The Andersons, Inc. — 2014 Form 10-K Summary
Business context and reporting period
The Andersons is a diversified agriculture-focused company operating across North America in six segments: Grain, Ethanol, Plant Nutrient, Rail, Turf & Specialty, and Retail. This annual filing covers the fiscal year ended December 31, 2014; quarterly figures below are for the fourth quarter where specified.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Sales and merchandising revenues | $4.540 billion | $5.605 billion |
| Gross profit | $397.1 million | $365.2 million |
| Gross margin | 8.7% | 6.5% |
| Net income attributable to The Andersons | $109.7 million | $89.9 million |
| Diluted earnings per share | $3.84 | $3.18 |
| EBITDA, as defined by the company | $255.0 million | $219.9 million |
| Cash from (used in) operations | $(10.1) million | $337.2 million |
| Cash and cash equivalents at year-end | $114.7 million | $309.1 million |
| Working capital | $226.7 million | $229.5 million |
| Total debt, including current maturities and short-term debt | Approximately $377.2 million | Approximately $427.2 million |
Gross margin is calculated as gross profit divided by reported sales and merchandising revenues; management cautions that commodity-price movements can significantly change reported revenue without a comparable effect on gross profit. The company had $847.0 million of its stated $878.1 million borrowing capacity available at year-end and reported compliance with debt covenants. Its funded long-term debt-to-equity ratio was 0.4-to-1.
Material changes versus 2013
- Revenue declined 19%, largely reflecting lower commodity prices; average grain prices fell almost 30%, while total grain bushels shipped rose 1%.
- Gross profit increased $31.9 million, and attributable net income rose $19.8 million. Higher ethanol earnings and the $17.1 million pretax gain from a partial redemption of the Lansing Trade Group investment contributed to results.
- Operating cash flow swung to a $10.1 million use, mainly because of working-capital movements, including higher inventory and lower grain payables. Year-end inventory increased to $795.7 million from $614.9 million.
- Cash declined by $194.4 million. Investing activities used $89.7 million, including $90.1 million of Rail Group asset purchases; financing activities used $94.6 million.
- Segment results varied: Ethanol operating income increased to $92.3 million from $50.6 million; Rail fell to $31.4 million from $42.8 million; Plant Nutrient fell to $23.8 million from $27.3 million; and Turf & Specialty fell to $0.7 million from $4.7 million. Retail narrowed its operating loss to $0.6 million from $7.5 million.
- For the fourth quarter, revenue was $1.272 billion versus $1.584 billion; gross profit was $114.0 million versus $109.6 million; and attributable net income was $25.9 million versus $30.7 million.
Outlook, commentary, risks, and unusual items
- Management expected 2015 ethanol margins to average below 2014 levels, with possible improvement later in the year; early-2015 margins were described as well below 2014. No numerical earnings or revenue guidance was provided.
- Management expected planted acreage and, assuming normal spring weather, a shift of some delayed Plant Nutrient shipments into the first half of 2015 to support activity. Grain planned to integrate acquisitions and continue ERP implementation; Plant Nutrient and Turf & Specialty were scheduled to merge in 2015.
- Planned 2015 spending was approximately $120 million for conventional property, plant and equipment, including ERP and a new headquarters project, plus an estimated $132 million for railcars and barges, with related sales or financings of $107 million.
- Key risks include volatile grain, corn, ethanol, fertilizer, and energy prices; hedge basis and counterparty risks; potentially significant margin calls and seasonal liquidity needs; weather and harvest disruption; competition; regulation and environmental liabilities; railcar demand and maintenance; and execution, cost, and timing risks in the ERP implementation.
- The company recorded a $17.1 million pretax gain on the partial LTG investment redemption and a $2.3 million gain from settling a legal claim. Grain results also included approximately $6.6 million of one-time expenses, primarily asset write-downs and impairments. A separate $1.5 million impairment was recorded on a Grain customer list.
- The company began terminating its funded defined-benefit pension plan. It estimated an additional contribution of approximately $10.3 million may be needed and a potential $64.6 million noncash charge from recognizing accumulated losses when liabilities are settled; timing and amount depend on settlement conditions and rates.
- The EPA requested information about the history of a Toledo grain and fertilizer facility while investigating possible historic contamination along the Maumee River. No claim or finding had been asserted as of the filing. The company said the reasonably possible loss range for outstanding claims was not material.
- The audit opinion was unqualified and management and the auditor reported effective internal control over financial reporting. The assessment excluded the six grain and four agronomy locations acquired in late 2014, representing 6.7% of assets and 1.0% of annual revenue.
Important facts for investors to verify
- Whether the 2014 earnings improvement is sustainable without the LTG redemption gain and amid lower expected ethanol margins.
- How inventory, commodity derivatives, margin requirements, and seasonal borrowing affect operating cash flow and liquidity.
- Whether planned 2015 capital expenditures, rail asset purchases, and ERP and headquarters projects remain within budget and deliver expected returns.
- The final cost, timing, and accounting effects of the pension-plan termination, including required contributions and any settlement charge.
- Integration and valuation outcomes for the Auburn Bean and Grain acquisition, including completion of its preliminary purchase-price allocation.
- Any material developments in the EPA inquiry, environmental matters, or other contingencies; the filing reports no asserted EPA claim or finding at year-end.