Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All 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 and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending
December 31, 2017
. An unaudited Condensed Consolidated Balance Sheet as of
September 30, 2016
has been included as the Company operates in several seasonal industries. Certain prior year amounts within the operating and investing activities sections of the statements of cash flows have been reclassified to conform with current year presentation.
The Condensed Consolidated Balance Sheet data at December 31, 2016 was derived from the audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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, 2016 (the “2016 Form 10-K”).
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue From Contracts With Customers (Topic 606). The FASB issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10 ASU 2016-12 and ASU 2016-20, respectively. The core principle of the new revenue standard is that an entity recognizes revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue standard is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company plans to adopt the standard on January 1, 2018, using the modified retrospective method. The adoption of this new guidance will require expanded disclosures in the Company’s consolidated financial statements including separate quantitative disclosure of revenues within the scope of Topic 606 and revenues excluded from the scope of Topic 606.
Our evaluation of these standards, which includes reviewing representative samples of customer contracts, considers the amount and timing of revenues recognized, financial statement presentation, and required disclosures.
While we are still continuing to evaluate the potential future impact of these standards on our financial statements, we believe the following items will be impacted upon adoption:
- Many of the Company's Grain and Ethanol sales contracts are considered derivatives under ASC Topic 815,
Derivatives and Hedging
, and therefore are outside the scope of Topic 606;
- Certain fee-based arrangements within our Grain and Ethanol segments will be classified as reductions to our cost of sales rather than revenue. However, we do not expect a material change to the timing of when these fees are recognized in our financial statements.
In addition, we are still evaluating the following areas to determine the potential changes, if any, upon adoption:
- Determination of whether we are the principal or agent for certain revenue streams within several of our segments;
- Methodology for recognizing gains on certain sale transactions within our Rail segment.
Leasing
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 supersedes the current accounting for leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a
right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within. Early adoption is permitted, however the Company does not plan to early adopt. Entities are required to use a modified retrospective approach when transitioning to ASU 2016-02 for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements.
The Company expects this standard to have the effect of bringing certain off balance-sheet rail assets noted in Item 2 of Form 10-Q onto the balance sheet along with a corresponding liability for the associated obligations. Additionally, we have other arrangements currently classified as operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet. We are currently evaluating the impact these changes will have on the consolidated financial statements.
Other applicable standards
In August 2017, the FASB issued Accounting Standards Update No. 2017-12 Targeted Improvements to Accounting for Hedging Activities. This standard simplifies the recognition and presentation of changes in the fair value of hedging instruments. The ASU is effective for annual periods beginning December 15, 2018. The Company does not expect the impact from adoption of this standard to be material to its Consolidated Financial Statements and disclosures.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This standard states that
if the vesting conditions, fair value, and classification of the awards are the same immediately before and after the modification an entity would not apply modification accounting
. The ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted, however the Company has not chosen to do so at this time. The Company does not expect the impact from adoption of this standard to be material.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07 Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that the service cost component be reported in the same line item as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit costs should be presented in the income statement separately from the service cost component and outside of income from operations if that subtotal is presented. The ASU is effective for annual periods beginning after December 15, 2017. The Company does not expect the impact from adoption of this standard to be material to its Consolidated Financial Statements and disclosures.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The ASU is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted, and the Company elected to implement this standard in the second quarter of 2017.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how companies present and classify certain cash receipts and payments in the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017. At adoption, the Company will elect to continue classifying distributions from equity method investments using the cumulative earnings approach which is consistent with current practice.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. The Company has not historically incurred significant credit losses and does not currently anticipate circumstances that would lead to a CECL approach differing from the Company's existing allowance estimates in a material way. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, however the Company does not plan to do so.
In January, 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This standard provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted. The Company does not expect the impact from adoption of this standard to be material to currently held financial assets and liabilities.
2. Inventories
Major classes of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
|
September 30,
2016
|
Grain
|
$
|
342,837
|
|
|
$
|
495,139
|
|
|
$
|
262,165
|
|
Ethanol and co-products
|
12,502
|
|
|
10,887
|
|
|
7,734
|
|
Plant nutrients and cob products
|
114,131
|
|
|
150,259
|
|
|
126,922
|
|
Retail merchandise
|
718
|
|
|
20,678
|
|
|
24,985
|
|
Railcar repair parts
|
5,414
|
|
|
5,784
|
|
|
5,948
|
|
|
$
|
475,602
|
|
|
$
|
682,747
|
|
|
$
|
427,754
|
|
Inventories on the Condensed Consolidated Balance Sheets at
September 30, 2017
,
December 31, 2016
and
September 30, 2016
do not include
1.0 million
,
0.9 million
and
1.0 million
bushels of grain, respectively, held in storage for others. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
|
September 30,
2016
|
Land
|
$
|
23,342
|
|
|
$
|
30,672
|
|
|
$
|
28,473
|
|
Land improvements and leasehold improvements
|
71,559
|
|
|
79,631
|
|
|
82,908
|
|
Buildings and storage facilities
|
298,951
|
|
|
322,856
|
|
|
319,950
|
|
Machinery and equipment
|
384,422
|
|
|
392,418
|
|
|
393,178
|
|
Construction in progress
|
7,703
|
|
|
12,784
|
|
|
21,284
|
|
|
785,977
|
|
|
838,361
|
|
|
845,793
|
|
Less: accumulated depreciation
|
366,629
|
|
|
388,309
|
|
|
385,546
|
|
|
$
|
419,348
|
|
|
$
|
450,052
|
|
|
$
|
460,247
|
|
Depreciation expense on property, plant and equipment was
$36.0 million
and
$35.7 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively.
