrease in the average
price per bushel sold, partially offset by a 4% increase in volume. Sales of ethanol decreased
$52.5 million, or 12%, and is the result of a 15% decrease in the average price per gallon sold,
partially offset by a 4% increase in volume. Services provided to the ethanol industry increased
$1.0 million, or 5%.
Gross profit decreased $4.2 million, or 4%, for the Group, and is the result of decreased commodity
derivative activity in the amount of $6.5 million in the Company’s majority owned subsidiary The
Andersons Ethanol Investment LLC (“TAEI”) (which is 34% owned by another entity), partially offset
by increased storage income as the Company had more wheat bushels in storage and had more delayed
price bushels (grain that the Company has purchased but the purchase price has yet to be
established) as compared to 2008. TAEI’s commodity derivatives are being used to economically
hedge price risk related to The Andersons Marathon Ethanol LLCs (“TAME”) corn purchases and ethanol
sales. The late wet harvest allowed the Group to significantly benefit from drying and mixing
income, which is income earned when wet grain is received into the elevator and dried to an
acceptable moisture level, however, this was offset by lower margins on grain sales.
Operating expenses for the Group increased $4.4 million, or 7%, over 2008. Approximately $2.5
million of this increase is the result of the two new facilities the Group acquired in 2008 (one
through a purchase and the other through a leasing arrangement). Those facilities were acquired in
September of 2008 and therefore the prior year expenses only include four months for those
facilities compared to a full year for 2009. Another $1.2 million of the increase is due to
increased cost to dry the wet grain received during the fall harvest. The remainder of the
increase is spread across several expense items and are primarily
27
Table of Contents
employee related costs and costs associated with growth. These expense increases were partially
offset by a $2.5 million decrease in bad debt expense resulting from reserves taken in 2008 against
specific customer receivables for contracts where grain was not delivered and the contracts were
subsequently cancelled.
Interest expense for the Group decreased $9.3 million, or 50%, over 2008. The significant increase
in commodity prices in 2008 required the Company to increase short-term borrowings to cover margin
calls which was the main driver for the increased interest costs for the Group last year.
Equity in earnings of affiliates increased $13.4 million, or 333%, from 2008. Income from the
Group’s investment in the three ethanol LLCs increased $16.5 million, primarily as a result of the
significantly improved performance of TAME as decreasing corn and natural gas prices have improved
margins for that entity. In addition, the Company’s share of income from The Andersons Albion
Ethanol LLC’s business interruption claim from a fire at its facility was $1.3 million. Income
from the Group’s investment in Lansing Trade Group LLC (“LTG”) decreased $3.0 million.
Rail Group
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | 92,789 | $ | 133,898 | ||||
|
Cost of sales
|
75,973 | 96,843 | ||||||
|
Gross profit
|
16,816 | 37,055 | ||||||
|
Operating, administrative and general
|
13,867 | 13,645 | ||||||
|
Interest expense
|
4,468 | 4,154 | ||||||
|
Other income, net
|
485 | 526 | ||||||
|
Operating
(loss) income
|
$ | (1,034 | ) | $ | 19,782 | |||
Operating results for the Rail Group decreased $20.8 million over 2008. Leasing revenues decreased
$14.6 million, or 16%, due to the significant decrease in utilization. Sales of railcars decreased
$20.1 million, or 74%, over 2008. With so many cars in the industry idled, there is not the demand
for cars that there was in 2008 and with fewer cars on the rail lines overall, the opportunities
for business in the repair and fabrication shops has significantly decreased resulting in a $6.4
million decrease in sales in that business. Gross profit for the Group decreased $20.2 million, or
55%, and is the result of the decreased sales coupled with significantly increased storage costs as
many cars remain idle. Storage expenses for the Group increased $3.0 million in 2009 compared to
2008.
Operating expenses remained relatively flat year-over-year. Interest expense for the Group
increased slightly.
Plant Nutrient Group
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | 491,293 | $ | 652,509 | ||||
|
Cost of sales
|
431,874 | 618,519 | ||||||
|
Gross profit
|
59,419 | 33,990 | ||||||
|
Operating, administrative and general
|
45,955 | 41,598 | ||||||
|
Interest expense
|
3,933 | 5,616 | ||||||
|
Equity in earnings of affiliates
|
8 | 6 | ||||||
|
Other income, net
|
1,755 | 893 | ||||||
|
Operating income (loss)
|
$ | 11,294 | $ | (12,325 | ) | |||
Operating results for the Plant Nutrient Group increased $23.6 million over its 2008 results.
Sales decreased $161.2 million, or 25%, over 2008 due to early 2008 price appreciation in
fertilizer which caused the average price per ton sold for the year to be 33% higher than it was in
2009. As prices started to decline toward the end of 2008, and sales volume began to decrease, the
Company was left with a large
28
Table of Contents
inventory position valued higher than the market. This resulted in lower-of-cost or market and
contract adjustments in the amount of $97.2 million in 2008. As a result of these significant
write-downs in 2008, the Group’s 2009 gross profit is a $25.4 million improvement over the prior
year. Volume also increased 12% over 2008.
Operating expenses for the Group increased $4.4 million, or 10%, over 2008 due to the added
expenses from the Group’s acquisitions during 2008 and 2009. Excluding the expenses from these
three businesses, expenses decreased $2.7 million, primarily in bad debt expense, uninsured losses
and performance incentives.
Interest expense decreased $1.7 million, or 30%, as the drop in fertilizer prices have resulted in
less borrowing needs to cover working capital.
Other income for the Group increased $0.9 million over 2008 as a result of forfeited customer
prepayments.
Turf & Specialty Group
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | 125,306 | $ | 118,856 | ||||
|
Cost of sales
|
99,849 | 94,152 | ||||||
|
Gross profit
|
25,457 | 24,704 | ||||||
|
Operating, administrative and general
|
20,424 | 21,307 | ||||||
|
Interest expense
|
1,429 | 1,522 | ||||||
|
Other income, net
|
1,131 | 446 | ||||||
|
Operating income
|
$ | 4,735 | $ | 2,321 | ||||
Operating results for the Turf & Specialty Group increased $2.4 million over its 2008 results.
Sales increased $6.5 million, or 5%. Sales in the lawn fertilizer business increased $6.4 million,
or 6%, due to a 20% increase in volume, partially offset by an 11% decrease in the average price
per ton sold. Sales in the cob business remained flat. Gross profit for the Group increased $0.8
million, or 3%.
Operating expenses for the Group decreased $0.9 million, or 4%, over 2008, and is primarily related
to decreased pension expense as a result of the freezing of the Company’s defined benefit plan.
Retail Group
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | 161,938 | $ | 173,071 | ||||
|
Cost of sales
|
114,928 | 121,945 | ||||||
|
Gross profit
|
47,010 | 51,126 | ||||||
|
Operating, administrative and general
|
49,575 | 50,089 | ||||||
|
Interest expense
|
961 | 886 | ||||||
|
Other income, net
|
683 | 692 | ||||||
|
Operating
(loss) income
|
$ | (2,843 | ) | $ | 843 | |||
Operating results for the Retail Group decreased $3.7 million over its 2008 results. Sales
decreased $11.1 million, or 6%, over 2008 and were experienced in all of the Group’s market areas.
Customer counts decreased 2% and the average sale per customer decreased 4%. Gross profit
decreased $4.1 million, or 8%, due to the decreased sales as well as a half a point decrease in
gross margin percentage. As mentioned previously, the Group closed its Lima, Ohio store in the
fourth quarter of 2009.
Operating expenses for the Group decreased $0.5 million, or 1%, in spite of $0.8 million in
severance costs related to the closing of the Lima, Ohio store.
29
Table of Contents
Other
| Year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Sales and merchandising revenues
|
$ | — | $ | — | ||||
|
Cost of sales
|
— | — | ||||||
|
Gross profit
|
— | — | ||||||
|
Operating, administrative and general
|
4,652 | 3,310 | ||||||
|
Interest expense
|
534 | 394 | ||||||
|
Equity in earnings of affiliates
|
3 | |||||||
|
Other income (loss), net
|
1,958 | (1,138 | ) | |||||
|
Operating (loss)
|
$ | (3,225 | ) | $ | (4,842 | ) | ||
Corporate operating, administrative and general expenses (costs not allocated back to the business
units) increased $1.3 million, or 41%, over 2008 and relates primarily to increased charitable
contributions and increased expenses for the Company’s deferred compensation plan. These increases
were partially offset by a reduction of expenses related to the Company’s defined benefit plan as a
result of the pension freeze announced during the third quarter of 2009. The increase in expenses
related to the deferred compensation plan is offset by increases to other income as the assets
invested in the plan performed better than the prior year.
As a result of the operating performances noted above, income attributable to The Andersons,
Inc. of $38.4 million for 2009 was 17% higher than the income attributable to The Andersons, Inc.
of $32.9 million in 2008. Income tax expense of $21.9 million was recorded in 2009 at an effective
rate of 35.7% which is an increase from the 2008 effective rate of 33.4% due primarily to certain
Indiana state tax credits related to TACE that were a benefit to the Company in 2008.
30
Table of Contents
Liquidity and Capital Resources
Working Capital
At December 31, 2010, the Company had working capital of $301.8 million, a decrease of about
$5.9 million from the prior year. This decrease was attributable to changes in the following
components of current assets and current liabilities (in thousands):
| 2010 | 2009 | Variance | ||||||||||
|
Current Assets:
|
||||||||||||
|
Cash and cash equivalents
|
$ | 29,219 | $ | 145,929 | $ | (116,710 | ) | |||||
|
Restricted cash
|
12,134 | 3,123 | 9,011 | |||||||||
|
Accounts and notes receivables, net
|
152,227 | 137,195 | 15,032 | |||||||||
|
Margin deposits
|
20,259 | 27,012 | (6,753 | ) | ||||||||
|
Inventories
|
647,189 | 407,845 | 239,344 | |||||||||
|
Commodity derivative assets — current
|
226,216 | 24,255 | 201,961 | |||||||||
|
Deferred income taxes
|
16,813 | 13,284 | 3,529 | |||||||||
|
Prepaid expenses and other current assets
|
34,501 | 28,180 | 6,321 | |||||||||
|
|
1,138,558 | 786,823 | 351,735 | |||||||||
|
Current Liabilities:
|
||||||||||||
|
Borrowing under short-term line of credit
|
$ | 241,100 | — | $ | 241,100 | |||||||
|
Accounts payable for grain
|
274,596 | 234,396 | 40,200 | |||||||||
|
Other accounts payable
|
111,501 | 110,658 | 843 | |||||||||
|
Customer prepayments and deferred revenue
|
78,550 | 56,698 | 21,852 | |||||||||
|
Commodity derivative liabilities — current
|
57,621 | 24,871 | 32,750 | |||||||||
|
Accrued expenses
|
48,851 | 41,563 | 7,288 | |||||||||
|
Current maturities of long-term debt
|
24,524 | 10,935 | 13,589 | |||||||||
|
|
836,743 | 479,121 | 357,622 | |||||||||
|
Working capital
|
$ | 301,815 | $ | 307,702 | $ | (5,887 | ) | |||||
In comparison to the prior year-end, current assets increased largely as a result higher
inventories and commodity derivative assets driven by rising commodity prices in the fourth
quarter. Current liabilities increased primarily as a result of borrowings on our short-term
line of credit. We also saw large increases in accounts payable for grain and commodity
derivative liabilities due to rising commodity prices. See the discussion below on sources and
uses of cash for an understanding of the significant decrease in cash from prior year.
Borrowings and Credit Facilities
On December 17, 2010, the Company entered into a restated loan agreement (“the agreement”) with
several financial institutions, including U.S. Bank National Association, acting as agent. The
agreement provides the Company with $513 million (“Line A) and $387 million (“Line C”) of
short-term borrowing capacity. Due to the fact that we were oversubscribed on the renewal of
the syndicate revolvers, the Company entered into an agreement to amend Line A, increasing the
total amount of the line by an additional $92 million to $605 million subsequent to year end.
The Company plans to use the lines to fund margin call requirements, as necessary, if commodity
prices continue to increase into 2011.
On September 30, 2010, the Company entered into a new loan agreement with the same syndicate of
banks referred to above. This agreement provides for $115 million (“Line B”) of borrowing capacity.
Total borrowing capacity for the Company under Lines A, B, and C is currently at $1.1 billion.
31
Table of Contents
Sources and Uses of Cash
Operating Activities and Liquidity
The Company’s operations used cash of $239.3 million in 2010, a decrease of $419.5 million from
cash provided by operations of $180.2 million in 2009. The significant amount of operating cash
flows used in 2010 relates primarily to an increase in the commodity prices as noted in the
discussion above on working capital.
The Company paid income taxes of $24.8 million in 2010. Income tax refunds of $24.2 million were
received in 2009. The Company makes quarterly tax payments based on full-year estimated income.
Through the first nine months of 2008, the Company anticipated significantly higher earnings and
was making quarterly income payments accordingly. In the fourth quarter of 2008, the market price
of fertilizer decreased dramatically requiring the Company to record lower-of-cost-or market
adjustments on its inventory and purchase commitments in the amount of $97.2 million. The
significantly decreased earnings resulted in lower income taxes due and as of December 31, 2008 the
Company had over-paid its income tax liability for the year. The majority of this over-payment was
refunded in the first quarter of 2009.
Investing Activities
Investing activities used $89.0 million, which is $25.6 million more than was used in 2009. The
largest portion of the spending relates to business acquisitions in the amount of $39.3 million,
capital spending of $30.9 million, and investment in convertible preferred securities of $13.1
million. In addition, purchases of railcars in the amount of $18.4 million nearly offset proceeds
from the sale of railcars in the amount of $20.1 million.
On May 1, 2010, the Company acquired two grain cleaning and storage facilities from O’Malley Grain,
Inc. for a purchase price of $7.8 million. On December 31, 2010, the Company completed the purchase
of grain storage facilities in Nebraska from B4 Grain, Inc. for approximately $31.5 million. These
acquisitions were another step westward for the Company and we see it as a great opportunity to be
positioned along the high production area of Nebraska.
Total capital spending for 2010 on property, plant and equipment within the Company’s base business
was $30.9 million, which includes $7.6 million in the Plant Nutrient Group, $10.3 million in the
Grain & Ethanol Group, $2.2 million in the Turf & Specialty Group, $8.8 million in the Retail
Group, $0.9 million in the Rail Group and $0.9 million in corporate purchases.
On May 25, 2010, the Company paid $13.1 million to acquire 100% of newly issued cumulative
convertible preferred shares of IANR and Zephyr. As a result of this investment, the Company has a
49.9% voting interest in IANR, with dividends accruing at a rate of 14% annually whether or not
declared by IANR and are cumulative in nature.
The Company expects to spend approximately $74 million in 2011 on conventional property, plant and
equipment, including additions and enhancements to existing facilities, and an additional $90
million for the purchase and capitalized modifications of railcars with related sales or financings
of $75 million.
Financing Arrangements
Net cash provided by financing activities was $211.6 million in 2010, compared to $52.6 million
cash used by financing activities in 2009.
The Company has significant committed short-term lines of credit available to finance working
capital, primarily inventories, margin calls on commodity contracts and accounts receivable. As
noted above, the Company is party to a borrowing arrangement with a syndicate of banks, which was
amended in December 2010, to provide the Company with $387 million and $513 million in short-term
lines of credit. The Company had drawn $241.1 million on its short-term line of credit at December
31, 2010. Peak borrowing on the line of credit during 2010 and 2009
was $305.0 million and $92.7 million, respectively. Typically,
32
Table of Contents
the Company’s highest borrowing occurs in the spring due to seasonal inventory
requirements in the fertilizer and retail businesses, credit sales of fertilizer and a customary
reduction in grain payables due to the cash needs and market strategies of grain customers.
Certain of the Company’s long-term borrowings include covenants that, among other things, impose
minimum levels of equity and limitations on additional debt. The Company was in compliance with
all such covenants at December 31, 2010. In addition, certain of the Company’s long-term
borrowings are collateralized by first mortgages on various facilities or are collateralized by
railcar assets. The Company’s non-recourse long-term debt is collateralized by railcar and
locomotive assets.
The Company paid $6.6 million in dividends in 2010 compared to $6.3 million in 2009. The Company
paid $0.0850 per common share for the dividends paid in January 2009, $0.0875 per common share for
the dividends paid in April, July and October 2009 and January 2010, $0.090 per common share for
the dividends paid in April, July and October 2010, and declared a dividend of $0.11 per common
share for the dividends paid in January 2011.
Proceeds from the sale of treasury shares to employees and directors were $1.3 million and $0.8
million for 2010 and 2009, respectively. During 2010, the Company issued approximately 157,000
shares to employees and directors under its share compensation plans.
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 volatility in the capital and credit markets has had a significant impact on the economy in the
past few years. Despite the volatile and challenging economic environment, the Company has
continued to have good access to the credit markets. In the unlikely event that the Company was
faced with a situation where it was not able to access the capital markets (including through the
renewal of its line of credit), the Company believes it could successfully implement contingency
plans to maintain adequate liquidity such as expanding or contracting the amount of its forward
grain contracting, which will reduce the impact of grain price volatility on its daily margin
calls. Additionally, the Company could begin to liquidate its stored grain inventory as well as
execute sales contracts with its customers that align the timing of the receipt of grain from its
producers to the shipment of grain to its customers (thereby freeing up working capital that is
typically utilized to store the grain for extended periods of time). We also believe that we could
raise equity through other portions of the capital market. The Company believes that its operating
cash flow, the marketability of its grain inventories, other liquidity contingency plans and its
access to sufficient sources of liquidity, will enable it to meet its ongoing funding requirements.
At December 31, 2010, the Company had $760.8 million available under its lines of credit.
33
Table of Contents
Contractual Obligations
Future payments due under contractual obligations at December 31, 2010 are as follows:
| Payments Due by Period | ||||||||||||||||||||
| Contractual Obligations | Less than 1 | After 5 | ||||||||||||||||||
| (in thousands) | year | 1-3 years | 3-5 years | years | Total | |||||||||||||||
|
Long-term debt (a)
|
$ | 21,683 | $ | 76,661 | $ | 108,948 | $ | 78,066 | $ | 285,358 | ||||||||||
|
Long-term debt non-recourse (a)
|
2,841 | 12,373 | 777 | — | 15,991 | |||||||||||||||
|
Interest obligations (b)
|
14,993 | 24,632 | 15,659 | 9,651 | 64,935 | |||||||||||||||
|
Uncertain tax positions
|
311 | 160 | — | — | 471 | |||||||||||||||
|
Operating leases (c)
|
22,739 | 25,431 | 14,105 | 17,851 | 80,126 | |||||||||||||||
|
Purchase commitments (d)
|
1,748,062 | 157,450 | 1,311 | — | 1,906,823 | |||||||||||||||
|
Other long-term liabilities (e)
|
4,196 | 2,559 | 2,787 | 7,567 | 17,109 | |||||||||||||||
|
Total contractual cash obligations
|
$ | 1,814,825 | $ | 299,266 | $ | 143,587 | $ | 113,135 | $ | 2,370,813 | ||||||||||
| (a) | The Company is subject to various loan covenants as highlighted previously. Although the Company is in compliance with its covenants, noncompliance could result in default and acceleration of long-term debt payments. The Company does not anticipate noncompliance with its covenants. | |
| (b) | Future interest obligations are calculated based on interest rates in effect as of December 31, 2010 for the Company’s variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit. | |
| (c) | Approximately 82% of the operating lease commitments above relate to 6,827 railcars and 18 locomotives that the Company leases from financial intermediaries. See “Off-Balance Sheet Transactions” below. | |
| (d) | Includes the amounts related to purchase obligations in the Company’s operating units, including $1,405 million for the purchase of grain from producers and $385 million for the purchase of ethanol from our ethanol joint ventures. There are also forward grain and ethanol sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of business for the Grain & Ethanol Group in Item 1 of this Annual Report on Form 10-K for further discussion. | |
| (e) | Other long-term liabilities include estimated obligations under our retiree healthcare programs and the estimated 2011 contribution to our defined benefit pension plan. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 2015 have considered recent payment trends and actuarial assumptions. We have not estimated pension contributions beyond 2011 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 $14.1 million at December 31, 2010.
Off-Balance Sheet Transactions
The Company’s 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, the Company holds an
option to purchase these assets at the end of the lease.
