XNAS:ANDE Andersons Inc Quarterly Report 10-Q Filing - 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 000-20557

 

 

THE ANDERSONS, INC.

(Exact name of the registrant as specified in its charter

 

 

 

OHIO   34-1562374

(State of incorporation

or organization)

 

(I.R.S. Employer

Identification No.)

 

480 W. Dussel Drive, Maumee, Ohio   43537
(Address of principal executive offices)   (Zip Code)

(419) 893-5050

(Telephone Number)

 

(Former name, former address and former fiscal year, if changed since last report.)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated Filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The registrant had approximately 18.6 million common shares outstanding, no par value, at April 30, 2011.

 

 

 


Table of Contents

THE ANDERSONS, INC.

INDEX

 

     Page No.  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets – March 31, 2012 December 31, 2011 and March  31, 2011

     3   

Condensed Consolidated Statements of Income – Three months ended March 31, 2012 and 2011

     5   

Condensed Consolidated Statements of Comprehensive Income – Three months ended March  31, 2012 and 2011

     6   

Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2012 and 2011

     7   

Condensed Consolidated Statements of Equity – Three months ended March 31, 2012 and 2011

     8   

Notes to Condensed Consolidated Financial Statements

     9   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     22   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     31   

Item 4. Controls and Procedures

     31   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     32   

Item 1A. Risk Factors

     32   

Item 5. Other Information

     32   

Item 6. Exhibits

     33   

 

2


Table of Contents

Part I. Financial Information

Item 1. Financial Statements

The Andersons, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)(In thousands)

 

     March 31,
2012
     December 31,
2011
     March 31,
2011
 

Assets

        

Current assets:

        

Cash and cash equivalents

   $ 31,874       $ 20,390       $ 22,320   

Restricted cash

     18,785         18,651         12,353   

Accounts receivable, net

     204,400         167,640         220,665   

Inventories

     787,646         760,459         775,017   

Commodity derivative assets – current

     33,845         83,950         178,767   

Deferred income taxes

     23,062         21,483         18,578   

Other current assets

     62,577         34,649         46,721   
  

 

 

    

 

 

    

 

 

 

Total current assets

     1,162,189         1,107,222         1,274,421   

Other assets:

        

Commodity derivative assets – noncurrent

     1,189         2,289         12,996   

Other assets, net

     68,311         53,327         47,819   

Equity method investments

     190,460         199,061         173,977   
  

 

 

    

 

 

    

 

 

 
     259,960         254,677         234,792   

Railcar assets leased to others, net

     215,023         197,137         169,189   

Property, plant and equipment, net

     187,584         175,087         150,262   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,824,756       $ 1,734,123       $ 1,828,664   
  

 

 

    

 

 

    

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

3


Table of Contents

The Andersons, Inc.

Condensed Consolidated Balance Sheets (continued)

(Unaudited)(In thousands)

 

     March 31,
2012
    December 31,
2011
    March 31,
2011
 

Liabilities and equity

      

Current liabilities:

      

Borrowings under short-term line of credit

   $ 365,000      $ 71,500      $ 460,000   

Accounts payable for grain

     115,236        391,905        90,442   

Other accounts payable

     173,254        142,762        145,685   

Customer prepayments and deferred revenue

     115,109        79,557        115,908   

Commodity derivative liabilities – current

     34,113        15,874        67,869   

Accrued expenses and other current liabilities

     45,994        60,445        42,119   

Current maturities of long-term debt

     30,342        32,208        42,783   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     879,048        794,251        964,806   

Other long-term liabilities

     44,950        43,014        25,759   

Commodity derivative liabilities – noncurrent

     2,352        1,519        110   

Employee benefit plan obligations

     53,080        52,972        29,946   

Long-term debt, less current maturities

     220,417        238,885        263,218   

Deferred income taxes

     68,051        64,640        63,727   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     1,267,898        1,195,281        1,347,566   

Commitments and contingencies (Note 11)

      

Shareholders’ equity:

      

Common shares, without par value (42,000 shares authorized at 3/31/12, 12/31/11 and 3/31/11; 19,198 shares issued)

     96        96        96   

Preferred shares, without par value (1,000 shares authorized; none issued)

     —          —          —     

Additional paid-in-capital

     179,783        179,463        176,848   

Treasury shares (570, 697 and 629 shares at 3/31/12, 12/31/11 and 3/31/11, respectively; at cost)

     (12,700     (14,997     (12,118

Accumulated other comprehensive loss

     (42,625     (43,090     (28,518

Retained earnings

     418,136        402,523        331,540   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity of The Andersons, Inc.

     542,690        523,995        467,848   

Noncontrolling interest

     14,168        14,847        13,250   
  

 

 

   

 

 

   

 

 

 

Total equity

     556,858        538,842        481,098   
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,824,756      $ 1,734,123      $ 1,828,664   
  

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

4


Table of Contents

The Andersons, Inc.

Condensed Consolidated Statements of Income

(Unaudited)(In thousands, except per share data)

 

    

Three months ended

March 31,

 
     2012     2011  

Sales and merchandising revenues

   $ 1,137,133      $ 1,001,674   

Cost of sales and merchandising revenues

     1,051,263        922,989   
  

 

 

   

 

 

 

Gross profit

     85,870        78,685   

Operating, administrative and general expenses

     60,100        53,707   

Interest expense

     5,330        7,336   

Other income:

    

Equity in earnings of affiliates

     4,283        7,246   

Other income, net

     3,246        2,306   
  

 

 

   

 

 

 

Income before income taxes

     27,969        27,194   

Income tax provision

     10,241        9,806   
  

 

 

   

 

 

 

Net income

     17,728        17,388   

Net income (loss) attributable to the noncontrolling interest

     (679     122   
  

 

 

   

 

 

 

Net income attributable to The Andersons, Inc.

   $ 18,407      $ 17,266   
  

 

 

   

 

 

 

Per common share:

    

Basic earnings attributable to The Andersons, Inc. common shareholders

   $ 0.99      $ 0.93   
  

 

 

   

 

 

 

Diluted earnings attributable to The Andersons, Inc. common shareholders

   $ 0.98      $ 0.93   
  

 

 

   

 

 

 

Dividends paid

   $ 0.1500      $ 0.1100   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

5


Table of Contents

The Andersons, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)(In thousands)

 

    

Three months ended

March 31,

 
     2012     2011  

Net income

   $ 17,728      $ 17,388   

Other comprehensive income, net of tax:

    

Unrecognized actuarial loss and prior service cost (net of income tax of $240 and $111)

     401        186   

Cash flow hedge activity (net of income tax of $38 and $57)

     64        95   
  

 

 

   

 

 

 

Other comprehensive income

     465        281   
  

 

 

   

 

 

 

Comprehensive income

     18,193        17,669   

Comprehensive income (loss) attributable to the noncontrolling interest

     (679     122   
  

 

 

   

 

 

 

Comprehensive income attributable to The Andersons, Inc.

