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, 2016
.
The Condensed Consolidated Balance Sheet data at December 31, 2015 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. An unaudited Condensed Consolidated Balance Sheet as of
June 30, 2015
has been included as the Company operates in several seasonal industries.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”).
New Accounting Standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-10, Identifying Performance Obligations and Licensing. This standard is intended to clarify guidance under ASC 606 related to the definition of performance obligations and materiality considerations as well as revenue recognition questions around the licensing of intellectual property. The standard is effective for annual and interim periods beginning after December 15, 2017. The portions of this standard related to licensing are not applicable but the Company is currently assessing the method of adoption and the impact the remaining provisions in this standard will have on its Consolidated Financial Statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based compensation. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Principal versus Agent Considerations. This standard is intended to clarify the process to determine whether a company should record certain revenue transactions on a gross or a net basis. The standard is effective for annual and interim periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. This standard is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with expanded disclosures around those items. This guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of this standard.
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 is currently evaluating the impact of this standard.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes. This standard simplifies the presentation of deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and assets as current and non-current on the Consolidated Balance Sheets. Instead, companies
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. This standard requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers. The core principle of the new revenue model 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 standard is effective for annual and interim periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
2. Inventories
Major classes of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2016
|
|
December 31,
2015
|
|
June 30,
2015
|
Grain
|
$
|
348,757
|
|
|
$
|
534,548
|
|
|
$
|
327,480
|
|
Ethanol and by-products
|
15,298
|
|
|
8,576
|
|
|
12,802
|
|
Plant nutrients and cob products
|
91,227
|
|
|
172,815
|
|
|
136,472
|
|
Retail merchandise
|
25,161
|
|
|
24,510
|
|
|
25,415
|
|
Railcar repair parts
|
5,793
|
|
|
6,894
|
|
|
6,050
|
|
Other
|
—
|
|
|
56
|
|
|
189
|
|
|
$
|
486,236
|
|
|
$
|
747,399
|
|
|
$
|
508,408
|
|
Inventories on the Condensed Consolidated Balance Sheets at
June 30, 2016
,
December 31, 2015
and
June 30, 2015
do not include
4.0 million
,
3.4 million
and
1.2 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 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2016
|
|
December 31,
2015
|
|
June 30,
2015
|
Land
|
$
|
28,472
|
|
|
$
|
29,928
|
|
|
$
|
29,902
|
|
Land improvements and leasehold improvements
|
77,849
|
|
|
77,191
|
|
|
75,822
|
|
Buildings and storage facilities
|
290,528
|
|
|
303,482
|
|
|
296,035
|
|
Machinery and equipment
|
374,107
|
|
|
375,028
|
|
|
356,759
|
|
Construction in progress
|
51,672
|
|
|
32,871
|
|
|
21,803
|
|
|
822,628
|
|
|
818,500
|
|
|
780,321
|
|
Less: accumulated depreciation
|
375,361
|
|
|
363,240
|
|
|
343,247
|
|
|
$
|
447,267
|
|
|
$
|
455,260
|
|
|
$
|
437,074
|
|
Depreciation expense on property, plant and equipment was
$23.8 million
and
$22.3 million
for the six months ended
June 30, 2016
and
2015
, respectively. Additionally, Depreciation expense on property, plant and equipment was
$11.6 million
and
$11.4 million
for the three months ended
June 30, 2016
and
2015
, respectively.
Capitalized software has been reclassified from property, plant, and equipment, and is now presented as a component of other intangible assets. Prior year balance sheets have been recast to conform with the current period presentation.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2016
|
|
December 31,
2015
|
|
June 30,
2015
|
Rail Group assets leased to others
|
$
|
442,239
|
|
|
$
|
434,051
|
|
|
$
|
422,810
|
|
Less: accumulated depreciation
|
102,103
|
|
|
95,940
|
|
|
91,978
|
|
|
$
|
340,136
|
|
|
$
|
338,111
|
|
|
$
|
330,832
|
|
Depreciation expense on Rail Group assets leased to others amounted to
$9.3 million
and
$8.3 million
for the six months ended
June 30, 2016
and
2015
, respectively. Additionally, Depreciation expense on Rail Group assets leased to others amounted to
$4.7 million
and
$4.3 million
for the three months ended
June 30, 2016
and
2015
, respectively.
4. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 5 in the Company’s 2015 Form 10-K for a description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $
872.5 million
, including $
22.5 million
of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At
June 30, 2016
, the Company had a total of $
630.9 million
available for borrowing under its lines of credit. Our 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
June 30, 2016
.