Additionally, depreciation expense on property, plant and equipment was
$11.9 million
and
$12.0 million
for the three months ended
September 30, 2017
and
2016
, respectively.
In December 2016, the Company recorded charges totaling
$6.0 million
for impairment of property, plant and equipment in the Retail business. This does not include
$0.5 million
of impairment charges related to software. The Company wrote down the value of these assets to the extent their carrying amounts exceeded fair value. The Company classified the significant assumptions used to determine fair value of the impaired assets as Level 3 inputs in the fair value hierarchy.
In December 2016, the Company also recorded charges totaling
$2.3 million
for impairment of property, plant and equipment in the Plant Nutrient segment due to the closing of a cob facility.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
|
September 30,
2016
|
Rail Group assets leased to others
|
$
|
484,214
|
|
|
$
|
431,571
|
|
|
$
|
438,211
|
|
Less: accumulated depreciation
|
106,821
|
|
|
104,376
|
|
|
103,810
|
|
|
$
|
377,393
|
|
|
$
|
327,195
|
|
|
$
|
334,401
|
|
Depreciation expense on Rail Group assets leased to others amounted to
$14.9 million
and
$14.0 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to
$5.2 million
and
$4.7 million
for the three months ended
September 30, 2017
and
2016
, respectively.
4. Debt
On April 13, 2017, the Company amended its line of credit agreement with a syndicate of banks. The amended agreement provides for a credit facility in the amount of $
800 million
. Total borrowing capacity for the Company under all lines of credit is currently at $
820.0 million
, including $
20.0 million
of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At
September 30, 2017
, the Company had a total of $
718.5 million
available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of
September 30, 2017
.
The Company’s short-term and long-term debt at
September 30, 2017
,
December 31, 2016
and
September 30, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2017
|
|
December 31,
2016
|
|
September 30,
2016
|
Short-term Debt – Non-Recourse
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term Debt – Recourse
|
19,000
|
|
|
29,000
|
|
|
—
|
|
Total Short-term Debt
|
$
|
19,000
|
|
|
$
|
29,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Current Maturities of Long-term Debt – Non-Recourse
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current Maturities of Long-term Debt – Recourse
|
53,972
|
|
|
47,545
|
|
|
51,520
|
|
Total Current Maturities of Long-term Debt
|
$
|
53,972
|
|
|
$
|
47,545
|
|
|
$
|
51,520
|
|
|
|
|
|
|
|
Long-term Debt, Less: Current Maturities – Non-Recourse
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long-term Debt, Less: Current Maturities – Recourse
|
371,315
|
|
|
397,065
|
|
|
395,559
|
|
Total Long-term Debt, Less: Current Maturities
|
$
|
371,315
|
|
|
$
|
397,065
|
|
|
$
|
395,559
|
|
5. 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. These contracts are primarily traded via the regulated Chicago Mercantile Exchange ("CME"). 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
.
All of these contracts meet the definition of 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 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 cost of 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, option 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 futures, 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 margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at
September 30, 2017
,
December 31, 2016
and
September 30, 2016
, 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 current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
(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 (received)
|
$
|
27,737
|
|
|
$
|
—
|
|
|
$
|
28,273
|
|
|
$
|
—
|
|
|
$
|
13,358
|
|
|
$
|
—
|
|
Fair value of derivatives
|
(999
|
)
|
|
—
|
|
|
1,599
|
|
|
—
|
|
|
16,258
|
|
|
—
|
|
Balance at end of period
|
$
|
26,738
|
|
|
$
|
—
|
|
|
$
|
29,872
|
|
|
$
|
—
|
|
|
$
|
29,616
|
|
|
$
|
—
|
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
33,804
|
|
|
$
|
288
|
|
|
$
|
676
|
|
|
$
|
74
|
|
|
$
|
34,842
|
|
Commodity derivative liabilities
|
(16,339
|
)
|
|
(43
|
)
|
|
(39,254
|
)
|
|
(976
|
)
|
|
(56,612
|
)
|
Cash collateral
|
27,737
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,737
|
|
Balance sheet line item totals
|
$
|
45,202
|
|
|
$
|
245
|
|
|
$
|
(38,578
|
)
|
|
$
|
(902
|
)
|
|
$
|
5,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
36,146
|
|
|
$
|
140
|
|
|
$
|
1,447
|
|
|
$
|
6
|
|
|
$
|
37,739
|
|
Commodity derivative liabilities
|
(18,972
|
)
|
|
(40
|
)
|
|
(24,614
|
)
|
|
(345
|
)
|
|
(43,971
|
)
|
Cash collateral
|
28,273
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,273
|
|
Balance sheet line item totals
|
$
|
45,447
|
|
|
$
|
100
|
|
|
$
|
(23,167
|
)
|
|
$
|
(339
|
)
|
|
$
|
22,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
60,372
|
|
|
$
|
1,356
|
|
|
$
|
3,318
|
|
|
$
|
58
|
|
|
$
|
65,104
|
|
Commodity derivative liabilities
|
(13,893
|
)
|
|
(10
|
)
|
|
(63,088
|
)
|
|
(2,012
|
)
|
|
(79,003
|
)
|
Cash collateral
|
13,358
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,358
|
|
Balance sheet line item totals
|
$
|
59,837
|
|
|
$
|
1,346
|
|
|
$
|
(59,770
|
)
|
|
$
|
(1,954
|
)
|
|
$
|
(541
|
)
|
The gains and losses included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues
|
$
|
(690
|
)
|
|
$
|
(48,620
|
)
|
|
$
|
(15,538
|
)
|
|
$
|
(22,679
|
)
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at
September 30, 2017
,