   $ 18,872      $ 17,547   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

The Andersons, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)(In thousands)

 

    

Three months ended

March 31,

 
     2012     2011  

Operating Activities

    

Net income

   $ 17,728      $ 17,388   

Adjustments to reconcile net income to cash used in operating activities:

    

Depreciation and amortization

     10,495        9,884   

Bad debt expense

     634        2,437   

Cash distributions in excess of income of unconsolidated affiliates

     8,602        1,372   

Gains on sales of railcars and related leases

     (6,294     (4,766

Deferred income taxes

     (2,857     (854

Stock based compensation expense

     1,791        791   

Other

     150        (21

Changes in operating assets and liabilities:

    

Accounts and notes receivable

     (35,215     (70,469

Inventories

     (25,093     (127,828

Commodity derivatives

     70,277        79,903   

Other assets

     141        (11,109

Accounts payable for grain

     (276,669     (184,154

Other accounts payable and accrued expenses

     49,303        65,672   
  

 

 

   

 

 

 

Net cash used in operating activities

     (187,007     (221,754
  

 

 

   

 

 

 

Investing Activities

    

Purchase of treasury bills

     (19,996     —     

Acquisition of business, net of cash acquired

     (15,286     —     

Purchases of railcars

     (33,414     (10,814

Proceeds from sale of railcars

     10,206        9,159   

Purchases of property, plant and equipment

     (15,014     (4,162

Proceeds from sale of property, plant and equipment

     508        64   

Change in restricted cash

     (134     (219
  

 

 

   

 

 

 

Net cash used in investing activities

     (73,130     (5,972
  

 

 

   

 

 

 

Financing Activities

    

Net change in short-term borrowings

     293,500        218,900   

Proceeds from issuance of long-term debt

     6,935        22,957   

Payments of long-term debt

     (27,269     (18,305

Proceeds from sale of treasury shares to employees and directors

     1,244        123   

Payments of debt issuance costs

     (9     (815

Dividends paid

     (2,780     (2,033
  

 

 

   

 

 

 

Net cash provided by financing activities

     271,621        220,827   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     11,484        (6,899

Cash and cash equivalents at beginning of period

     20,390        29,219   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 31,874      $ 22,320   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

The Andersons, Inc.

Condensed Consolidated Statements of Equity

(Unaudited)(In thousands, except per share data)

 

     The Andersons, Inc. Shareholders’ Equity              
     Common
Shares
     Additional
Paid-in
Capital
    Treasury
Shares
    Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Noncontrolling
Interest
    Total  

Balance at December 31, 2010

   $ 96       $ 177,875      $ (14,058   $ (28,799   $ 316,317      $ 13,128      $ 464,559   

Net income

              17,266        122        17,388   

Other comprehensive income

            281            281   

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $531 (133 shares)

        (1,027     1,940              913   

Dividends declared ($0.11 per common share)

              (2,043       (2,043
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

   $ 96       $ 176,848      $ (12,118   $ (28,518   $ 331,540      $ 13,250      $ 481,098   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

   $ 96       $ 179,463      $ (14,997   $ (43,090   $ 402,523      $ 14,847      $ 538,842   

Net income

              18,407        (679     17,728   

Other comprehensive income

            465            465   

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $419 (127 shares)

        320        2,297              2,617   

Dividends declared ($0.15 per common share)

              (2,794       (2,794
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 96       $ 179,783      $ (12,700   $ (42,625   $ 418,136      $ 14,168      $ 556,858   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

8


Table of Contents

The Andersons, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation and Consolidation

These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled 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. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012.

The year-end Condensed Consolidated Balance Sheet data at December 31, 2011 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A Condensed Consolidated Balance Sheet as of March 31, 2011 has been included as the Company operates in several seasonal industries.

The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”).

2. Inventories

Major classes of inventories are as follows:

 

(in thousands)    March 31,
2012
     December 31,
2011
     March 31,
2011
 

Grain

   $ 589,039       $ 570,337       $ 558,467   

Ethanol and by-products

     4,416         5,461         4,768   

Agricultural fertilizer and supplies

     129,186         118,716         153,559   

Lawn and garden fertilizer and corncob products

     30,017         37,001         27,396   

Retail merchandise

     31,681         25,612         27,800   

Railcar repair parts

     2,992         3,063         2,715   

Other

     315         269         312   
  

 

 

    

 

 

    

 

 

 
   $ 787,646       $ 760,459       $ 775,017   
  

 

 

    

 

 

    

 

 

 

 

9


Table of Contents

3. Property, Plant and Equipment

The components of property, plant and equipment are as follows:

 

(in thousands)    March 31,
2012
     December 31,
2011
     March 31,
2011
 

Land

   $ 17,171       $ 17,655       $ 15,424   

Land improvements and leasehold improvements

     48,587         47,958         45,359   

Buildings and storage facilities

     153,666         150,461         142,017   

Machinery and equipment

     196,434         191,833         183,568   

Software

     10,949         10,861         10,549   

Construction in progress

     20,888         13,006         2,734   
  

 

 

    

 

 

    

 

 

 
     447,695         431,774         399,651   

Less accumulated depreciation and amortization

     260,111         256,687         249,389   
  

 

 

    

 

 

    

 

 

 
   $ 187,584       $ 175,087       $ 150,262   
  

 

 

    

 

 

    

 

 

 

Depreciation expense on property, plant and equipment amounted to $5.5 million, $20.4 million and $4.9 million for the periods ended March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

Railcars

The components of Railcar assets leased to others are as follows:

 

(in thousands)    March 31,
2012
     December 31,
2011
     March 31,
2011
 

Railcar assets leased to others

   $ 293,081       $ 272,883       $ 236,285   

Less accumulated depreciation

     78,058         75,746         67,096   
  

 

 

    

 

 

    

 

 

 
   $ 215,023       $ 197,137       $ 169,189   
  

 

 

    

 

 

    

 

 

 

Depreciation expense on railcar assets leased to others amounted to $3.9 million, $13.8 million and $3.3 million for the periods ended March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

4. Derivatives

The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, 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 commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. The exchange traded contracts are primarily via the regulated Chicago Mercantile Exchange. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

 

10


Table of Contents

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 accounts for its commodity derivatives at estimated fair value, the same method it uses to value its grain inventory. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. 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. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.

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.

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 margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Consolidated Balance Sheets.

The following table presents at March 31, 2012, December 31, 2011 and March 31, 2011, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within short-term commodity derivative assets (or liabilities) on the Consolidated Balance Sheets:

 

     March 31, 2012     December 31, 2011      March 31, 2011  
(in thousands)    Net
derivative
asset
position
     Net
derivative
liability

position
    Net
derivative
asset
position
    Net
derivative
liability
position
     Net
derivative
asset
position
     Net
derivative
liability
position
 

Collateral paid

   $ —         $ 7,289      $ 66,870      $ —         $ —         $ 46,305   

Fair value of derivatives

     —           (19,578     (20,480     —           —           (87,125
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ —         $ (12,289   $ 46,390      $ —         $ —         $ (40,820
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.2 million, $1.0 million, and $91.7 million as of March 31, 2012, December 31, 2011, and March 31, 2011, respectively. In addition, there were $20.0 million in treasury bills posted as collateral on our derivative contracts as of March 31, 2012. The treasury bills have maturities greater than 90 days and are classified in Other current assets on the Condensed Consolidated Balance Sheets.