The Company’s short-term and long-term debt at
June 30, 2016
,
December 31, 2015
and
June 30, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2016
|
|
December 31,
2015
|
|
June 30,
2015
|
Short-term Debt – Non-Recourse
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term Debt – Recourse
|
$
|
179,404
|
|
|
16,990
|
|
|
141,250
|
|
Total Short-term Debt
|
179,404
|
|
|
16,990
|
|
|
141,250
|
|
|
|
|
|
|
|
Current Maturities of Long-term Debt – Non-Recourse
|
—
|
|
|
—
|
|
|
—
|
|
Current Maturities of Long-term Debt – Recourse
|
53,720
|
|
|
27,786
|
|
|
27,188
|
|
Total Current Maturities of Long-term Debt
|
53,720
|
|
|
27,786
|
|
|
27,188
|
|
|
|
|
|
|
|
Long-term Debt, Less: Current Maturities – Non-Recourse
|
—
|
|
|
—
|
|
|
—
|
|
Long-term Debt, Less: Current Maturities – Recourse
|
398,746
|
|
|
436,208
|
|
|
417,279
|
|
Total Long-term Debt, Less: Current Maturities
|
$
|
398,746
|
|
|
$
|
436,208
|
|
|
$
|
417,279
|
|
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. The exchange traded contracts are primarily 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. These amounts were previously classified in sales and merchandising revenues but were reclassified starting in the fourth quarter of 2015.
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 future, 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 future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The 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
June 30, 2016
,
December 31, 2015
and
June 30, 2015
, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
(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)
|
$
|
38,252
|
|
|
$
|
(480
|
)
|
|
$
|
3,008
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,007
|
|
Fair value of derivatives
|
13,491
|
|
|
1,480
|
|
|
25,356
|
|
|
—
|
|
|
—
|
|
|
(58,195
|
)
|
Balance at end of period
|
$
|
51,743
|
|
|
$
|
1,000
|
|
|
$
|
28,364
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9,188
|
)
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
(in thousands)
|
Commodity derivative assets - current
|
|
Commodity derivative assets - noncurrent
|
|
Commodity derivative liabilities - current
|
|
Commodity derivative liabilities - noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
134,504
|
|
|
$
|
2,095
|
|
|
$
|
5,925
|
|
|
$
|
84
|
|
|
$
|
142,608
|
|
Commodity derivative liabilities
|
(56,832
|
)
|
|
(161
|
)
|
|
(48,628
|
)
|
|
(2,266
|
)
|
|
(107,887
|
)
|
Cash collateral
|
38,252
|
|
|
—
|
|
|
(480
|
)
|
|
—
|
|
|
37,772
|
|
Balance sheet line item totals
|
$
|
115,924
|
|
|
$
|
1,934
|
|
|
$
|
(43,183
|
)
|
|
$
|
(2,182
|
)
|
|
$
|
72,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
Commodity derivative assets - current
|
|
Commodity derivative assets - noncurrent
|
|
Commodity derivative liabilities - current
|
|
Commodity derivative liabilities - noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
51,647
|
|
|
$
|
412
|
|
|
$
|
371
|
|
|
$
|
2
|
|
|
$
|
52,432
|
|
Commodity derivative liabilities
|
(4,829
|
)
|
|
—
|
|
|
(37,758
|
)
|
|
(1,065
|
)
|
|
(43,652
|
)
|
Cash collateral
|
3,008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,008
|
|
Balance sheet line item totals
|
$
|
49,826
|
|
|
$
|
412
|
|
|
$
|
(37,387
|
)
|
|
$
|
(1,063
|
)
|
|
$
|
11,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
(in thousands)
|
Commodity derivative assets - current
|
|
Commodity derivative assets - noncurrent
|
|
Commodity derivative liabilities - current
|
|
Commodity derivative liabilities - noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
52,405
|
|
|
$
|
3,072
|
|
|
$
|
3,956
|
|
|
$
|
43
|
|
|
$
|
59,476
|
|
Commodity derivative liabilities
|
(61,552
|
)
|
|
(82
|
)
|
|
(46,578
|
)
|
|
(2,220
|
)
|
|
(110,432
|
)
|
Cash collateral
|
49,007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,007
|
|
Balance sheet line item totals
|
$
|
39,860
|
|
|
$
|
2,990
|
|
|
$
|
(42,622
|
)
|
|
$
|
(2,177
|
)
|
|
$
|
(1,949
|
)
|
The gains (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 June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues
|
$
|
34,800
|
|
|
$
|
(41,017
|
)
|
|
$
|
25,941
|
|
|
$
|
2,805
|
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at
June 30, 2016
,
December 31, 2015
and
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
Commodity
|
Number of bushels
(in thousands)
|
|
Number of gallons
(in thousands)
|
|
Number of pounds
(in thousands)
|
|
Number of tons
(in thousands)
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
242,269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
52,599
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
13,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
30,722
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
130,464
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
13,800
|
|
|
—
|
|
Other
|
17
|
|
|
—
|
|
|
—
|
|
|
128
|
|
Subtotal
|
338,707
|
|
|
130,464
|
|
|
13,800
|
|
|
128
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
148,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
46,570
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
22,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
2,820
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
36,540
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Subtotal
|
220,845
|
|
|
36,540