34
Table of Contents
The following table describes the railcar and locomotive positions of the Rail Group at December
31, 2010.
| Method of Control | Financial Statement | Number | ||||
|
Owned-railcars available for sale
|
On balance sheet — current | 10 | ||||
|
Owned-railcar assets leased to others
|
On balance sheet — non-current | 13,407 | ||||
|
Railcars leased from financial intermediaries
|
Off balance sheet | 6,827 | ||||
|
Railcars — non-recourse arrangements
|
Off balance sheet | 2,109 | ||||
|
|
||||||
|
Total Railcars
|
22,353 | |||||
|
|
||||||
|
|
||||||
|
Locomotive assets leased to others
|
On balance sheet — non-current | 40 | ||||
|
Locomotives leased from financial intermediaries
|
Off balance sheet | 4 | ||||
|
Locomotives leased from financial
intermediaries under limited recourse
arrangements
|
Off balance sheet | — | ||||
|
Locomotives — non-recourse arrangements
|
Off balance sheet | 78 | ||||
|
|
||||||
|
Total Locomotives
|
122 | |||||
|
|
||||||
In addition, the Company manages approximately 761 railcars for third-party customers or owners for
which it receives a fee.
The Company has future lease payment commitments aggregating $65.5 million for the railcars leased
by the Company from financial intermediaries under various operating leases. Remaining lease terms
vary with none exceeding fifteen years. The Company prefers non-recourse lease transactions,
whenever possible, in order to minimize its credit risk. Refer to Note 12 to the Company’s
consolidated financial statements in Item 8 for more information on the Company’s leasing
activities.
In addition to the railcar counts above, the Grain & Ethanol Group owns 150 railcars which it
leases to third parties under operating leases. These cars are included in railcar assets leased
to others in the consolidated balance sheets.
Critical Accounting Estimates
The process of preparing financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure
of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an
ongoing basis. Estimates and assumptions are based on the Company’s historical experience and
management’s knowledge and understanding of current facts and circumstances. Actual results, under
conditions and circumstances different from those assumed, may change from estimates.
Certain of the Company’s accounting estimates are considered critical, as they are important to the
depiction of the Company’s financial statements and/or require significant or complex judgment by
management. There are other items within our financial statements that require estimation,
however, they are not deemed critical as defined above. Note 1 to the consolidated financial
statements in Item 8 describes our significant accounting policies which should be read in
conjunction with our critical accounting estimates.
The Company believes that accounting for allowance for accounts and notes receivable, fair value
adjustment for counter-party risk, grain inventories and commodity derivative contracts,
lower-of-cost-or-market inventory adjustments, impairment of long-lived assets and equity method
investments, income taxes, and employee benefit plans involve significant estimates and assumptions
in the preparation of the consolidated financial statements.
Allowance for Accounts and Notes Receivable
The allowance for doubtful accounts and notes receivable relate to trade receivables and the
current portion of notes receivable and is reviewed in detail by the Company on a quarterly basis.
The allowance is based
35
Table of Contents
both on specific identification of problem accounts and some base level of reserve for small and
unidentified issues. For those customers that are thought to be at higher risk, the Company makes
assumptions as to collectability based on past history and facts about the current situation.
Fair Value Adjustment for Counter-Party Risk
The Company records quarterly estimated fair value adjustments to its commodity contracts. These
market value adjustments for customer credit exposure are based on internal projections, the
Compay’s historical experience with its producers and customers and the Company’s knowledge of
their business. In addition, the adjustments to contract fair values tends to fluctuate with the
rise and fall of commodity prices.
Grain Inventories and Commodity Derivative Contracts
The Company marks to market all grain inventory, forward purchase and sale contracts for grain and
ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options
contracts. The overall market for grain inventories is very liquid and active; market value is
determined by reference to prices for identical commodities on the
CME (adjusted primarily for transportation costs); and the Company’s grain inventories may be sold
without significant additional processing. The Company uses forward purchase and sale contracts
and both exchange traded and over-the-counter contracts (such as derivatives generally used by the
International Swap Dealers Association). Management estimates fair value based on exchange-quoted
prices, adjusted for differences in local markets, as well as counter-party non-performance risk in
the case of forward and over-the-counter contracts. The amount of risk, and therefore the impact
to the fair value of the contracts, varies by type of contract and type of counter-party. With the
exception of specific customers thought to be at higher risk, the Company looks at the contracts in
total, segregated by contract type, in its assessment of nonperformance risk. For those customers
that are thought to be at higher risk, the Company makes assumptions as to performance based on
past history and facts about the current situation. Changes in fair value are recorded as a
component of sales and merchandising revenues in the statement of income.
Lower-of-Cost-or-Market Inventory Adjustments
The Company records its non-grain inventory at the lower of cost or market. Whenever changing
conditions warrant, the Company evaluates the carrying value of its inventory compared to the
current market. Market price is determined using both external data, such as current selling
prices by third parties and quoted trading prices for the same or similar products, and internal
data, such as the Company’s current ask price and expectations on normal margins. If the
evaluation indicates that the Company’s inventory is being carried at values higher than the
current market can support, the Company will write down its inventory to its best estimate of net
realizable value.
Impairment of Long-Lived Assets and Equity Method Investments
The Company’s business segments are each highly capital intensive and require significant
investment in facilities and / or railcars. Fixed assets are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
This is done by evaluating the recoverability based on undiscounted projected cash flows, excluding
interest and taxes. If an asset group is considered impaired, the impairment loss to be recognized
is measured as the amount by which the asset group’s carrying amount exceeds its fair value.
We also annually review the balance of goodwill for impairment in the fourth quarter. These
reviews for impairment take into account estimates of future undiscounted, and as appropriate
discounted, cash flows. Our estimates of future cash flows are based upon a number of assumptions
including lease rates, lease terms, operating costs, life of the assets, potential disposition
proceeds, budgets and long-range plans. The majority of our goodwill is in the Grain and Ethanol
and Plant Nutrient Groups. Based on the strength of current performance in both of these groups, we
do not anticipate any impairment issues in the near future.
In addition, the Company holds investments in limited liability companies that are accounted for
using the equity method of accounting. The Company reviews its investments to determine whether
there has been a decline in the estimated fair value of the investment that is below the Company’s carrying value
which is other than temporary.
36
Table of Contents
Income Taxes
On a quarterly basis, the income tax provision is based primarily on the expected annual effective
tax rate. In the event there is a significant or unusual item recognized in our quarterly
operating results, the tax attributable to that item is separately calculated and recorded at the
same time as that item. Our annual tax rate is based on our income, statutory tax rates and tax
planning opportunities available to us in the various jurisdictions in which we operate.
Significant judgment is required in determining our annual tax rate and in evaluating our tax
positions. We establish reserves when, despite our belief that our tax return positions are fully
supportable, we believe that certain positions are likely to be challenged and that we may not
prevail. We adjust these reserves in light of changing facts and circumstances, such as the
progress of a tax audit. We have limited reserves for uncertain tax positions and most will be
eliminated in the near future as the years available for audit are closing.
Employee Benefit Plans
The Company provides all full-time, non-retail employees hired before July 1, 2010 with pension
benefits and full-time employees hired before January 1, 2003 with postretirement health care
benefits. In order to measure the expense and funded status of these employee benefit plans,
management makes several estimates and assumptions, including rates of return on assets set aside
to fund these plans, rates of compensation increases, employee turnover rates, anticipated
mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are
based on the Company’s historical experience combined with management’s knowledge and understanding
of current facts and circumstances. The selection of the discount rate is not a matter of judgment
but based on an index given projected plan payouts. With the freeze of the pension and supplemental
retirement plan, the volatility of the assumption has been reduced.
The market risk inherent in the Company’s market risk-sensitive instruments and positions is the
potential loss arising from adverse changes in commodity prices and interest rates as discussed
below.
Commodity Prices
The availability and price of agricultural commodities are subject to wide fluctuations due to
unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs
and policies, changes in global demand created by population growth and higher standards of living,
and global production of similar and competitive crops. To reduce price risk caused by market
fluctuations in purchase and sale commitments for grain and grain held in inventory, the Company
enters into exchange-traded futures and options contracts that function as economic hedges. The
market value of exchange-traded futures and options used for economic hedging has 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 much less volatile than the overall market value of exchange-traded
futures and tends to follow historical patterns. The Company manages this less volatile risk using
its daily grain position report to constantly monitor its position relative to 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 a risk that cannot be directly offset. The Company’s accounting policy
for its futures and options, as well as the underlying inventory positions and purchase and sale
contracts, is to mark them to the market price daily and include gains and losses in the statement
of income in sales and merchandising revenues.
A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its
commodity position (exclusive of basis risk). The Company’s daily net commodity position consists
of
37
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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:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Net (short) long position
|
$ | (2,105 | ) | $ | 3,848 | |||
|
Market risk
|
(211 | ) | 385 | |||||
Interest Rates
The fair value of the Company’s long-term debt is estimated using quoted market prices or
discounted future cash flows based on the Company’s current incremental borrowing rates and credit
ratings for similar types of borrowing arrangements. In addition, the Company has derivative
interest rate contracts recorded in its balance sheet at their fair value. 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:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Fair value of long-term debt and interest rate contracts
|
$ | 307,865 | $ | 327,412 | ||||
|
Fair value in excess of carrying value
|
4,359 | 6,688 | ||||||
|
Market risk
|
(8,091 | ) | (3,344 | ) | ||||
38
Table of Contents
The Andersons, Inc.
Index to Financial Statements
Index to Financial Statements
| 40 | ||||
|
|
||||
| 41 | ||||
|
|
||||
| 42 | ||||
|
|
||||
| 43 | ||||
|
|
||||
| 44 | ||||
|
|
||||
| 45 | ||||
|
|
||||
| 46 | ||||
|
|
||||
| 47 | ||||
|
|
||||
| 90 | ||||
|
|
||||
| 91 |
39
Table of Contents
Management’s Report on Internal Control Over Financial Reporting
The management of The Andersons, Inc. (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s financial statements for
external reporting purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness of internal control
over financial reporting to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2010. In making this assessment, it used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in
Internal Control — Integrated Framework
.
Based on the results of this assessment and on those criteria, management concluded that, as of
December 31, 2010, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has
audited the effectiveness of the Company’s internal control over financial reporting as of December
31, 2010, as stated in their report which follows in Item 8 of this Form 10-K.
40
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
of The Andersons, Inc.:
of The Andersons, Inc.:
In our opinion, based on our audits and the report of other auditors, the consolidated
financial statements listed in the accompanying index present fairly, in all material respects, the
financial position of The Andersons, Inc. and its subsidiaries at December 31, 2010 and December
31, 2009, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2010 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial statement schedule listed
in the accompanying index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on criteria established in
Internal Control -
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express opinions on these financial statements, on the financial statement schedule, and on
the Company’s internal control over financial reporting based on our integrated audits. We did not
audit the financial statements of Lansing Trade Group, LLC, an entity in which The Andersons, Inc.
has an investment in and accounts for under the equity method of accounting, and for which The
Andersons, Inc. recorded $15.1 million, $5.8 million and
$8.8 million of equity in earnings of affiliates for
the years ended December 31, 2010, 2009 and 2008, respectively. The financial statements of
Lansing Trade Group, LLC as of December 31, 2010 and
December 31, 2009 and for each of the years ended December 31, 2010, December 31, 2009 and December 31, 2008 were audited by other auditors whose report thereon has been furnished to us, and our opinion
on the financial statements of The Andersons, Inc. as of
December 31, 2010 and December 31, 2009
and for the years ended December 31, 2010, December 31, 2009 and December 31, 2008 expressed herein, insofar as it
relates to the amounts included for Lansing Trade Group, LLC, is based solely on the report of the
other auditors. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits and the
report of other auditors provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Toledo, Ohio
March 1, 2011
Toledo, Ohio
March 1, 2011
41
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Lansing Trade Group, LLC
Overland Park, Kansas
Overland Park, Kansas
We have audited the consolidated balance sheets of Lansing Trade Group, LLC and Subsidiaries as of
December 31, 2010 and 2009 and the related consolidated statements of income and comprehensive
income, members’ equity and cash flows for each of the three years in the period ended December 31,
2010 (not included herein). These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2010 and 2009, and the
results of its operations and its cash flows for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally accepted accounting principles.
Crowe Chizek LLP
Elkhart, Indiana
February 21, 2011
February 21, 2011
42
Table of Contents
The Andersons, Inc.
| Year ended December 31, | ||||||||||||
| (in thousands, except per common share data) | 2010 | 2009 | 2008 | |||||||||
|
Sales and merchandising revenues
|
$ | 3,393,791 | $ | 3,025,304 | $ | 3,489,478 | ||||||
|
Cost of sales and merchandising revenues
|
3,112,112 | 2,769,798 | 3,231,649 | |||||||||
|
Gross profit
|
281,679 | 255,506 | 257,829 | |||||||||
|
|
||||||||||||
|
Operating, administrative and general expenses
|
195,330 | 199,116 | 190,230 | |||||||||
|
Interest expense
|
19,865 | 20,688 | 31,239 | |||||||||
|
Other income:
|
||||||||||||
|
Equity in earnings of affiliates
|
26,007 | 17,463 | 4,033 | |||||||||
|
Other income — net
|
11,652 | 8,331 | 6,170 | |||||||||
|
Income before income taxes
|
104,143 | 61,496 | 46,563 | |||||||||
|
Income tax provision
|
39,262 | 21,930 | 16,466 | |||||||||
|
Net income
|
64,881 | 39,566 | 30,097 | |||||||||
|
Net (income) loss attributable to the noncontrolling interest
|
(219 | ) | (1,215 | ) | 2,803 | |||||||
|
Net income attributable to The Andersons, Inc.
|
$ | 64,662 | $ | 38,351 | $ | 32,900 | ||||||
|
|
||||||||||||
|
Per common share:
|
||||||||||||
|
Basic earnings attributable to The Andersons, Inc.
common shareholders
|
$ | 3.51 | $ | 2.10 | $ | 1.82 | ||||||
|
Diluted earnings attributable to The Andersons, Inc.
common shareholders
|
$ | 3.48 | $ | 2.08 | $ | 1.79 | ||||||
|
Dividends paid
|
$ | 0.3575 | $ | 0.3475 | $ | 0.325 | ||||||
The Notes to Consolidated Financial Statements are an integral part of these statements.
43
Table of Contents
The Andersons, Inc.
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 29,219 | $ | 145,929 | ||||
|
Restricted cash
|
12,134 | 3,123 | ||||||
|
Accounts and notes receivable, less allowance for doubtful accounts
of $5,684 in 2010; $8,753 in 2009
|
152,227 | 137,195 | ||||||
|
Margin deposits, net
|
20,259 | 27,012 | ||||||
|
Inventories
|
647,189 | 407,845 | ||||||
|
Commodity derivative assets — current
|
226,216 | 24,255 | ||||||
|
Deferred income taxes
|
16,813 | 13,284 | ||||||
|
Other current assets
|
34,501 | 28,180 | ||||||
|
Total current assets
|
1,138,558 | 786,823 | ||||||
|
Other assets:
|
||||||||
|
Commodity derivative assets — noncurrent
|
18,113 | 3,137 | ||||||
|
Other assets and notes receivable, less allowance for doubtful notes
receivable of $254 in 2010; $7,950 in 2009
|
47,855 | 25,629 | ||||||
|
Equity method investments
|
175,349 | 157,360 | ||||||
|
|
241,317 | 186,126 | ||||||
|
Railcar assets leased to others, net
|
168,483 | 179,154 | ||||||
|
Property, plant and equipment, net
|
151,032 | 132,288 | ||||||
|
Total assets
|
$ | 1,699,390 | $ | 1,284,391 | ||||
|
|
||||||||
|
Liabilities and Shareholders’ equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Borrowings under short-term line of credit
|
$ | 241,100 | $ | — | ||||
|
Accounts payable for grain
|
274,596 | 234,396 | ||||||
|
Other accounts payable
|
111,501 | 110,658 | ||||||
|
Customer prepayments and deferred revenue
|
78,550 | 56,698 | ||||||
|
Commodity derivative liabilities — current
|
57,621 | 24,871 | ||||||
|
Accrued expenses and other current liabilities
|
48,851 | 41,563 | ||||||
|
Current maturities of long-term debt
|
24,524 | 10,935 | ||||||
|
Total current liabilities
|
836,743 | 479,121 | ||||||
|
Other long-term liabilities
|
25,183 | 16,051 | ||||||
|
Commodity derivative liabilities — noncurrent
|
3,279 | 830 | ||||||
|
Employee benefit plan obligations
|
30,152 | 24,949 | ||||||
|
Long-term debt, less current maturities
|
276,825 | 308,026 | ||||||
|
Deferred income taxes
|
62,649 | 49,138 | ||||||
|
Total liabilities
|
1,234,831 | 878,115 | ||||||
|
|
||||||||
|
Shareholders’ equity:
|
||||||||
|
Common shares, without par value, 42,000 shares authorized;
19,198 shares issued
|
96 | 96 | ||||||
|
Preferred shares, without par value, 1,000 shares authorized; none issued
|
— | — | ||||||
|
Additional paid-in capital
|
177,875 | 175,477 | ||||||
|
Treasury shares, at cost (762 in 2010; 918 in 2009)
|
(14,058 | ) | (15,554 | ) | ||||
|
Accumulated other comprehensive loss
|
(28,799 | ) | (25,314 | ) | ||||
|
Retained earnings
|
316,317 | 258,662 | ||||||
|
Total shareholders’ equity of The Andersons, Inc.
|
451,431 | 393,367 | ||||||
|
Noncontrolling interest
|
13,128 | 12,909 | ||||||
|
Total shareholders’ equity
|
464,559 | 406,276 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 1,699,390 | $ | 1,284,391 | ||||
The Notes to Consolidated Financial Statements are an integral part of these statements.
44
Table of Contents
The Andersons, Inc.
| Year ended December 31 | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Operating activities
|
||||||||||||
|
Net income
|
$ | 64,881 | $ | 39,566 | $ | 30,097 | ||||||
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
38,913 | 36,020 | 29,767 | |||||||||
|
Bad debt (recovery) expense
|
(8,716 | ) | 4,973 | 8,710 | ||||||||
|
Equity in (earnings) loss of unconsolidated affiliates,
net of distributions received
|
(17,594 | ) | (15,105 | ) | 19,307 | |||||||
|
Gains on sales of railcars and related leases
|
(7,771 | ) | (1,758 | ) | (4,040 | ) | ||||||
|
Excess tax benefit from share-based payment arrangement
|
(876 | ) | (566 | ) | (2,620 | ) | ||||||
|
Deferred income taxes
|
12,205 | 16,430 | 4,124 | |||||||||
|
Gain from pension plan curtailment
|
— | (4,132 | ) | — | ||||||||
|
Stock based compensation expense
|
2,589 | 2,747 | 4,050 | |||||||||
|
Lower of cost or market inventory and contract adjustment
|
— | 2,944 | 97,268 | |||||||||
|
Impairment of property, plant and equipment
|
1,682 | 304 | — | |||||||||
|
Other
|
215 | 186 | 58 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts and notes receivable
|
(848 | ) | (15,259 | ) | (23,460 | ) | ||||||
|
Inventories
|
(214,171 | ) | 32,227 | 3,074 | ||||||||
|
Commodity derivatives and margin deposits
|
(158,183 | ) | 2,211 | 102,818 | ||||||||
|
Prepaid expenses and other assets
|
(3,970 | ) | 61,938 | (56,939 | ) | |||||||
|
Accounts payable for grain
|
20,703 | 18,089 | 72,648 | |||||||||
|
Other accounts payable and accrued expenses
|
31,656 | (574 | ) | (6,198 | ) | |||||||
|
Net cash (used in) provided by operating activities
|
(239,285 | ) | 180,241 | 278,664 | ||||||||
|
Investing activities
|
||||||||||||
|
Acquisition of businesses, net of cash acquired
|
(39,293 | ) | (30,480 | ) | (18,920 | ) | ||||||
|
Purchases of property, plant and equipment
|
(30,897 | ) | (16,560 | ) | (20,315 | ) | ||||||
|
Purchases of railcars
|
(18,354 | ) | (24,965 | ) | (97,989 | ) | ||||||
|
Investment in convertible preferred securities
|
(13,100 | ) | — | — | ||||||||
|
Proceeds from sale of railcars
|
20,102 | 8,453 | 68,456 | |||||||||
|
Proceeds from sale of property, plant and equipment and other
|
1,942 | 540 | 180 | |||||||||
|
Proceeds received from minority interest
|
— | — | 2,278 | |||||||||
|
Change in restricted cash
|
(9,010 | ) | 803 | (201 | ) | |||||||
|
Investment in affiliates
|
(395 | ) | (1,200 | ) | (41,450 | ) | ||||||
|
Net cash used in investing activities
|
(89,005 | ) | (63,409 | ) | (107,961 | ) | ||||||
|
Financing activities
|
||||||||||||
|
Net increase (decrease) in short-term borrowings
|
241,100 | — | (245,500 | ) | ||||||||
|
Proceeds from issuance of long-term debt
|
18,986 | 9,523 | 220,827 | |||||||||
|
Payments of long-term debt
|
(36,598 | ) | (52,349 | ) | (82,090 | ) | ||||||
|
Payment of debt issuance costs
|
(7,508 | ) | (4,500 | ) | (2,283 | ) | ||||||
|
Purchase of treasury stock
|
— | (229 | ) | (924 | ) | |||||||
|
Proceeds from sale of treasury shares to employees and directors
|
1,305 | 750 | 1,914 | |||||||||
|
Excess tax benefit from share-based payment arrangement
|
876 | 566 | 2,620 | |||||||||
|
Dividends paid
|
(6,581 | ) | (6,346 | ) | (5,885 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
211,580 | (52,585 | ) | (111,321 | ) | |||||||
|
|
||||||||||||
|
(Decrease) increase in cash and cash equivalents
|
(116,710 | ) | 64,247 | 59,382 | ||||||||
|
Cash and cash equivalents at beginning of year
|
145,929 | 81,682 | 22,300 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 29,219 | $ | 145,929 | $ | 81,682 | ||||||
The Notes to Consolidated Financial Statements are an integral part of these statements.