 

11


Table of Contents

The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the three months ended March 31, 2012 and 2011 are as follows:

 

     Three months ended
March 31,
 
(in thousands)    2012     2011  

Gains (losses) on commodity derivatives included in sales and merchandising revenues

   $ (3,657   $ 1,278   

At March 31, 2012, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):

 

Commodity

   Number of bushels
(in thousands)
     Number of gallons
(in thousands)
     Number of pounds
(in thousands)
     Number of tons
(in thousands)
 

Non-exchange traded:

           

Corn

     249,893         —           —           —     

Soybeans

     23,214         —           —           —     

Wheat

     16,179         —           —           —     

Oats

     10,971         —           —           —     

Ethanol

     —           176,818         —           —     

Corn oil

     —           —           66,684         —     

Other

     —           —           —           62   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     300,257         176,818         66,684         62   
  

 

 

    

 

 

    

 

 

    

 

 

 

Exchange traded:

           

Corn

     110,250         —           —           —     

Soybeans

     33,410         —           —           —     

Wheat

     46,855         —           —           —     

Oats

     3,035         —           —           —     

Bean oil

     —           —           18,000         —     

Ethanol

     —           840         —           —     

Other

     —           10         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     193,550         850         18,000         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     493,807         177,668         84,684         62   
  

 

 

    

 

 

    

 

 

    

 

 

 

5. Earnings Per Share

Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are 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 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.

 

12


Table of Contents
(in thousands except per common share data)   

Three months ended

March 31,

 
   2012      2011  

Net income attributable to The Andersons, Inc.

   $ 18,407       $ 17,266   

Less: Distributed and undistributed earnings allocated to nonvested restricted stock

     46         51   
  

 

 

    

 

 

 

Earnings available to common shareholders

   $ 18,361       $ 17,215   

Earnings per share – basic:

     

Weighted average shares outstanding – basic

     18,502         18,454   
  

 

 

    

 

 

 

Earnings per common share – basic

   $ 0.99       $ 0.93   
  

 

 

    

 

 

 

Earnings per share – diluted:

     

Weighted average shares outstanding – basic

     18,502         18,454   

Effect of dilutive awards

     151         142   
  

 

 

    

 

 

 

Weighted average shares outstanding – diluted

     18,653         18,596   
  

 

 

    

 

 

 

Earnings per common share – diluted

   $ 0.98       $ 0.93   
  

 

 

    

 

 

 

There were no antidilutive stock-based awards outstanding at March 31, 2012 or 2011.

6. Employee Benefit Plans

Included as charges against income for the three months ended March 31, 2012 and 2011 are the following amounts for pension and postretirement benefit plans maintained by the Company:

 

     Pension Benefits  
(in thousands)   

Three months ended

March 31,

 
   2012     2011  

Service cost

   $ —        $ —     

Interest cost

     1,143        1,126   

Expected return on plan assets

     (1,539     (1,560

Recognized net actuarial loss

     450        223   
  

 

 

   

 

 

 

Benefit cost (income)

   $ 54      $ (211
  

 

 

   

 

 

 

 

     Postretirement Benefits  
(in thousands)   

Three months ended

March 31,

 
   2012     2011  

Service cost

   $ 192      $ 141   

Interest cost

     333        318   

Amortization of prior service cost

     (136     (136

Recognized net actuarial loss

     327        209   
  

 

 

   

 

 

 

Benefit cost

   $ 716      $ 532   
  

 

 

   

 

 

 

7. Segment Information

The Company’s operations include six reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investment in Lansing Trade Group, LLC (“LTG”). The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited

 

13


Table of Contents

liability companies (“ethanol LLCs”) in which the Company has investments and various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers. Turf & Specialty operations include the production and distribution of turf care and corncob-based products. The Retail business 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 segment.

 

     Three months ended
March 31,
 
     2012      2011  
(in thousands)              

Revenues from external customers

     

Grain

   $ 699,861       $ 637,967   

Ethanol

     150,670         132,748   

Plant Nutrient

     175,360         123,649   

Rail

     35,859         28,910   

Turf & Specialty

     45,127         47,270   

Retail

     30,256         31,130   

Other

     —           —     
  

 

 

    

 

 

 

Total

   $ 1,137,133       $ 1,001,674   
  

 

 

    

 

 

 

 

$699,861 $699,861
     Three months ended
March 31,
 
(in thousands)    2012      2011  

Inter-segment sales

     

Grain

   $ 1       $ 1   

Ethanol

     —           —     

Plant Nutrient

     3,083         5,385   

Rail

     203         189   

Turf & Specialty

     976         705   

Retail

     —           —     

Other

     —           —     
  

 

 

    

 

 

 

Total

   $ 4,263       $ 6,280   
  

 

 

    

 

 

 

 

$699,861 $699,861
     Three months ended
March 31,
 
(in thousands)    2012     2011  

Interest expense (income)

    

Grain

   $ 3,252      $ 4,840   

Ethanol

     24        412   

Plant Nutrient

     710        843   

Rail

     1,178        1,447   

Turf & Specialty

     356        449   

Retail

     196        260   

Other

     (386     (915
  

 

 

   

 

 

 

Total

   $ 5,330      $ 7,336   
  

 

 

   

 

 

 

 

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$27,969 $27,969
    

Three months ended

March 31,

 
(in thousands)    2012     2011  

Equity in earnings (loss) of affiliates

    

Grain

   $ 5,952      $ 6,230   

Ethanol

     (1,671     1,014   

Plant Nutrient

     2        2   

Rail

     —          —     

Turf & Specialty

     —          —     

Retail

     —          —     

Other

     —          —     
  

 

 

   

 

 

 

Total

   $ 4,283      $ 7,246   
  

 

 

   

 

 

 

 

$27,969 $27,969
     Three months ended
March 31,
 
(in thousands)    2012      2011  

Other income, net

     

Grain

   $ 827       $ 580   

Ethanol

     16         58   

Plant Nutrient

     118         125   

Rail

     776         753   

Turf & Specialty

     201         290   

Retail

     124         156   

Other

     1,184         344   
  

 

 

    

 

 

 

Total

   $ 3,246       $ 2,306   
  

 

 

    

 

 

 

 

     Three months ended
March 31,
 
(in thousands)    2012     2011  

Income (loss) before income taxes

    

Grain

   $ 19,435      $ 15,101   

Ethanol

     121        3,571   

Plant Nutrient

     5,828        5,114   

Rail

     8,018        3,546   

Turf & Specialty

     2,202        3,278   

Retail

     (2,749     (2,664

Other

     (4,207     (874

Noncontrolling interest

     (679     122   
  

 

 

   

 

 

 

Total

   $ 27,969      $ 27,194   
  

 

 

   

 

 

 

8. Related Party Transactions

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.

 

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The following table presents the Company’s investment balance in each of its equity method investees by entity:

 

(in thousands)    Three months ended
March 31,

2012
     Year ended
December 31,
2011
     Three months ended
March 31,

2011
 

The Andersons Albion Ethanol LLC

   $ 31,463       $ 32,829       $ 29,931   

The Andersons Clymers Ethanol LLC

     38,880         40,001         37,323   

The Andersons Marathon Ethanol LLC

     39,322         43,019         35,424   

Lansing Trade Group, LLC

     78,754         81,209         69,500   

Other

     2,041         2,003         1,799   
  

 

 

    

 

 

    

 

 

 

Total

   $ 190,460       $ 199,061       $ 173,977   
  

 

 

    

 

 

    

 

 

 

The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.

