Andersons Inc (ANDE) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Andersons, Inc. 2012 fourth quarter and year end conference call earnings. This call is hosted by Nick Conrad, Vice President Finance & Treasurer. My name is Dipendra. I will be your event manager today. For the conference your lines will be on listen-only mode. (Operator Instructions).

I would like to advise all parties that this conference is being recorded for replay purposes.

And now I would like to hand the conference over to Nick. Please go ahead.

Good morning, everyone, and thank you for joining us for The Andersons, Inc. 2012 fourth quarter and full year conference call. We have included a slide presentation that will enhance our talking points this morning. If you are listening and watching this presentation via the website, the slides and audio are in synch. For those listening via telephone [of] this webcast, you should follow the directions sent to you in order to synch the slides and audio.

This webcast is available through the investor section of our website at www.andersonsinc.com. The webcast is being recorded and will be available on our website.

Certain information discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions of the Company's industries both in the US and internationally, and additional factors that are described in the Company's publicly filed documents, including its 34 Act filings and the prospectuses prepared in connection with the Company's offerings.

Today's call includes financial information for which the Company's independent auditors have not completed their review. Although the Company believes the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be.

On the call with me today are Mike Anderson, Chairman, Chief Executive Officer; Hal Reed, Chief Operating Officer; and John Granato, Chief Financial Officer. Mike, Hal, John and I will answer questions that you have at the end of the prepared remarks. I will turn the call over to Mike for an opening comment.

Thanks, Nick. Good morning, everyone. The Company had a strong year in 2012, surpassed only by the 2011 record results. The Rail Group had record operating income, which was more than double their prior highest earnings.

Plant Nutrient Group beat their prior year record earnings by $1 million despite lower margins. Did that by increasing sales and appropriately managing inventory. Record earnings from Lansing Trade Group led the Grain Group to have good results in 201,2 even though they were impacted by the drought.

We were also proud of the fact that the Company paid its 65th consecutive quarterly dividend on January 23 of $0.16 per share. The dividend has increased over 45% the last two years.

Before we review the performance results, I would like to highlight some 2012 accomplishments that demonstrate the Company's continued commitment to growth. Plant Nutrient Group acquired New Eezy Gro, Inc., an Ohio based specialty agricultural and industrial nutrient company, early this year, which has allowed the group to expand both its value add product offering and customer base.

The group also completed a major capital build at its Maumee, Ohio, location that improved its formulation capability and efficiency. In May, the Company's new ethanol investment affiliate, The Andersons Dennison Ethanol LLC, acquired an existing 55 million gallon ethanol plant in Iowa. In September, the Grain Group opened its 3.8 million bushel unit train loader in Nebraska, further expanding our western region.

The end of 2012 the Grain Group completed the largest acquisition in the Company's history when it purchased the majority of the grain and agronomy assets of Green Plains Grain Company. This purposeful expansion in our core operating businesses included seven facility in Iowa and five in Tennessee, with combined grain storage capacity of approximately 32 million bushels, dry fertilizer storage capacity of 12,000 tons and liquid fertilizer storage capacity of 18,000 tons. This further expanded our Grain Group's western region and allowed us to enter into a new target territory, Tennessee.

The Turf & Specialty Group acquired the majority of the assets of Mt. Pulaski Products in October, essentially doubling the group's production capacity and positioning cob to expand proprietary product sales. The Rail Group grew its fleet and rail car repair business during the year, and they are in the process is of building a rail car blast and paint facility in Maumee, Ohio, that will open this spring. And as always, we continue to explore are additional expansion and acquisition opportunities.

I will now turn this over to John, who will provide details of the total Company results.

Thanks, Mike, and good morning, everyone. The Company generated net income attributable to The Andersons, Inc. of $79.5 million in 2012, or $4.23 per diluted share on revenues of $5.3 billion. In 2011 net income of $95.1 million was reported, or $5.09 per diluted share on revenues of $4.6 billion.

The majority of the year-to-year increase in revenue relates to our agricultural businesses. Growth in our agricultural businesses impacted revenue, but rising volume and prices had the most significant impact on revenue.