45
Table of Contents
The Andersons, Inc.
Consolidated Statements of Shareholders’ Equity
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common | Paid-in | Treasury | Comprehensive | Retained | Noncontrolling | |||||||||||||||||||||||
| (in thousands, except per share data) | Shares | Capital | Shares | Loss | Earnings | Interest | Total | |||||||||||||||||||||
|
Balances at January 1, 2008
|
96 | 168,286 | (16,670 | ) | (7,197 | ) | 199,849 | 12,219 | 356,583 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Net income (loss)
|
32,900 | (2,803 | ) | 30,097 | ||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||
|
Unrecognized actuarial loss and prior
service costs (net of income tax of $12,968)
|
(22,328 | ) | (22,328 | ) | ||||||||||||||||||||||||
|
Cash flow hedge activity (net of income tax
of $0.3)
|
(521 | ) | (521 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Comprehensive income
|
7,248 | |||||||||||||||||||||||||||
|
Purchase of treasury shares (77 shares)
|
(924 | ) | (924 | ) | ||||||||||||||||||||||||
|
Proceeds received from minority investor
|
2,278 | 2,278 | ||||||||||||||||||||||||||
|
Stock awards, stock option exercises, and
other shares issued to employees and
directors, net of income tax of $2,485 (203
shares)
|
5,107 | 857 | 5,964 | |||||||||||||||||||||||||
|
Dividends declared ($0.3325 per common share)
|
(6,042 | ) | (6,042 | ) | ||||||||||||||||||||||||
|
Balances at December 31, 2008
|
96 | 173,393 | (16,737 | ) | (30,046 | ) | 226,707 | 11,694 | 365,107 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Net income
|
38,351 | 1,215 | 39,566 | |||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||
|
Unrecognized actuarial gain and prior
service costs (net of income tax of $2,431)
|
4,491 | 4,491 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Cash flow hedge activity (net of income tax of
$0.1)
|
241 | 241 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Comprehensive income
|
44,298 | |||||||||||||||||||||||||||
|
Purchase of treasury shares (20 shares)
|
(229 | ) | (229 | ) | ||||||||||||||||||||||||
|
Stock awards, stock option exercises, and
other shares issued to employees and
directors, net of income tax of $826 (171
shares)
|
2,084 | 1,412 | 3,496 | |||||||||||||||||||||||||
|
Dividends declared ($0.3475 per common share)
|
(6,396 | ) | (6,396 | ) | ||||||||||||||||||||||||
|
Balances at December 31, 2009
|
96 | 175,477 | (15,554 | ) | (25,314 | ) | 258,662 | 12,909 | 406,276 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Net income
|
64,662 | 219 | 64,881 | |||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||
|
Unrecognized actuarial loss and prior
service costs (net of income tax of $3,116)
|
(4,992 | ) | (4,992 | ) | ||||||||||||||||||||||||
|
Increase in estimated fair value of
investment in debt securities (net of income
tax of $1,004)
|
1,685 | 1,685 | ||||||||||||||||||||||||||
|
Cash flow hedge activity (net of income tax
of $0.1)
|
(178 | ) | (178 | ) | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Comprehensive income
|
61,396 | |||||||||||||||||||||||||||
|
Stock awards, stock option exercises, and
other shares issued to employees and
directors, net of income tax of $1,076 (157
shares)
|
2,398 | 1,496 | 3,894 | |||||||||||||||||||||||||
|
Dividends declared ($0.3575 per commonshare)
|
(7,007 | ) | (7,007 | ) | ||||||||||||||||||||||||
|
Balances at December 31, 2010
|
$ | 96 | $ | 177,875 | $ | (14,058 | ) | $ | (28,799 | ) | $ | 316,317 | $ | 13,128 | $ | 464,559 | ||||||||||||
The Notes to Consolidated Financial Statements are an integral part of these
statements.
46
Table of Contents
The Andersons, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation
These consolidated financial statements include the accounts of The Andersons, Inc. and its
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.
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.
During the first quarter of 2010, ASU 2009-17 became effective for the Company. ASU 2009-17
provides guidance for identifying entities for which analysis of voting interests, and the holding
of those voting interests, is not effective in determining whether a controlling financial interest
exists. These entities are considered variable interest entities (“VIEs”). The Company holds
investments in four equity method investments that were evaluated under ASU 2009-17 to determine
whether they were considered VIEs of the Company and subject to consolidation under this standard.
The Company concluded that these entities were not VIEs and therefore not subject to consolidation
under this standard. During the second quarter of 2010, the Company made an investment in an
entity that is considered a VIE. See Note 3 for further information.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments with an initial maturity of three
months or less. The carrying values of these assets approximate their fair values.
A significant portion of restricted cash is held in escrow for certain of the Company’s debt
described in Note 9.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and may bear interest if past due.
The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in
our existing accounts receivable. We review our allowance for doubtful accounts quarterly. Past
due balances over 90 days, and greater than a specified amount, are reviewed individually for
collectability. All other balances are reviewed on a pooled basis.
Account balances are charged off against the allowance when it becomes more certain that the
receivable will not be recovered. In 2010, the Company benefited from the net reversal of $6.7
million of reserves following the settlement of a long standing collection matter.
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Table of Contents
Inventories and Commodity Derivatives
The Company’s operating results can be affected by changes to commodity prices. To reduce the
exposure to market price risk on grain owned and forward grain and ethanol purchase and sale
contracts, the Company enters into regulated commodity futures and options contracts as well as
over-the-counter contracts for ethanol, corn, soybeans, wheat and oats. All of these contracts are
considered derivatives. The Company records these commodity contracts on the balance sheet as
assets or liabilities as appropriate, and accounts for them at fair value using a daily
mark-to-market method, the same method it uses to value grain inventory. Management determines
fair value based on exchange-quoted prices, adjusted for differences in local markets, and in the
case of derivatives, also considers non-performance risk. Company policy limits the Company’s
“unhedged” grain position (the amount of grain, either owned or contracted for, that is not offset
by a derivative contract for the sale of grain). While the Company considers its commodity
contracts to be effective economic hedges, the Company does not designate or account for its
commodity contracts as hedges. Realized and unrealized gains and losses in the value of commodity
contracts (whether due to changes in commodity prices, changes in performance or credit risk, or
due to sale, maturity or extinguishment of the commodity contract) and grain inventories are
included in sales and merchandising revenues in the statements of income. The forward contracts
require performance in future periods. Contracts to purchase grain from producers generally relate
to the current or future crop years for delivery periods quoted by regulated commodity exchanges.
Contracts for the sale of grain to processors or other consumers generally do not extend beyond one
year. The terms of contracts for the purchase and sale of grain are consistent with industry
standards. Additional information about the fair value of the Company’s commodity derivatives is
presented in Note 4 to the consolidated financial statements.
All other inventories are stated at the lower of cost or market. Cost is determined by the average
cost method.
Master Netting Arrangements
Generally accepted accounting principles permit 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 future, option or an
over-the-counter contract moves in a direction that is adverse to the Company’s position, an
additional margin deposit, called a maintenance margin, is required. The Company nets, by
counterparty, its futures and over-the-counter positions against the cash collateral provided or
received. 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 December 31, 2010 and December 31,
2009, the margin deposit assets and margin deposit liabilities consisted of the following:
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Margin | Margin | Margin | Margin | |||||||||||||
| deposit | deposit | deposit | deposit | |||||||||||||
| (in thousands) | assets | liabilities | assets | liabilities | ||||||||||||
|
Collateral paid
|
$ | 166,589 | $ | — | $ | 40,190 | $ | 2,228 | ||||||||
|
Fair value of derivatives
|
(146,330 | ) | — | (13,178 | ) | (4,193 | ) | |||||||||
|
Balance at end of period
|
$ | 20,259 | $ | — | $ | 27,012 | $ | (1,965 | ) | |||||||
Marketing Agreement
The Company has negotiated a marketing agreement that covers certain of its grain facilities (some
of which are leased from Cargill). Under this five-year amended and restated agreement (ending in
May 2013), the Company sells grain from these facilities to Cargill at market prices. Income
earned from operating the facilities (including buying, storing and selling grain and providing
grain marketing services to its producer customers) over a specified threshold is shared equally
with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to
Cargill (if required) at the end of the contract. The Company recognizes its share of income every
month
48
Table of Contents
and accrues for any payment owed to Cargill. The payable balance was $16.7 million and $10.6
million as of December 31, 2010 and 2009, respectively.
Derivatives — Interest Rate and Foreign Currency Contracts
The Company periodically enters into interest rate contracts to manage interest rate risk on
borrowing or financing activities. The Company has a long-term interest rate swap recorded in
other long-term liabilities and a foreign currency collar recorded in other assets and has
designated them as cash flow hedges; accordingly, changes in the fair value of these instruments
are recognized in other comprehensive income. The Company has other interest rate contracts that
are not designated as hedges. While the Company considers all of its derivative positions to be
effective economic hedges of specified risks, these interest rate contracts for which we do not
apply hedge accounting are recorded on the balance sheet in prepaid expenses and other assets or
current and long-term liabilities, as appropriate, and changes in fair value are recognized
currently in income as interest expense. Upon termination of a derivative instrument or a change
in the hedged item, any remaining fair value recorded on the balance sheet is recorded as interest
expense consistent with the cash flows associated with the underlying hedged item.
Railcars
The Company’s Rail Group purchases, leases, markets and manages railcars for third parties and for
internal use. Railcars to which the Company holds title are shown on the balance sheet in one of
two categories — prepaid expenses and other current assets (for railcars that are available for
sale) or railcar assets leased to others. Railcars leased to others, both on short- and long-term
leases, are classified as long-term assets and are depreciated over their estimated useful lives.
Railcars have statutory lives of either 40 or 50 years (measured from the date built) depending on
type and year built and are depreciated based on 80% of the railcars remaining useful life.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Repairs and maintenance are charged to expense
as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided
over the estimated useful lives of the individual assets, principally by the straight-line method.
Estimated useful lives are generally as follows: land improvements and leasehold improvements —
the shorter of the lease term or the estimated useful life of the improvement; buildings and
storage facilities — 20 to 30 years; machinery and equipment — 3 to 20 years; and software — 3
to 10 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation
thereon are removed from the accounts, with any gain or loss realized upon sale or disposal
credited or charged to operations.
Deferred Debt Issue Costs
Costs associated with the issuance of debt are capitalized. These costs are amortized using an
interest-method equivalent over the earlier of the stated term of the debt or the period from the
issue date through the first early payoff date without penalty, or the expected payoff if the loan
does not contain a prepayment penalty. Capitalized costs associated with the short-term
syndication agreement are amortized over the term of the syndication.
Goodwill and Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization. Amortization of intangible
assets is provided over their estimated useful lives (generally 5 to 10 years) on the straight-line
method. Goodwill is not amortized but is subject to annual impairment tests or more often when
events or circumstances indicate that the carrying amount of goodwill may be impaired. A goodwill
impairment loss is recognized to the extent the carrying amount of goodwill exceeds the implied
fair value of goodwill.
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Table of Contents
Impairment of Long-lived Assets
Long-lived assets, including intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by comparing the carrying amount of the
assets to the undiscounted future net cash flows the Company expects to generate with the asset.
If such assets are considered to be impaired, the Company recognizes impairment expense for the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
Accounts Payable for Grain
Accounts payable for grain includes certain amounts related to grain purchases for which, even
though we have taken ownership and possession of the grain, the final purchase price has not been
established (delayed price contracts). Amounts recorded for such delayed price contracts are
determined on the basis of grain market prices at the balance sheet date in a similar manner for
which we value our inventory. At December 31, 2010 and 2009, the amount of accounts payable for
grain computed on the basis of market prices was $47.0 million and $56.9 million, respectively.
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards are based on the estimated
grant-date fair value. The Company recognizes these compensation costs on a straight-line basis
over the requisite service period of the award.
Deferred Compensation Liability
Included in accrued expenses are $5.8 million and $5.3 million at December 31, 2010 and 2009,
respectively, of deferred compensation for certain employees who, due to Internal Revenue Service
guidelines, may not take full advantage of the Company’s qualified defined contribution plan.
Assets funding this plan are recorded at fair value and are equal to the value of this liability.
This plan has no impact on our results of operations as the change in the fair value of the assets
are offset on a one-for-one basis, by the change in the recorded amount of the deferred
compensation liability.
Revenue Recognition
Sales of grain and ethanol are primarily recognized at the time of shipment, which is when title
and risk of loss transfers to the customer. Direct ship grain sales (where the Company never takes
physical possession of the grain) are recognized when the grain arrives at the customer’s facility.
Revenues from other grain and ethanol merchandising activities are recognized as services are
provided; grain inventory as well as commodity derivative gains and losses are recognized into
revenue on a daily basis when these positions are marked-to-market. Sales of other products are
recognized at the time title and risk of loss transfers to the customer, which is generally at the
time of shipment or, in the case of retail store sales, when the customer takes possession of the
goods. Revenues for all other services are recognized as the service is provided.
Rental revenues on operating leases are recognized on a straight-line basis over the term of the
lease. Sales to financial intermediaries of owned railcars which are subject to an operating lease
(with the Company being the lessor in such operating leases prior to the sale, referred to as a
“non-recourse transaction”) are recognized as revenue on the date of sale if the Company does not
maintain substantial risk of ownership in the sold railcars.
Revenues recognized related to these non-recourse transactions totaled $2.9 million in 2010, $3.8
million in 2009 and $22.3 million in 2008. Revenue related to railcar servicing and maintenance
contracts is recognized over the term of the lease or service contract.
Certain of the Company’s operations provide for customer billings, deposits or prepayments for
product that is stored at the Company’s facilities. The sales and gross profit related to these
transactions are not recognized until the
50
Table of Contents
product is shipped in accordance with the previously
stated revenue recognition policy and these amounts are classified as a current liability titled
“Customer prepayments and deferred revenue.”
Sales returns and allowances are provided for at the time sales are recorded. Shipping and
handling costs are included in cost of sales. Sales taxes and motor fuel taxes on ethanol sales
are presented on a net basis and are excluded from revenues. In all cases, revenues are recognized
only if collectability is reasonably assured at the time the revenue is recorded.
Rail Lease Accounting
In addition to the sale of railcars that the Company makes to financial intermediaries on a
non-recourse basis and records as revenue as discussed above, the Company also acts as the lessor
and/or the lessee in various leasing arrangements as described below.
The Company’s Rail Group leases railcars and locomotives to customers, manages railcars for third
parties and leases railcars for internal use. The Company acts as the lessor in various operating
leases of railcars that are owned by the Company, or leased by the Company from financial
intermediaries and, in turn, leased by the Company to end-users of the railcars. The leases from
financial intermediaries are generally structured as sale-leaseback transactions, with the
leaseback by the Company being treated as an operating lease.
Certain of the Company’s leases include monthly lease fees that are contingent upon some measure of
usage (“per diem” leases). This monthly usage is tracked, billed and collected by third party
service providers and funds are generally remitted to the Company along with usage data three
months after they are earned. Typically, the lease term related to per-diem leases is one year or
less. The Company records lease revenue for these per diem arrangements based on recent historical
usage patterns and records a true-up adjustment when the actual data is received. Such true-up
adjustments were not significant for any period presented.
The Company expenses operating lease payments on a straight-line basis over the lease term.
Income Taxes
Income tax expense for each period includes current tax expense (income taxes related to current
year activity) plus the change in deferred income tax assets and liabilities. Deferred income
taxes are provided for temporary differences between financial reporting and tax basis of assets
and liabilities and are measured using enacted tax rates and laws governing periods in which the
differences are expected to reverse. The Company evaluates the realizability of deferred tax
assets and provides a valuation allowance for amounts that management does not believe are more
likely than not to be recoverable, as applicable.
Accumulated Other Comprehensive Loss
The balance in accumulated other comprehensive loss at December 31, 2010 and 2009 consists of the
following:
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Unrecognized actuarial loss and prior service costs
|
$ | (29,362 | ) | $ | (24,370 | ) | ||
|
Cash flow hedges
|
(1,122 | ) | (944 | ) | ||||
|
Increase in estimated fair value of investment in
debt securities
|
1,685 | — | ||||||
|
|
$ | (28,799 | ) | $ | (25,314 | ) | ||
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Table of Contents
Research and Development
Research and development costs are expensed as incurred. The Company’s research and development
program is mainly involved with the development of improved products and processes, primarily for
the Turf & Specialty Group. The Company expended approximately $1.8 million, $1.4 million and $0.5
million on research and development activities during 2010, 2009 and 2008, respectively. In 2008,
the Company, along with several partners, was awarded a $5 million grant from the Ohio Third
Frontier Commission. The grant is for the development and commercialization of advanced granules
and other emerging technologies to provide solutions for the economic health and environmental
concerns of today’s agricultural industry. For the years ended December 31, 2010, 2009 and 2008,
the Company received $0.9 million, $0.9 million and $0.1 million, respectively, as part of this
grant.
Advertising
Advertising costs are expensed as incurred. Advertising expense of $4.1 million, $4.0 million and
$4.2 million in 2010, 2009, and 2008, respectively, is included in operating, administrative and
general expenses.
Earnings per Share
Unvested share-based payment awards that contain non-forfeitable rights to dividends are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. The two-class method of computing earnings per share is an earnings
allocation formula that determines earnings per share for common stock and any participating
securities according to dividends declared (whether paid or unpaid) and participation rights in
undistributed earnings. The Company’s nonvested restricted stock are considered participating
securities since the share-based awards contain a non-forfeitable right to dividends irrespective
of whether the awards ultimately vest. The two-class method became effective for the Company for
financial statements issued for fiscal years beginning after December 15, 2008 and interim periods
within those years. The adoption of the two class method did not impact the reported amounts of
basic or diluted earnings per share for the year ended December 31, 2008.
| Year ended | ||||||||||||
| December 31, | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Net income attributable to The Andersons, Inc.
|
$ | 64,662 | $ | 38,351 | $ | 32,900 | ||||||
|
Less: Distributed and undistributed earnings
allocated to nonvested restricted stock
|
204 | 122 | 90 | |||||||||
|
Earnings available to common shareholders
|
$ | 64,458 | $ | 38,229 | $ | 32,810 | ||||||
|
|
||||||||||||
|
Earnings per share — basic:
|
||||||||||||
|
Weighted average shares outstanding — basic
|
18,356 | 18,190 | 18,068 | |||||||||
|
Earnings per common share — basic
|
$ | 3.51 | $ | 2.10 | $ | 1.82 | ||||||
|
|
||||||||||||
|
Earnings per share — diluted:
|
||||||||||||
|
Weighted average shares outstanding — basic
|
18,356 | 18,190 | 18,068 | |||||||||
|
Effect of dilutive options
|
151 | 179 | 295 | |||||||||
|
Weighted average shares outstanding — diluted
|
18,507 | 18,369 | 18,363 | |||||||||
|
Earnings per common share — diluted
|
$ | 3.48 | $ | 2.08 | $ | 1.79 | ||||||
There were no antidilutive equity instruments at December 31, 2010, 2009 or 2008.
New Accounting Standards
ASC 820 —
Improving Disclosures about Fair Value Measurements
became effective for the Company
beginning with the first quarter of 2010. ASC 820 provides additional guidance and enhances the
disclosures regarding fair
52
Table of Contents
value measurements. ASC 820 also requires new disclosures regarding
transfers between levels of fair value measurements. ASC 820 did not have a material impact on the
Company’s disclosures.