The following table summarizes income (losses) earned from the Company’s equity method investments by entity:

 

(in thousands)    % ownership at
March 31, 2012
(direct and indirect)
 

Three months ended

March 31,

 
     2012     2011  

The Andersons Albion Ethanol LLC

   50%   $ 634      $ 384   

The Andersons Clymers Ethanol LLC

   38%     (358     136   

The Andersons Marathon Ethanol LLC

   50%     (1,947     495   

Lansing Trade Group, LLC

   51% *     5,916        6,166   

Other

   7%-33%     38        65   
    

 

 

   

 

 

 

Total

     $ 4,283      $ 7,246   
    

 

 

   

 

 

 

 

* This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%.

Total distributions received from unconsolidated affiliates were $12.9 million for the first quarter of 2012.

While the Company holds a majority of the outstanding shares of LTG, 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 LTG operating agreement, 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 the first quarter of 2012, LTG qualified as a significant subsidiary of the Company under the income test. The following table presents the required summarized unaudited financial information of this investment for the three months ended March 31, 2012 and 2011:

 

(in thousands)   

Three months ended

March 31,

 
   2012      2011  

Sales

   $ 1,677,215       $ 1,495,861   

Gross profit

     34,504         36,535   

Income from continuing operations

     13,131         14,521   

Net income

     13,115         13,533   

Net income attributable to LTG

     12,235         12,090   

 

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Investment in Debt Securities

The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. 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 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 May 2015. 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 Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of March 31, 2012 was $20.4 million.

Based on the Company’s assessment, IANR is considered a variable interest entity (“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 $22.7 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $2.3 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.

Related Party Transactions

In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:

 

(in thousands)   

Three months ended

March 31,

 
   2012      2011  

Sales revenues

   $ 193,061       $ 182,870   

Service fee revenues (a)

     5,479         5,167   

Purchases of product

     148,809         128,997   

Lease income (b)

     1,878         1,252   

Labor and benefits reimbursement (c)

     2,741         2,773   

Other expenses (d)

     139         19   

Accounts receivable at March 31 (e)

     12,544         21,879   

Accounts payable at March 31 (f)

     21,677         21,035   

 

(a) Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.
(b) 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.
(c) 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.
(d) Other expenses include payments to IANR for repair shop rent and use of their railroad reporting mark, as well as payment to LTG for the lease of railcars.
(e) Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.
(f) Accounts payable represents amounts due to related parties for purchases of ethanol.

 

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For the quarters ended March 31, 2012 and 2011, revenues recognized for the sale of ethanol that the Company purchased from the ethanol LLCs were $143.0 million and $158.0 million, respectively. For the quarters ended March 31, 2012 and 2011, revenues recognized for the sale of corn to the ethanol LLCs under these agreements were $179.1 million and $146.7 million, respectively.

From time to time, the Company enters into derivative contracts with certain of its related parties, including the ethanol LLCs and LTG, for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contracts with related parties was a gross asset for the periods ended March 31, 2012, December 31, 2011 and March 31, 2011 of $2.4 million, $0.6 million, and $18.2 million, respectively. The fair value of derivative contracts with related parties was a gross liability for the periods ended March 31, 2012, December 31, 2011 and March 31, 2011 of $0.9 million, $1.9 million, and $10.9 million, respectively.

9. Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2012, December 31, 2011 and March 31, 2011:

 

$112,0860 $112,0860 $112,0860 $112,0860
(in thousands)    March 31, 2012  

Assets (liabilities)

   Level 1     Level 2     Level 3      Total  

Cash equivalents

   $ 10,623      $ —        $ —         $ 10,623   

Restricted cash

     18,785        —          —           18,785   

Short term investments

     19,996        —          —           19,996   

Commodity derivatives, net

     (12,280     10,849        —           (1,431

Convertible preferred securities (b)

     —          —          20,360         20,360   

Other assets and liabilities (a)

     7,211        (2,085     —           5,126   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 44,335      $ 8,764      $ 20,360       $ 73,459   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

$112,0860 $112,0860 $112,0860 $112,0860
(in thousands)    December 31, 2011  

Assets (liabilities)

   Level 1      Level 2      Level 3     Total  

Cash equivalents

   $ 183       $ —         $ —        $ 183   

Restricted cash

     18,651         —           —          18,651   

Commodity derivatives, net

     43,503         22,876         2,467        68,846   

Convertible preferred securities (b)

     —           —           20,360        20,360   

Other assets and liabilities (a)

     6,224         —           (2,178     4,046   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 68,561       $ 22,876       $ 20,649      $ 112,086   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

$112,0860 $112,0860 $112,0860 $112,0860
(in thousands)    March 31, 2011  

Assets (liabilities)

   Level 1     Level 2      Level 3     Total  

Cash equivalents

   $ 10,597      $ —         $ —        $ 10,597   

Restricted cash

     12,353        —           —          12,353   

Commodity derivatives, net

     (13,486     122,287         14,983        123,784   

Convertible preferred securities (b)

     —          —           15,790        15,790   

Other assets and liabilities (a)

     6,291        —           (1,502     4,789   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 15,755      $ 122,287       $ 29,271      $ 167,313   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions and deferred compensation assets.
(b) Recorded in “Other noncurrent assets” on the Company’s Consolidated Balance Sheets

 

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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 futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) 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 CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that “basis” is a “Level 2” fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. 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.

The Company’s convertible preferred securities are measured at fair value using a combination of the income and market approaches on an annual basis. Specifically, the income approach incorporates the use of the Discounted Cash Flow method, whereas the Market Approach incorporates the use of the Guideline Public Company method. Application of the Discounted Cash Flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future. The assumptions input into this method are estimated annual cash flows for a specified estimation period, the discount rate, and the terminal value at the end of the estimation period. In the Guideline Public Company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. A comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.

A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:

 

     2012     2011  
(in thousands)    Interest
rate

derivatives
and
swaptions
    Convertible
preferred
securities
     Commodity
derivatives,
net
    Interest
rate

derivatives
and
swaptions
    Convertible
preferred
securities
     Commodity
derivatives,
net
 

Asset (liability) at December 31,

   $ (2,178   $ 20,360       $ 2,467      $ (2,156   $ 15,790       $ 12,406   

Gains (losses) included in earnings:

              

New contracts

     —          —           —          —          —           442   

Change in market prices

     —          —           —          (2     —           1,877   

Settled contracts

     —          —           —          —          —           (2,242

Unrealized gains (losses) included in other comprehensive income

     —          —           —          149        —           —     

New contracts entered into

     —          —           —          507        —           —     

Transfers to level 2

     2,178        —           (2,467     —          —           —     

Transfers from level 2

     —          —           —          —          —           2,500   

Asset (liability) at March 31,

   $ —        $ 20,360       $ —        $ (1,502   $ 15,790       $ 14,983   

 

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Fair Value of Financial Instruments

The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered “Level 2” in the fair value hierarchy.

 

(in thousands)    March 31,
2012
     December 31,
2011
 

Fair value of long-term debt

   $ 259,280       $ 279,001   

Fair value in excess of carrying value

     8,520         7,908   

The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.

10. Debt

The Company is party to borrowing arrangements with a syndicate of banks. See Note 10 in the Company’s 2011 Form 10-K for a complete description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $850 million. At March 31, 2012, the Company had a total of $449.9 million available for borrowing under its lines of credit.