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
Commodity
(in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
222,287
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
44,463
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
8,598
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
36,451
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
201,521
|
|
|
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
5,782
|
|
|
—
|
|
Other
|
51
|
|
|
—
|
|
|
|
|
|
110
|
|
Subtotal
|
311,850
|
|
|
201,521
|
|
|
5,782
|
|
|
110
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
113,990
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
45,220
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
61,795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
22,890
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
840
|
|
|
—
|
|
|
—
|
|
Subtotal
|
221,900
|
|
|
23,730
|
|
|
—
|
|
|
—
|
|
Total
|
533,750
|
|
|
225,251
|
|
|
5,782
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Commodity
(in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
175,549
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
20,592
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
7,177
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
36,025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
215,081
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
9,358
|
|
|
—
|
|
Other
|
108
|
|
|
1,144
|
|
|
—
|
|
|
110
|
|
Subtotal
|
239,451
|
|
|
216,225
|
|
|
9,358
|
|
|
110
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
63,225
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
39,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
45,360
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
4,120
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
78,120
|
|
|
—
|
|
|
—
|
|
Subtotal
|
151,710
|
|
|
78,120
|
|
|
—
|
|
|
—
|
|
Total
|
391,161
|
|
|
294,345
|
|
|
9,358
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
Commodity
(in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
226,492
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
60,614
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
7,933
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
28,939
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
191,906
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
7,153
|
|
|
—
|
|
Other
|
129
|
|
|
—
|
|
|
—
|
|
|
251
|
|
Subtotal
|
324,107
|
|
|
191,906
|
|
|
7,153
|
|
|
251
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
105,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
35,245
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
39,715
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
2,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
74,046
|
|
|
—
|
|
|
—
|
|
Subtotal
|
183,155
|
|
|
74,046
|
|
|
—
|
|
|
—
|
|
Total
|
507,262
|
|
|
265,952
|
|
|
7,153
|
|
|
251
|
|
At
September 30, 2017
,
December 31, 2016
and
September 30, 2016
, the Company had recorded the following amounts for the fair value of the Company's other derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
(in thousands)
|
|
|
Interest rate contracts included in Other long-term liabilities
|
$
|
(1,929
|
)
|
|
$
|
(2,530
|
)
|
|
$
|
(4,774
|
)
|
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)
|
1,605
|
|
|
(112
|
)
|
|
1,130
|
|
The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for derivatives not designated as hedging instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate derivative gains (losses) included in Interest income (expense)
|
$
|
229
|
|
|
$
|
652
|
|
|
$
|
601
|
|
|
$
|
(1,642
|
)
|
Foreign currency derivative gains (losses) included in Other income, net
|
950
|
|
|
(261
|
)
|
|
1,717
|
|
|
(1,130
|
)
|
6. Employee Benefit Plans
The following are components of the net periodic benefit cost for the pension and postretirement benefit plans maintained by the Company for the three and
nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
(in thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest cost
|
38
|
|
|
49
|
|
|
116
|
|
|
145
|
|
Recognized net actuarial loss
|
63
|
|
|
36
|
|
|
189
|
|
|
109
|
|
Benefit cost
|
$
|
101
|
|
|
$
|
85
|
|
|
$
|
305
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
(in thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
81
|
|
|
$
|
190
|
|
|
$
|
310
|
|
|
$
|
570
|
|
Interest cost
|
202
|
|
|
387
|
|
|
784
|
|
|
1,162
|
|
Amortization of prior service cost
|
(228
|
)
|
|
(88
|
)
|
|
(228
|
)
|
|
(266
|
)
|
Recognized net actuarial loss
|
—
|
|
|
192
|
|
|
—
|
|
|
576
|
|
Benefit cost
|
$
|
55
|
|
|
$
|
681
|
|
|
$
|
866
|
|
|
$
|
2,042
|
|
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes if necessary based on new information or events. The estimated annual effective tax rate is forecast based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur. Additionally, the annual effective tax rate differs from the statutory U.S. Federal tax rate of
35%
primarily due to the impact of state income taxes, impact of foreign equity earnings and to benefits or costs related to various permanent book versus tax differences and tax credits.
For the three months ended
September 30, 2017
, the Company recorded income tax expense of
$2.4 million
at an effective tax rate of
47.7%
, which varied from the U.S. Federal tax rate of
35%
primarily due to a
6.7%
increase in the rate related to the reversal of previously recorded railroad track maintenance tax credit benefits and tax charges related to non-deductible
expenses. For the three months ended
September 30, 2016
, the Company recorded an income tax expense of
$1.1 million
at an effective tax rate of
24.8%
.