The Company reported net income of $15 million in the fourth quarter, or $0.80 per diluted share on revenues of $1.7 billion. In the same three months of 2011 net income was $21.7 million was reported, or $1.17 per diluted share on revenues of $1.3 billion.

Now, to a non-GAAP measure, EBITDA,earnings before interest, taxes, depreciation and amortization. The Company's 2012 EBITDA was $195.2 million, a decrease of $17.1 million from 2011.

Equity in earnings of affiliates, which does not include net income from non-controlling interests, totaled $16.5 million in 2012, compared to $41.5 million for 2011. This was the result of an approximately $30 million decrease in income from the Company's investment in its ethanol LLCs, which was partially offset by a $5 million increase in the investment income from Lansing Trade Group.

EBITDA for the fourth quarter was $42.4 million, which was down $5.5 million from the same period in 2011. Fourth quarter's pretax earnings include $1.1 million in equity and earnings of affiliates, a decrease of $10.9 million from the same period last year.

The Company's interest expense totaled $22.2 million in 2012, down $3.1 million from last year. Short-term average borrowings for the year increased $28.9 million compared to the prior year. Our 2012 average short-term borrowing rates were approximately 1% lower than the previous year. The Company had short-term investments averaging $18.1 million for the year.

Interest expense for the fourth quarter 2012 totaled $6 million, an increase of $1.4 million from the same period of 2011. The Company's 2012 effective tax rate was 37.1%, up 2.6% from the 2011 rate of 34.5%. The increase in the effective tax rate was due primarily to lower benefits related to domestic production activities in the 2012 loss and the 2011 income attributable to non-controlling interests that did not impact income tax expense.

The bridge in this next graph demonstrates which groups' 2012 income is up or down in comparison to the prior year. The specifics behind these differences will be detailed as each group's operating performance is discussed. Therefore, to better understand the total Company results, Hal will walk you through each of the six business groups. Hal?

Thanks, John. Let's start with the Grain Group. Its operating income $63.6 million in 2012. In the prior year the group had record operating income of $87.3 million. The group had considerably lower space income in 2012, in part due to the drought and also due to the atypical escalation in wheat basis in 2011.

The group also incurred $2.1 million in one-time expenses related to the acquisition of Green Plains Grain Company in December. The group did, however, benefit from an increase in bushels sold and record earnings from its investment in Lansing Trade Group. Lansing Trade Group has performed very well in the last few years, with the grain facilities, fuel and merchandising businesses doing exceptionally well.

Total revenues for the Grain Group were $3.3 billion and $2.8 billion in 2012 and 2011 respectively. Revenues increased primarily due to greater sales volume and higher grain prices. For the fourth quarter the Grain Group's operating income was $18.1 million on revenues of $1.2 billion. This compares to $27.3 million in the same period of the prior year on revenues of $876 million.

The group's quarterly results were influenced by factors similar to the full year; lowerspace income, higher grain sales and improved performance from Lansing Trade Group. Quarterly revenues for the group increased for the same reasons noted for the full year. Storage capacity of the Grain Group increased to 142 million bushels during 2012 from 109 million bushels the previous year,while bushels in inventory increased from 77.5 million bushels at the end of 2011 to 98 million bushels at the end of 2012. The addition of 12 new elevators from Green Plains Grain Company was the primary cause of both the capacity and inventory increases.

Next let's discuss the Ethanol Group, which had a full year operating loss of $3.7 million. In 2011 the group's operating income for the same period was $23.3 million. The operating income decline was due to significantly lower ethanol margins, resulting from weak gasoline demand, an oversupply of ethanol, and high corn costs caused by last year's drought, partially offset by service income and coproduct sales. The ethanol plants continue to make productivity improvements, with another record production year in 2012.

Total revenues for the year were $743 million. In comparison, the group's revenues for 2011 were $642 million. Revenues increased due to an increase in volume, the majority of which was due to the addition of the Denison, Iowa, facility in mid-2012. The Ethanol Group had a fourth quarter operating loss of $800,000 on revenues of $215 million. During the same period of 2011 operating income was $6.5 million on revenues of $165 million.