The Company’s long-term debt at March 31, 2012, December 31, 2011 and March 31, 2011 consisted of the following:

 

(in thousands)    March 31,
2012
     December 31,
2011
     March 31,
2011
 

Current maturities of long -term debt – nonrecourse

   $ 160       $ 157       $ 2,835   

Current maturities of long-term debt – recourse

     30,182         32,051         39,948   
  

 

 

    

 

 

    

 

 

 

Total current maturities of long-term debt

   $ 30,342       $ 32,208       $ 42,783   
  

 

 

    

 

 

    

 

 

 

Long-term debt, less current maturities – nonrecourse

   $ 755       $ 797       $ 12,414   

Long-term debt, less current maturities – recourse

     219,662         238,088         250,804   
  

 

 

    

 

 

    

 

 

 

Total long-term debt, less current maturities

   $ 220,417       $ 238,885       $ 263,218   
  

 

 

    

 

 

    

 

 

 

11. Commitments and Contingencies

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 reserves are taken into income and, conversely, if those cases are resolved for larger than the amount 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. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time, or may result in continued reserves to account for the potential of such post-verdict actions.

 

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The estimated range of loss for all outstanding claims that are considered reasonably possible of occurring is not significant. There are several pending claims for which the question of loss or the range of loss cannot be estimated at this time, among them the investigation of the Maumee River in Toledo, Ohio discussed in Item 1. Legal Proceedings of this Form 10-Q.

In 2011, the Company received a trial verdict in the amount of $3.2 million in a civil suit, for which both the Company and the defendant have subsequently filed appeals. No income has been recorded to-date due to uncertainty of the final amount and overall collectibility of any amount against the defendant.

12. Business Acquisition

On January 31, 2012, the Company purchased 100% of the stock of New Eezy Gro, Inc. (“NEG”) for a purchase price of $16.8 million. New Eezy Gro is a manufacturer and wholesale marketer of specialty agricultural nutrients and industrial products.

The summarized preliminary purchase price allocation is as follows:

 

(in thousands)       

Current assets

   $ 5,106   

Intangible assets

     9,600   

Goodwill

     6,681   

Property, plant and equipment

     3,586   

Current liabilities

     (3,784

Deferred tax liability, net

     (4,412
  

 

 

 

Total purchase price

   $ 16,777   
  

 

 

 

The goodwill recognized as a result of the NEG acquisition is $6.7 million and is included in the Plant Nutrient reportable segment. The goodwill relates to the value of proprietary products and processes as well as an assembled workforce.

Details of the intangible assets acquired are as follows:

 

(in thousands)    Fair
Value
     Useful
Life
 

Trademarks

   $ 1,200         10 years   

Customer list

     5,500         10 years   

Technology

     2,100         5 years   

Noncompete agreement

     800         7 years   
  

 

 

    

Total identifiable intangible assets

   $ 9,600      
  

 

 

    

13. Subsequent Events

On May 1, 2012, the Company and its subsidiary, The Andersons Denison Ethanol LLC (“TADE”) completed the purchase of an ethanol production facility in Denison, Iowa for a purchase price of $68 million plus an adjustment for working capital which was not yet available. Previously owned by Amaizing Energy Denison LLC and Amaizing Energy Holding Company, LLC, the operations consist of an ethanol facility with an adjacent 2.7 million bushel grain terminal, with direct access to two Class 1 railroads in Iowa. TADE has been organized to provide investment opportunity for the Company and potential outside investors. The Company will own the grain terminal, manage TADE, and provide grain origination, risk management, and DDG and ethanol marketing services. The Company currently owns a controlling interest of 85 percent of TADE, and therefore will include TADE’s results of operations in its consolidated financial statements beginning with the period ending June 30, 2012. The purchase price allocation was not available at the time of the filing of this Form 10-Q.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”). In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates

Our critical accounting policies and critical accounting estimates, as described in our 2011 Form 10-K, have not materially changed during the first three months of 2012.

Executive Overview

Grain Business

Our Grain business operates grain elevators in various states, primarily in the U.S. Corn Belt. In addition to storage, merchandising and grain trading, Grain performs marketing, risk management, and corn origination services to its customers and affiliated ethanol production facilities. Grain is a significant investor in Lansing Trade Group, LLC (“LTG”), an established commodity trading, grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices.

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 business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income.

Grain inventories on hand at March 31, 2012 were 75.7 million bushels, of which 0.3 million bushels were stored for others. This compares to 72.7 million bushels on hand at March 31, 2011, of which 1.8 million bushels were stored for others.

Total storage capacity is approximately 109.0 million bushels as of March 31, 2012. We are currently constructing a grain shuttle loader facility in Anselmo, Nebraska. The 3.8 million bushel capacity grain elevator will primarily handle corn and soybeans and is expected to open in the fall of 2012.

Wheat conditions for 2012, as tracked by the USDA, for unharvested crops, are better than 2011 at this time with 68%, on average, rated as good to excellent for the five states where the Company has facilities. The primary harvest period for winter wheat is in the month of July.

 

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Driven by favorable prices, the USDA expects U.S. farmers to plant a 75-year-high 96 million acres of corn in 2012, a 4% increase from 2011. U.S. soybean growers are expected to plant 74 million acres in 2012, down 1% from last year. A warm and relatively dry winter has allowed for some early planting, increasing prospects for a return to favorable crop yields. Weather patterns in the Midwest during the important agricultural planting and growing season will strongly contribute to the success of the base grain business.

Ethanol Business

Our Ethanol business holds investments in the three ethanol production facilities. The business also offers facility operations, risk management, and ethanol, corn oil and distillers dried grains (“DDG”) marketing to the ethanol plants it operates as well as third parties.

As is typical for this time of year, forward margins for ethanol are at break-even to negative levels due primarily to a decrease in demand for ethanol, and corn prices that reflect lower than typical stocks. There is not a significant amount of future production contracted for sale nor are required inputs contracted for. This puts the ethanol inventory at risk for potential market losses due to ongoing volatility in corn, DDG and ethanol prices.

Our Ethanol business’s investments in the three ethanol LLCs had lower results for the first quarter of 2012 compared to the same period in 2011 due to the decline in ethanol margins. With the current price volatility of various inputs, if the weather is not optimal as we move into the crop season, there could be adverse impacts on gross profit in future quarters. However, the indications are positive for the fourth quarter with expectations of a record corn crop.

Ethanol gallons shipped for the quarters ended March 31, 2012 and 2011 were 59.1 million and 58.9 million, respectively. DDG tons shipped by the Ethanol LLCs for the quarters ended March 31, 2012 and 2011 were 0.2 million for each period. Corn oil pounds shipped for the quarters ended March 31, 2012 and 2011 were 9.1 million and 1.7 million, respectively. E-85 gallons shipped for the quarters ended March 31, 2012 and 2011 were 4.1 million and 2.9 million, respectively.

On May 1, 2012, the Company’s subsidiary, The Andersons Denison Ethanol LLC (“TADE”), completed the purchase of an ethanol facility in Denison, Iowa which has an adjacent 2.7 million bushel grain terminal, with direct access to two Class 1 railroads in Iowa. Our Ethanol Group will manage TADE, and provide grain origination, risk management, and DDG and ethanol marketing services for the ethanol facility.

Plant Nutrient Business

Our Plant Nutrient business is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt and Florida. It operates facilities in the Midwest, Florida and Puerto Rico. The Plant Nutrient Group provides warehousing, packaging and manufacturing services to basic manufacturers and other distributors. The business 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 business principally contain nitrogen, phosphate, potassium and sulfur.