For the
nine
months ended
September 30, 2017
, the Company recorded income tax expense of
$7.5 million
at an effective tax rate of
(38.2)%
, which varied from the U.S. Federal tax rate of
35%
primarily due to the recording of the
$42.0 million
goodwill impairment charge which did not provide a corresponding tax benefit. For the
nine
months ended
September 30, 2016
, the Company recorded income tax expense of
$1.5 million
at an effective tax rate of
32.0%
.
8. Accumulated Other Comprehensive Loss
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three and
nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
Three months ended September 30, 2017
|
|
Nine months ended September 30, 2017
|
(in thousands)
|
Foreign Currency Translation Adjustment
|
|
Investment in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
$
|
(9,529
|
)
|
|
$
|
—
|
|
|
$
|
(2,464
|
)
|
|
$
|
(11,993
|
)
|
|
$
|
(11,002
|
)
|
|
$
|
—
|
|
|
$
|
(1,466
|
)
|
|
$
|
(12,468
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
2,201
|
|
|
211
|
|
|
41
|
|
|
$
|
2,453
|
|
|
3,674
|
|
|
211
|
|
|
(957
|
)
|
|
2,928
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
(142
|
)
|
|
$
|
(142
|
)
|
|
—
|
|
|
—
|
|
|
(142
|
)
|
|
(142
|
)
|
Net current-period other comprehensive income (loss)
|
2,201
|
|
|
211
|
|
|
(101
|
)
|
|
2,311
|
|
|
3,674
|
|
|
211
|
|
|
(1,099
|
)
|
|
2,786
|
|
Ending balance
|
$
|
(7,328
|
)
|
|
$
|
211
|
|
|
$
|
(2,565
|
)
|
|
$
|
(9,682
|
)
|
|
$
|
(7,328
|
)
|
|
$
|
211
|
|
|
$
|
(2,565
|
)
|
|
$
|
(9,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2016
|
(in thousands)
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Defined Benefit Plan Items
|
|
Total
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Debt Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
|
$
|
9
|
|
|
$
|
(9,484
|
)
|
|
$
|
(7,619
|
)
|
|
$
|
(17,094
|
)
|
|
$
|
(111
|
)
|
|
$
|
(12,041
|
)
|
|
$
|
126
|
|
|
$
|
(8,913
|
)
|
|
$
|
(20,939
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
—
|
|
|
(298
|
)
|
|
143
|
|
|
(155
|
)
|
|
120
|
|
|
2,259
|
|
|
—
|
|
|
1,547
|
|
|
3,926
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
(126
|
)
|
|
(166
|
)
|
|
(292
|
)
|
Net current-period other comprehensive income (loss)
|
|
—
|
|
|
(298
|
)
|
|
87
|
|
|
(211
|
)
|
|
120
|
|
|
2,259
|
|
|
(126
|
)
|
|
1,381
|
|
|
3,634
|
|
Ending balance
|
|
$
|
9
|
|
|
$
|
(9,782
|
)
|
|
$
|
(7,532
|
)
|
|
$
|
(17,305
|
)
|
|
$
|
9
|
|
|
$
|
(9,782
|
)
|
|
$
|
—
|
|
|
$
|
(7,532
|
)
|
|
$
|
(17,305
|
)
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The following table shows the reclassification adjustments from accumulated other comprehensive loss to net income for the three and
nine
months ended
September 30, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
Three months ended September 30, 2017
|
|
Nine months ended September 30, 2017
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
|
|
|
|
Amortization of prior-service cost
|
|
(227
|
)
|
|
(b)
|
|
(227
|
)
|
|
(b)
|
|
|
(227
|
)
|
|
Total before tax
|
|
(227
|
)
|
|
Total before tax
|
|
|
85
|
|
|
Income tax provision
|
|
85
|
|
|
Income tax provision
|
|
|
$
|
(142
|
)
|
|
Net of tax
|
|
$
|
(142
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(142
|
)
|
|
Net of tax
|
|
(142
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2016
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(89
|
)
|
|
(b)
|
|
$
|
(266
|
)
|
|
(b)
|
|
|
(89
|
)
|
|
Total before tax
|
|
(266
|
)
|
|
Total before tax
|
|
|
33
|
|
|
Income tax provision
|
|
100
|
|
|
Income tax provision
|
|
|
$
|
(56
|
)
|
|
Net of tax
|
|
$
|
(166
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
Recognition of gain on sale of investment
|
|
—
|
|
|
|
|
(200
|
)
|
|
|
|
|
—
|
|
|
Total before tax
|
|
(200
|
)
|
|
Total before tax
|
|
|
—
|
|
|
Income tax provision
|
|
74
|
|
|
Income tax provision
|
|
|
—
|
|
|
Net of tax
|
|
(126
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(56
|
)
|
|
Net of tax
|
|
(292
|
)
|
|
Net of tax
|
(a) Amounts in parentheses indicate credits to profit/loss
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).