Last year the ethanol entities benefited from favorable margins, which was not the case this year. Partially offsetting the group's lower margins are service income and income from co-products, such as corn oil, E85, distillers dry grains and CO2.

The Plant Nutrient Group ended with record operating income of $39.3 million,exceeding the group's record 2011 operating income of $38.3 million. The group's income improvement this year was due to an increase in volume, as margin per ton declined versus last year.

Revenues for 2012 and 2011 were $797 million and $691 million respectively. Higher revenue this year was due to higher volume and to a lesser extent an increase in the average price per nutrient ton. Total volume was up year-over-year due to excellent spring and fall application seasons. In addition, corn prices remained high, which encouraged nutrient application.

Fourth quarter operating income for the Plant Nutrient Group was $4.7 million on revenues of $178 million. In the same three month period of 2011 the group reported $2.5 million in operating income on revenue of $170 million.

Volume increased in the fourth quarter in comparison to the prior year, as favorable weather patterns and pent up demand led to increased nutrient application. Margins in the fourth quarter remained solid and were in line with historical norms.

The group effectively managed its nitrogen, phosphate and potassium ownership positions throughout the year, which positively impacted performance. Storage capacity of the Plant Nutrient Group increased could 870,000 tons from 833,000 tons in 2011 due to acquisitions and the building and expansion of both dry and liquid storage.

The Rail Group's full year he results were exceptional. The group achieved record operating income of $42.8 million, which was a significant is improvement over its 2011 operating income of $9.8 million and more than double its prior full year record operating income. Gross profit from the leasing business was significantly higher than the year prior, due mainly to higher lease rates, which is have increased each of the last seven quarters.

Overall utilization rate for 2011 and 2012 was consistent at 84.6%. The group recognized $23.7 million pretax gains on sales of rail cars and related leases and nonrecourse transactions. In 2011 the group recognized gains of $8.4 million on similar transactions. When the Rail Group participates in nonrecourse transactions, it continues to provide car management services to the purchaser and typically holds an option to purchase the rail cars at the end of the signed lease.

Full year results for the rail repair business were more than double the 2011 results. Rail Group revenues of $156 million for 2012 were higher than the $107 million reported in the prior year, due mainly to increased car sales and higher lease rates.

The Rail Group had operating income of $8.6 million in the fourth quarter on revenues of $29 million. In 2011 operating income for the same three month period was $2.3 million on revenues of $25 million. During the fourth quarter the group recognized $1.5 million in gains on sales of rail cars and related leases and nonrecourse transactions, which is higher than the $700,000 recognized last year for similar transactions.

The average utilization rate for the fourth quarter was 83.8%, down from the 86.2% reported in fourth quarter last year. The group now has approximately 23,300 cars and locomotives, which is up approximately 600 cars from its year earlier total. Utilization rate at the end of the year was 83.7%, a slight decrease from the full year average of 84.6%.

As we mentioned at the of last year, the benefits of higher lease rates currently being negotiated would be seen as the shorter and lower rate deals booked during the downturn expire. We clearly saw the impact of this is 2012.

The Turf & Specialty Group's full year operating income was $2.2 million on $131 million of revenue. Last year the group had operating income of $2 million on revenues of $130 million. Both turf products, tonnage and gross profit per ton decreased in 2012 compared to the prior year. The cob business continued to grow the proprietary products business, and the acquisition of Mt. Pulaski Products should allow even further growth of those proprietary product lines.

During the fourth quarter the Turf & Specialty Group had an operating loss of $1.2 million on revenue of $21 million. Last year the group reported a loss of $1.8 million even $18 million of revenue during the same period.

The Retail Group's full year operating loss was $4 million, in comparison to a loss of $1.5 million in 2011. In November of 2012 the hard decision to close the retail -- the Woodville retail store was made, and therefore a $1.1 million in expense was recorded to accrue severance payments and other costs associated with the closing.

