The Andersons, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; filed March 1, 2013. The Andersons is a diversified agriculture-focused company with six reportable segments: Grain, Ethanol, Plant Nutrient, Rail, Turf & Specialty, and Retail. The filing also reports fourth-quarter results.
Financial performance and liquidity
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Sales and merchandising revenues | $5,272.0 million | $4,576.3 million | +15.2% |
| Gross profit | $358.0 million | $352.9 million | +1.5% |
| Net income attributable to The Andersons | $79.5 million | $95.1 million | -16.4% |
| Diluted earnings per share | $4.23 | $5.09 | -16.9% |
| Operating cash flow | $328.5 million | $290.3 million | +$38.2 million |
| EBITDA (non-GAAP) | $195.2 million | $212.3 million | -$17.1 million |
Gross margin was approximately 6.8% of revenue, down from 7.7% in 2011; attributable net income margin was approximately 1.5%, versus 2.1%. The effective tax rate rose to 37.1% from 34.5%. Interest expense declined to $22.2 million from $25.3 million.
At year-end, cash was $138.2 million, working capital was $304.3 million (down $8.6 million), and total assets were $2.18 billion. Current and long-term borrowings, including current maturities and non-recourse debt, totaled approximately $466.7 million. The company reported $611.4 million of equity and a funded long-term debt-to-equity ratio of 0.7-to-1. Its borrowing arrangements provided $788.6 million of remaining availability at year-end; the company stated it was in compliance with debt covenants.
Investing activities used $290.6 million, including $220.3 million net cash for acquisitions and $69.3 million for property, plant and equipment. Financing activities provided $79.9 million. Dividends paid were $0.60 per share for the year; the January 2013 quarterly dividend increased to $0.16 per share.
Material changes and segment results
- Grain: Revenue increased to $3.29 billion, but segment income fell to $63.6 million from $87.3 million. Lower space income, particularly basis appreciation, offset higher revenues and strong Lansing Trade Group earnings. Storage capacity rose to approximately 142 million bushels following facility construction and acquisitions.
- Ethanol: Segment loss was $3.7 million versus income of $23.3 million. Lower ethanol margins, weak gasoline demand, oversupply, drought-related high corn costs, and hedge mark-to-market losses weighed on results. The May acquisition of the Denison facility added 55 million gallons of annual capacity and was consolidated from acquisition.
- Plant Nutrient: Segment income was $39.3 million, slightly above $38.3 million. Revenue growth reflected higher shipment volume and prices, while margins were weaker than the prior year.
- Rail: Segment income increased to $42.8 million from $9.8 million, primarily on higher railcar sales and leasing results, favorable lease rates, and $23.7 million of gains on railcar sales and related leases, versus $8.4 million in 2011.
- Turf & Specialty: Segment income was $2.2 million, modestly higher year over year. The Mt. Pulaski acquisition expanded corncob processing capacity.
- Retail: Segment loss widened to $4.0 million from $1.5 million, reflecting lower customer counts and average sales. The company announced closure of its Woodville, Ohio store in early 2013 and accrued $1.1 million of severance costs.
Consolidated fourth-quarter revenue was $1.681 billion versus $1.298 billion in 2011; attributable net income was $15.0 million versus $21.7 million.
Outlook, risks, contingencies, and unusual items
- Management expected the first three quarters of 2013 to remain difficult for Ethanol because of regional corn shortages and anticipated improved margins later in the year, dependent on crop conditions and other market factors.
- Management said drought-related lower grain space income could continue into the first half of 2013. It expected potentially higher 2013 corn acreage to support Grain and nutrient demand, subject to weather and crop outcomes.
- Planned 2013 spending was approximately $90 million for conventional capital projects, including the ERP project, plus an estimated $149 million for railcar purchases and modifications, partly offset by estimated related sales or financings of $121 million.
- Key exposures include commodity-price and basis movements, margin calls and liquidity needs, weather and crop yields, ethanol and fertilizer margins, variable interest rates, counterparty credit risk, regulation, environmental liabilities, competition, and acquisition integration. The filing notes that U.S. ethanol blender incentives ended after 2011.
- The EPA requested information about potential historic contamination near the company’s Toledo riverfront grain and fertilizer facility. No claim or finding had been asserted as of the filing. The company stated that current litigation losses considered reasonably possible were not material.
- The company corrected an approximately $4.1 million overstatement in the estimated fair value of its IANR investment during the fourth quarter, concluding the effect on current and prior financial statements was immaterial.
- Control warning: The auditor issued an unqualified opinion on the financial statements but concluded internal control over financial reporting was ineffective because of a material weakness in segregation of duties and journal-entry controls. Management reported no resulting financial-statement misstatement and described remediation steps, including enhanced review and access controls. A previously reported weakness involving railcar non-recourse transactions was considered remediated.
Most important facts for investors to verify
- Whether journal-entry access and review controls were effectively remediated, and whether subsequent filings report any control deficiencies or restatements.
- Whether ethanol affiliate losses and corn-supply constraints improved as management anticipated, and how the Denison facility performed.
- How drought-related grain basis and storage income, commodity prices, and required margin deposits affected earnings and liquidity after year-end.
- Whether Rail’s unusually strong 2012 gains were repeatable and whether railcar utilization and lease economics held up.
- Acquisition integration, final purchase-price allocations, and returns from the Green Plains Grain, Denison, New Eezy Gro, and Mt. Pulaski transactions.
- Debt levels, covenant headroom, borrowing availability, and planned capital and railcar spending relative to operating cash generation.
- Developments in the EPA inquiry and the valuation assumptions underlying the IANR investment correction.