|
|
|
—
|
|
|
—
|
|
Total
|
559,552
|
|
|
167,004
|
|
|
13,800
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Commodity
|
Number of bushels
(in thousands)
|
|
Number of gallons
(in thousands)
|
|
Number of pounds
(in thousands)
|
|
Number of tons
(in thousands)
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
227,248
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
13,357
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
13,710
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
15,019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
138,660
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
11,532
|
|
|
—
|
|
Other
|
297
|
|
|
—
|
|
|
—
|
|
|
116
|
|
Subtotal
|
269,631
|
|
|
138,660
|
|
|
11,532
|
|
|
116
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
106,260
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
17,255
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
28,135
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
3,480
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
840
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
840
|
|
|
—
|
|
|
—
|
|
Subtotal
|
155,130
|
|
|
1,680
|
|
|
—
|
|
|
—
|
|
Total
|
424,761
|
|
|
140,340
|
|
|
11,532
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
Commodity
|
Number of bushels
(in thousands)
|
|
Number of gallons
(in thousands)
|
|
Number of pounds
(in thousands)
|
|
Number of tons
(in thousands)
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
233,812
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
29,823
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
8,809
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
24,180
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
139,789
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
6,394
|
|
|
—
|
|
Other
|
350
|
|
|
—
|
|
|
—
|
|
|
118
|
|
Subtotal
|
296,974
|
|
|
139,789
|
|
|
6,394
|
|
|
118
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
139,965
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
30,945
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
22,585
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
4,690
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
25,620
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Subtotal
|
198,185
|
|
|
25,620
|
|
|
—
|
|
|
—
|
|
Total
|
495,159
|
|
|
165,409
|
|
|
6,394
|
|
|
118
|
|
At
June 30, 2016
,
December 31, 2015
and
June 30, 2015
, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2015
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts included in other long term liabilities
|
(5,422
|
)
|
|
(3,133
|
)
|
|
—
|
|
Total fair value of interest rate derivatives not designated as hedging instruments
|
$
|
(5,422
|
)
|
|
$
|
(3,133
|
)
|
|
$
|
—
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
Interest rate contract included in other short term liabilities
|
—
|
|
|
(191
|
)
|
|
—
|
|
Total fair value of interest rate derivatives designated as hedging instruments
|
$
|
—
|
|
|
$
|
(191
|
)
|
|
$
|
—
|
|
The losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for interest rate derivatives not designated as hedging instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest expense
|
$
|
(694
|
)
|
|
$
|
—
|
|
|
$
|
(2,294
|
)
|
|
$
|
—
|
|
The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks but which are not designated as accounting hedges. At
June 30, 2016
,
December 31, 2015
and
June 30, 2015
, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2015
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Foreign currency contracts included in short term assets
|
1,391
|
|
|
—
|
|
|
—
|
|
Total fair value of foreign currency contract derivatives not designated as hedging instruments
|
$
|
1,391
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for foreign currency contract derivatives not designated as hedging instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Foreign currency derivative gains (losses) included in Other income, net
|
$
|
(87
|
)
|
|
$
|
—
|
|
|
$
|
1,391
|
|
|
$
|
—
|
|
6. Employee Benefit Plans
The following are components of the net periodic benefit cost for the pension and post-retirement benefit plans maintained by the Company for the three and
six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
(in thousands)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
2016
|
|
2015
|
|
2016
|
2015
|
Service cost
|
$
|
—
|
|
|
$
|
63
|
|
|
$
|
—
|
|
$
|
118
|
|
Interest cost
|
48
|
|
|
(1,118
|
)
|
|
97
|
|
91
|
|
Expected return on plan assets
|
—
|
|
|
1,561
|
|
|
—
|
|
—
|
|
Recognized net actuarial loss
|
37
|
|
|
388
|
|
|
73
|
|
758
|
|
Benefit cost
|
$
|
85
|
|
|
$
|
894
|
|
|
$
|
170
|
|
$
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement Benefits
|
(in thousands)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
2016
|
|
2015
|
|
2016
|
2015
|
Service cost
|
$
|
167
|
|
|
$
|
210
|
|
|
$
|
380
|
|
$
|
450
|
|
Interest cost
|
370
|
|
|
386
|
|
|
775
|
|
792
|
|
Amortization of prior service cost
|
(89
|
)
|
|
(136
|
)
|
|
(177
|
)
|
(272
|
)
|
Recognized net actuarial loss
|
149
|
|
|
367
|
|
|
384
|
|
759
|
|
Benefit cost
|
$
|
597
|
|
|
$
|
827
|
|
|
$
|
1,362
|
|
$
|
1,729
|
|
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 and to benefits related to the domestic production activities deduction.