The group's gross margin percent and average sale per customer held steady in 2012. Total 2012 sales for the Retail Group were $151 million, compared to sales of $158 million in the prior year. During the fourth quarter, the Retail Group had an operating loss of $900,000, due in part to the expense related to the closing of the Woodville store. In the comparable period last year the group's operating income was $500,000.

Total fourth quarter revenues were $41 million and $45 million in 2012 and 2011 respectively. Now I will turn the floor back to Nick for the Treasurer's report.

Thanks, Al. On the balance sheet as of December 31, net working capital is $304.3 million, a decrease of $8.6 million from last year. As of December 31, current assets totaled $1.3 billion, an increase of $189.9 million from December 31, 2011.

This change was driven primarily by a $99.6 million increase in cash, cash equivalents and restricted cash, along with a $41.2 million net increase in accounts receivable, which ended the year at $208.9 million. Grain accounts receivable represented the majority of this increase.

In addition, there were increases in commodity derivative of assets, current of $19.2 million and inventories of $16.2 million. Total assets as of December 31 were $2.2 billion, an increase of $448.2 million from the 2011 year end.

During 2012 the Company made significant additions to property, plant and equipment. A total of $220.4 million net of cash received was spent on business acquisitions in 2012. Other capital spending on property, plant and equipment during 2012 totaled $68.8 million. Rail car purchases and sales for 2012 totaled $111.2 million and $90.8 million respectively through December 31. Rail car purchases and sales for 2011 were $64.2 million and $30.4 million respectively.

Borrowings under the short-term line of credit as of December 31 were $24.2 million,compared to $71.5 million at the same time last year. Long-term debt totaled $427.2 million at the end of the year, an increase of $188.4 million from the prior year end.

Our total long-term funded debt to equity ratio was 0.72 to one. To add some perspective, our long-term funded debt to equity ratio ranged from 0.46 to 0.82 over the last five year ends.

For 2012 the average long-term interest rate was 4.7%, which is down from last year's rate of 5.3%. The Company's fourth quarter 2012 average interest rate for all long-term are debt was 4.5%. Total equity on December 31 was $611.4 million, an increase of $72.6 million from 2011.

We continue to see good support from our banks. As of December 31, the total committed lines of credit under the Company's [syndicated] facility were $850 million, $735 million of which was short-term and $115 million of which was long-term.

Mike will now cover a few points before we take questions.

Thanks, Nick. On the last two calls I have provided detailed outlook for the first half of 2013. I want to reiterate a few key points and expound a little further on the second half of 2013 as well.

First, we continue to feel that space income and bushels handled in the Grain Group will be down the first half of the year due to the drought. Conversely, the dislocation and disparity of supply and demand could allow you favorable arbitraging and merchandising opportunities for both us and Lansing Trade Group, as was seen in 2012. We anticipate the first three quarters being tough for Ethanol Group, due an oversupply of ethanol and as the drought has led to higher corn prices and regional corn shortages.

We remain bullish, however, on Plant Nutrient volume and margin. We are expecting a record corn planting this spring. This should have a positive benefit for our Plant Nutrient Group, especially in the first half of the year, and should further benefit our Grain and Ethanol Groups in the last three to four months of the year. Of course, this dependent on numerous external factors such as favorable weather during the growing season.

We anticipate the Rail Group having another strong year in 2013. Lastly we do expect earnings improvement in both our Turf & Specialty and Retail Groups this year. We are quite proud of the results our Company has achieved, particularly in the face of unusually difficult circumstances.

Most severe drought in the last 60 years significantly reduced grain supplies and with it our ability to earn space income and other income for both 2012 and prospectively for 2013, alongwith greatly increasing costs to our Ethanol Group. The fact that we have achieved such strong aggregate results speaks well for the strength of our diversification strategy and business model and the resilience of our employees.

This concludes our prepared remarks. Hal, John, Nick and I will be happy to answer any questions you may have, so, Dipendra, we'll turn it back to you.