FASB Accounting Standards Update (ASU) 2009-13,
Multiple-Deliverable Revenue Arrangements
,
significantly changes the accounting for revenue recognition arrangements with multiple
deliverables. ASU 2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Management is currently
assessing the impact the standard may have on revenue recognition for the Company.
2. Business Acquisitions
On May 1, 2010, the Company acquired two grain cleaning and storage facilities from O’Malley Grain,
Inc. (“O’Malley”) for a purchase price of $7.8 million. O’Malley is a supplier of consistent, high
quality food-grade corn to the snack food and tortilla industries with facilities in Nebraska and
Illinois.
On December 31, 2010, the Company acquired the assets of B4 Grain, Inc. (“B4”), for a purchase
price of $35.1 million, including cash paid through December 31,
2010 of $31.5 million. B4 has three grain elevators located in Nebraska, two of which are owned
and have a combined storage capacity of 1.9 million bushels and another that is leased with storage
capacity of 1.1 million bushels. B4’s focus is on their direct ship program, which complements the
Company’s existing direct ship program that it is currently expanding.
The goodwill recognized as a result of the O’Malley and B4 acquisitions is $1.2 million and $2.9
million, respectively, and relates to expected synergies from combining operations.
The summarized preliminary purchase price allocation for these two acquisitions is as follows:
| B4 | O’Malley | Total | ||||||||||
|
Current assets
|
$ | 44,428 | $ | 4,097 | $ | 48,525 | ||||||
|
Intangible assets
|
350 | 1,375 | 1,725 | |||||||||
|
Goodwill
|
2,850 | 1,231 | 4,081 | |||||||||
|
Property, plant and equipment
|
1,879 | 5,959 | 7,838 | |||||||||
|
Other long-term assets
|
1,005 | 111 | 1,116 | |||||||||
|
Current liabilities
|
(15,383 | ) | (4,864 | ) | (20,247 | ) | ||||||
|
Other long-term liabilities
|
— | (126 | ) | (126 | ) | |||||||
|
Total purchase price (a)
|
$ | 35,129 | $ | 7,783 | $ | 42,912 | ||||||
| (a) | Of the $35.1 million purchase price for B4, $0.8 million remained in accounts payable and a $2.8 million earn-out provision remained in other-long term liabilities in the Company’s balance sheet at December 31, 2010. |
Approximately $1.1 million of the O’Malley intangible assets (which include customer lists and a
non-compete agreement) are being amortized over 5 years. The other $0.3 million (which consists of
a grower’s list) is being amortized over 3 years.
The B4 intangible assets include $0.1 million for a non-compete agreement and $0.3 million for a
customer list. The non-compete agreement is being amortized over 5 years and the customer list is
being amortized over 3 years. The purchase agreement for B4 includes an earn-out provision. The
prior owners of B4 have the ability to receive an additional $3.5 million if certain income levels
are achieved over the next five years. The estimated fair value of this contingent liability is
$2.8 million and is recorded in other long-term liabilities in the Company’s balance sheet. In
addition to the $2.8 million of contingent consideration, there is an additional $0.8 million of
the initial purchase
price that remained unpaid at December 31, 2010. This is recorded in accounts payable in the
Company’s balance sheet.
B4 had a processing agreement with Midwest Renewable Energy, LLC (“MRE”) that expired prior to the
Company’s acquisition of B4 assets. The terms of this processing agreement stipulated that B4
supplies a sufficient quantity of grain to MRE to allow for ethanol processing at full capacity
which B4 will then market. The Company
53
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is in the process of negotiating a new agreement with MRE
and, until that time, is honoring the terms of the expired agreement. The Company has evaluated
all of the applicable criteria for an entity subject to consolidation under the provisions of ASC
810-10-15 and has concluded that MRE is considered a VIE. However, as the Company does not have the
power to direct the activities that most significantly impact MRE’s economic performance, and does
not have the obligation to absorb the losses or right to receive the benefits of MRE, it is not the
primary beneficiary of MRE. Therefore, consolidation is not required under the Variable Interest
Model. There is no significant risk of loss to the Company relating to this VIE as the Company does
not have any equity at risk or obligation to provide additional financial support to MRE.
3. Related Parties
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under
the equity method. The Company’s equity in these entities is presented at cost plus its
accumulated proportional share of income or loss, less any distributions it has received.
In January 2003, the Company became a minority investor in Lansing Trade Group LLC (“LTG”), which
focuses on grain merchandising as well as trading related to the energy and biofuels industry. The
Company has increased its investment in LTG over time. As a result of share redemptions by LTG, the
Company’s ownership percentage in LTG increased to 52% during the second quarter of 2010. Even
though the Company holds a majority of the outstanding shares, all major operating decisions of LTG
are made by LTG’s Board of Directors and the Company does not have a majority of the board seats.
In addition, based on the terms of the operating agreement between LTG and its owners, the minority
shareholders have substantive participating rights that allow them to effectively participate in
the decisions made in the ordinary course of business that are significant to LTG. Due to these
factors, the Company does not have control over LTG and therefore accounts for this investment
under the equity method.
In 2005, the Company became a minority investor in The Andersons Albion Ethanol LLC (“TAAE”). TAAE
is a producer of ethanol and its co-product distillers dried grains (“DDG”) at its 55 million
gallon-per-year ethanol production facility in Albion, Michigan. The Company operates the facility
under a management contract and provides corn origination, ethanol and DDG marketing and risk
management services for which it is separately compensated. The Company also leases its Albion,
Michigan grain facility to TAAE. During the third quarter of 2010, the Company purchased 59
additional units of TAAE from one of its investors. This purchase gives the Company 5,001 units,
or a 50.01% ownership interest. While the Company holds a majority of the outstanding units of
TAAE, a super-majority vote is required for all major operating decisions of TAAE based on the
terms of the Operating Agreement. The Company has concluded that the super-majority vote
requirement gives the minority shareholders substantive participating rights and therefore
consolidation for book purposes is not appropriate. The Company will continue to account for its
investment in TAAE under the equity method of accounting.
In 2006, the Company became a minority investor in The Andersons Clymers Ethanol LLC (“TACE”).
TACE is also a producer of ethanol and its co-product DDG at a 110 million gallon-per-year ethanol
production facility in Clymers, Indiana. The Company operates the facility under a management
contract and provides corn origination, ethanol and DDG marketing and risk management services for
which it is separately compensated. The Company also leases its Clymers, Indiana grain facility to
TACE.
In 2006, the Company became a 50% investor in The Andersons Marathon Ethanol LLC (“TAME”). TAME
is also a producer of ethanol and its co-product DDG at a 110 million gallon-per-year ethanol
production facility in Greenville, Ohio. In January 2007, the Company transferred its 50% share in
TAME to The Andersons Ethanol Investment LLC (“TAEI”), a consolidated subsidiary of the Company, of
which a third party owns 34% of the shares. The Company operates the facility under a management
contract and provides corn origination, ethanol and
DDG marketing and risk management services for which it is separately compensated. In 2009 TAEI
invested an additional $1.1 million in TAME, retaining a 50% ownership interest.
The balance in retained earnings at December 31, 2010 that represents undistributed earnings of the
Company’s equity method investments is $42.9 million.
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The Company has marketing agreements with three ethanol LLCs under which the Company purchases and
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 as the Company has ultimate responsibility of performance to
the external parties. Substantially all of these purchases and subsequent sales are executed
through forward contracts on matching terms and, outside of the fee the Company earns for each
gallon sold, the Company does not recognize any gross profit on the sales transactions. For the
years ended December 31, 2010, 2009 and 2008, revenues recognized for the sale of ethanol were
$482.6 million, $402.1 million and $454.6 million, respectively. In addition to the ethanol
marketing agreements, the Company holds corn origination agreements, under which the Company
originates 100% of the corn used in production for each ethanol LLC. For this service, the Company
receives a unit based fee. Similar to the ethanol sales described above, the Company acts as a
principal in these transactions, and accordingly, records revenues on a gross basis. For the years
ended December 31, 2010, 2009 and 2008, revenues recognized for the sale of corn under these
agreements were $445.6 million, $404.2 million and $411.2 million, respectively. As part of the
corn origination agreements, the Company also markets the ethanol DDG produced by the entities.
For this service the Company receives a unit based fee. The Company does not purchase any of the
DDG from the ethanol entities; however, as part of the agreement, the Company guarantees payment by
the customer for DDG sales where the Company has identified the buyer. At December 31, 2010 and
2009, the three ethanol entities had a combined receivable balance for DDG of $6.8 million and $5.1
million, respectively, of which only $15 thousand and $9 thousand, respectively, was more than
thirty days past due. The Company has concluded that the fair value of this guarantee is
inconsequential.
The following table presents aggregate summarized financial information of LTG, TAAE, TACE and TAME
as they qualified as significant subsidiaries for the previous periods. LTG was the only equity
method investment that qualified as a significant subsidiary individually for the year ended
December 31, 2010.
| December 31, | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Sales
|
$ | 4,707,422 | $ | 3,436,192 | $ | 5,032,466 | ||||||
|
Gross profit
|
133,653 | 106,755 | 86,522 | |||||||||
|
Income from continuing operations
|
59,046 | 37,439 | 16,935 | |||||||||
|
Net income
|
57,691 | 37,757 | 16,914 | |||||||||
|
|
||||||||||||
|
Current assets
|
697,371 | 472,707 | ||||||||||
|
Non-current assets
|
352,441 | 363,287 | ||||||||||
|
Current liabilities
|
550,463 | 370,624 | ||||||||||
|
Non-current liabilities
|
115,735 | 124,046 | ||||||||||
|
Noncontrolling interest
|
31,294 | 25,059 | ||||||||||
The following table summarizes income earned from the Company’s equity method investees by entity.
| % ownership at | ||||||||||||||||
| December 31, 2010 | December 31, | |||||||||||||||
| (in thousands) | (direct and indirect) | 2010 | 2009 | 2008 | ||||||||||||
|
The Andersons Albion Ethanol LLC
|
50 | % | $ | 3,916 | $ | 5,735 | $ | 2,534 | ||||||||
|
The Andersons Clymers Ethanol LLC
|
38 | % | 5,318 | 2,965 | 8,112 | |||||||||||
|
The Andersons Marathon Ethanol LLC
|
50 | % | 1,117 | 2,936 | (15,511 | ) | ||||||||||
|
Lansing Trade Group LLC
|
52 | % | 15,133 | 5,781 | 8,776 | |||||||||||
|
Other
|
7%-33 | % | 523 | 46 | 122 | |||||||||||
|
Total
|
$ | 26,007 | $ | 17,463 | $ | 4,033 | ||||||||||
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The following table presents the Company’s investment balance in each of its equity method
investees by entity.
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
The Andersons Albion Ethanol LLC
|
$ | 31,048 | $ | 28,911 | ||||
|
The Andersons Clymers Ethanol LLC
|
37,496 | 33,705 | ||||||
|
The Andersons Marathon Ethanol LLC
|
34,929 | 33,813 | ||||||
|
Lansing Trade Group LLC
|
70,143 | 59,648 | ||||||
|
Other
|
1,733 | 1,283 | ||||||
|
Total
|
$ | 175,349 | $ | 157,360 | ||||
Investment in Debt Securities
On May 25, 2010, the Company paid $13.1 million to acquire 100% of newly issued cumulative
convertible preferred shares of Iowa Northern Railway Corporation (“IANR”). IANR operates a
163-mile short-line railroad that runs diagonally through Iowa from northwest to southeast from
Manly to Cedar Rapids and a branch line from Waterloo to Oelwein. IANR has a fleet of 21
locomotives and approximately 500 railcars and serves primarily agribusiness customers. It is also
involved in the development of logistics terminals designed to aid the transloading of various
products, including ethanol and wind turbine components. As a result of this investment, the
Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the
common shareholders. The preferred shares purchased by the Company have certain rights associated
with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue
to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in
nature. The Company can convert its preferred shares into common shares of IANR at any time, but
the shares cannot be redeemed until after five years.
This investment is accounted for
as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair
value in “Other noncurrent assets” on the Company’s balance sheet. Subsequent to May 25, 2010, the
estimated fair value of the Company’s investment in IANR increased by approximately $2.7 million,
resulting in a fair value of $15.8 million at December 31, 2010. This change, net of tax, was
recorded within “other comprehensive income”.
Based on the Company’s assessment, IANR is considered a VIE. Since the Company does not possess
the power to direct the activities of the VIE that most significantly impact the entity’s economic
performance, it is not considered to be the primary beneficiary of IANR and therefore does not
consolidate IANR. The decisions that most significantly impact the economic performance of IANR
are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors
from the Company, two directors from the common shareholders and one independent director who is
elected by unanimous decision of the other four directors. The vote of four of the five directors
is required for all key decisions.
The Company’s current maximum exposure to loss related to IANR is $14.2 million, which represents
the Company’s investment plus unpaid accrued dividends to date of $1.1 million. The Company does
not have any obligation or commitments to provide additional financial support to IANR.
In the ordinary course of business, the Company will enter into related party transactions with
each of the investments described above. The following table sets forth the related party
transactions entered into for the time periods presented:
| December 31, | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Sales and revenues
|
$ | 531,452 | $ | 474,724 | $ | 541,448 | ||||||
|
Purchases of product
|
454,314 | 411,423 | 428,067 | |||||||||
|
Lease income (a)
|
5,341 | 5,442 | 5,751 | |||||||||
|
Labor and benefits reimbursement (b)
|
10,760 | 10,195 | 9,800 | |||||||||
|
Accounts receivable at December 31 (c)
|
14,991 | 13,641 | 9,773 | |||||||||
|
Accounts payable at December 31 (d)
|
13,930 | 18,069 | 19,084 | |||||||||
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| (a) | Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various LLCs and IANR in which the Company has investments in. | |
| (b) | The Company provides all operational labor to the ethanol LLCs, and charges them an amount equal to the Company’s costs of the related services. | |
| (c) | Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees. | |
| (d) | Accounts payable represents amounts due to related parties for purchases of ethanol. |
From time to time, the Company enters into derivative contracts with certain of its related
parties. At December 31, 2010 and 2009, the fair value of derivative contracts with related parties
was a liability of $31.4 million and $0.2 million, respectively.
4. Fair Value Measurements
Generally accepted accounting principles defines fair value as an exit price and also establishes a
framework for measuring fair value. An exit price 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, a
three-tier fair value hierarchy is used, 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 entity’s 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.
The following table presents the Company’s assets and liabilities that are measured at fair value
on a recurring basis at December 31, 2010 and 2009.
| (in thousands) | December 31, 2010 | |||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Cash and cash equivalents
|
$ | 29,219 | $ | — | $ | — | $ | 29,219 | ||||||||
|
Commodity derivatives, net
|
— | 171,023 | 12,406 | 183,429 | ||||||||||||
|
Net margin deposit assets
|
61,559 | (41,300 | ) | — | 20,259 | |||||||||||
|
Net margin deposit liabilities
|
— | — | — | — | ||||||||||||
|
Convertible preferred securities
|
— | — | 15,790 | 15,790 | ||||||||||||
|
Other assets and liabilities (a)
|
17,983 | — | (2,156 | ) | 15,827 | |||||||||||
|
Total
|
$ | 108,761 | $ | 129,723 | $ | 26,040 | $ | 264,524 | ||||||||
| (in thousands) | December 31, 2009 | |||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Cash and cash equivalents
|
$ | 145,929 | $ | — | $ | — | $ | 145,929 | ||||||||
|
Commodity derivatives, net
|
— | (257 | ) | 1,948 | 1,691 | |||||||||||
|
Net margin deposit assets
|
28,836 | (1,824 | ) | — | 27,012 | |||||||||||
|
Net margin deposit liabilities
|
— | (1,965 | ) | — | (1,965 | ) | ||||||||||
|
Other assets and liabilities (a)
|
8,441 | — | (1,763 | ) | 6,678 | |||||||||||
|
Total
|
$ | 183,206 | $ | (4,046 | ) | $ | 185 | $ | 179,345 | |||||||
| (a) | Included in other assets and liabilities is restricted cash, interest rate and foreign currency derivatives and deferred compensation assets. |
57
Table of Contents
A reconciliation of beginning and ending balances for the Company’s fair value measurements
using Level 3 inputs is as follows:
| 2010 | 2009 | |||||||||||||||||||
| Interest | Convertible | Commodity | Interest | Commodity | ||||||||||||||||
| rate | Preferred | derivatives, | rate | derivatives, | ||||||||||||||||
| (in thousands) | derivatives | Securities | net | derivatives | net | |||||||||||||||
|
Asset (liability) at December 31,
|
$ | (1,763 | ) | $ | — | $ | 1,948 | $ | (2,367 | ) | $ | 5,114 | ||||||||
|
Investment in debt securities
|
— | 13,100 | — | — | — | |||||||||||||||
|
Unrealized gains (losses)
included in earnings
|
(132 | ) | — | (1,519 | ) | 158 | (2,944 | ) | ||||||||||||
|
Unrealized gain (loss) included
in other comprehensive income
|
(297 | ) | — | — | 354 | — | ||||||||||||||
|
Increase in estimated fair value
of investment in debt securities
included in other comprehensive
income
|
— | 2,690 | — | — | — | |||||||||||||||
|
New contracts entered into
|
36 | — | — | 92 | — | |||||||||||||||
|
Transfers from level 2
|
— | — | 11,977 | — | 416 | |||||||||||||||
|
Contracts cancelled, transferred
to accounts receivable
|
— | — | — | — | (638 | ) | ||||||||||||||
|
Asset (liability) at December 31,
|
$ | (2,156 | ) | $ | 15,790 | $ | 12,406 | $ | (1,763 | ) | $ | 1,948 | ||||||||
The majority of the Company’s 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.
The Company’s net commodity derivatives primarily consist of contracts with 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 Mercantile Exchange (“CME”) or the New York Mercantile 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 nonperformance risk,
both of the Company and the counterparty, is present in each of these commodity contracts and is a
component of the estimated fair values, based on the Company’s historical experience with its
producers and customers and the Company’s knowledge of their businesses, the Company does not view
nonperformance risk to be a significant input to fair value for the majority of these commodity
contracts. However, in situations where the Company believes that nonperformance risk is higher
(based on past or present experience with a customer or knowledge of the customer’s operations or
financial condition), the Company classifies these commodity contracts as “level 3” in the fair
value hierarchy and, accordingly, records estimated fair value adjustments based on internal
projections and views of these contracts.
Net margin deposit assets reflect the fair value of the futures and options contracts that the
Company holds, net of the cash collateral that the Company has in its margin account.
Net margin deposit liabilities reflect the fair value of the Company’s over-the-counter contracts
in a liability position with various financial institutions, net of the cash collateral that the
Company has in its 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 consider nonperformance
risk or credit risk on these contracts to be material. This determination is based on credit
default rates, credit ratings and other available information.
58
Table of Contents
5. Inventories
Major classes of inventories are as follows:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Grain
|
$ | 497,267 | $ | 268,648 | ||||
|
Agricultural fertilizer and supplies
|
90,182 | 80,194 | ||||||
|
Lawn and garden fertilizer and corncob products
|
32,954 | 32,036 | ||||||
|
Retail merchandise
|
24,416 | 24,066 | ||||||
|
Railcar repair parts
|
2,058 | 2,601 | ||||||
|
Other
|
312 | 300 | ||||||
|
|
$ | 647,189 | $ | 407,845 | ||||
6. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Land
|
$ | 15,424 | $ | 15,191 | ||||
|
Land improvements and leasehold improvements
|
45,080 | 42,495 | ||||||
|
Buildings and storage facilities
|
141,349 | 129,625 | ||||||
|
Machinery and equipment
|
181,650 | 162,810 | ||||||
|
Software
|
10,306 | 10,202 | ||||||
|
Construction in progress
|
2,572 | 2,624 | ||||||
|
|
396,381 | 362,947 | ||||||
|
Less accumulated depreciation and amortization
|
245,349 | 230,659 | ||||||
|
|
$ | 151,032 | $ | 132,288 | ||||
Depreciation expense on property, plant and equipment amounted to $18.7 million, $17.4 million and
$14.6 million in 2010, 2009 and 2008, respectively.
Railcars
The components of Railcar assets leased to others are as follows:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Railcar assets leased to others
|
$ | 234,667 | $ | 241,681 | ||||
|
Less accumulated depreciation
|
66,184 | 62,527 | ||||||
|
|
$ | 168,483 | $ | 179,154 | ||||
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Table of Contents
Depreciation expense on railcar assets leased to others amounted to $14.0 million, $14.1 million
and $12.2 million in 2010, 2009 and 2008, respectively.
During the fourth quarter of 2010, a group of railcars were found to have major defects and were
written down to scrap value which resulted in a $1.2 million loss.