For the three months ended June 30, 2016, the Company recorded income tax expense of
$7.7 million
at an effective tax rate of
33.2%
, which varied from the U.S. Federal tax rate of
35%
primarily due to a
1.9%
tax benefit related to the domestic production activities deduction and a
1.7%
tax benefit attributable to the accounting for the investment in a foreign affiliate. For the three months ended June 30, 2015, the Company recorded income tax expense of
$18.0 million
at an effective tax rate of
35.7%
.
For the six months ended June 30, 2016, the Company recorded income tax expense of
$0.4 million
at an effective tax rate of
189.6%
, which varied from the U.S. Federal tax rate of
35%
primarily due to a
174.7%
discrete tax charge related to state income taxes. For the six months ended June 30, 2015, the Company recorded income tax expense of
$19.1 million
at an effective tax rate of
34.4%
.
There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2015. During the quarter ended March 31, 2016, the IRS completed its audit of the Company’s 2011 and 2012 consolidated Federal income tax returns. The results of the examination will not have a material effect on the Company’s 2016 effective tax rate.
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
six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
For the three months ended June 30, 2016
|
|
For the Six months ended June 30, 2016
|
(in thousands)
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Debt Securities
|
|
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
|
|
$
|
(51
|
)
|
|
$
|
(9,536
|
)
|
|
$
|
—
|
|
|
$
|
(8,740
|
)
|
|
$
|
(18,327
|
)
|
|
$
|
(111
|
)
|
|
$
|
(12,041
|
)
|
|
$
|
126
|
|
|
$
|
(8,913
|
)
|
|
$
|
(20,939
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
60
|
|
|
52
|
|
|
—
|
|
|
1,177
|
|
|
1,289
|
|
|
120
|
|
|
2,557
|
|
|
—
|
|
|
1,406
|
|
|
4,083
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
(126
|
)
|
|
(112
|
)
|
|
(238
|
)
|
Net current-period other comprehensive income (loss)
|
|
60
|
|
|
52
|
|
|
—
|
|
|
1,121
|
|
|
1,233
|
|
|
120
|
|
|
2,557
|
|
|
(126
|
)
|
|
1,294
|
|
|
3,845
|
|
Ending balance
|
|
$
|
9
|
|
|
$
|
(9,484
|
)
|
|
$
|
—
|
|
|
$
|
(7,619
|
)
|
|
$
|
(17,094
|
)
|
|
$
|
9
|
|
|
$
|
(9,484
|
)
|
|
$
|
—
|
|
|
$
|
(7,619
|
)
|
|
$
|
(17,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
For the three months ended June 30, 2015
|
|
For the six months ended June 30, 2015
|
(in thousands)
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Debt Securities
|
|
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
|
|
$
|
(306
|
)
|
|
$
|
(8,692
|
)
|
|
$
|
126
|
|
|
$
|
(49,258
|
)
|
|
$
|
(58,130
|
)
|
|
$
|
(364
|
)
|
|
$
|
(4,709
|
)
|
|
$
|
126
|
|
|
$
|
(49,648
|
)
|
|
$
|
(54,595
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
64
|
|
|
779
|
|
|
—
|
|
|
2,213
|
|
|
3,056
|
|
|
122
|
|
|
(3,204
|
)
|
|
—
|
|
|
2,688
|
|
|
(394
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
(85
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(170
|
)
|
|
(170
|
)
|
Net current-period other comprehensive income (loss)
|
|
64
|
|
|
779
|
|
|
—
|
|
|
2,128
|
|
|
2,971
|
|
|
122
|
|
|
(3,204
|
)
|
|
—
|
|
|
2,518
|
|
|
(564
|
)
|
Ending balance
|
|
$
|
(242
|
)
|
|
$
|
(7,913
|
)
|
|
$
|
126
|
|
|
$
|
(47,130
|
)
|
|
$
|
(55,159
|
)
|
|
$
|
(242
|
)
|
|
$
|
(7,913
|
)
|
|
$
|
126
|
|
|
$
|
(47,130
|
)
|
|
$
|
(55,159
|
)
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The following tables show the reclassification adjustments from accumulated other comprehensive loss to net income (loss) for the three and
six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
For the three months ended June 30, 2016
|
|
For the Six months ended June 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)
|
|
$
|
(177
|
)
|
|
(b)
|
|
|
(89
|
)
|
|
Total before tax
|
|
(177
|
)
|
|
Total before tax
|
|
|
33
|
|
|
Income tax provision
|
|
65
|
|
|
Income tax provision
|
|
|
$
|
(56
|
)
|
|
Net of tax
|
|
$
|
(112
|
)
|
|
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
|
|
(238
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
For the three months ended June 30, 2015
|
|
For the six months ended June 30, 2015
|
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
|
|
$
|
(136
|
)
|
|
(b)
|
|
$
|
(272
|
)
|
|
(b)
|
|
|
(136
|
)
|
|
Total before tax
|
|
(272
|
)
|
|
Total before tax
|
|
|
51
|
|
|
Income tax provision
|
|
102
|
|
|
Income tax provision
|
|
|
$
|
(85
|
)
|
|
Net of tax
|
|
$
|
(170
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(85
|
)
|
|
Net of tax
|
|
$
|
(170
|
)
|
|
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
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per common share data)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income (loss) attributable to The Andersons, Inc.