Okay. We are having a little difficulty. We'll get to the questions.

Thank you. (Operator Instructions). You have a first question. It is from the line of Ken Zaslow from Montreal. Please go ahead, Ken.

Good morning, everyone.

Hi, Ken.

Three questions. One is how do you decide on when to sell the rail car [and like] so we can kind of get more of an even distribution? Is there some sort of tell that we could kind of understand? Because of the --I understand it stabilized last quarter, and this quarter you didn't sell as many. Talk about what changed in the environment and how to think about it going forward?

It is a good question, Ken. I don't think there is any magic formula for us to give to you. Obviously we have lots of different types of rail cars. Those markets and their lease terms and et cetera are all in different time frames and time periods.

So it is difficult for us to plan ahead with those kind of things, let alone give you a specific formula as to how you might be able to reach that. We are clearly opportunistic in looking at all of the different possibilities throughout the course of the year and across our entire portfolio, but there isn't any way to project that.

Why were the opportunities, I guess, less in this quarter and will they be more or less in 2013 than in 2012?

I think the fourth quarter may have just been a timing issue, butsometimes around the holidays things slow down a bit. But I think you have to look at a volume over a period of time as to more than just a one quarter at a time so --

On the grain side, this current quarter obviously had the full impact of lower crops and stuff like that, and I understand the first half is -- Is this quarter a good barometer to how we should see the next two quarters going? Is that the way to think about it? Although you did say there might be some arbitrage [opportunities], canyou talk about how this quarter might represent the first half? And obviously it will drastically different once the crop comes in, but you give us a little help on that?

I think the whole first half of the year could be relatively similar, but again the arbitrage opportunities will come up based upon certain market conditions, and it is hard to predict the timing of those. So I think all we could say is in aggregate we know that the volume will be down in the first half of year and space income down in the first half of the year, and where the arbitrage activities come in -- if those are lumpy, if those -- they are not going to come in evenly. We're going to get one call a week to make that happen, as you know.

So I think it is just going to be spread out throughout the course of the first half. It will be difficultto pin it in one quarter or the other at this point in time.

This is Mike. I will add one element as to the space income. First, it is exactly as Hal said; it is really hard to pinpoint time. We know first half will be rough. We know that.

What we don't know is we mark to market -- well, we know that we mark to market our inventories on March 31 at the cash market at that time. Today we cannot suggest that we know for our various grains and commodities exactly what that will be. We could have a situation where the basis does not escalate much between now and then and then escalates a little more after. It could go up between now and March 31 and go down.

So when you look at the number on March 31, we will do our best to explain in the conference call that dynamic, but that cash value is outside our control. It is whatever the market -- wehe just know with where our inventories were valued at the end of the year and the challenge of reduced supplies for corn and soybeans in particular, as we have said for some time, it's going to be a rough half in space income.

And my last question on ethanol. It seems like the industry has [rationalized]. Have you guys rationalized your capacity as well or production output? And it looks like margins have pretty much improved to give or take a little bit around break even. Is that kind of the way you see it? Is that just -- could you talk about where you are seeing that outlook on ethanol?

Thanks. A couple of different questions in there. First, what I would tell you is that the margins we have seen so far are in Q1 are slightly better than they were at the end of last year. That is one of your questions.

Second, relative to our own plants, we have not done anything to rationalize production. As a matter of fact, we have had processes in place continuously over the past year or so to continue to increase our capacity and our efficiency at our plants. So we are clearly working on efficiency at plants and output at plants, getting the most for the least amount of input and the least amount of cost. That is our focus.

We have almost 20% of the industry shut down at this point, and that has put that industry into a balance, and that has probably helped improve these margins. So there is a lot of difference between ethanol plants. Their efficiency, their actual location relative to corn supply, and we just we do our best to be in the most efficient category.

Thank you very much. Thank you.

Yes.

Moving on to the next question. It is from the line of Farha Aslam from Stephens Inc. Please go ahead, Farha.

Hi, good morning.

Hi, Farha.