Volume was strong in the first quarter, particularly in the month of March due to unusually warm weather which allowed for above normal nutrient application. With anticipated corn acreage of 96 million to be planted this spring, we expect the demand for nutrients to be significant through the second quarter, however the impact that potentially lower future corn prices will have on nutrient demand and price is uncertain.

 

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Storage capacity at our wholesale nutrient and farm center facilities was approximately 433,000 tons for dry nutrients and approximately 390,000 tons for liquid nutrients at March 31, 2012.

Fertilizer tons (including sales and service tons) for the quarters ended March 31, 2012 and 2011 were 441,000 and 365,000, respectively.

On January 31, 2012, we announced the purchase of 100% of the stock of New Eezy Gro, Inc., an Ohio based manufacturer and wholesale marketer of specialty agricultural nutrients and industrial products.

Rail Business

Our Rail business buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The business also provides fleet management services to fleet owners. Rail has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives.

Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at March 31, 2012 were 22,963 compared to 22,236 at March 31, 2011. The average utilization rate (railcars and locomotives under management that are in lease services, exclusive of railcars managed for third party investors) has increased from 82.4% for the quarter ended March 31, 2011 to 85.7% for the quarter ended March 31, 2012.

In the first quarter, Rail had gains on sales of railcars and related leases in the amount of $6.3 million compared to $4.8 million in the prior year.

Turf & Specialty Business

Our Turf & Specialty business produces granular fertilizer products for the professional lawn care and golf course markets. It also sells consumer fertilizer and weed and turf pest 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 weed and turf pest control products. Turf & Specialty is one of a limited number of processors of corncob-based products in the United States. These products primarily serve the weed and turf pest control 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.

Retail Business

Our Retail business includes large retail stores operated as “The Andersons” and a specialty food market operated as “The Andersons Market”. It 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. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The Retail Group continues to work on new departments and products to maximize the profitability.

Other

Our “Other” business segment 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.

 

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Operating Results

The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Income with a separate discussion by segment. Additional segment information is included in the Notes to the Condensed Consolidated Financial Statements herein in Note 7. Segment Information.

 

    

Three months ended

March 31,

 
(in thousands)    2012     2011  

Sales and merchandising revenues

   $ 1,137,133      $ 1,001,674   

Cost of sales and merchandising revenues

     1,051,263        922,989   
  

 

 

   

 

 

 

Gross profit

     85,870        78,685   

Operating, administrative and general expenses

     60,100        53,707   

Interest expense

     5,330        7,336   

Equity in earnings of affiliates

     4,283        7,246   

Other income, net

     3,246        2,306   
  

 

 

   

 

 

 

Income before income taxes

     27,969        27,194   

Income (loss) attributable to noncontrolling interest

     (679     122   
  

 

 

   

 

 

 

Operating income

   $ 28,648      $ 27,072   
  

 

 

   

 

 

 

Comparison of the three months ended March 31, 2012 with the three months ended March 31, 2011:

Grain Group

 

    

Three months ended

March 31,

 
(in thousands)    2012      2011  

Sales and merchandising revenues

   $ 699,861       $ 637,967   

Cost of sales and merchandising revenues

     667,260         606,675   
  

 

 

    

 

 

 

Gross profit

     32,601         31,292   

Operating, administrative and general expenses

     16,693         18,161   

Interest expense

     3,252         4,840   

Equity in earnings of affiliates

     5,952         6,230   

Other income, net

     827         580   
  

 

 

    

 

 

 

Operating income

   $ 19,435       $ 15,101   
  

 

 

    

 

 

 

Operating income for our Grain Group increased $4.3 million over the results from the same period last year. Sales and merchandising revenues increased $61.9 million. Sales of grain increased $53.0 million in the first quarter of 2012 compared to the first quarter of 2011 due primarily to a 4% increase in volume and a 5% increase in the average price per bushel sold. While the average price per bushel of corn increased by approximately 7.4%, the average price per bushel decreased for soybeans, wheat and oats. Gross profit increased $1.3 million over the first quarter of 2011 and primarily relates to improved margins driven by price.

Operating expenses for Grain decreased $1.6 million over the same period in 2011 and is attributed to lower bad debt expense compared to the prior year. In 2011, the Company took a charge to income for a specific account which was subsequently reversed in the fourth quarter of 2011 and fully collected in 2012 upon liquidation.

Interest expense decreased $1.6 million from the same period in 2011 as margin call requirements on commodity derivative contracts were lower. Equity in earnings of affiliates and other income did not change significantly quarter over quarter.

 

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Ethanol Group

 

    

Three months ended

March 31,

 
(in thousands)    2012     2011  

Sales and merchandising and service fee revenues

   $ 150,670      $ 132,748   

Cost of sales and merchandising revenues

     147,897        128,283   
  

 

 

   

 

 

 

Gross profit

     2,773        4,465   

Operating, administrative and general expenses

     1,652        1,432   

Interest expense

     24        412   

Equity in earnings (loss) of affiliates

     (1,671     1,014   

Other income, net

     16        58   
  

 

 

   

 

 

 

Income (loss) before income taxes

     (558     3,693   

Income (loss) attributable to noncontrolling interest

     (679     122   
  

 

 

   

 

 

 

Operating income

   $ 121      $ 3,571   
  

 

 

   

 

 

 

Operating results for our Ethanol Group decreased $3.5 million over the results from the same period last year. Sales and merchandising and service fee revenues increased $17.9 million mainly due to a 10.9% increase in the average price per gallon sold. Gross profit decreased $1.7 million compared to the first quarter of 2011 primarily due to mark to market loss in certain hedges (where a gain was recorded in 2011).

There were no significant changes in operating expenses, interest expense or other income.

Equity in earnings of affiliates decreased $2.7 million over the same period in 2011 and relates to income (loss) from the investment in three ethanol LLCs. During the quarter, ethanol margins were lower as a result of increased industry production and lower demand led by declining exports.

Plant Nutrient Group

 

    

Three months ended

March 31,

 
(in thousands)    2012      2011  

Sales and merchandising revenues

   $ 175,360       $ 123,649   

Cost of sales and merchandising revenues

     154,042         105,565   
  

 

 

    

 

 

 

Gross profit

     21,318         18,084   

Operating, administrative and general expenses

     14,900         12,254   

Interest expense

     710         843   

Equity in earnings of affiliates

     2         2   

Other income, net

     118         125   
  

 

 

    

 

 

 

Operating income

   $ 5,828       $ 5,114   
  

 

 

    

 

 

 

Operating results for our Plant Nutrient Group increased $0.7 million over the same period last year. Sales increased $51.7 million due primarily to a 14% increase in the average price per ton sold as well as a 24% increase in sales volume driven by warmer and dry weather allowing for early nutrient application in much of the area that we supply. Gross profit increased $3.2 million primarily as a result of the volume increase previously noted.

Operating expenses increased $2.6 million over the same period last year primarily due to an increase in labor and benefits, as well as a $0.5 million asset impairment charge. There were no significant changes in interest expense, equity in earnings of affiliates and other income.