|
$
|
14,423
|
|
|
$
|
31,092
|
|
|
$
|
(273
|
)
|
|
$
|
35,189
|
|
Less: Distributed and undistributed earnings allocated to nonvested restricted stock
|
8
|
|
|
52
|
|
|
5
|
|
|
66
|
|
Earnings (loss) available to common shareholders
|
$
|
14,415
|
|
|
$
|
31,040
|
|
|
$
|
(278
|
)
|
|
$
|
35,123
|
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
28,227
|
|
|
28,375
|
|
|
28,164
|
|
|
28,558
|
|
Earnings (loss) per common share – basic
|
$
|
0.51
|
|
|
$
|
1.09
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.23
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
28,227
|
|
|
28,375
|
|
|
28,164
|
|
|
28,558
|
|
Effect of dilutive awards
|
86
|
|
|
13
|
|
|
—
|
|
|
51
|
|
Weighted average shares outstanding – diluted
|
28,313
|
|
|
28,388
|
|
|
28,164
|
|
|
28,609
|
|
Earnings (loss) per common share – diluted
|
$
|
0.51
|
|
|
$
|
1.09
|
|
|
$
|
(0.01
|
)
|
|
$
|
1.23
|
|
All outstanding share awards were antidilutive for the six months ended
June 30, 2016
as the Company experienced a net loss. There were
no
antidilutive stock-based awards outstanding for the three months ended
June 30, 2016
or at
June 30, 2015
.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at
June 30, 2016
,
December 31, 2015
and
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2016
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
$
|
11,578
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,578
|
|
Restricted cash
|
987
|
|
|
—
|
|
|
—
|
|
|
987
|
|
Commodity derivatives, net (a)
|
48,412
|
|
|
24,083
|
|
|
—
|
|
|
72,495
|
|
Provisionally priced contracts (b)
|
(42,213
|
)
|
|
(18,495
|
)
|
|
—
|
|
|
(60,708
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
3,294
|
|
|
3,294
|
|
Other assets and liabilities (d)
|
6,080
|
|
|
(5,426
|
)
|
|
—
|
|
|
654
|
|
Total
|
$
|
24,844
|
|
|
$
|
162
|
|
|
$
|
3,294
|
|
|
$
|
28,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2015
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
$
|
26,931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,931
|
|
Restricted cash
|
450
|
|
|
—
|
|
|
—
|
|
|
450
|
|
Commodity derivatives, net (a)
|
26,890
|
|
|
(15,101
|
)
|
|
—
|
|
|
11,789
|
|
Provisionally priced contracts (b)
|
(133,842
|
)
|
|
(103,148
|
)
|
|
—
|
|
|
(236,990
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
13,550
|
|
|
13,550
|
|
Other assets and liabilities (d)
|
8,635
|
|
|
(3,324
|
)
|
|
350
|
|
|
5,661
|
|
Total
|
$
|
(70,936
|
)
|
|
$
|
(121,573
|
)
|
|
$
|
13,900
|
|
|
$
|
(178,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2015
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
$
|
8,943
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,943
|
|
Restricted cash
|
941
|
|
|
—
|
|
|
—
|
|
|
941
|
|
Commodity derivatives, net (a)
|
(6,960
|
)
|
|
5,011
|
|
|
—
|
|
|
(1,949
|
)
|
Provisionally priced contracts (b)
|
(50,001
|
)
|
|
(35,085
|
)
|
|
—
|
|
|
(85,086
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
13,300
|
|
|
13,300
|
|
Other assets and liabilities (d)
|
11,531
|
|
|
(2,565
|
)
|
|
—
|
|
|
8,966
|
|
Total
|
$
|
(35,546
|
)
|
|
$
|
(32,639
|
)
|
|
$
|
13,300
|
|
|
$
|
(54,885
|
)
|
|
|
(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), interest rate derivatives (Level 2), and contingent consideration to the former owners of Kay Flo Industries, Inc (Level 3).