9. Earnings Per Share
The Company’s non-vested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per common share data)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss) attributable to The Andersons, Inc.
|
$
|
2,533
|
|
|
$
|
1,722
|
|
|
$
|
(27,208
|
)
|
|
$
|
1,449
|
|
Less: Distributed and undistributed earnings allocated to nonvested restricted stock
|
—
|
|
|
2
|
|
|
—
|
|
|
7
|
|
Earnings (losses) available to common shareholders
|
$
|
2,533
|
|
|
$
|
1,720
|
|
|
$
|
(27,208
|
)
|
|
$
|
1,442
|
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
28,350
|
|
|
28,222
|
|
|
28,327
|
|
|
28,184
|
|
Earnings (losses) per common share – basic
|
$
|
0.09
|
|
|
$
|
0.06
|
|
|
$
|
(0.96
|
)
|
|
$
|
0.05
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
28,350
|
|
|
28,222
|
|
|
28,327
|
|
|
28,184
|
|
Effect of dilutive awards
|
134
|
|
|
140
|
|
|
—
|
|
|
196
|
|
Weighted average shares outstanding – diluted
|
28,484
|
|
|
28,362
|
|
|
28,327
|
|
|
28,380
|
|
Earnings (losses) per common share – diluted
|
$
|
0.09
|
|
|
$
|
0.06
|
|
|
$
|
(0.96
|
)
|
|
$
|
0.05
|
|
There were
43 thousand
antidilutive stock-based awards outstanding for the three months ended September 30, 2017. All outstanding share awards were antidilutive for the
nine
months ended
September 30, 2017
as the Company experienced a net loss. There were
no
antidilutive stock-based awards outstanding for the three and
nine
months ended
September 30, 2016
.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at
September 30, 2017
,
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
26,738
|
|
|
$
|
(20,771
|
)
|
|
$
|
—
|
|
|
$
|
5,967
|
|
Provisionally priced contracts (b)
|
(85,546
|
)
|
|
(33,944
|
)
|
|
—
|
|
|
(119,490
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
6,638
|
|
|
6,638
|
|
Other assets and liabilities (d)
|
10,996
|
|
|
(1,929
|
)
|
|
—
|
|
|
9,067
|
|
Total
|
$
|
(47,812
|
)
|
|
$
|
(56,644
|
)
|
|
$
|
6,638
|
|
|
$
|
(97,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2016
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Restricted cash
|
$
|
471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
471
|
|
Commodity derivatives, net (a)
|
29,872
|
|
|
(7,831
|
)
|
|
—
|
|
|
22,041
|
|
Provisionally priced contracts (b)
|
(105,321
|
)
|
|
(64,876
|
)
|
|
—
|
|
|
(170,197
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
3,294
|
|
|
3,294
|
|
Other assets and liabilities (d)
|
9,391
|
|
|
(2,530
|
)
|
|
—
|
|
|
6,861
|
|
Total
|
$
|
(65,587
|
)
|
|
$
|
(75,237
|
)
|
|
$
|
3,294
|
|
|
$
|
(137,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Restricted cash
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
190
|
|
Commodity derivatives, net (a)
|
34,620
|
|
|
(35,161
|
)
|
|
—
|
|
|
(541
|
)
|
Provisionally priced contracts (b)
|
(79,022
|
)
|
|
(20,500
|
)
|
|
|
|
|
(99,522
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
3,294
|
|
|
3,294
|
|
Other assets and liabilities (d)
|
11,015
|
|
|
(4,774
|
)
|
|
—
|
|
|
6,241
|
|
Total
|
$
|
(33,197
|
)
|
|
$
|
(60,435
|
)
|
|
$
|
3,294
|
|
|
$
|
(90,338
|
)
|
|
|
(a)
|
Includes associated cash posted/received as collateral
|
|
|
(b)
|
Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
|
|
|
(c)
|
Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets
|
|
|
(d)
|
Included in other assets and liabilities are deferred compensation assets, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), and interest rate derivatives (Level 2).
|
Level 1 commodity derivatives reflect the fair value of the exchange-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.
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 material input to fair value for these commodity contracts.
These fair value disclosures exclude physical grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or the Company has delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted CBOT prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted CBOT prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.
The Company’s stake in the Iowa Northern Railway Company ("IANR") was redeemed in the first quarter of 2016. The remaining convertible preferred securities are interests in several early-stage enterprises in the form of convertible debt and preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
|
|
Convertible Preferred Securities
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Asset (liability) at January 1,
|
$
|
—
|
|
|
$
|
(350
|
)
|
|
$
|
3,294
|
|
|
$
|
13,550
|
|
Gains (losses) included in earnings
|
—
|
|
|
190
|
|
|
—
|
|
|
710
|
|
Sales proceeds
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,485
|
)
|
Asset (liability) at March 31,
|
$
|
—
|
|
|
$
|
(160
|
)
|
|
$
|
3,294
|
|
|
$
|
775
|
|
Gains (losses) included in earnings
|
—
|
|
|
160
|
|
|
—
|
|
|
19
|
|
New investments
|
—
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
Asset (liability) at June 30,
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,294
|
|
|
$
|
3,294
|
|
Unrealized gains (losses) included in other comprehensive income
|
—
|
|
|
—
|
|
|
344
|
|
|
—
|
|
New investments
|
—
|
|
|
—
|
|
|
3,000
|
|
|
—
|
|
Asset (liability) at September 30,
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,638
|
|
|
$
|
3,294
|
|
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of
September 30, 2017
,
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of September 30, 2017
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
6,638
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of December 31, 2016
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
3,294
|
|
|
Cost Basis, Plus Interest
|
|
N/A
|
|
N/A
|
Real Property
|
$
|
11,210
|
|
|
Third-Party Appraisal
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of September 30, 2016
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
3,294
|
|
|
Cost Basis, Plus Interest
|
|
N/A
|
|
N/A
|
(a) Due to early stages of business and timing of investments, cost basis, plus interest was deemed to approximate fair value in prior periods. As the underlying enterprises have evolved additional market data is available to consider in order to estimate fair value.