7. Goodwill and Intangible Assets
The Company has goodwill of $10.1 million included in other assets. Goodwill includes $4.2 million
in the Grain & Ethanol Group, $5.2 million in the Plant Nutrient Group and $0.7 million in the Turf
& Specialty Group. Goodwill is tested annually for impairment as of December 31 or whenever events
or circumstances change that would indicate that an impairment of goodwill may be present. There
have been no goodwill impairment charges historically, nor for any of the periods presented.
The Company’s intangible assets are included in other assets and are as follows:
| Accumulated | ||||||||||||||
| (in thousands) | Group | Original Cost | Amortization | Net Book Value | ||||||||||
|
December 31, 2010
|
||||||||||||||
|
Amortized intangible assets
|
||||||||||||||
|
Acquired customer list
|
Rail | $ | 3,462 | $ | 3,299 | $ | 163 | |||||||
|
Acquired customer list
|
Plant Nutrient | 3,846 | 670 | 3,176 | ||||||||||
|
Acquired customer list
|
Grain & Ethanol | 1,250 | 150 | 1,100 | ||||||||||
|
Acquired non-compete
agreement
|
Plant Nutrient | 1,250 | 594 | 656 | ||||||||||
|
Acquired non-compete
agreement
|
Grain & Ethanol | 175 | 11 | 164 | ||||||||||
|
Acquired marketing agreement
|
Plant Nutrient | 1,604 | 619 | 985 | ||||||||||
|
Acquired supply agreement
|
Plant Nutrient | 4,846 | 926 | 3,920 | ||||||||||
|
Acquired grower agreement
|
Grain & Ethanol | 300 | 75 | 225 | ||||||||||
|
Patents and other
|
Various | 943 | 401 | 542 | ||||||||||
|
Lease intangible
|
Rail | 1,673 | 633 | 1,040 | ||||||||||
|
|
$ | 19,349 | $ | 7,378 | $ | 11,971 | ||||||||
|
December 31, 2009
|
||||||||||||||
|
Amortized intangible assets
|
||||||||||||||
|
Acquired customer list
|
Rail | $ | 3,462 | $ | 3,267 | $ | 195 | |||||||
|
Acquired customer list
|
Plant Nutrient | 3,846 | 251 | 3,595 | ||||||||||
|
Acquired
non-compete agreement
|
Plant Nutrient | 1,250 | 344 | 906 | ||||||||||
|
Acquired marketing agreement
|
Plant Nutrient | 1,604 | 439 | 1,165 | ||||||||||
|
Acquired supply agreement
|
Plant Nutrient | 4,846 | 386 | 4,460 | ||||||||||
|
Patents and other
|
Various | 943 | 275 | 668 | ||||||||||
|
|
$ | 15,951 | $ | 4,962 | $ | 10,989 | ||||||||
Amortization expense for intangible assets was $2.4 million, $1.2 million and $1.1 million for
2010, 2009 and 2008, respectively. Expected future annual amortization expense is as follows:
2011 — $2.6 million; 2012 — $2.1 million; 2013 — $1.8 million; 2014 — $1.3 million; and 2015 —
$0.9 million.
8. Short-Term Borrowing Arrangements
The Company maintains a borrowing arrangement with a syndicate of banks, which was amended on
December 17, 2010, and provides the Company with $513 million (Line A) and $387 million (Line C) in
short-term lines of credit. It also provides the Company with $90 million in letters of credit.
Any amounts outstanding on letters of credit will reduce the amount available on the lines of
credit. The Company had standby letters of credit outstanding of $14.1 million at December 31,
2010. This agreement expires in December 2014. As of December 31, 2010, $241.1 million in
borrowings was outstanding on Line A and there were no borrowings outstanding on Line C. Borrowings
under the lines of credit bear interest at variable interest rates, which are based off LIBOR plus
an applicable spread.
60
Table of Contents
On January 7, 2011, the new loan agreement was amended to increase the amount of Line A by an
additional $92 million to $605 million.
On September 30, 2010, the Company entered into a new loan agreement with the same syndicate of
banks (“Line B”). This new loan agreement provided for $110 million of long-term borrowing capacity
on Line B expiring in five years. On October 7, 2010, the new loan agreement was amended to
increase the amount of the long-term line from $110 million to $115 million. As of December 31,
2010, no borrowings were outstanding under this arrangement. Any borrowings under this arrangement
will be due on September 30, 2015 and will be at a variable interest rate based off LIBOR plus an
applicable spread.
At December 31, 2010, the Company had a total of $760.8 million available for borrowing under its
lines of credit.
The following information relates to short-term borrowings:
| December 31, | ||||||||||||
| (in thousands, except percentages) | 2010 | 2009 | 2008 | |||||||||
|
Maximum amount borrowed
|
$ | 305,000 | $ | 92,700 | $ | 666,900 | ||||||
|
Weighted average interest rate
|
3.69 | % | 2.89 | % | 3.48 | % | ||||||
Recourse Debt
On February 26, 2010, the Company entered into an Amended and Restated Note Purchase Agreement for
its Senior Guaranteed Notes. The Amended and Restated Note Purchase Agreement changed the maturity
of the $92 million Series A note, which was originally due March 2011, into Series A — $17 million
due March 2011; Series A-1 — $25 million due March 2012; Series A-2 — $25 million due March 2013;
and Series A-3 — $25 million due March 2014.
Long-term debt consists of the following:
| December 31, | ||||||||
| (in thousands, except percentages) | 2010 | 2009 | ||||||
|
Note payable, 4.80%, payable at maturity, due 2011
|
$ | 17,000 | $ | 92,000 | ||||
|
Note payable, 4.80%, payable at maturity, due 2012
|
25,000 | — | ||||||
|
Note payable, 4.80% , payable at maturity, due 2013
|
25,000 | — | ||||||
|
Note payable, 4.80%, payable at maturity, due 2014
|
25,000 | — | ||||||
|
Note payable, 6.12%, payable at maturity, due 2015
|
61,500 | 61,500 | ||||||
|
Note payable, 6.78%, payable at maturity due 2018
|
41,500 | 41,500 | ||||||
|
Note payable, variable rate (2.82% at December 31, 2010),
payable $110 monthly plus interest, due 2012 (a)
|
10,031 | 11,252 | ||||||
|
Note payable, variable rate (1.88% at December 31, 2010),
payable in increasing amounts ($875 annually at December
31, 2010) plus interest, due 2023 (a)
|
14,590 | 15,440 | ||||||
|
Note payable, variable rate (1.06% at December 13, 2010),
payable $58 monthly plus interest, due 2016 (a)
|
10,850 | 11,550 | ||||||
|
Note payable, 6.48%, payable $291 quarterly, due 2016 (a)
|
— | 6,607 | ||||||
|
Note payable, 8.5%, payable $15 monthly, due 2016
|
1,242 | 1,309 | ||||||
|
Industrial development revenue bonds:
|
||||||||
|
Variable rate (3.00% at December 31, 2010), due 2019 (a)
|
4,650 | 4,650 | ||||||
|
Variable rate (3.03% at December 31, 2010), due 2025 (a)
|
3,100 | 3,100 | ||||||
|
Variable rate (2.59% at December 31, 2010), due 2017 (a)
|
9,000 | — | ||||||
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| December 31, | ||||||||
| (in thousands, except percentages) | 2010 | 2009 | ||||||
|
Debenture bonds, 4.00% to 6.50%, due 2011 through 2020
|
36,887 | 45,595 | ||||||
|
Other notes payable and bonds
|
8 | 108 | ||||||
|
|
285,358 | 294,611 | ||||||
|
Less current maturities
|
21,683 | 5,855 | ||||||
|
|
$ | 263,675 | $ | 288,756 | ||||
| (a) | debt is collateralized by first mortgages on certain facilities and related equipment with a book value of $29.6 million |
The Company called all debenture bonds earning a rate of interest of 7% or higher during the third
quarter of 2010. The total amount called was $17.2 million. At December 31, 2010, the Company had
$15.7 million of five-year term debenture bonds bearing interest
at 4.0% and $8.7 million of
ten-year term debenture bonds bearing interest at 5.0% available for sale under an existing
registration statement.
The Company’s short-term and long-term borrowing agreements include both financial and
non-financial covenants that, among other things, require the Company at a minimum to maintain:
| • | tangible net worth of not less than $300 million | ||
| • | current ratio net of hedged inventory of not less than 1.25 to 1 | ||
| • | debt to capitalization ratio of not more than 70% | ||
| • | asset coverage ratio of more than 70% | ||
| • | interest coverage ratio of not more than 2.75 to 1 |
The Company was in compliance with all covenants at and during the years ended December 31, 2010
and 2009.
The aggregate annual maturities of long-term debt, including capital lease obligations, are as
follows: 2011 — $21.7 million; 2012 — $42.1 million; 2013 — $34.6 million; 2014 — $36.8
million; 2015 — $72.2 million; and $77.9 million thereafter.
Non-Recourse Debt
The Company’s non-recourse long-term debt consists of the following:
| December 31, | ||||||||
| (in thousands, except percentages) | 2010 | 2009 | ||||||
|
Note Payable, 5.96%, payable $218 monthly plus interest, due 2013
|
$ | 14,550 | $ | 21,641 | ||||
|
Note Payable, 6.37%, payable $24 monthly, due 2014
|
1,405 | 1,640 | ||||||
|
Note Payable, 7.06%, payable $2 monthly, due 2011
|
36 | 1,069 | ||||||
|
|
15,991 | 24,350 | ||||||
|
Less current maturities
|
2,841 | 5,080 | ||||||
|
|
$ | 13,150 | $ | 19,270 | ||||
In 2005, The Andersons Rail Operating I (“TARO I”), a wholly-owned subsidiary of the Company, issued
$41 million in non-recourse long-term debt for the purpose of purchasing 2,293 railcars and related
leases from the Company. As of March 31, 2009, the Company had violated the utilization covenant
and debt service coverage ratio covenant associated with this debt. This covenant violation did
not trigger any cross default provisions under any other debt agreements. The Company received a
waiver of this violation and in April 2009, the Company paid an additional $4.0 million to the bank
in principal payments. Based on the arrangement with the lender, this additional payment resulted
in the exclusion of idle cars from the utilization and debt service coverage ratio calculation.
The Company received a modification from the bank of this debt agreement which reduces the debt
service coverage
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ratio from 1.5 to 1.15. With the modification, the Company does not expect to violate this
covenant in the future. TARO I is a bankruptcy remote entity and the debt holders have recourse
only to the assets and related leases of TARO I which had a book value of $16.1 million and $20.8
million at December 31, 2010 and 2009, respectively. The balance outstanding on the TARO I
non-recourse long-term debt at December 31, 2010 and 2009 was $14.6 million and $21.6 million,
respectively.
The Company’s non-recourse debt includes separate financial covenants relating solely to the
collateralized assets. Triggering one or more of these covenants for a specified period of time
could result in the acceleration in amortization of the outstanding debt. These maximum covenants
include, but are not limited to, the following:
| • | Monthly average lease rate greater than or equal to $200; | ||
| • | Monthly utilization rate greater than or equal to 80%; and | ||
| • | Coverage ratio greater than or equal to 1.15 |
The Company was in compliance with these debt covenants at December 31, 2010 and 2009.
The aggregate annual maturities of non-recourse, long-term debt are as follows: 2011 — $2.8
million; 2012 — $2.8 million; 2013 — $9.6 million and 2014 — $0.8 million.
Interest paid (including interest on short-term lines of credit) amounted to $20.0 million, $20.0
million and $28.1 million in 2010, 2009 and 2008, respectively.
10. Income Taxes
Income tax provision applicable to continuing operations consists of the following:
| Year ended December 31 | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 22,288 | $ | 4,848 | $ | 11,441 | ||||||
|
State and local
|
3,613 | 828 | (31 | ) | ||||||||
|
Foreign
|
1,156 | (176 | ) | 932 | ||||||||
|
|
$ | 27,057 | $ | 5,500 | $ | 12,342 | ||||||
|
|
||||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
$ | 13,558 | $ | 15,638 | $ | 4,110 | ||||||
|
State and local
|
595 | 1,833 | (121 | ) | ||||||||
|
Foreign
|
(1,948 | ) | (1,041 | ) | 135 | |||||||
|
|
$ | 12,205 | $ | 16,430 | $ | 4,124 | ||||||
|
Total:
|
||||||||||||
|
Federal
|
$ | 35,846 | $ | 20,486 | $ | 15,551 | ||||||
|
State and local
|
4,208 | 2,661 | (152 | ) | ||||||||
|
Foreign
|
(792 | ) | (1,217 | ) | 1,067 | |||||||
|
|
$ | 39,262 | $ | 21,930 | $ | 16,466 | ||||||
Income before income taxes from continuing operations consists of the following:
| Year ended December 31 | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
U.S. income
|
$ | 106,184 | $ | 64,359 | $ | 43,086 | ||||||
|
Foreign
|
(2,041 | ) | (2,863 | ) | 3,477 | |||||||
|
|
$ | 104,143 | $ | 61,496 | $ | 46,563 | ||||||
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A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:
| Year ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Statutory U.S. federal tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Increase (decrease) in rate resulting from:
|
||||||||||||
|
Effect of qualified domestic production deduction
|
(1.1 | ) | (0.4 | ) | (0.2 | ) | ||||||
|
Effect of Patient Protection and Affordable Care Act
|
1.4 | — | — | |||||||||
|
State and local income taxes, net of related federal taxes
|
2.5 | 2.8 | (1.0 | ) | ||||||||
|
Effect of noncontrolling interest in pass-through entity
|
(0.1 | ) | (0.7 | ) | 2.1 | |||||||
|
Other, net
|
— | (1.0 | ) | (0.5 | ) | |||||||
|
Effective tax rate
|
37.7 | % | 35.7 | % | 35.4 | % | ||||||
Income taxes paid in 2010 were $24.8 million. Income tax refunds of $24.2 million were received in
2009. Income taxes paid in 2008 were $49.7 million.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
| December 31 | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Property, plant and equipment and railcar assets leased to others
|
$ | (64,392 | ) | $ | (56,883 | ) | ||
|
Prepaid employee benefits
|
(12,724 | ) | (11,172 | ) | ||||
|
Investments
|
(20,242 | ) | (16,511 | ) | ||||
|
Other
|
(3,877 | ) | (3,828 | ) | ||||
|
|
(101,235 | ) | (88,394 | ) | ||||
|
Deferred tax assets:
|
||||||||
|
Employee benefits
|
32,463 | 29,848 | ||||||
|
Accounts and notes receivable
|
2,212 | 6,192 | ||||||
|
Inventory
|
7,056 | 4,348 | ||||||
|
Deferred expenses
|
10,036 | 7,176 | ||||||
|
Net operating loss carryforwards
|
1,207 | 1,918 | ||||||
|
Other
|
2,425 | 4,018 | ||||||
|
Total deferred tax assets
|
55,399 | 53,500 | ||||||
|
Valuation allowance
|
— | (960 | ) | |||||
|
|
55,399 | 52,540 | ||||||
|
Net deferred tax liabilities
|
$ | (45,836 | ) | $ | (35,854 | ) | ||
On December 31, 2010, the Company had $14.3 million in state net operating loss carryforwards that
expire from 2017 to 2023. A deferred tax asset of $0.6 million has been established for the state
net operating loss
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carryforwards. On December 31, 2009, the Company had recorded a $1.0 million deferred tax asset and
a $1.0 million valuation allowance with respect to state net operating loss carryforwards. The
Company released the full valuation allowance in the first quarter of 2010 because based on
available evidence, the Company expects to fully realize the deferred tax asset related to the
state net operating loss carryforwards.
On December 31, 2010, the Company had $2.4 million in cumulative Canadian net operating losses that
expire from 2027 to 2031. A deferred tax asset of $0.6 million has been recorded with respect to
the net operating loss carryforwards. No valuation allowance has been established because based on
all available evidence, the Company concluded it is more likely than not that it will realize the
deferred tax asset. On December 31, 2009, the Company had recorded a deferred tax asset, and no
valuation allowance, of $1.0 million with respect to net operating loss carryforwards.
On December 31, 2010, the Company had $0.8 million in U.S. foreign tax credit carryforwards that
expire in 2020 and 2021.
The Company has a $3.1 million pool of windfall tax benefits associated with stock-based
compensation plans. The Company accounts for utilization of windfall tax benefits based on tax law
ordering and considered only the direct effects of stock-based compensation for purposes of
measuring the windfall at settlement of an award. The amount of cash resulting from the exercise
of awards during 2010 was $0.2 million and the tax benefit the Company realized from the exercise
of awards was $0.8 million. For 2009, the amount of cash resulting from the exercise of awards was
$0.1 million and the tax benefit the Company realized from the exercise of awards was $0.3 million.
The Company or one of its subsidiaries files income tax returns in the U.S., various foreign
jurisdictions and various state and local jurisdictions. The Company is no longer subject to
examinations by U.S. tax authorities for years before 2007 and is no longer subject to examinations
by foreign jurisdictions for years before 2005. During 2009, the Internal Revenue Service
completed an examination of the Company’s U.S. income tax returns for the years 2006 and 2007,
resulting in an additional payment of $2.5 million. Substantially all audit adjustments related to
the timing of income recognition and expense deductions.
A reconciliation of the January 1, 2008 to December 31, 2010 amount of unrecognized tax benefits is
as follows:
| (in thousands) | ||||
|
Balance at January 1, 2008
|
$ | 1,332 | ||
|
Additions based on tax positions related to the current year
|
66 | |||
|
Additions based on tax positions related to prior years
|
204 | |||
|
Reductions for settlements with taxing authorities
|
(361 | ) | ||
|
Reductions as a result of a lapse in statute of limitations
|
(514 | ) | ||
|
|
||||
|
Balance at December 31, 2008
|
727 | |||
|
|
||||
|
Additions based on tax positions related to the current year
|
28 | |||
|
Additions based on tax positions related to prior years
|
(25 | ) | ||
|
Reductions for settlements with taxing authorities
|
(153 | ) | ||
|
Reductions as a result of a lapse in statute of limitations
|
(259 | ) | ||
|
|
||||
|
Balance at December 31, 2009
|
318 | |||
|
|
||||
|
Additions based on tax positions related to the current year
|
20 | |||
|
Additions based on tax position related to prior years
|
474 | |||
|
Reductions as a result of a lapse in statute of limitations
|
(198 | ) | ||
|
|
||||
|
Balance at December 31, 2010
|
$ | 614 | ||
|
|
||||
The unrecognized tax benefits at December 31, 2010 are associated with positions taken on state
income tax returns, and would decrease the Company’s effective tax rate if recognized. The Company
does not anticipate any significant changes during 2011 in the amount of unrecognized tax benefits.
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Table of Contents
The Company has elected to classify interest and penalties as interest expense and penalty expense,
respectively, rather than as income tax expense. The Company has $0.3 million accrued for the
payment of interest and penalties at December 31, 2010. The net interest and penalties expense for
2010 is $0.1 million. The Company had $0.3 million accrued for the payment of interest and
penalties at December 31, 2009. The net interest and penalties expense for 2009 was a $0.1 million
benefit, due to the relief of previously recorded interest and penalties.
11. Stock Compensation Plans
The Company’s 2005 Long-Term Performance Compensation Plan, dated May 6, 2005 (the “LT Plan”),
authorizes the Board of Directors to grant options, stock appreciation rights, performance shares
and share awards to employees and outside directors for up to 400,000 of the Company’s common
shares plus 426,000 common shares that remained available under a prior plan. In 2008,
shareholders approved an additional 500,000 of the Company’s common shares to be available under
the LT Plan. As of December 31, 2010, approximately 220,000 shares remain available for grant
under the LT Plan. Options granted have a maximum term of 10 years.
Stock-based compensation expense for all stock-based compensation awards are based on the
grant-date fair value. The Company recognizes these compensation costs on a straight-line basis
over the requisite service period of the award. Total compensation expense recognized in the
Consolidated Statement of Income for all stock compensation programs was $2.6 million, $2.7 million
and $4.1 million in 2010, 2009 and 2008, respectively.
Stock Only Stock Appreciation Rights (“SOSARs”) and Stock Options
Beginning in 2006, the Company discontinued granting options to directors and management and
instead began granting SOSARs. SOSARs granted to directors and management personnel under the LT
Plan beginning in 2008 have a term of five-years and have three year graded vesting. The SOSARs
granted in 2006 and 2007 have a term of five years and vest after three years. SOSARs granted
under the LT Plan are structured as fixed grants with the exercise price equal to the market value of
the underlying stock on the date of the grant. The related compensation expense is recognized on a
straight-line basis over the service period. In 2010, there were 126,540 SOSARs granted to
directors and management personnel.