|
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 Inventories. 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 we have delivered provisionally priced grain and a subsequent payable or receivable is set up for any futures 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 two early-stage enterprises in the form of debt securities with the possibility of conversion to equity under certain circumstances.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Contingent Consideration
|
|
Contingent Consideration
|
|
Convertible Securities
|
|
Convertible Securities
|
Asset (liability) at January 1,
|
$
|
(350
|
)
|
|
$
|
—
|
|
|
$
|
13,550
|
|
|
$
|
13,300
|
|
Gains (losses) included in earnings
|
190
|
|
|
—
|
|
|
710
|
|
|
—
|
|
Sales proceeds
|
—
|
|
|
—
|
|
|
(13,485
|
)
|
|
—
|
|
Asset (liability) at March 31,
|
$
|
(160
|
)
|
|
$
|
—
|
|
|
$
|
775
|
|
|
$
|
13,300
|
|
Gains (losses) included in earnings
|
160
|
|
|
—
|
|
|
19
|
|
|
—
|
|
New agreements
|
—
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
Asset (liability) at June 30,
|
—
|
|
|
—
|
|
|
3,294
|
|
|
13,300
|
|
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of
June 30, 2016
,
December 31, 2015
and
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of June 30, 2016
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible Notes
|
$
|
3,294
|
|
|
Cost basis plus interest
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of December 31, 2015
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible Preferred Securities
|
$
|
12,800
|
|
|
Market Approach
|
|
EBITDA Multiples
|
|
5.6
|
|
|
|
|
Income Approach
|
|
Discount Rate
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
Convertible Notes
|
$
|
750
|
|
|
Cost basis plus interest
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of June 30, 2015
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible Preferred Securities
|
$
|
13,300
|
|
|
Market Approach
|
|
EBITDA Multiples
|
|
6.15
|
|
|
|
|
Income Approach
|
|
Discount Rate
|
|
14.5
|
%
|
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)
|
June 30,
2016
|
|
December 31,
2015
|
|
June 30,
2015
|
Fair value of long-term debt, including current maturities
|
$
|
472,714
|
|
|
$
|
467,703
|
|
|
$
|
448,298
|
|
Fair value in excess of carrying value
|
16,498
|
|
|
3,708
|
|
|
3,831
|
|
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.
On December 4, 2015, Lansing Trade Group, LLC ("LTG") agreed to the sale of equity to New Hope Liuhe Investment (USA), Inc., a U.S. subsidiary of the Chinese company, New Hope Liuhe Co. Ltd. New Hope paid cash for a
20 percent
equity interest in LTG. The impact of this transaction to the Company was a reduction in total ownership share of LTG from approximately
38.5 percent
to
31.0 percent
which includes dilution from newly issued shares as well as a redemption of shares that occurred on a pro rata basis between the Company and the other existing owners of LTG. The Company recognized a total gain of
$23.1 million
on these transactions. Cash of
$8.2 million
was received of which
$1.3 million
was a return of capital and
$6.7 million
was a return on capital. The remainder was a book gain on cash received in excess of basis in the shares redeemed.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
The Andersons Albion Ethanol LLC
|
$
|
34,133
|
|
|
$
|
32,871
|
|
|
$
|
30,943
|
|
The Andersons Clymers Ethanol LLC
|
30,088
|
|
|
29,278
|
|
|
29,698
|
|
The Andersons Marathon Ethanol LLC
|
31,158
|
|
|
31,255
|
|
|
29,681
|
|
Lansing Trade Group, LLC
|
90,884
|
|
|
101,531
|
|
|
84,092
|
|
Thompsons Limited (a)
|
47,948
|
|
|
43,964
|
|
|
47,232
|
|
Other
|
4,267
|
|
|
3,208
|
|
|
2,734
|
|
Total
|
$
|
238,478
|
|
|
$
|
242,107
|
|
|
$
|
224,380
|
|
(a)
Thompsons Limited and related U.S. operating company held by joint ventures
The Company holds a majority interest (
66%
) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a
50%
interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed
34%
of the gains and losses of TAME recorded by the Company in its equity in earnings of affiliates.