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)
|
September 30,
2017
|
|
December 31,
2016
|
|
September 30,
2016
|
Fair value of long-term debt, including current maturities
|
$
|
431,542
|
|
|
$
|
450,940
|
|
|
$
|
458,268
|
|
Fair value in excess of carrying value (a)
|
2,389
|
|
|
3,116
|
|
|
7,714
|
|
(a) Carrying value used for this purpose excludes unamortized prepaid debt issuance costs
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
11. 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.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
The Andersons Albion Ethanol LLC
|
$
|
42,302
|
|
|
$
|
38,972
|
|
|
$
|
36,661
|
|
The Andersons Clymers Ethanol LLC
|
17,837
|
|
|
19,739
|
|
|
21,340
|
|
The Andersons Marathon Ethanol LLC
|
12,390
|
|
|
22,069
|
|
|
23,812
|
|
Lansing Trade Group, LLC
|
89,541
|
|
|
89,050
|
|
|
91,573
|
|
Thompsons Limited (a)
|
50,399
|
|
|
46,184
|
|
|
47,494
|
|
Other
|
2,562
|
|
|
917
|
|
|
4,234
|
|
Total
|
$
|
215,031
|
|
|
$
|
216,931
|
|
|
$
|
225,114
|
|
(a) Thompsons Limited and related U.S. operating company held by joint ventures
On January 1, 2017, The Andersons Ethanol Investment LLC (“TAEI”) was merged with and into The Andersons Marathon Ethanol LLC (“TAME”). The Company had owned (
66%
) of TAEI, which, in turn, had owned
50%
of TAME. Pursuant to the merger, the Company’s ownership units in TAEI were canceled and converted into ownership units in TAME. As a result, the Company now directly owns
33%
of the outstanding ownership units of TAME.
Prior to this transaction, the noncontrolling interest in TAEI was attributed
33%
of the gains and losses of TAME recorded by the Company in its equity in earnings of affiliates.
The following table summarizes income (loss) earned from the Company’s equity method investments by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
% Ownership at September 30, 2017
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
The Andersons Albion Ethanol LLC
|
55%
|
|
$
|
1,473
|
|
|
$
|
2,528
|
|
|
$
|
3,331
|
|
|
$
|
3,857
|
|
The Andersons Clymers Ethanol LLC
|
39%
|
|
1,822
|
|
|
2,706
|
|
|
2,597
|
|
|
3,516
|
|
The Andersons Marathon Ethanol LLC
|
33%
|
|
985
|
|
|
2,655
|
|
|
1,301
|
|
|
2,557
|
|
Lansing Trade Group, LLC
|
33% (a)
|
|
305
|
|
|
689
|
|
|
491
|
|
|
(7,412
|
)
|
Thompsons Limited (b)
|
50%
|
|
(940
|
)
|
|
(156
|
)
|
|
546
|
|
|
1,271
|
|
Other
|
5% - 50%
|
|
(59
|
)
|
|
—
|
|
|
(173
|
)
|
|
—
|
|
Total
|
|
|
$
|
3,586
|
|
|
$
|
8,422
|
|
|
$
|
8,093
|
|
|
$
|
3,789
|
|
(a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately
0.6%
(b) Thompsons Limited and related U.S. operating company held by joint ventures
Total distributions received from unconsolidated affiliates were
$7.1 million
and
$24.1 million
for the
nine
months ended
September 30, 2017
and
September 30, 2016
, respectively.
In the
third
quarter of 2016, The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon Ethanol LLC, Lansing Trade Group, and Thompsons Limited qualified as significant equity investees of the Company under the income test. The following table presents combined summarized unaudited financial information of these investments for the three and
nine
months ended
September 30, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues
|
$
|
1,601,778
|
|
|
$
|
1,646,697
|
|
|
$
|
4,603,808
|
|
|
$
|
4,676,583
|
|
Gross profit
|
58,826
|
|
|
50,141
|
|
|
155,568
|
|
|
127,963
|
|
Income from continuing operations
|
9,501
|
|
|
18,965
|
|
|
15,507
|
|
|
1,428
|
|
Net income (loss)
|
7,918
|
|
|
17,217
|
|
|
14,878
|
|
|
(2,924
|
)
|
Net income (loss) attributable to companies
|
9,545
|
|
|
17,752
|
|
|
15,781
|
|
|
(1,347
|
)
|
Investment in Debt Securities
The Company previously owned 100% of the cumulative convertible preferred shares of Iowa Northern Railway Company (“IANR”), which operates a short-line railroad in Iowa. In the first quarter of 2016, these shares were redeemed and the Company no longer has an ownership stake in this entity. See Footnote 10 for additional information on the effects of this transaction.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales revenues
|
$
|
225,367
|
|
|
$
|
177,724
|
|
|
$
|
665,331
|
|
|
$
|
549,426
|
|
Service fee revenues (a)
|
14,397
|
|
|
3,800
|
|
|
28,433
|
|
|
13,290
|
|
Purchases of product
|
165,084
|
|
|
128,081
|
|
|
467,495
|
|
|
346,590
|
|
Lease income (b)
|
1,850
|
|
|
1,300
|
|
|
4,559
|
|
|
4,662
|
|
Labor and benefits reimbursement (c)
|
3,208
|
|
|
2,862
|
|
|
10,071
|
|
|
9,702
|
|
Other expenses (d)
|
—
|
|
|
—
|
|
|
—
|
|
|
149
|
|
|
|
(a)
|
Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (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 ethanol LLCs and IANR.