On rail cars is there something, as you think about 2013 versus 2012, that changes your outlook of that rail car sales or the benefits you get from rail car sales?

I would say that nothing substantial that we see at this point.

Okay. And when you think about earnings, you said that rail cars with be strong. Do you anticipate, if you look out into the year, earnings would be relatively flat -- because you had a strong 2012 -- relatively flat, higher, lower into 2013?

We had a great year in 2012 on the rail car side. More than double the next closest year. So we expect 2013 to be a strong year and -- relative to the exact reference to 2012 it is hard to say today but we expect a pretty strong year.

Okay. So roughly in line would not be out of place?

I didn't say that.

Okay. And then when you look at grain, you guys commented on the fact that first half is going to be rough, second half probably better with a good harvest. How does the Green Plains assets factor into that thinking? What does that do to the first half earnings, and how does that enhance second half earnings?

I would tell you that those 12 grain elevators aren't a lot different than other grain elevators we had in the past. So they fit in pretty much the same as our normal book has been in the past, so they are not substantially different. I will make one slight exception to say that we are pleasantly surprised by the fact that the Tennessee assets are in a strong wheat growing territory this year, which we like that quite a bit. But other than that they are very similar.

And so will that help your first half earnings at all, because -- do you expect to have positive earnings from grain elevators overall?

We expect the first half to be pretty rough, and exactly how the timing of the appreciation and everything else works, and whether or not we get carry in the market, that will determine it. But the first half is going to be tough, and the Green Plains are going to be very similar to the assets that we have already got on the books.

Okay. And then if we go to the Plant Nutrients Group, your margins were relatively strong despite kind of declining fertilizer prices. As you look out into 2013, how are you managing that decline in fertilizer prices?

Yes, maybe a couple of thoughts there. We probably -- whether or not we can see the same kind of appreciation in fertilizer prices that we saw last year is still to be determined. We spend a lot of time managing our positions properly to try take advantage of whatever we can in that regard.

We really see pretty good support under the nitrogen market. 97 million acres of corn. That is going keep that nitrogen pricing pretty firm we think. P and K, you know, I don't think we see a lot of excess movement in those markets. So we will have to do our best managing whatever movement comes before us.

Okay. Thank you.

Thank you. Moving on to the next question. It is from the line of Brett Wong. Please go ahead, Brett from Piper Jaffray. Please go ahead.

Hi, thanks for taking my call. How do you see spring fertilizer applications in the eastern corn belt market --

Go ahead, was there a second part?

Yes, well, and just on how much of that product are you selling forward to the growers versus last year?

All right. Thanks. A couple -- I think a couple of perspectives. Given the current corn pricing structure and where we expect the corn pricing to be in February for the insurance product, which is very important to the farmers, we clearly expect the farmers to want to maximize their production this year. So we expect the is spring season to be a pretty strong season.

Pricing ahead right now, it is early to have any kind of perspective on that. We don't see it dramatically different than in the past. And as you know, the weather at the exact few weeks before and during planting season probably plays most impact on the final volumes and the last stage of movement in prices. So we are looking forward to a good weather season, which would be nice, and we look for a good spring season.

Okay. And then on ethanol, are you seeing better margin opportunities out on the forward curve because of the inverted corn futures?

The inverted corn futures really only affect the fourth quarter, and so, yes, there are some better margins for fourth quarter, but there is so many vary variables out there like what is the local basis going to be and all kinds of other things, that it is kind of hard to lock in the prices. But like I said, that is only out in the fourth quarter. But as I noted, we are seeing slightly better margins in the first quarter so far than we did see at the end of last year.

Okay. And then just one final thing, what your expectations are for winter wheat production, considering the dry conditions so far?

I would say in our territory we have plantings up probably 10% to 15%. We see a notably higher planted acres in our Tennessee territory now that we are involved down there. There's quite a range of estimates at this point in time.

Our weather conditions quite frankly, in this area have been quite good. We caught up on some moisture. We had some good snow cover. So at this point in time we're pretty hopeful that both -- we know that acres are up. We hope that yield could be up based on the current conditions. So we are looking forward to a good soft red wheat crop, starting actually at the end of May down in Tennessee.