The following table summarizes income earned from the Company’s equity method investments by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
% Ownership at
June 30, 2016
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
The Andersons Albion Ethanol LLC
|
55%
|
|
$
|
1,650
|
|
|
$
|
2,324
|
|
|
$
|
1,328
|
|
|
$
|
3,416
|
|
The Andersons Clymers Ethanol LLC
|
38%
|
|
1,889
|
|
|
3,180
|
|
|
810
|
|
|
3,468
|
|
The Andersons Marathon Ethanol LLC
|
50%
|
|
1,712
|
|
|
2,812
|
|
|
(97
|
)
|
|
3,144
|
|
Lansing Trade Group, LLC
|
33% (a)
|
|
(5,333
|
)
|
|
5,498
|
|
|
(8,101
|
)
|
|
7,908
|
|
Thompsons Limited (b)
|
50%
|
|
2,426
|
|
|
2,229
|
|
|
1,427
|
|
|
1,367
|
|
Other
|
5% - 34%
|
|
—
|
|
|
147
|
|
|
—
|
|
|
147
|
|
Total
|
|
|
$
|
2,344
|
|
|
$
|
16,190
|
|
|
$
|
(4,633
|
)
|
|
$
|
19,450
|
|
(a)
This does not consider restricted management units which once vested will reduce the ownership percentage by approximately
0.8%
(b)
Thompsons Limited and related U.S. operating company held by joint ventures
Total distributions received from unconsolidated affiliates were
$2.7 million
and
$19.2 million
for the
six
months ended
June 30, 2016
and
June 30, 2015
, respectively.
In the second 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 six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three months ended June 30,
|
Six months ended June 30,
|
2016
|
|
2015
|
2016
|
|
2015
|
Revenues
|
$
|
1,340,809
|
|
|
$
|
1,357,038
|
|
$
|
3,029,680
|
|
|
$
|
2,880,689
|
|
Gross profit
|
52,204
|
|
|
77,891
|
|
77,782
|
|
|
137,686
|
|
Income (loss) from continuing operations
|
556
|
|
|
37,506
|
|
(17,568
|
)
|
|
47,719
|
|
Net income (loss)
|
(2,051
|
)
|
|
33,859
|
|
(20,164
|
)
|
|
42,386
|
|
Net income (loss) attributable to companies
|
(1,410
|
)
|
|
34,340
|
|
(19,122
|
)
|
|
41,856
|
|
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 with 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 June 30,
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
2016
|
|
2015
|
Sales revenues
|
$
|
176,865
|
|
|
$
|
197,253
|
|
$
|
371,702
|
|
|
$
|
346,724
|
|
Service fee revenues (a)
|
9,490
|
|
|
6,330
|
|
14,126
|
|
|
11,255
|
|
Purchases of product
|
116,556
|
|
|
113,314
|
|
218,509
|
|
|
216,108
|
|
Lease income (b)
|
1,994
|
|
|
1,582
|
|
3,861
|
|
|
3,245
|
|
Labor and benefits reimbursement (c)
|
6,841
|
|
|
2,779
|
|
10,738
|
|
|
5,811
|
|
Other expenses (d)
|
—
|
|
|
224
|
|
149
|
|
|
557
|
|
|
|
(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)
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
Accounts receivable (e)
|
$
|
20,685
|
|
|
$
|
13,362
|
|
|
$
|
31,495
|
|
Accounts payable (f)
|
10,022
|
|
|
13,784
|
|
|
13,848
|
|
|
|
(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
June 30, 2016
and
2015
, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were
$111.3 million
and
$109.1 million
, respectively. Additionally, for the six months ended
June 30, 2016
and
2015
, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were
$198.9 million
and
$210.8 million
, respectively.