|
|
|
(c)
|
The Company provides all operational labor to the unconsolidated 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 facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
Accounts receivable (e)
|
$
|
18,694
|
|
|
$
|
26,254
|
|
|
$
|
18,028
|
|
Accounts payable (f)
|
27,413
|
|
|
23,961
|
|
|
15,352
|
|
|
|
(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 and other various items.
|
For the three months ended
September 30, 2017
and
2016
, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were
$160.8 million
and
$109.3 million
, respectively. Additionally, for the
nine
months ended
September 30, 2017
and
2016
, revenues recognized for the sale of ethanol and other co-products that the Company purchased from the unconsolidated ethanol LLCs were
$445.4 million
and
$220.6 million
, respectively.
For the three months ended
September 30, 2017
and
2016
, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were
$119.1 million
and
$90.4 million
, respectively. For the
nine
months ended
September 30, 2017
and
2016
, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were
$362.2 million
and
$314.5 million
, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties, including the unconsolidated ethanol LLCs, LTG, and the Thompsons Limited joint ventures, for the purchase and sale of grain and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of
September 30, 2017
,
December 31, 2016
and
September 30, 2016
was $
1.9 million
, $
4.1 million
and $
5.0 million
, respectively. The fair value of derivative contract liabilities with related parties as of
September 30, 2017
,
December 31, 2016
and
September 30, 2016
was $
0.1 million
, $
0.1 million
and $
0.2 million
, respectively.
12. Segment Information
The Company’s operations include
five
reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investments in LTG and Thompsons Limited. The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies,
one
is consolidated and
three
are investments accounted for under the equity method. The Company performs services under various contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. The Retail business operates large retail stores, a distribution center, and a lawn and garden equipment sales and service facility. The Retail business closed during the second quarter of 2017, and liquidation efforts are substantially complete. Included in “Other” are the corporate level costs not attributed to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. The Company does not have any customers who represent
10 percent
or more of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues from external customers
|
|
|
|
|
|
|
|
Grain
|
$
|
497,613
|
|
|
$
|
550,189
|
|
|
$
|
1,464,588
|
|
|
$
|
1,611,992
|
|
Ethanol
|
191,531
|
|
|
139,413
|
|
|
533,515
|
|
|
396,626
|
|
Plant Nutrient
|
103,620
|
|
|
101,770
|
|
|
514,943
|
|
|
588,797
|
|
Rail
|
43,093
|
|
|
38,201
|
|
|
121,632
|
|
|
118,152
|
|
Retail
|
738
|
|
|
30,039
|
|
|
47,595
|
|
|
96,168
|
|
Total
|
$
|
836,595
|
|
|
$
|
859,612
|
|
|
$
|
2,682,273
|
|
|
$
|
2,811,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Inter-segment sales
|
|
|
|
|
|
|
|
Grain
|
$
|
72
|
|
|
$
|
7
|
|
|
$
|
279
|
|
|
$
|
1,632
|
|
Plant Nutrient
|
—
|
|
|
61
|
|
|
241
|
|
|
422
|
|
Rail
|
327
|
|
|
328
|
|
|
893
|
|
|
1,062
|
|
Total
|
$
|
399
|
|
|
$
|
396
|
|
|
$
|
1,413
|
|
|
$
|
3,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
Grain
|
$
|
2,641
|
|
|
$
|
1,879
|
|
|
$
|
4,497
|
|
|
$
|
(28,563
|
)
|
Ethanol
|
6,098
|
|
|
9,541
|
|
|
12,474
|
|
|
13,048
|
|
Plant Nutrient
|
(7,920
|
)
|
|
(7,231
|
)
|
|
(27,074
|
)
|
|
18,008
|
|
Rail
|
6,127
|
|
|
6,754
|
|
|
18,065
|
|
|
22,698
|
|
Retail
|
4,424
|
|
|
(1,578
|
)
|
|
(9,140
|
)
|
|
(2,644
|
)
|
Other
|
(6,448
|
)
|
|
(6,539
|
)
|
|
(18,525
|
)
|
|
(19,612
|
)
|
Noncontrolling interests
|
83
|
|
|
1,619
|
|
|
73
|
|
|
1,711
|
|
Total
|
$
|
5,005
|
|
|
$
|
4,445
|
|
|
$
|
(19,630
|
)
|
|
$
|
4,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
Identifiable assets
|
|
|
|
|
|
Grain
|
$
|
799,655
|
|
|
$
|
961,114
|
|
|
$
|
721,412
|
|
Ethanol
|
173,545
|
|
|
171,115
|
|
|
174,822
|
|
Plant Nutrient
|
389,396
|
|
|
484,455
|
|
|
462,328
|
|
Rail
|
446,884
|
|
|
398,446
|
|
|
383,631
|
|
Retail
|
9,138
|
|
|
31,257
|
|
|
42,880
|
|
Other
|
145,542
|
|
|
186,462
|
|
|
199,338
|
|
Total
|
$
|
1,964,160
|
|
|
$
|
2,232,849
|
|
|
$
|
1,984,411
|
|
13. 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 additional expense. 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.