Great, thank you.

The next question from the line of Eric Larson from CLKing. Please go ahead, Eric.

Good morning, everyone. How are you?

Good.

Hal, could you give us an idea of what your mark to market benefit in grain inventories were in the fourth quarter?

I guess I'm not exactly sure what you are asking, and maybe if I knew exactly what you were asking I probably couldn't give you a specific answer anyway. We mark to market literally the basis levels -- because we are hedged, so we mark to market the basis levels on a daily basis. So it is all part of our space income number, which is highly impacted by carry in the market as well. So maybe if there is a more specific question, I could try and be more helpful.

I know you mark to market daily, but your cash prices at the end of September were higher than cash prices -- I'm talking corn and soybeans -- than they were at the end of December. So theoretically there would be an inventory gain on your positions held over that time frame.

Well, did you say our cash prices were lower?Talking about basis specifically?

Yes, specifically. Correct.

There was a lot of dislocation of basis. Do you have the --

I will take a stab without being specific. One, if you look at the is SAG data for the quarter for 2012 versus 2011, operating income for grain was $18 million this year, $27 million the year before. And then equity and earnings, $6.3 million this year, $5.6 millionlast year. So -- you've got $1 million more there. So you see the drop in that.

And I will tell you there is a whole bunch of components to our operating income, but the vast majority of that is a drop in space income year-over-year.

Yes.

And interestingly enough, the bulk of that was in -- frankly, in wheat in 2012. Corn are was not all that great in 2011, frankly, in the fourth quarter, And beans this year, there was strong demand for beans. We had a good bean harvest for put-through and volume in sales, but we didn't have much basis appreciation.

So in total you can look at that difference in operating income after you back out the equity and earnings, and that gives you a reflection of -- I mean, there is volume differences and blending differences and stuff, but I can tell you the bulk of it has been wrapped up which is what we are talking about, which is --

The space income.

Yes.

That is a reasonable way to look at it. When you look out to next year, guys -- and Mike maybe this is really the question. I mean, you guys via have clearly diversified your business. Expanded it massively. You have a lot more storage. You've got 30% more storage capabilities today than you had just a year ago. When you look at your earnings on a normalized basis, clearly your normalized earnings base is much higher today than -- if you just use a normal crop, it is much higher today than it was a few years ago, which is a tribute to your efforts. What would be a normalized earnings base for you guys these days?

Well, Eric, this is Nick. Firstly, we normally don't give that to you. It's a great question to tee up, andI will let Hal get into the nuances of the expansion, but I think we will just kind of leave it at that.

I thought I would try.

Good try.

Good try.

Thank you. Next question is from the line of Heather Jones from BB&T Capital Markets. Please go ahead, Heather. Heather, can you check if your phone is on mute. Heather we cannot hear you. Can you check if your phone is on mute.

The voice isn't -- yes, we'll move on to the next one, but the voice isn't coming through, but is there a way to get the question typed in while we move on to next?

We don't have any audio questions for the moment. (Operator Instructions).

Okay. Is that it? Any other questions? Okay. Okay. Someone is just coming in.

Dipendra, I think there is some person who might just be teeing up.

(Operator Instructions). Iwill give everyone about 10 seconds.

We are holding on this end, because we he have this is sense that someone trying to get in. We will give it a little bit of time, and if nothing shows up, we will close down the call.

Okay, wedo have a question now from the line of Brett Hundley from BB&T Capital Markets.

Okay. Thanks, Brett.

Hi, it's Heather.

Hi, Heather.

What a -- anyway. Anyway. So thank you for hanging on. First, just a real detail question. You talked about the acquisition costs. So I got to about a $0.07 hit, so about a $0.87 adjusted number? Am I doing the math correctly?

Pretty close, yes.

Okay. And then the rail car sales, did I hear you say it was about $1.5 million for Q4?

I think that's right. Yes.

Yes, it was about $700,000 the year before, I believe, Heather.