The fair value for SOSARs was estimated at the date of grant, using a Black-Scholes option pricing
model with the weighted average assumptions listed below. Volatility was estimated based on the
historical volatility of the Company’s common shares over the past five years. The average
expected life was based on the contractual term of the award 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 grant. Forfeitures are estimated at
the date of grant based on historical experience.
| 2010 | 2009 | 2008 | ||||||||||
|
Risk free interest rate
|
1.96 | % | 1.89 | % | 2.24 | % | ||||||
|
Dividend yield
|
1.10 | % | 3.18 | % | 0.67 | % | ||||||
|
Volatility factor of the expected market price
of the Company’s common shares
|
.560 | .520 | .410 | |||||||||
|
Expected life for the options (in years)
|
4.10 | 4.10 | 4.10 | |||||||||
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Table of Contents
A reconciliation of the number of SOSARs and stock options outstanding and exercisable under the
Long-Term Performance Compensation Plan as of December 31, 2010, and changes during the period then
ended is as follows:
| Weighted-Average | Weighted-Average | Aggregate Intrinsic | ||||||||||||||
| Shares | Exercise | Remaining | Value | |||||||||||||
| (000)’s | Price | Contractual Term | ($000) | |||||||||||||
|
Options
& SOSARs outstanding at January 1, 2010
|
907 | $ | 30.69 | |||||||||||||
|
SOSARs granted
|
127 | 32.75 | ||||||||||||||
|
Options exercised
|
(151 | ) | 15.87 | |||||||||||||
|
Options & SOSARs cancelled / forfeited
|
(32 | ) | 37.34 | |||||||||||||
|
Options and SOSARs outstanding at
December 31, 2010
|
851 | $ | 33.38 | 1.95 | $ | 5,406 | ||||||||||
|
Vested and expected to vest at December
31, 2010
|
848 | $ | 33.40 | 1.95 | $ | 5,372 | ||||||||||
|
Options exercisable at December 31, 2010
|
568 | $ | 37.15 | 1.16 | $ | 2,010 | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Total intrinsic value of options exercised during
the year ended December 31 (000’s)
|
$ | 2,724 | $ | 2,127 | $ | 6,384 | ||||||
|
Total fair value of shares vested during
the year ended December 31 (000’s)
|
$ | 3,084 | $ | 4,145 | $ | 533 | ||||||
|
Weighted average fair value of options granted
during the year ended December 31
|
$ | 13.75 | $ | 3.80 | $ | 15.26 | ||||||
As of December 31, 2010, there was $0.9 million of total unrecognized compensation cost related to
stock options and SOSARs granted under the LT Plan. That cost is expected to be recognized over
the next 1.17 years.
Restricted Stock Awards
The LT Plan permits awards of restricted stock. These shares carry voting and dividend rights;
however, sale of the shares is restricted prior to vesting. Restricted shares have a three year
vesting period. Total restricted stock expense is equal to the market value of the Company’s
common shares on the date of the award and is recognized over the service period. In 2010, there
were 19,007 shares issued to members of management.
A summary of the status of the Company’s nonvested restricted shares as of December 31, 2010, and
changes during the period then ended, is presented below:
| Weighted-Average | ||||||||
| Nonvested Shares | Shares (000)’s | Grant-Date Fair Value | ||||||
|
Nonvested at January 1, 2010
|
61 | $ | 28.07 | |||||
|
Granted
|
19 | 32.75 | ||||||
|
Vested
|
(15 | ) | 40.92 | |||||
|
Forfeited
|
(1 | ) | 26.27 | |||||
|
Nonvested at December 31, 2010
|
64 | $ | 26.52 | |||||
| 2010 | 2009 | 2008 | ||||||||||
|
Total fair value of shares vested during
the year ended December 31 (000’s)
|
$ | 566 | $ | 109 | $ | 20 | ||||||
|
Weighted average fair value of restricted shares granted
during the year ended December 31
|
$ | 32.75 | $ | 11.02 | $ | 46.06 | ||||||
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Table of Contents
As of December 31, 2010, there was $0.5 million of total unrecognized compensation cost related to
nonvested restricted shares granted under the LT Plan. That cost is expected to be recognized over
the next 2.0 years.
Performance Share Units (“PSUs”)
The LT Plan also allows for the award of PSUs. Each PSU gives the participant the right to receive
common shares dependent on the 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 PSUs issued is based on the market value of the Company’s common shares on the date of the
award. The related compensation expense is recognized over the performance period when achievement
of the award is probable and is adjusted for changes in the number of shares expected to be issued
if changes in performance are expected. In 2010 there were 35,849 PSUs issued to executive
officers. Currently, the Company is accounting for the awards granted in 2009 and 2010 at 50% of
the maximum amount available for issuance. The Company did not reach the minimum threshold
earnings per share growth for issuance of any of the 2008 awards and therefore no stock
compensation expense is being taken on these awards.
PSUs Activity
A summary of the status of the Company’s PSUs as of December 31, 2010, and changes during the
period then ended, is presented below:
| Weighted-Average | ||||||||
| Nonvested Shares | Shares (000)’s | Grant-Date Fair Value | ||||||
|
Nonvested at January 1, 2010
|
106 | $ | 27.10 | |||||
|
Granted
|
36 | 32.69 | ||||||
|
Vested
|
(9 | ) | 41.68 | |||||
|
Forfeited
|
(9 | ) | 37.92 | |||||
|
Nonvested at December 31, 2010
|
124 | $ | 26.90 | |||||
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted average fair value of PSUs granted
during the year ended December 31
|
$ | 32.69 | $ | 10.81 | $ | 46.24 | ||||||
As of December 31, 2010, there was $0.5 million of total unrecognized compensation cost related to
nonvested PSUs granted under the LT Plan. That cost is expected to be recognized over the next 2.0
years.
Employee Share Purchase Plan (the “ESP Plan”)
The Company’s 2004 ESP Plan allows employees to purchase common shares through payroll
withholdings. The Company has registered 306,674 common shares remaining available for issuance to
and purchase by employees under this plan. The ESP Plan also contains an option component. The
purchase price per share under the ESP Plan is the lower of the market price at the beginning or
end of the year. The Company records a liability for withholdings not yet applied towards the
purchase of common stock.
The fair value of the option component of the ESP Plan is estimated at the date of grant under the
Black-Scholes option pricing model with the following assumptions for the appropriate year.
Expected volatility was estimated based on the historical volatility of the Company’s common shares
over the past year. The average expected life
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Table of Contents
was based on the contractual term of the plan. The risk-free rate is based on the U.S.
Treasury issues with a one year term. Forfeitures are estimated at the date of grant based on
historical experience.
| 2010 | 2009 | 2008 | ||||||||||
|
Employee Share Purchase Plan
|
||||||||||||
|
Risk free interest rate
|
0.47 | % | 0.37 | % | 3.34 | % | ||||||
|
Dividend yield
|
1.10 | % | 2.06 | % | 0.73 | % | ||||||
|
Volatility factor of the expected market price
of the Company’s common shares
|
.544 | .673 | .470 | |||||||||
|
Expected life for the options (in years)
|
1.00 | 1.00 | 1.00 | |||||||||
12. Commitments and Contingencies
Railcar leasing activities:
The Company is a lessor of railcars. The majority of railcars are leased to customers under
operating leases that may be either net leases (where the customer pays for all maintenance) or
full service leases (where the Company provides maintenance and fleet management services). The
Company also provides such services to financial intermediaries to whom it has sold railcars and
locomotives in non-recourse lease transactions. Fleet management services generally include
maintenance, escrow, tax filings and car tracking services.
Many of the Company’s leases provide for renewals. The Company also generally holds purchase
options for railcars it has sold and leased-back from a financial intermediary, and railcars sold
in non-recourse lease transactions. These purchase options are for stated amounts which are
determined at the inception of the lease and are intended to approximate the estimated fair value
of the applicable railcars at the date for which such purchase options can be exercised.
Lease income from operating leases (with the Company as lessor) to customers (including month to
month and per diem leases) and rental expense for railcar operating leases (with the Company as
lessee) were as follows:
| Year ended December 31, | ||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Rental and service income — operating leases
|
$ | 60,700 | $ | 73,575 | $ | 87,445 | ||||||
|
Rental expense
|
$ | 20,023 | $ | 24,271 | $ | 23,695 | ||||||
Lease income recognized under per diem arrangements (described in Note 1) totaled $2.6 million,
$3.9 million and $9.1 million, in 2010, 2009 and 2008, respectively, and is included in the
amounts above.
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Future minimum rentals and service income for all noncancelable railcar operating leases greater
than one year are as follows:
| Future Rental and | Future | |||||||
| Service Income - | Minimum Rental | |||||||
| (in thousands) | Operating Leases | Payments | ||||||
| | Year ended December 31, | | | |||||||
|
2011
|
$ | 45,618 | $ | 18,507 | ||||
|
2012
|
30,595 | 11,828 | ||||||
|
2013
|
20,867 | 8,244 | ||||||
|
2014
|
13,533 | 5,795 | ||||||
|
2015
|
10,030 | 5,619 | ||||||
|
Future years
|
20,431 | 15,484 | ||||||
|
|
$ | 141,074 | $ | 65,477 | ||||
The Company also arranges non-recourse lease transactions under which it sells railcars or
locomotives to financial intermediaries and assigns the related operating lease on a non-recourse
basis. The Company generally provides ongoing railcar maintenance and management services for the
financial intermediaries, and receives a fee for such services when earned. Management and service
fees earned in 2010, 2009 and 2008 were $2.9 million, $3.0 million and $3.1 million, respectively.
Other leasing activities:
The Company, as a lessee, leases real property, vehicles and other equipment under operating
leases. Certain of these agreements contain lease renewal and purchase options. The Company also
leases excess property to third parties. Net rental expense under these agreements was $5.6
million, $5.1 million and $4.7 million in 2010, 2009 and 2008, respectively. Future minimum lease
payments (net of sublease income commitments) under agreements in effect at December 31, 2010 are
as follows: 2011 — $3.8 million; 2012 — $3.0 million; 2013 — $1.8 million; 2014 — $1.2
million; 2015 — $1.1 million; and $2.0 million thereafter.
In addition to the above, the Company leases its Albion, Michigan and Clymers, Indiana grain
elevators under operating leases to two of its ethanol joint ventures. The Albion, Michigan grain
elevator lease expires in 2056. The initial term of the Clymers, Indiana grain elevator lease ends
in 2014 and provides for 5 renewals of 7.5 years each. Lease income for the years ended December
31, 2010, 2009 and 2008 was $1.8 million in each year.
Litigation activities:
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some
regularity, although individual cases that are material in size occur infrequently. As a defendant,
the Company establishes reserves for claimed amounts that are considered probable, and capable of
estimation. If those cases are resolved for lesser amounts, the excess reserve can be taken into
income and, conversely, if those cases are resolved for amounts incremental to what the Company has
accrued, the Company records a charge to income. The Company believes it is unlikely that the
results of its current legal proceedings for which it is the defendant, even if unfavorable, will
be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring
income. Litigation results depend upon a variety of factors, including the availability of
evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the
impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not
impossible, to predict. Consequently, cases currently pending, or future matters, may result in
unexpected, and non-recurring losses, or income, from time to time. In that regard, the Company
currently is involved in a certain dispute matter which may result in significant gains and it is
reasonably possible that the Company could recognize material gains from the dispute over the next 12 months, although
for all the reasons cited above neither the likelihood of success, nor the amounts or collection of
any settlement or verdict, can be predicted, estimated or assured.
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13. Employee Benefit Plan Obligations
The Company provides full-time employees with pension benefits under defined benefit and defined
contribution plans. The measurement date for all plans is December 31. The Company’s expense for
its defined contribution plans amounted to $5.3 million in 2010, $3.3 million in 2009 and $2.7
million in 2008. The Company also provides certain health insurance benefits to employees as well
as retirees.
The Company has both funded and unfunded noncontributory defined benefit pension plans. The plans
provide defined benefits based on years of service and average monthly compensation using a career
average formula. During the third quarter of 2009, the Company announced that it would be freezing
its defined benefit plan as of July 1, 2010 for all of its non-retail line of business employees.
Pension benefits for the retail line of business employees were frozen at December 31, 2006. As a
result of this curtailment, the Company recorded a gain of $4.1 million to pension expense in the
Company’s Consolidated Statements of Income in 2009. The net gain consisted of $4.3 million of
remaining prior service cost and a $0.2 million curtailment loss that were recorded in accumulated
other comprehensive loss.
The Company also has postretirement health care benefit plans covering substantially all of its
full time employees hired prior to January 1, 2003. These plans are generally contributory and
include a cap on the Company’s share for most retirees.
In March 2010, the Patient Protection and Affordable Care Act (“PPACA”) was signed into law. One
of the provisions of the PPACA eliminates the tax deductibility of retiree health care costs to the
extent of federal subsidies received by plan sponsors that provide retiree prescription drug
benefits equivalent to Medicare Part D coverage. As a result, the Company was required to make an
adjustment to its deferred tax asset associated with its postretirement benefit plan in the amount
of $1.4 million. The offset to this adjustment is included in the provision for income taxes on
the Company’s Consolidated Statements of Income.
Based on preliminary analysis, the Health Care Reform legislation is not expected to have a
material impact on the Plans.
Obligation and Funded Status
Following are the details of the obligation and funded status of the pension and postretirement
benefit plans:
| Pension | Postretirement | |||||||||||||||
| Benefits | Benefits | |||||||||||||||
| (in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Change in benefit obligation
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 74,875 | $ | 67,686 | $ | 21,294 | $ | 19,792 | ||||||||
|
Service cost
|
1,614 | 2,861 | 465 | 412 | ||||||||||||
|
Interest cost
|
4,339 | 4,001 | 1,213 | 1,155 | ||||||||||||
|
Actuarial (gains)/losses
|
12,120 | 6,739 | 2,383 | 654 | ||||||||||||
|
Participant contributions
|
— | — | 444 | 382 | ||||||||||||
|
Retiree drug subsidy received
|
— | — | 118 | 87 | ||||||||||||
|
Benefits paid
|
(2,345 | ) | (2,050 | ) | (1,324 | ) | (1,188 | ) | ||||||||
|
Plan curtailment
|
— | (4,362 | ) | — | — | |||||||||||
|
Benefit obligation at end of year
|
$ | 90,603 | $ | 74,875 | $ | 24,593 | $ | 21,294 | ||||||||
| Change in plan assets | ||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 70,423 | $ | 51,209 | $ | — | $ | — | ||||||||
|
Actual gains (loss) on plan assets
|
9,852 | 15,214 | — | — | ||||||||||||
|
Company contributions
|
6,167 | 6,050 | 880 | 806 | ||||||||||||
|
Participant contributions
|
— | — | 444 | 382 | ||||||||||||
|
Benefits paid
|
(2,345 | ) | (2,050 | ) | (1,324 | ) | (1,188 | ) | ||||||||
|
Fair value of plan assets at end of year
|
$ | 84,097 | $ | 70,423 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
Funded status of plans at end of year
|
$ | (6,506 | ) | $ | (4,452 | ) | $ | (24,593 | ) | $ | (21,294 | ) | ||||
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Amounts recognized in the consolidated balance sheets at December 31, 2010 and 2009 consist of:
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| (in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Accrued expenses
|
$ | (210 | ) | $ | (72 | ) | $ | (1,196 | ) | $ | (1,163 | ) | ||||
|
Employee benefit plan obligations
|
(6,296 | ) | (4,380 | ) | (23,397 | ) | (20,131 | ) | ||||||||
|
Net amount recognized
|
$ | (6,506 | ) | $ | (4,452 | ) | $ | (24,593 | ) | $ | (21,294 | ) | ||||
Following are the details of the pre-tax amounts recognized in accumulated other comprehensive loss
at December 31, 2010:
| Pension | Postretirement | |||||||||||||||
| Benefits | Benefits | |||||||||||||||
| Unamortized | Unamortized | Unamortized | Unamortized | |||||||||||||
| Actuarial | Prior Service | Actuarial | Prior Service | |||||||||||||
| (in thousands) | Net Losses | Costs | Net Losses | Costs | ||||||||||||
|
Balance at beginning of year
|
$ | 33,259 | $ | — | $ | 9,066 | $ | (3,580 | ) | |||||||
|
Amounts arising during the
period
|
7,719 | — | 2,383 | — | ||||||||||||
|
Amounts recognized as a component
of net periodic benefit
cost
|
(1,817 | ) | — | (688 | ) | 510 | ||||||||||
|
Balance at end of year
|
$ | 39,161 | $ | — | $ | 10,761 | $ | (3,070 | ) | |||||||
The amounts in accumulated other comprehensive loss that are expected to be recognized as
components of net periodic benefit cost during the next fiscal year are as follows:
| (in thousands) | Pension | Postretirement | Total | |||||||||
|
Prior service cost
|
$ | — | $ | (540 | ) | $ | (540 | ) | ||||
|
Net actuarial loss
|
893 | 840 | 1,733 | |||||||||
The accumulated benefit obligations related to the Company’s defined benefit pension plans are
$90.4 million and $74.3 million as of December 31, 2010 and 2009, respectively.
Amounts applicable to the Company’s defined benefit plans with accumulated benefit obligations in
excess of plan assets are as follows:
| (in thousands) | 2010 | 2009 | ||||||
|
Projected benefit obligation
|
$ | 90,603 | $ | 74,875 | ||||
|
Accumulated benefit obligation
|
$ | 90,357 | $ | 74,267 | ||||
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The combined benefits expected to be paid for all Company defined benefit plans over the next ten
years (in thousands) are as follows:
| Expected Pension | Expected Postretirement | Medicare Part D | ||||||||||
| Year | Benefit Payout | Benefit Payout | Subsidy | |||||||||
|
2011
|
$ | 5,444 | $ | 1,349 | $ | (154 | ) | |||||
|
2012
|
5,968 | 1,426 | (177 | ) | ||||||||
|
2013
|
5,521 | 1,515 | (204 | ) | ||||||||
|
2014
|
5,865 | 1,598 | (228 | ) | ||||||||
|
2015
|
6,145 | 1,675 | (259 | ) | ||||||||
|
2016-2020
|
30,221 | 9,419 | (1,853 | ) | ||||||||
Following are components of the net periodic benefit cost for each year:
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| (in thousands) | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
Service cost
|
$ | 1,614 | $ | 2,861 | $ | 2,666 | $ | 465 | $ | 412 | $ | 374 | ||||||||||||
|
Interest cost
|
4,339 | 4,001 | 3,614 | 1,213 | 1,155 | 1,125 | ||||||||||||||||||
|
Expected return on plan assets
|
(5,451 | ) | (4,356 | ) | (5,037 | ) | — | — | — | |||||||||||||||
|
Amortization of prior service cost
|
— | (392 | ) | (619 | ) | (511 | ) | (511 | ) | (511 | ) | |||||||||||||
|
Recognized net actuarial loss
|
1,817 | 3,503 | 945 | 691 | 624 | 611 | ||||||||||||||||||
|
Curtailment gain
|
— | (4,132 | ) | — | — | — | — | |||||||||||||||||
|
Net periodic benefit cost
|
$ | 2,319 | $ | 1,485 | $ | 1,569 | $ | 1,858 | $ | 1,680 | $ | 1,599 | ||||||||||||
Assumptions
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
| Weighted Average Assumptions | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
Used to Determine Benefit Obligations
at Measurement Date
|
||||||||||||||||||||||||
|
Discount rate (a)
|
5.20 | % | 5.70 | % | 6.10 | % | 5.30 | % | 5.80 | % | 6.10 | % | ||||||||||||
|
Rate of compensation increases
|
3.50 | % | 3.50 | % | 4.50 | % | — | — | — | |||||||||||||||
|
Used to Determine Net Periodic Benefit
Cost for Years ended December 31
|
||||||||||||||||||||||||
|
Discount rate (b)
|
5.70 | % | 6.10 | % | 6.30 | % | 5.80 | % | 6.10 | % | 6.40 | % | ||||||||||||
|
Expected long-term return on plan assets
|
8.00 | % | 8.25 | % | 8.25 | % | — | — | — | |||||||||||||||
|
Rate of compensation increases
|
3.50 | % | 4.50 | % | 4.50 | % | — | — | — | |||||||||||||||
| (a) | In 2010 and 2009, the calculated discount rate for the unfunded pension plan was different than the defined benefit pension plan. The calculated rate for the supplemental employee retirement plan was 4.20% and 6.00% in 2010 and 2009, respectively. | |
| (b) | In 2010, the calculated discount rate for the unfunded pension plan was different than the defined benefit pension plan. The calculated rate for the supplemental employee retirement plan was 6.00%. |
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The discount rate is calculated based on projecting future cash flows and aligning each year’s cash
flows to the Citigroup Pension Discount Curve and then calculating a weighted average discount rate
for each plan. The Company has elected to use the nearest tenth of a percent from this
calculated rate.