In the third quarter of 2017, the Company’s Plant Nutrient business recorded a
$2.2 million
reserve for settlement of a 2015 legal claim. The case regarded allegations that the Plant Nutrient business had improperly acquired another company’s confidential and proprietary intellectual property in connection with hiring a former employee of the plaintiff. Information obtained through the course of discovery, and completed during the third quarter, and anticipated legal costs, in conjunction with the preparation for the planned mediation scheduled for October, 2017, led management to conclude that a loss was probable and reasonably estimable. In October, settlement was finalized at the reserve amount.
Prior to the settlement, substantially all the Company’s legal expenses were paid by a liability insurance carrier.
The estimated range of loss for all other outstanding claims that are considered reasonably possible is not material.
Build-to-Suit Lease
In August, 2015, the Company entered into a lease agre
ement with an initial term of
15 years
for a build-to-suit facility to be used as the new corporate headquarters which was completed in the third quarter of 2016. Since the Company is deemed to be the owner of this facility for accounting purposes during the construction period, it has recognized an asset and a corresponding financing obligation.
The Company has recorded a build-to-suit financing obligation in other long-term liabilities of
$24.7 million
,
$14.0 million
, and
$13.7 million
at
September 30, 2017
,
December 31, 2016
, and
September 30, 2016
, respectively. The Company has recorded a build-to-suit financing obligation in other current liabilities of
$1.4 million
,
$0.9 million
, and
$1.3 million
at
September 30, 2017
,
December 31, 2016
, and
September 30, 2016
, respectively.
14. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the
nine
months ended
September 30, 2017
and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
(in thousands)
|
2017
|
|
2016
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest paid
|
$
|
20,356
|
|
|
$
|
18,008
|
|
Noncash investing and financing activity
|
|
|
|
Capital projects incurred but not yet paid
|
6,319
|
|
|
13,104
|
|
Investment merger (decreasing equity method investments and non-controlling interest)
|
8,360
|
|
|
—
|
|
Dividends declared not yet paid
|
4,501
|
|
|
4,342
|
|
15. Sale of Assets
During the third quarter of 2017 the Company sold
two
of its retail properties for
$7.6 million
and recorded a
$5.7 million
gain in Other income, net.
On March 31, 2017 the Company sold
four
farm center locations in Florida for
$17.4 million
and recorded a
$4.7 million
gain, net of transaction costs in Other income, net. The sale price included a working capital adjustment of
$3.6 million
.
On May 2, 2016 the Company sold
eight
grain and agronomy locations in Iowa for
$54.3 million
and recorded a nominal gain.
16. Exit Costs and Assets Held for Sale
The Retail business closed during the second quarter of 2017, and inventory and fixtures liquidation efforts are complete. The Company incurred minimal additional exit charges during the third quarter of 2017 and a total of
$11.5 million
through the first three quarters of 2017, consisting primarily of employee severance and related benefits. As a result of the closure, the Company also classified
$8.4 million
of Property, plant and equipment, net as Assets held for sale on the Condensed Consolidated Balance Sheet at September 30, 2017.
17. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the
nine
months ended
September 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Grain
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Balance as of January 1, 2017
|
$
|
—
|
|
|
$
|
59,767
|
|
|
$
|
4,167
|
|
|
$
|
63,934
|
|
Acquisitions
|
1,171
|
|
|
—
|
|
|
—
|
|
|
1,171
|
|
Impairments
|
—
|
|
|
(42,000
|
)
|
|
—
|
|
|
(42,000
|
)
|
Balance as of September 30, 2017
|
$
|
1,171
|
|
|
$
|
17,767
|
|
|
$
|
4,167
|
|
|
$
|
23,105
|
|
The Company recorded a goodwill impairment charge of
$42.0 million
associated with the Wholesale reporting unit in the second quarter of 2017. With the estimated fair value of the reporting unit now equaling its carrying value as of June 30, 2017, the Wholesale reporting unit has a greater risk of future impairment to the remaining goodwill balance of
$17.1 million
. The Company will be completing its annual goodwill assessment as of October 1.
Any negative change in assumptions, including decreased current performance and/or forecasted performance, as well as increased interest rates and/or cost of capital will negatively impact the fair value of the reporting unit. Increases in the book value of the reporting unit, such as additional capital investments or working capital increases will also negatively impact the goodwill assessment. Finally relative performance shortfalls, when compared to peer results, could also negatively impact the goodwill assessment. The magnitude of each of these changes may result in additional goodwill impairment in the fourth quarter of 2017.