Yes.

Okay. So then it was like $13.5 million in Q3, and you all had implied that Q4 wouldn't be as strong as Q3. But going back to earlier questions, that's a pretty dramatic deceleration. Is that cycle now over? Or was it like Hal said and just timing, slow for the holidays, et cetera?

I think has a lot to do with deal flow and timing of the year and timing of people's books. So I -- it is quite a large variance. We he would expect things to be kind of lumpy, but the full year picture is what you really want to look at.

Okay. And moving on to your grain numbers, first if I look at -- adjust it for that acquisition expense, your grain numbers ex Lansing were still down pretty drastically year on year. And if you look at the bushels shipped during the quarter, it was still up year on year. If Ilook at the bushels in storage at the end of the quarter, your capacity utilization, even adjusted for the new capacity, is not down that dramatically. So is it just the relatively adverse movements in basis as well as the lack of wheat basis appreciation that caused that year on year drop?

Yes, Mike and I may both talked about it earlier a little bit, but it's clearly all in the space income -- virtually all in the space income category, the difference. And a lot has to do with just less carry in the wheat market. Of course, that unusual appreciation we had in 2011 is not involved here in 2012, so it is a space income issue. We have is lesser carry across primarily the wheat market. Also a little bit in the corn market.

Okay. And then when I look at how you broke out the grain inventories bushels versus storage for others at the end of 2012 versus 2011, on a total basis your utilization is really not down that much. But when I look at the bushels owned versus held for others, the bushels owned is down pretty drastically as a percentage of utilization. So would it be fair for me to infer from that that the Green Plains assets were heavily weighted toward bushels held, or others or is that a big shift in the legacy Andersons business year even year?

No, actually the difference is that we delivered wheat against the Chicago Board of Trade in December, and so that is bushels that are storage bushels that show up. They move out of our ownership line and into storage for others. And that is the only change. Everything else is fairly consistent across locations.

Okay, so their percent held for others versus owned is consist went legacy Andersons?

Generally speaking, that is correct.

Okay. And to your point earlier, you said eastern corn belt subsoil moisture has improved considerably. And I know that is what you all are most focused on, but as far as your view of the entire grain growing region, do you believe there has been enough improvement in the eastern corn belt and some other states to off set the still worrisome conditions like in Nebraska and Kansas?

No, obviously we would love to have a return to normal conditions all the way across the belt. I know they had over an inch of rain in Kansas City and in an area from there to the northwest last night. That's an improvement. They don't have a lot of snow cover. We would love to see the west get the kind of coverage we've had in the east, but the east has, like you say, has been very nicely impact the last 30 days or so. So hopeful we will see some systems do the same in the west here the balance of the winter.

Perfect. Thank you so much, and again, thank you for your patience.

Thanks, Heather.

Next question from the line of Eric Larson from CL King. Please go ahead, Eric.

Hi, guys, again. Back again. Given that I'm asking tough questions today, I might as well follow up with a second one. This is for Mike. Mike, obviously you have got the Green Plains acquisition, and you are aggressively diversifying more in the western corn belt -- actually a little bit more south too with Tennessee with Green Plains -- which gives you probably a lot more opportunities to deploy capital going forward, which I think is probably a fair statement. Does that give you the opportunities to maybe take some of your lower return assets and maybe monetize those to reinvest into some of your newer opportunities that you have just announced over 2012?

Well, I will duck that one too. We periodically and regularly look at this stuff, Eric, but -- and that would be win of the things that we will look at, butI'm not the going to answer specifically.

Okay. Yes, thanks, guys.

Thank you, Eric.

Thank you. We have no further questions in the queue at the moment.

Okay. Thanks, everybody for joining us this morning. I also want to mention for those that are interested, there are five appendix slides to the presentation available on the andersonsinc.com website at the investors tab under the third quarter earnings call replay.

Our next conference call is scheduled for Wednesday, May 8, at 11 AM Eastern Time to review the first quarter 2013 results. We hope you are able to join us again at that time. Until then, have a great day.

Thank you. Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.