The expected long-term return on plan assets was determined based on the current asset allocation
and historical results from plan inception. Our expected long-term rate of return on plan assets
is based on a target allocation of assets, which is based on our goal of earning the highest rate
of return while maintaining risk at acceptable levels and is disclosed in the Plan Assets section
of this Note. The plan strives to have assets sufficiently diversified so that adverse or
unexpected results from one security class will not have an unduly detrimental impact on the entire
portfolio.
Assumed Health Care Cost Trend Rates at Beginning of Year
| 2010 | 2009 | |||||||
|
Health care cost trend rate assumed for next year
|
8.0 | % | 8.5 | % | ||||
|
Rate to
which the cost trend rate is assumed to decline (the ultimate trend rate)
|
5.0 | % | 5.0 | % | ||||
|
Year that the rate reaches the ultimate trend rate
|
2017 | 2017 | ||||||
The assumed health care cost trend rate has an effect on the amounts reported for postretirement
benefits. A one-percentage-point change in the assumed health care cost trend rate would have the
following effects:
| One-Percentage-Point | ||||||||
| (in thousands) | Increase | Decrease | ||||||
|
Effect on total service and interest cost components in 2010
|
$ | (19 | ) | $ | 17 | |||
|
Effect on postretirement benefit obligation as of December 31, 2010
|
(146 | ) | 121 | |||||
To partially fund self-insured health care and other employee benefits, the Company made payments
to a trust. This trust was closed in December 2009 after all of the remaining cash was used to
fund benefits.
Plan Assets
The Company’s pension plan weighted average asset allocations at December 31 by asset category, are
as follows:
| Asset Category | 2010 | 2009 | ||||||
|
Equity securities
|
68 | % | 74 | % | ||||
|
Fixed income securities
|
31 | % | 24 | % | ||||
|
Cash and equivalents
|
1 | % | 2 | % | ||||
|
|
100 | % | 100 | % | ||||
The plan assets are allocated within the broader asset categories in investments that focus on more
specific sectors. Within equity securities, subcategories include large cap growth, large cap
value, small cap
growth, small cap value, and internationally focused investment funds. These funds are judged in
comparison to benchmark indexes that best match their specific category. Within fixed income
securities, the funds are invested in a broad cross section of securities to ensure
diversification. These include treasury, government agency, corporate, securitization, high yield,
global, emerging market and other debt securities.
The investment policy and strategy for the assets of the Company’s funded defined benefit plan
includes the following objectives:
| • | ensure superior long-term capital growth and capital preservation; | ||
| • | reduce the level of the unfunded accrued liability in the plan; and | ||
| • | offset the impact of inflation. |
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Table of Contents
Risks of investing are managed through asset allocation and diversification. Investments are given
extensive due diligence by an impartial third party investment firm. All investments are monitored
and re-assessed by the Company’s pension committee on a semi-annual basis. Available investment
options include U.S. Government and agency bonds and instruments, equity and debt securities of
public corporations listed on U.S. stock exchanges, exchange listed U.S. mutual funds and
institutional portfolios investing in equity and debt securities of publicly traded domestic or
international companies and cash or money market securities. In order to reduce risk and
volatility, the Company has placed the following portfolio market value limits on its investments,
to which the investments must be rebalanced after each quarterly cash contribution. Note that the
single security restriction does not apply to mutual funds or institutional investment portfolios.
No securities are purchased on margin, nor are any derivatives used to create leverage. The
overall expected long-term rate of return is determined by using long-term historical returns for
equity and fixed income securities in proportion to their weight in the investment portfolio.
| Percentage of Total Portfolio Market Value | ||||||||||||
| Minimum | Maximum | Single Security | ||||||||||
|
Equity based
|
30 | % | 70 | % | <5 | % | ||||||
|
Fixed income based
|
20 | % | 70 | % | <5 | % | ||||||
|
Cash and equivalents
|
1 | % | 5 | % | <5 | % | ||||||
|
Alternative Investments
|
0 | % | 20 | % | <5 | % | ||||||
The following table presents the fair value of the assets (by asset category) in the Company’s
defined benefit pension plan at December 31, 2010.
| (in thousands) | ||||||||||||||||
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Mutual funds
|
$ | 12,119 | $ | — | $ | — | $ | 12,119 | ||||||||
|
Money market fund
|
— | 793 | — | 793 | ||||||||||||
|
Equity funds
|
— | 45,502 | — | 45,502 | ||||||||||||
|
Fixed income funds
|
— | 25,683 | — | 25,683 | ||||||||||||
|
Total
|
$ | 12,119 | $ | 71,978 | $ | — | $ | 84,097 | ||||||||
There is no equity or debt of the Company included in the assets of the defined benefit plan.
Cash Flows
The Company expects to make contributions to the defined benefit pension plan of up to $3.0 million
in 2011. The Company reserves the right to contribute more or less than this amount. For the year
ended December 31, 2010, the Company contributed $6.0 million to the defined benefit pension plan.
14. Fair Values of Financial Instruments
The fair values of the Company’s cash equivalents, margin deposits, short-term borrowings and
certain long-term borrowings approximate their carrying values since the instruments are close to
maturity and/or carry variable interest rates based on market indices. The Company accounts for
investments in affiliates using either the equity method or the cost method. These investments
have no quoted market price.
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Table of Contents
Certain long-term notes payable and the Company’s debenture bonds bear fixed rates of interest and
terms of up to 10 years. Based upon the Company’s credit standing and current interest rates
offered by the Company on similar bonds and rates currently available to the Company for long-term
borrowings with similar terms and remaining maturities, the Company estimates the fair values of
its long-term debt instruments outstanding at December 31, 2010 and 2009, as follows:
| (in thousands) | Carrying Amount | Fair Value | ||||||
|
2010:
|
||||||||
|
Fixed rate long-term notes payable
|
$ | 196,242 | $ | 199,292 | ||||
|
Long-term notes payable, non-recourse
|
15,991 | 16,157 | ||||||
|
Debenture bonds
|
36,887 | 39,991 | ||||||
|
|
$ | 249,120 | $ | 255,440 | ||||
|
2009:
|
||||||||
|
Fixed rate long-term notes payable
|
$ | 214,207 | $ | 219,904 | ||||
|
Long-term notes payable, non-recourse
|
24,350 | 24,629 | ||||||
|
Debenture bonds
|
45,595 | 46,307 | ||||||
|
|
$ | 284,152 | $ | 290,840 | ||||
15. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Company has
established “unhedged” grain position limits (the amount of grain, either owned or contracted for,
that does not have an offsetting derivative contract to lock in the price). To reduce the exposure
to market price risk on grain owned and forward grain and ethanol purchase and sale contracts, the
Company enters into regulated commodity futures contracts, primarily via regulated exchanges such
as the CME and, to a lesser extent, via over-the-counter contracts with
various counterparties. The Company’s forward contracts are for physical delivery of the commodity
in a future period. Contracts to purchase grain from producers generally relate to the current or
future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the
sale of grain to processors or other consumers generally do not extend beyond one year. The terms
of the contracts for the purchase and sale of grain and ethanol are consistent with industry
standards. The Company, although to a lesser extent, also enters into option contracts for the
purpose of providing pricing features to its customers and to manage price risk on its own
inventory.
All of these contracts are considered derivatives. While the Company considers its commodity
contracts to be effective economic hedges, the Company does not designate or account for its
commodity contracts as hedges as defined under current accounting standards. The Company records
forward commodity contracts that do not require the receipt or posting of cash collateral on the
balance sheet as commodity derivative assets or liabilities, as appropriate, and accounts for them
at estimated fair value, the same method it uses to
value its grain inventory. The estimated fair value of the commodity futures and options contracts
that require the receipt or posting of cash collateral is recorded on a net basis (offset against
cash collateral posted or received) within margin deposits or accrued expenses and other current
liabilities on the balance sheet, as appropriate. Management determines fair value based on
exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair
value is adjusted for differences in local markets and non-performance risk.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to
changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or
extinguishment of the commodity contract) and grain inventories are included in sales and
merchandising revenues in the statements of income.
The following table presents the fair value of the Company’s commodity derivatives as of December
31, 2010 and 2009, and the balance sheet line item in which they are located:
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Table of Contents
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Forward commodity contracts included in Commodity derivative assets
— current
|
$ | 226,216 | $ | 24,255 | ||||
|
Forward commodity contracts included in Commodity derivative assets —
noncurrent
|
18,113 | 3,137 | ||||||
|
Forward commodity contracts included in Commodity derivative
liabilities — current
|
(57,621 | ) | (24,871 | ) | ||||
|
Forward commodity contracts included in Commodity derivative
liabilities — noncurrent
|
(3,279 | ) | (830 | ) | ||||
|
Regulated futures and options contracts included in Margin deposits (a)
|
(105,030 | ) | (11,354 | ) | ||||
|
Over-the-counter contracts included in Margin deposits (a)
|
(41,300 | ) | (1,824 | ) | ||||
|
Over-the-counter contracts included in accrued expenses and other
current liabilities
|
— | (4,193 | ) | |||||
|
Total estimated fair value of commodity derivatives
|
$ | 37,099 | $ | (15,680 | ) | |||
| (a) | The fair value of futures, options and over-the-counter contracts are offset by cash collateral posted or received and included as a net amount in the Consolidated Balance Sheets. See Note 1 for additional information. |
The gains included in the Company’s Consolidated Statement of Income and the line items in which
they are located for the years ended December 31, 2010 and 2009 are as follows:
| Year ended December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
(Loss)/gain on commodity derivatives included in
sales and merchandising revenues
|
$ | (53,942 | ) | $ | 45,707 | |||
At December 31, 2010, the Company had the following bushels and gallons outstanding (on a gross
basis) on all commodity derivative contracts:
| Number of bushels | Number of tons | Number of gallons | ||||||||||
| Commodity | (in thousands) | (in thousands) | (in thousands) | |||||||||
|
Corn
|
352,367 | — | — | |||||||||
|
Soybeans
|
22,465 | — | — | |||||||||
|
Wheat
|
14,416 | — | — | |||||||||
|
Oats
|
8,824 | — | — | |||||||||
|
Soymeal
|
— | 20 | — | |||||||||
|
Ethanol
|
— | — | 368,030 | |||||||||
|
Other
|
306 | — | — | |||||||||
|
Total
|
398,378 | 20 | 368,030 | |||||||||
Interest Rate Derivatives
The Company periodically enters into interest rate contracts to manage interest rate risk on
borrowing or financing activities. One of the Company’s long-term interest rate swaps is recorded
in other long-term liabilities and is designated as a cash flow hedge; accordingly, changes in the
fair value of this instrument are recognized in other comprehensive income. The terms of the swap
match the terms of the underlying debt instrument. The deferred derivative gains and losses on the
interest rate swap are reclassified into income over the term of the underlying hedged items. For
the years ended December 31, 2010, 2009 and 2008, the Company reclassified less than $0.1 million
of accumulated other comprehensive loss into earnings. The Company expects to reclassify less than
$0.1 million of accumulated other comprehensive loss into earnings in the next twelve months.
The Company has other interest rate contracts that are not designated as hedges. While the Company
considers all of its interest rate derivative positions to be effective economic hedges of
specified risks, these interest rate contracts
are recorded on the balance sheet in prepaid expenses and other assets or current and long-term
liabilities and changes in fair value are recognized currently in income as interest expense.
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Table of Contents
The following table presents the open interest rate contracts at December 31, 2010.
| Interest Rate | Initial | |||||||||||||||||||
| Hedging | Notional Amount | Interest | ||||||||||||||||||
| Instrument | Year Entered | Year of Maturity | (in millions) | Hedged Item | Rate | |||||||||||||||
|
Short-term
|
||||||||||||||||||||
|
Cap
|
2009 | 2011 | $ | 10.0 | Interest rate component of debt — not accounted for as a hedge | 2.92 | % | |||||||||||||
|
Cap
|
2009 | 2011 | $ | 10.0 | Interest rate component of debt — not accounted for as a hedge | 2.92 | % | |||||||||||||
|
|
||||||||||||||||||||
|
Long-term
|
||||||||||||||||||||
|
Swap
|
2005 | 2016 | $ | 4.0 | Interest rate component of an operating lease — not accounted for as a hedge | 5.23 | % | |||||||||||||
|
Swap
|
2006 | 2016 | $ | 14.0 | Interest rate component of debt — accounted for as cash flow hedge | 5.95 | % | |||||||||||||
|
Cap
|
2009 | 2012 | $ | 10.0 | Interest rate component of debt — not accounted for as a hedge | 3.42 | % | |||||||||||||
|
Cap
|
2010 | 2012 | $ | 10.0 | Interest rate component of debt — not accounted for as a hedge | 2.75 | % | |||||||||||||
At December 31, 2010 and 2009, the Company had recorded the following amounts for the fair value of
the Company’s interest rate derivatives:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Derivatives not designated as hedging instruments
|
||||||||
|
Interest rate contracts included in other assets
|
$ | 6 | $ | 55 | ||||
|
Interest rate contracts included in deferred income and other long term
liabilities
|
(368 | ) | (320 | ) | ||||
|
Total fair value of interest rate derivatives not designated as hedging
instruments
|
$ | (362 | ) | $ | (265 | ) | ||
|
Derivatives designated as hedging instruments
|
||||||||
|
Interest rate contract included in deferred income and other long term liabilities
|
$ | (1,768 | ) | $ | (1,540 | ) | ||
|
Total fair value of interest rate derivatives designated as hedging instruments
|
$ | (1,768 | ) | $ | (1,540 | ) | ||
The gains (losses) included in the Company’s Consolidated Statement of Income and the line item in
which they are located for interest rate derivatives not designated as hedging instruments are as
follows:
| Year ended December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Interest expense
|
$ | (133 | ) | $ | 158 | |||
The gains included in the Company’s Statement of Shareholders’ Equity and the line item in which
they are located for interest rate derivatives designated as hedging instruments are as follows:
| Year ended December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Accumulated other comprehensive loss
|
$ | (229 | ) | $ | 893 | |||
Foreign Currency Derivatives
The Company has entered into a zero cost foreign currency collar to hedge the change in conversion
rate between the Canadian dollar and the U.S. dollar for railcar leases in Canada. This zero cost
collar, which is being accounted for as a cash flow hedge, has an initial notional amount of $6.8
million and places a floor and ceiling on the
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Canadian dollar to U.S. dollar exchange rate at $0.9875 and $1.069, respectively. Changes in the
fair value of this derivative are included as a component of other comprehensive income or loss.
The terms of the collar match the underlying lease agreements and therefore any ineffectiveness is
considered immaterial.
At December 31, 2010 and 2009, the Company had recorded the following amount for the fair value of
the Company’s foreign currency derivatives:
| December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Foreign currency contract included in other assets
|
$ | (26 | ) | $ | 42 | |||
The losses included in the Company’s Statement of Shareholders’ Equity and the line item in which
they are located for foreign currency derivatives designated as hedging instruments are as follows:
| Year ended December 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Accumulated other comprehensive loss
|
$ | (68 | ) | $ | (539 | ) | ||
16. Segment Information
The Company’s operations include five reportable business segments that are distinguished primarily
on the basis of products and services offered. The Grain & Ethanol Group’s operations include
grain merchandising, the operation of terminal grain elevator facilities and the investment in and
management of ethanol production facilities as well as an investment in Lansing Trade Group LLC.
In the Rail Group, operations include the leasing, marketing and fleet management of railcars and
locomotives, railcar repair and metal fabrication. The Plant Nutrient Group manufactures and
distributes agricultural inputs, primarily fertilizer, to dealers and farmers. The Turf &
Specialty Group’s operations include the production and distribution of turf care and corncob-based
products. The Retail Group operates large retail stores, a specialty food market, a distribution
center and a lawn and garden equipment sales and service shop.
Included in Other are the corporate level amounts not attributable to an operating Group and the
sale of some of the Company’s excess real estate.
The segment information below includes the allocation of expenses shared by one or more Groups.
Although management believes such allocations are reasonable, the operating information does not
necessarily reflect how such data might appear if the segments were operated as separate
businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer
sales. Capital expenditures include additions to property, plant and equipment, software and
intangible assets.
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Table of Contents
| (in thousands) | Grain & | Plant | ||||||||||||||||||||||||||
| 2010 | Ethanol | Rail | Nutrient | Turf & Specialty | Retail | Other | Total | |||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,405,452 | $ | 94,816 | $ | 619,330 | $ | 123,549 | $ | 150,644 | $ | — | $ | 3,393,791 | ||||||||||||||
|
Inter-segment sales
|
3 | 637 | 13,517 | 1,636 | — | — | 15,793 | |||||||||||||||||||||
|
Equity in earnings of affiliates
|
25,999 | — | 8 | — | — | — | 26,007 | |||||||||||||||||||||
|
Other income, net
|
2,733 | 4,502 | 1,298 | 1,335 | 608 | 1,176 | 11,652 | |||||||||||||||||||||
|
Interest expense
|
8,315 | 4,928 | 3,901 | 1,604 | 1,039 | 78 | 19,865 | |||||||||||||||||||||
|
Operating income (loss) (a)
|
81,387 | 107 | 30,062 | 3,443 | (2,534 | ) | (8,541 | ) | 103,924 | |||||||||||||||||||
|
Income attributable to
noncontrolling interest
|
(219 | ) | — | — | — | — | — | (219 | ) | |||||||||||||||||||
|
Income before income taxes
|
81,606 | 107 | 30,062 | 3,443 | (2,534 | ) | (8,541 | ) | 104,143 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Identifiable assets
|
1,099,480 | 196,149 | 208,548 | 62,643 | 52,430 | 80,140 | 1,699,390 | |||||||||||||||||||||
|
Capital expenditures
|
10,343 | 927 | 7,631 | 2,237 | 8,827 | 932 | 30,897 | |||||||||||||||||||||
|
Railcar expenditures
|
— | 18,354 | — | — | — | — | 18,354 | |||||||||||||||||||||
|
Cash invested in affiliates
|
395 | — | — | — | — | — | 395 | |||||||||||||||||||||
|
Acquisition of businesses
|
39,293 | — | — | — | — | — | 39,293 | |||||||||||||||||||||
|
Investment in convertible
preferred securities
|
— | 13,100 | — | — | — | — | 13,100 | |||||||||||||||||||||
|
Depreciation and amortization
|
7,951 | 15,107 | 10,225 | 2,032 | 2,400 | 1,198 | 38,913 | |||||||||||||||||||||
| (in thousands) | Grain & | Plant | ||||||||||||||||||||||||||
| 2009 | Ethanol | Rail | Nutrient | Turf & Specialty | Retail | Other | Total | |||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,153,978 | $ | 92,789 | $ | 491,293 | $ | 125,306 | $ | 161,938 | $ | — | $ | 3,025,304 | ||||||||||||||
|
Inter-segment sales
|
9 | 634 | 12,245 | 1,504 | — | — | 14,392 | |||||||||||||||||||||
|
Equity in earnings of affiliates
|
17,452 | — | 8 | — | — | 3 | 17,463 | |||||||||||||||||||||
|
Other income, net
|
2,319 | 485 | 1,755 | 1,131 | 683 | 1,958 | 8,331 | |||||||||||||||||||||
|
Interest expense
|
9,363 | 4,468 | 3,933 | 1,429 | 961 | 534 | 20,688 | |||||||||||||||||||||
|
Operating income (loss) (a)
|
51,354 | (1,034 | ) | 11,294 | 4,735 | (2,843 | ) | (3,225 | ) | 60,281 | ||||||||||||||||||
|
Income attributable to
noncontrolling interest
|
(1,215 | ) | — | — | — | — | — | (1,215 | ) | |||||||||||||||||||
|
Income before income taxes
|
52,569 | (1,034 | ) | 11,294 | 4,735 | (2,843 | ) | (3,225 | ) | 61,496 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Identifiable assets
|
597,041 | 194,748 | 205,968 | 63,353 | 45,696 | 177,585 | 1,284,391 | |||||||||||||||||||||
|
Capital expenditures
|
6,145 | 297 | 6,610 | 1,305 | 1,157 | 1,046 | 16,560 | |||||||||||||||||||||
|
Railcar expenditures
|
— | 24,965 | — | — | — | — | 24,965 | |||||||||||||||||||||
|
Cash invested in affiliates
|
1,100 | — | — | — | — | 100 | 1,200 | |||||||||||||||||||||
|
Acquisition of businesses
|
— | — | 30,480 | — | — | — | 30,480 | |||||||||||||||||||||
|
Depreciation and amortization
|
5,532 | 15,967 | 8,665 | 2,314 | 2,286 | 1,256 | 36,020 | |||||||||||||||||||||
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| (in thousands) | Grain & | Plant | ||||||||||||||||||||||||||
| 2008 | Ethanol | Rail | Nutrient | Turf & Specialty | Retail | Other | Total | |||||||||||||||||||||
|
Revenues from external customers
|
$ | 2,411,144 | $ | 133,898 | $ | 652,509 | $ | 118,856 | $ | 173,071 | $ | — | $ | 3,489,478 | ||||||||||||||
|
Inter-segment sales
|
15 | 439 | 17,189 | 1,270 | — | — | 18,913 | |||||||||||||||||||||
|
Equity in earnings of affiliates
|
4,027 | — | 6 | — | — | — | 4,033 | |||||||||||||||||||||
|
Other income, net
|
4,751 | 526 | 893 | 446 | 692 | (1,138 | ) | 6,170 | ||||||||||||||||||||
|
Interest expense
|
18,667 | 4,154 | 5,616 | 1,522 | 886 | 394 | 31,239 | |||||||||||||||||||||
|
Operating income (loss) (a)
|
43,587 | 19,782 | (12,325 | ) | 2,321 | 843 | (4,842 | ) | 49,366 | |||||||||||||||||||
|
Loss attributable to
noncontrolling interest
|
2,803 | — | — | — | — | — | 2,803 | |||||||||||||||||||||
|
Income before income taxes
|
40,784 | 19,782 | (12,325 | ) | 2,321 | 843 | (4,842 | ) | 46,563 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Identifiable assets
|
575,589 | 198,109 | 266,785 | 70,988 | 50,605 | 146,697 | 1,308,773 | |||||||||||||||||||||
|
Capital expenditures
|
5,317 | 682 | 10,481 | 2,018 | 924 | 893 | 20,315 | |||||||||||||||||||||
|
Railcar expenditures
|
19,066 | 78,923 | — | — | — | — | 97,989 | |||||||||||||||||||||
|
Cash invested in affiliates
|
41,350 | — | — | — | — | 100 | 41,450 | |||||||||||||||||||||
|
Depreciation and amortization
|
4,377 | 13,915 | 5,901 | 2,228 | 2,218 | 1,128 | 29,767 | |||||||||||||||||||||
| (a) | Operating income (loss) for each Group is based on net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of net (income) loss attributable to the noncontrolling interest. |
Grain sales for export to foreign markets amounted to approximately $267.3 million, $312.7
million and $194.9 million in 2010, 2009 and 2008, respectively. Revenues from leased railcars in
Canada totaled $9.1 million, $12.4 million and $18.1 million in 2010, 2009 and 2008, respectively.