For the three months ended
June 30, 2016
and
2015
, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were
$105.6 million
and
$107.7 million
, respectively. Additionally, for the six months ended
June 30, 2016
and
2015
, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were
$224.1 million
and
$204.4 million
, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn 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
June 30, 2016
,
December 31, 2015
and
June 30, 2015
was $
5.2 million
, $
2.3 million
and $
1.5 million
, respectively. The fair value of derivative contract liabilities with related parties as of
June 30, 2016
,
December 31, 2015
and
June 30, 2015
was $
1.0 million
, $
0.3 million
and $
2.4 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. There are various service 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 specialty food market, a distribution center and a lawn and garden equipment sales and service facility. 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 June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues from external customers
|
|
|
|
|
|
|
|
Grain
|
$
|
522,989
|
|
|
$
|
601,397
|
|
|
$
|
1,061,803
|
|
|
$
|
1,160,073
|
|
Ethanol
|
142,520
|
|
|
142,564
|
|
|
257,213
|
|
|
275,365
|
|
Plant Nutrient
|
320,036
|
|
|
357,186
|
|
|
487,027
|
|
|
511,137
|
|
Rail
|
40,342
|
|
|
45,523
|
|
|
79,951
|
|
|
89,739
|
|
Retail
|
38,357
|
|
|
41,034
|
|
|
66,129
|
|
|
69,615
|
|
Total
|
$
|
1,064,244
|
|
|
$
|
1,187,704
|
|
|
$
|
1,952,123
|
|
|
$
|
2,105,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Inter-segment sales
|
|
|
|
|
|
|
|
Grain
|
$
|
174
|
|
|
$
|
440
|
|
|
$
|
1,625
|
|
|
$
|
2,129
|
|
Plant Nutrient
|
114
|
|
|
148
|
|
|
361
|
|
|
465
|
|
Rail
|
355
|
|
|
243
|
|
|
734
|
|
|
424
|
|
Total
|
$
|
643
|
|
|
$
|
831
|
|
|
$
|
2,720
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
Grain
|
$
|
(13,037
|
)
|
|
$
|
3,149
|
|
|
$
|
(30,442
|
)
|
|
$
|
3,892
|
|
Ethanol
|
6,187
|
|
|
9,667
|
|
|
3,507
|
|
|
14,946
|
|
Plant Nutrient
|
23,535
|
|
|
18,873
|
|
|
25,239
|
|
|
19,297
|
|
Rail
|
6,569
|
|
|
21,689
|
|
|
15,944
|
|
|
32,002
|
|
Retail
|
1,010
|
|
|
1,469
|
|
|
(1,066
|
)
|
|
(714
|
)
|
Other
|
(2,173
|
)
|
|
(5,786
|
)
|
|
(13,073
|
)
|
|
(15,173
|
)
|
Noncontrolling interests
|
1,018
|
|
|
1,306
|
|
|
92
|
|
|
1,155
|
|
Total
|
$
|
23,109
|
|
|
$
|
50,367
|
|
|
$
|
201
|
|
|
$
|
55,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
Identifiable assets
|
|
|
|
|
|
Grain
|
$
|
879,055
|
|
|
$
|
1,010,810
|
|
|
$
|
867,655
|
|
Ethanol
|
192,470
|
|
|
183,080
|
|
|
194,359
|
|
Plant Nutrient
|
448,225
|
|
|
531,753
|
|
|
517,586
|
|
Rail
|
388,456
|
|
|
405,702
|
|
|
395,798
|
|
Retail
|
43,878
|
|
|
44,135
|
|
|
45,194
|
|
Other
|
155,331
|
|
|
183,621
|
|
|
131,773
|
|
Total
|
$
|
2,107,415
|
|
|
$
|
2,359,101
|
|
|
$
|
2,152,365
|
|
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.
The estimated range of loss for all 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. Construction is expected to be 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, we have recognized an asset and a corresponding financing obligation.
As of June 30, 2016, we have recorded a build-to-suit financing obligation of
$13.0 million
in other long-term liabilities and
$1.5 million
in other current liabilities.
14. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the six months ended June 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
(in thousands)
|
2016
|
|
2015
|
Noncash investing and financing activity
|
|
|
|
Capital projects incurred but not yet paid
|
$
|
9,653
|
|
|
$
|
5,709
|
|
Purchase of a productive asset through seller-financing
|
—
|
|
|
1,010
|
|
Purchase of Rail Group assets not yet paid
|
—
|
|
|
2,209
|
|
Shares issued for acquisition of business
|
—
|
|
|
4,303
|
|
Dividends declared not yet paid
|
4,341
|
|
|
3,967
|
|
15. Business Acquisitions
There were
no
business acquisitions completed in the six months ended
June 30, 2016
.
Prior Year Business Acquisitions
On May 18, 2015, the Company purchased Kay Flo Industries, Inc. and certain subsidiaries. The Company acquired
100%
of the outstanding shares of Kay Flo Industries, Inc. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of specified objectives, including reaching targeted gross profit thresholds. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between
$0
and
$24 million
.
The total fair value of consideration for the acquisitions was
$129.4 million
, including working capital and
$0.4 million
in estimated fair value of the contingent consideration arrangement. The Company has funded this transaction with long-term debt, short-term debt, and cash on hand. The debt has been drawn from the Company's existing line of credit. The purchase price allocation was finalized as of December 31, 2015.
16. Sale of Assets
On April 5, 2016 the Company's Board of Directors approved the sale of
eight
grain and agronomy locations in Iowa to MaxYield Cooperative of West Bend, Iowa. The Andersons acquired these locations as a part of its 2012 acquisition from Green Plains Grain Company. The Tennessee assets acquired during that same transaction will remain a part of the Company.
This transaction closed on May 2, 2016.
Total cash received was
$54.3 million
and a nominal gain was recognized on the sale.