 

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Rail Group

 

    

Three months ended

March 31,

 
(in thousands)    2012      2011  

Sales and merchandising revenues

   $ 35,859       $ 28,910   

Cost of sales and merchandising revenues

     23,294         21,793   
  

 

 

    

 

 

 

Gross profit

     12,565         7,117   

Operating, administrative and general expenses

     4,145         2,877   

Interest expense

     1,178         1,447   

Other income, net

     776         753   
  

 

 

    

 

 

 

Operating income

   $ 8,018       $ 3,546   
  

 

 

    

 

 

 

Operating results for our Rail Group improved by $4.5 million compared to the results from the same period last year. Leasing revenues have increased $3.8 million, car sales increased $1.4 million, and repair sales increased $1.7 quarter over quarter.

Gross profit increased $5.4 million over the first quarter of 2011. Gross profit on car sales increased $1.5 million and is attributable to more cars sold at a higher margin. Gross profit from the leasing business increased $2.7 million due to higher average lease rates.

Operating expenses increased $1.3 million over the first quarter of 2011 due primarily to higher labor, benefits and rent expense due to an increase in the volume of work at new and existing repair shops.

Interest expenses and other income did not change significantly compared to the same period last year.

Turf & Specialty Group

 

    

Three months ended

March 31,

 
(in thousands)    2012      2011  

Sales and merchandising revenues

   $ 45,127       $ 47,270   

Cost of sales and merchandising revenues

     37,128         38,494   
  

 

 

    

 

 

 

Gross profit

     7,999         8,776   

Operating, administrative and general expenses

     5,642         5,339   

Interest expense

     356         449   

Other income, net

     201         290   
  

 

 

    

 

 

 

Operating income

   $ 2,202       $ 3,278   
  

 

 

    

 

 

 

Operating results for our Turf & Specialty Group decreased $1.1 million compared to the results of the same period last year. Sales decreased $2.1 million and are primary related to the decrease in sales of the lawn fertilizer business due to a 5.2% decrease in the average price per ton sold. Gross profit decreased $0.8 million compared to the same period last year. Gross profit in the lawn fertilizer business was down 16.5% per ton due to softness in margin caused by higher raw material costs within the consumer product lines.

There were no significant changes in operating expenses, interest expense, and other income quarter over quarter.

 

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Retail Group

 

    

Three months ended

March 31,

 
(in thousands)    2012     2011  

Sales and merchandising revenues

   $ 30,256      $ 31,130   

Cost of sales and merchandising revenues

     21,642        22,179   
  

 

 

   

 

 

 

Gross profit

     8,614        8,951   

Operating, administrative and general expenses

     11,291        11,511   

Interest expense

     196        260   

Other income, net

     124        156   
  

 

 

   

 

 

 

Operating loss

   $ (2,749   $ (2,664
  

 

 

   

 

 

 

Operating results for our Retail Group remained relatively unchanged compared to the same period last year. Sales and merchandising revenues decreased $0.9 million from the first quarter of 2011 due to the lack of winter business in January and February as a result of the mild winter weather. Customer counts decreased nearly 1%, while the average sale per customer decreased by nearly 2%. As a result, gross profit decreased by approximately $0.3 million.

There were no significant changes in operating expenses, interest expense and other income.

Other

 

    

Three months ended

March 31,

 
(in thousands)    2012     2011  

Sales and merchandising revenues

   $ —        $ —     

Cost of sales and merchandising revenues

     —          —     
  

 

 

   

 

 

 

Gross profit

     —          —     

Operating, administrative and general expenses

     5,777        2,133   

Interest income

     (386     (915

Other income, net

     1,184        344   
  

 

 

   

 

 

 

Operating loss

   $ (4,207   $ (874
  

 

 

   

 

 

 

Net corporate operating expenses not allocated to business segments increased $3.3 million over the first quarter of 2011. Operating expenses increased mainly due to stock compensation and benefits related expenses.

As a result of the above, income attributable to The Andersons, Inc. of $18.4 million for the first quarter of 2012 was $1.1 million higher than income attributable to The Andersons, Inc. of $17.3 million recognized in the first quarter of 2011. Income tax expense of $10.2 million was provided at 36.6%. In the first quarter of 2011, income tax expense of $9.8 million was provided at a rate of 36.1%. The increase in the effective tax rate was due primarily to the loss attributable to the noncontrolling interest that did not provide any tax benefit. The Company anticipates that its 2012 effective annual rate will be 36.0%. The Company’s actual 2011 effective tax rate was 34.5%. The lower effective rate for 2011 was due primarily to benefits related to domestic production activities and the income attributable to the noncontrolling interest that did not increase taxes.

 

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Liquidity and Capital Resources

Working Capital

At March 31, 2012, we had working capital of $283.1 million, a decrease of about $26.5 million from the prior year. This decrease is attributable to changes in the following components of current assets and current liabilities:

 

(in thousands)    March 31,
2012
     March 31,
2011
     Variance  

Current Assets:

        

Cash and cash equivalents

   $ 31,874       $ 22,320       $ 9,554   

Restricted cash

     18,785         12,353         6,432   

Accounts receivables, net

     204,400         220,665         (16,265

Inventories

     787,646         775,017         12,629   

Commodity derivative assets – current

     33,845         178,767         (144,922

Deferred income taxes

     23,062         18,578         4,484   

Other current assets

     62,577         46,721         15,856   
  

 

 

    

 

 

    

 

 

 

Total current assets

     1,162,189         1,274,421         (112,232
  

 

 

    

 

 

    

 

 

 

Current Liabilities:

        

Borrowing under short-term line of credit

     365,000         460,000         (95,000

Accounts payable for grain

     115,236         90,442         24,794   

Other accounts payable

     173,254         145,685         27,569   

Customer prepayments and deferred revenue

     115,109         115,908         (799

Commodity derivative liabilities – current

     34,113         67,869         (33,756

Other current liabilities

     45,994         42,119         3,876   

Current maturities of long-term debt

     30,342         42,783         (12,441
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     879,048         964,806         (85,758
  

 

 

    

 

 

    

 

 

 

Working capital

   $ 283,141       $ 309,615       $ (26,474
  

 

 

    

 

 

    

 

 

 

In comparison to the quarter ended March 31, 2011, current assets decreased largely as a result of lower commodity derivative assets driven by declining commodity prices as well as having fewer bushels contracted for purchase. Current liabilities decreased primarily as a result of lower borrowings under our short-term line of credit due to lower margin calls on commodity contracts as a result of lower commodity prices.

Sources and Uses of Cash

Operating Activities

Our operating activities used cash of $187.0 million in the first three months of 2012, a change from a use of cash of $221.8 million in the first three months of 2011. The significant use of cash for operating activities is common in the first quarter of the year due to the nature of our commodity business and the large payouts for grain received during the fall harvest, although the change is less significant in the current year due to a trend of declining grain prices.

We made income tax payments of $3.3 million in the first quarter of 2012 and expect to make additional payments totaling approximately $34.7 million for the remainder of 2012.

Investing Activities

The Company spent $15.3 million (net of cash acquired) on a business acquisition during the quarter. Total capital spending for 2012 on property, plant and equipment in our base business, inclusive of information technology spending is expected to be approximately $59 million. Through the first quarter of 2012, we have spent $15.0 million.

 

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In addition to spending on conventional property, plant and equipment, we expect to spend $100 million for the purchase of railcars, locomotives and related leases and capitalized modifications of railcars. We also expect to offset this amount by proceeds from the sales and dispositions of railcars of $97 million. Through March 31, 2012, we invested $33.4 million in the purchase of additional railcars, partially offset by proceeds from sales of $10.2 million.