The net book value of the leased railcars at December 31, 2010 and 2009 was $22.0 million and $26.9
million, respectively. Lease revenue on railcars in Mexico totaled $0.3 million in 2010, $0.3
million in 2009 and $0.8 million in 2008.
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17. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of the unaudited quarterly results of operations for 2010 and 2009.
(in thousands, except for per common share data)
| Net Income | ||||||||||||||||||||
| attributable to The | Earnings Per | Earnings Per | ||||||||||||||||||
| Quarter Ended | Net Sales | Gross Profit | Andersons, Inc. | Share-Basic | Share-Diluted | |||||||||||||||
|
2010
|
||||||||||||||||||||
|
March 31
|
$ | 721,998 | $ | 58,550 | $ | 12,265 | $ | 0.67 | $ | 0.66 | ||||||||||
|
June 30
|
810,999 | 87,554 | 25,169 | 1.37 | 1.36 | |||||||||||||||
|
September 30
|
706,825 | 53,109 | 1,394 | 0.08 | 0.08 | |||||||||||||||
|
December 31
|
1,153,969 | 82,466 | 25,834 | 1.40 | 1.39 | |||||||||||||||
|
Year
|
$ | 3,393,791 | $ | 281,679 | $ | 64,662 | 3.51 | 3.48 | ||||||||||||
|
|
||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
March 31
|
$ | 697,392 | $ | 61,374 | $ | 4,952 | $ | 0.27 | $ | 0.27 | ||||||||||
|
June 30
|
810,954 | 73,334 | 15,918 | 0.87 | 0.87 | |||||||||||||||
|
September 30
|
601,000 | 51,010 | 1,250 | 0.07 | 0.07 | |||||||||||||||
|
December 31
|
915,958 | 69,788 | 16,231 | 0.89 | 0.88 | |||||||||||||||
|
Year
|
$ | 3,025,304 | $ | 255,506 | $ | 38,351 | 2.10 | 2.08 | ||||||||||||
Net income per share is computed independently for each of the quarters presented. As such, the
summation of the quarterly amounts may not equal the total net income per share reported for the
year.
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None.
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 named Certifying Officers
have evaluated our disclosure controls and procedures as defined in the rules of the Securities and
Exchange Commission, as of December 31, 2010, and have determined that such controls and procedures
were effective in ensuring that material information required to be disclosed by the Company in the
reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Management’s
Report on Internal Control over Financial Reporting is included in
Item 8 on page 39.
There were no significant changes in internal control over financial reporting that occurred during
the fourth quarter of 2010, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
For information with respect to the executive officers of the registrant, see “Executive Officers
of the Registrant” included in Part I of this report. For information with respect to the
Directors of the registrant, see “Election of Directors” in the Proxy Statement for the Annual
Meeting of the Shareholders to be held on May 6, 2011 (the “Proxy Statement”), which is
incorporated herein by reference; for information concerning 1934 Securities and Exchange Act
Section 16(a) Compliance, see such section in the Proxy Statement, incorporated herein by
reference.
The information set forth under the caption “Executive Compensation” in the Proxy Statement is
incorporated herein by reference.
The information set forth under the caption “Share Ownership” and “Executive Compensation — Equity
Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.
The information set forth under the caption “Review, Approval or Ratification of Transactions with
Related Persons” in the Proxy Statement is incorporated herein by reference.
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Table of Contents
The information set forth under “Appointment of Independent Registered Public Accounting Firm” in
the Proxy Statement is incorporated herein by reference.
| (a) (1) | The consolidated financial statements of the Company are set forth under Item 8 of this report on Form 10-K. | |
| (2) | The following consolidated financial statement schedule is included in Item 15(d): |
| Page | ||||
|
II.
|
Consolidated Valuation and Qualifying Accounts - years ended December 31, 2010, 2009 and 2008 | 90 | ||
|
|
All other schedules for which provisions are made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related instructions or are not
applicable, and therefore have been omitted.
(3) Exhibits:
| 2.1 | Agreement and Plan of Merger, dated April 28, 1995 and amended as of September 26, 1995, by and between The Andersons Management Corp. and The Andersons. (Incorporated by reference to Exhibit 2.1 to Registration Statement No. 33-58963). | ||
| 3.1 | Articles of Incorporation. (Incorporated by reference to Exhibit 3(d) to Registration Statement No. 33-16936). | ||
| 3.4 | Code of Regulations of The Andersons, Inc. (Incorporated by reference to Exhibit 3.4 to Registration Statement No. 33-58963). | ||
| 4.3 | Specimen Common Share Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-58963). | ||
| 4.4 | The Seventeenth Supplemental Indenture dated as of August 14, 1997, between The Andersons, Inc. and The Fifth Third Bank, successor Trustee to an Indenture between The Andersons and Ohio Citizens Bank, dated as of October 1, 1985. (Incorporated by reference to Exhibit 4.4 to The Andersons, Inc. the 1998 Annual Report on Form 10-K). | ||
| 4.5 | Loan Agreement dated October 30, 2002 and amendments through the eighth amendment dated September 27, 2006 between The Andersons, Inc., the banks listed therein and U.S. Bank National Association as Administrative Agent. (Incorporated by reference from Form 10-Q filed November 9, 2006). | ||
| 10.1 | Management Performance Program. * (Incorporated by reference to Exhibit 10(a) to the Predecessor Partnership’s Form 10-K dated December 31, 1990, File No. 2-55070). | ||
| 10.2 | The Andersons, Inc. Amended and Restated Long-Term Performance Compensation Plan * (Incorporated by reference to Appendix A to the Proxy Statement for the April 25, 2002 Annual Meeting). |
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| 10.3 | The Andersons, Inc. 2004 Employee Share Purchase Plan * (Incorporated by reference to Appendix B to the Proxy Statement for the May 13, 2004 Annual Meeting). | ||
| 10.4 | Marketing Agreement between The Andersons, Inc. and Cargill, Incorporated dated June 1, 1998 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003). | ||
| 10.5 | Lease and Sublease between Cargill, Incorporated and The Andersons, Inc. dated June 1, 1998 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003). | ||
| 10.6 | Amended and Restated Marketing Agreement between The Andersons, Inc.; The Andersons Agriculture Group LP; and Cargill, Incorporated dated June 1, 2003 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003). | ||
| 10.7 | Amendment to Lease and Sublease between Cargill, Incorporated; The Andersons Agriculture Group LP; and The Andersons, Inc. dated July 10, 2003 (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2003). | ||
| 10.8 | Amended and Restated Asset Purchase agreement by and among Progress Rail Services and related entities and Cap Acquire LLC, Cap Acquire Canada ULC and Cap Acquire Mexico S. de R.L. de C.V. (Incorporated by reference from Form 8-K filed February 27, 2004). | ||
| 10.9 | Indenture between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (Issuers) and Wells Fargo Bank, National Association (Indenture Trustee) dated February 12, 2004. (Incorporated by reference from Form 10K for the year ended December 31, 2003). | ||
| 10.10 | Management Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Manager) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Manager) dated February 12, 2004. (Incorporated by reference from Form 10K for the year ended December 31, 2003). | ||
| 10.11 | Servicing Agreement between NARCAT LLC, CARCAT ULC, and NARCAT Mexico S. de R.L. de C.V. (the Companies), The Andersons, Inc. (the Servicer) and Wells Fargo Bank, National Association (Indenture Trustee and Backup Servicer) dated February 12, 2004. (Incorporated by reference from form 10K for the year ended December 31, 2003). | ||
| 10.12 | Form of Stock Option Agreement (Incorporated by reference from Form 10-Q filed August 9, 2005). | ||
| 10.13 | Form of Performance Share Award Agreement (Incorporated by reference from Form 10-Q filed -August 9, 2005). | ||
| 10.14 | Security Agreement, dated as of December 29, 2005, made by The Andersons Rail Operating I, LLC in favor of Siemens Financial Services, Inc. as Agent (Incorporated by reference from Form 8-K filed January 5, 2006). | ||
| 10.15 | Management Agreement, dated as of December 29, 2005, made by The Andersons Rail Operating I, LLC and The Andersons, Inc., as Manager (Incorporated by reference from Form 8-K filed January 5, 2006). | ||
| 10.16 | Servicing Agreement, dated as of December 29, 2005, made by The Andersons Rail Operating I, LLC and The Andersons, Inc., as Servicer (Incorporated by reference from Form 8-K filed January 5, 2006). |
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| 10.17 | Term Loan Agreement, dated as of December 29, 2005, made by The Andersons Rail Operating I, LLC, as borrower, the lenders named therein, and Siemens Financial Services, Inc., as Agent and Lender (Incorporated by reference from Form 8-K filed January 5, 2006). | ||
| 10.18 | The Andersons, Inc. Long-Term Performance Compensation Plan dated May 6, 2005* (Incorporated by reference to Appendix A to the Proxy Statement for the May 6, 2005 Annual Meeting). | ||
| 10.19 | Form of Stock Only Stock Appreciation Rights Agreement (Incorporated by reference from Form 10-Q filed May 10, 2006). | ||
| 10.20 | Form of Performance Share Award Agreement (Incorporated by reference from Form 10-Q filed May 10, 2006). | ||
| 10.21 | Real Estate Purchase Agreement between Richard P. Anderson and The Andersons Farm Development Co., LLC (Incorporated by reference from Form 8-K filed July 5, 2006). | ||
| 10.22 | Real Estate Purchase Agreement between Thomas H. Anderson and The Andersons Farm Development Co., LLC (Incorporated by reference from Form 8-K filed July 5, 2006). | ||
| 10.23 | Real Estate Purchase Agreement between Paul M. Kraus and The Andersons Farm Development Co., LLC (Incorporated by reference from Form 8-K filed July 5, 2006). | ||
| 10.24 | Loan agreement dated September 27, 2006 between The Andersons, Inc., the banks listed therein and U.S. Bank National Association as Administrative Agent (Incorporated by reference from Form 10-Q filed November 9, 2006). | ||
| 10.25 | Ninth Amendment to Loan Agreement, dated March 14, 2007, between The Andersons, Inc., as borrower, the lenders name herein, and U.S. National Bank Association as Agent and Lender (Incorporated by reference from Form 8-K filed March 19, 2007). | ||
| 10.26 | Form of Stock Only Stock Appreciation Rights Agreement (Incorporated by reference from Form 10-Q filed May 10, 2007) | ||
| 10.27 | Form of Performance Share Award Agreement (Incorporated by reference from Form 10-Q filed May 10, 2007 | ||
| 10.28 | Credit Agreement, dated February 25, 2008, between The Andersons, Inc., as borrower, and Wells Fargo Bank National Association, as lender (Incorporated by reference from Form 10-K filed February 28, 2008). | ||
| 10.29 | Note Purchase Agreement, dated March 27, 2008, between The Andersons, Inc., as borrowers, and several purchases with Wells Fargo Capital Markets acting as agent (Incorporated by reference from Form 8-K filed March 27, 2008). | ||
| 10.30 | First Amendment to Amended and Restated Loan Agreement, dated April 16, 2008, between The Andersons, Inc., as borrower, and several banks, with U.S. Bank National Association acting as agent and lender (Incorporated by reference from Form 8-K filed April 17, 2008). | ||
| 10.31 | Form of Stock Only Stock Appreciation Rights Agreement (Incorporated by reference from Form 10-Q filed May 9, 2008). |
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| 10.32 | Form of Performance Share Award Agreement (Incorporated by reference from Form 10-Q filed May 9, 2008). | ||
| 10.33 | Fifth Amendment to Amended and Restated Loan Agreement, dated October 14, 2008, between The Andersons, Inc. as borrower, and several banks with U.S. National Bank Association acting as Agent and Lender (Incorporated by reference from Form 8-K filed October 20, 2008). | ||
| 10.34 | Form of Change in Control and Severance Participation Agreement (Incorporated by reference from Form 8-K filed January 13, 2009). | ||
| 10.35 | Change in Control and Severance Policy (Incorporated by reference from Form 8-K filed January 13, 2009). | ||
| 10.36 | Form of Performance Share Award Agreement (Incorporated by reference from Form 8-K filed March 6, 2009). | ||
| 10.37 | Form of Stock Only Stock Appreciation Rights Agreement (Incorporated by reference from Form 8-K filed March 6, 2009). | ||
| 10.38 | Form of Stock Only Stock Appreciation Rights Agreement — Non-Employee Directors (Incorporated by reference from Form 8-K filed March 6, 2009). | ||
| 10.39 | Second Amended and Restated Loan Agreement dated April 30, 2009 between The Andersons, Inc., as borrower, and several banks with U.S. Bank National Association acting as agent and lender (Incorporated by reference from Form 8-K filed May 6, 2009). | ||
| 10.40 | Amended and Restated Note Purchase Agreement, dated February 26, 2010, between The Andersons, Inc., as borrower, and Co-Bank, one of the lenders to the original agreement (Incorporated by reference from Form 8-K filed March 5, 2010). | ||
| 10.43 | Loan Agreement dated September 30, 2010, between The Andersons, Inc., as borrower, and several banks with U.S. Bank National Association acting as agent and lender (Incorporated by reference from Form 8-K filed October 5, 2010). | ||
| 10.44 | Third Amended and Restated Loan Agreement, dated December 17, 2010, between The Andersons, Inc., as borrower, and several banks with U.S. Bank National Association acting as agent and lender (Incorporated by reference from Form 8-K filed December 21, 2010). | ||
| 10.45 | First Amendment to the Third Amended and Restated Loan Agreement, dated January 7, 2011, between The Andersons, Inc., as borrower, and several banks to the original agreement (Incorporated by reference from Form 8-K filed January 10, 2011. | ||
| 12 | Computation of Ratio of Earnings to Fixed Charges (filed herewith) | ||
| 21 | Consolidated Subsidiaries of The Andersons, Inc. |
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| 23 | Consent of Independent Registered Public Accounting Firm. | ||
| 31.1 | Certification of President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a). | ||
| 31.2 | Certification of Vice President, Controller & CIO under Rule 13(a)-14(a)/15d-14(a). | ||
| 31.3 | Certification of 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. |
| * | Management contract or compensatory plan. |
The Company agrees to furnish to the Securities and Exchange Commission a copy of any
long-term debt instrument or loan agreement that it may request.
| (b) | Exhibits: | |
| The exhibits listed in Item 15(a)(3) of this report, and not incorporated by reference, follow “Financial Statement Schedule” referred to in (d) below. |
| (c) | Financial Statement Schedule |
The financial statement schedule listed in 15(a)(2) follows “Signatures.”
88
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
|
||||
| By | /s/ Michael J. Anderson | |||
| Michael J. Anderson | ||||
| President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
| Signature | Title | Date | Signature | Title | Date | |||||
|
|
||||||||||
|
/s/ Michael J. Anderson
|
Chairman of the Board
President
and Chief Executive Officer (Principal Executive Officer) |
3/1/11 |
/s/ John T. Stout, Jr.
|
Director | 3/1/11 | |||||
|
|
||||||||||
|
/s/ Richard R. George
|
Vice President, Controller &
CIO
(Principal Accounting Officer) |
3/1/11 |
/s/ Donald L. Mennel
|
Director | 3/1/11 | |||||
|
|
||||||||||
|
/s/ Nicholas C. Conrad
|
Vice President, Finance &
Treasurer
(Principal Financial Officer) |
3/1/11 |
/s/ David L. Nichols
|
Director | 3/1/11 | |||||
|
|
||||||||||
|
/s/ Gerard M. Anderson
|
Director | 3/1/11 |
/s/ Ross W. Manire
|
Director | 3/1/11 | |||||
|
|
||||||||||
|
/s/ Robert J. King, Jr.
|
Director | 3/1/11 |
/s/ Jacqueline F. Woods
|
Director | 3/1/11 | |||||
|
|
||||||||||
|
/s/ Catherine M. Kilbane
|
Director | 3/1/11 | ||||||||
|
Catherine M. Kilbane
|
89
Table of Contents
THE ANDERSONS, INC.
SCHEDULE II — CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
| Additions | ||||||||||||||||||||
| Transferred to | ||||||||||||||||||||
| Balance at | Charged to | Allowance for | Balance at | |||||||||||||||||
| (in thousands) | Beginning of | Costs and | Notes | (1) | End of | |||||||||||||||
| Description | Period | Expenses | Receivable | Deductions | Period | |||||||||||||||
| Allowance for Doubtful Accounts Receivable — Year ended December 31 | ||||||||||||||||||||
|
2010
|
$ | 8,753 | $ | 8,678 | $ | (101 | ) | $ | (11,646 | ) | $ | 5,684 | ||||||||
|
2009
|
13,584 | 4,973 | (7,889 | ) | (1,915 | ) | 8,753 | |||||||||||||
|
2008
|
4,545 | 8,710 | 31 | 298 | 13,584 | |||||||||||||||
|
|
||||||||||||||||||||
| Allowance for Doubtful Notes Receivable — Year ended December 31 | ||||||||||||||||||||
|
2010
|
$ | 7,950 | $ | 38 | $ | 101 | $ | (7,835 | ) | $ | 254 | |||||||||
|
2009
|
134 | — | 7,889 | (73 | ) | 7,950 | ||||||||||||||
|
2008
|
339 | — | (31 | ) | (174 | ) | 134 | |||||||||||||
| (1) | Uncollectible accounts written off, net of recoveries and adjustments to estimates for the allowance accounts. |
90
Table of Contents
THE ANDERSONS, INC.
EXHIBIT INDEX
| Exhibit | ||
| Number | ||
|
12
|
Computation of Ratio of Earnings to Fixed Charges | |
|
|
||
|
21
|
Consolidated Subsidiaries of The Andersons, Inc. | |
|
|
||
|
23.1
|
Consent of Independent Registered Public Accounting Firm | |
|
|
||
|
23.2
|
Consent of Independent Registered Public Accounting Firm | |
|
|
||
|
31.1
|
Certification of President and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) | |
|
|
||
|
31.2
|
Certification of Vice President, Controller and CIO under Rule 13(a)-14(a)/15d-14(a) | |
|
|
||
|
31.3
|
Certification of 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 |
91
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. (reserved)Part IIItem 5. Market For The Registrant S Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition andItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPart IIIItem 10. Directors and Executive Officers Of The RegistrantItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-k