Financing Activities

We have significant committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks, which provides a total of $735.0 million in short-term borrowings and $115.0 million in long-term borrowings. We had $365.0 million drawn on our short-term line of credit at March 31, 2012. We continue to feel that we have adequate capacity to meet our funding needs going forward. Peak short-term borrowings to date were $402.6 million on March 27, 2012. Typically, our highest borrowing occurs in the spring due to seasonal inventory requirements in our fertilizer and retail businesses.

We paid $0.11 per common share for the dividends paid in January, April, July and September 2011, and $0.15 per common share for the dividends paid in January 2012. On February 24, 2012, we declared a cash dividend of $0.15 per common share payable on April 23, 2012 to shareholders of record on April 2, 2012. During the first three months of 2012, we issued approximately 161 thousand shares to employees and directors under our equity-based compensation plans.

Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of March 31, 2012. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by railcar and locomotive assets.

Because we are 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 our profitability. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.

Off-Balance Sheet Transactions

Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease railcars from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. Railcars we own or lease from a financial intermediary are generally leased to a customer under an operating lease. We also arrange non-recourse lease transactions under which we sell railcars or locomotives to a financial intermediary and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing railcar maintenance and management services for the financial intermediary, and receive a fee for such services. On most of the railcars and locomotives, we hold an option to purchase these assets at the end of the lease.

 

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The following table describes our railcar and locomotive positions at March 31, 2012:

 

Method of Control

  

Financial Statement

   Units  

Owned-railcars available for sale

   On balance sheet – current      350   

Owned-railcar assets leased to others

   On balance sheet – non-current      15,610   

Railcars leased from financial intermediaries

   Off balance sheet      5,042   

Railcars – non-recourse arrangements

   Off balance sheet      1,837   
     

 

 

 

Total Railcars

        22,839   
     

 

 

 

Owned-containers leased to others

   On balance sheet – non-current      638   
     

 

 

 

Total Containers

        638   
     

 

 

 

Locomotive assets leased to others

   On balance sheet – non-current      44   

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      76   
     

 

 

 

Total Locomotives

        124   
     

 

 

 

In addition, we manage 342 railcars for third-party customers or owners for which we receive a fee.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2011. There were no material changes in market risk, specifically commodity and interest rate risk during the quarter ended March 31, 2012.

Item 4. Controls and Procedures

Our Vice President, Corporate Controller is responsible for all accounting decisions while our Vice President, Finance and Treasurer is responsible for all treasury, insurance and credit functions and financing decisions. Each of them, along with the Chairman and Chief Executive Officer (“Certifying Officers”), are responsible for evaluating our disclosure controls and procedures. These Certifying Officers have evaluated our disclosure controls and procedures as defined in the rules of the Securities and Exchange Commission, as of March 31, 2012, and have determined that such controls and procedures were effective.

On April 30, 2012, the Company announced the hiring of a Chief Financial Officer, to whom our Corporate Controller and Treasurer, among others, will report. The Chief Financial Officer will, together with our Chairman and Chief Executive Officer, serve as Certifying Officers for evaluation of our disclosure controls and procedures for subsequent fiscal periods.

Our Certifying Officers are primarily responsible for the accuracy of the financial information that is reported to the Commission. To meet their responsibility for financial reporting, they have established internal controls and procedures which they believe are adequate to provide reasonable assurance that the Company’s assets are protected from loss. These procedures are reviewed by the Company’s internal auditors in order to monitor compliance. In addition, our Board of Director’s Audit Committee, which is composed entirely of independent directors, meets regularly with each of management and our internal auditors to review accounting, auditing and financial matters.

There were no changes in internal controls over financial reporting or in other factors that have materially affected or could materially affect internal controls over financial reporting, in each case, during the first quarter of 2012.

 

31


Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

We have received, and are cooperating fully with, a request for information from the United States Environmental Protection Agency (“U.S. EPA”) regarding the history of our 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 our initial acquisition of the land in 1960. We have 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 our 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.

We are 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. We accrue liabilities where litigation losses are deemed probable and estimable. We believe it is unlikely that the results of our current legal proceedings, even if unfavorable, will be materially different from what we currently have 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.

Item 1A. Risk Factors

Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-Q and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The significant factors known to us that could materially adversely affect our business, financial condition or operating results are described in the 2011 10-K (Item 1A). There have been no material changes in the risk factors set forth therein.

Item 5. Other Information

On March 1, 2012, we granted restricted shares (“RSA’s”) to our officers, directors and other members of management and performance share units (PSU’s) valued at $43.28 to our officers and other members of management. These grants were made under the Long-Term Performance Compensation Plan. These grants were made as follows to the named executive officers, all officers as a group, directors and all other employees.

 

     RSA’s      PSU’s  

Michael J. Anderson

     10,000         17,000   

Anne G. Rex

     830         1,330   

Nicholas C. Conrad

     985         1,575   

Harold M. Reed

     6,000         9,600   

Dennis J. Addis

     2,525         4,045   

Naran U. Burchinow

     1,570         2,115   

Executive group

     31,441         52,187   

Non-executive director group

     11,112         —     

Non-executive officer employee group

     24,595         41,499   

 

32


Table of Contents

On April 30, 2012, we granted 2,084 RSA’s and 2,778 PSU’s valued at $50.40 to our newly appointed Chief Financial Officer, John J. Granato. The grants were made under the Long-Term Performance Compensation Plan.

Item 6. Exhibits

(a) Exhibits

 

No.

  

Description

10.49    Form of Restricted Share Award Agreement
10.50    Form of Performance Share Award Agreement
10.51    Form of Restricted Share Award Agreement
10.52    Form of Performance Share Award Agreement
12    Computation of Ratio of Earnings to Fixed Charges
31.1    Certification of the Chairman and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
31.2    Certification of the Vice President, Corporate Controller under Rule 13(a)-14(a)/15d-14(a)
31.3    Certification of the Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a)
32.1    Certifications Pursuant to 18 U.S.C. Section 1350

 

33


Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

THE ANDERSONS, INC.

(Registrant)

Date: May 9, 2012  

By /s/ Michael J. Anderson

  Michael J. Anderson
  Chairman and Chief Executive Officer
Date: May 9, 2012  

By /s/ Anne G. Rex

  Anne G. Rex
 

Vice President, Corporate Controller
(Principal Accounting Officer)

Date: May 9, 2012  

By /s/ Nicholas C. Conrad

  Nicholas C. Conrad
 

Vice President, Finance and Treasurer
(Principal Financial Officer)

 

34


Table of Contents

Exhibit Index

The Andersons, Inc.

 

No.

  

Description

10.49    Form of Restricted Share Award Agreement
10.50    Form of Performance Share Award Agreement
10.51    Form of Restricted Share Award Agreement
10.52    Form of Performance Share Award Agreement
12    Computation of Ratio of Earnings to Fixed Charges
31.1    Certification of the Chairman and Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a)
31.2    Certification of the Vice President, Corporate Controller under Rule 13(a)-14(a)/15d-14(a)
31.3    Certification of the Vice President, Finance and Treasurer under Rule 13(a)-14(a)/15d-14(a)
32.1    Certifications Pursuant to 18 U.S.C. Section 1350

 

35

XNAS:ANDE Andersons Inc Quarterly Report 10-Q Filling

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