UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017 2019 or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number number: 000-20557
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
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OHIOOhio | | 34-1562374 |
(State of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 1947 Briarfield Boulevard | | |
| Maumee | Ohio | | 43537 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number, including area code (419) 893-5050
Securities registered pursuant to Section 12(b) of the Act: Common Shares(419) 893-5050
(Telephone Number)
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class: | | Trading Symbol | | Name of each exchange on which registered: |
| Common stock, $0.00 par value, $0.01 stated value | | ANDE | | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ Noý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit and post such files). Yesý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ý | Accelerated Filer | ¨☐ |
| Non-accelerated filer | ¨☐ | Smaller reporting company | ¨☐ |
| | Emerging growth company | ☐ |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
The aggregate market value of the registrant's voting stock which may be voted by persons other than affiliates of the registrant was $918.1$837.0 million as of June 30, 2017,2019, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq Global Select Market.
The registrant had approximately 28.232.8 million common shares outstanding, no par value, at February 15, 2018.14, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 11, 2018,8, 2020, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Commission on or about March 15, 2018.within 120 days after the end of the fiscal year to which this report relates.
THE ANDERSONS, INC.
Table of Contents
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| PART I. | |
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Item 2. Properties | |
Item 3. Legal Proceedings | |
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PART II. | |
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| PART III. | |
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Item 10. Directors and Executive Officers of the Registrant | |
| Item 11. Executive Compensation | |
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| PART IV. | |
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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K | |
| Item 16. Form 10-K Summary | |
Exhibits | |
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Part I.
Item 1. Business
Company Overview
The Andersons, Inc. (the "Company") is a diversified company rooted in agriculture. Founded in Maumee, Ohio in 1947, the Company conducts business across North America in the grain,trade, ethanol, plant nutrient and rail sectors.
Segment Descriptions
The Company's operations are classified into fivefour reportable business segments: Grain,Trade, Ethanol, Rail, Plant Nutrient, and Retail.Rail. Each of these segments is organized based upon the nature of products and services offered. See Note 13 to the Consolidated Financial Statements in Item 8 for information regarding business segments.
GrainTrade Group
The Trade Group (formerly the Grain Group), through the completion of the Lansing Trade Group ("LTG") acquisition in the current year, has evolved into a diversified business primarilyfocusing on logistics and merchandising across a wide range of commodities. The group specializes in the movement of physical commodities such as whole grains, grain products, feed ingredients, frac sand, domestic fuel products, and other agricultural commodities. The business also operates grain elevators in various states inacross the U.S. Corn Belt. Incomeand Canada where income is earned on graincommodities bought and sold or “put thru”through the elevator, graincommodities that isare purchased and conditioned for resale, and commodities that are held in inventory until a future period, earning space income. Space income consists of appreciation or depreciation in the basis value of graincommodities held and represents the difference between the cash price of a commodity in one of the Company's facilities and an exchange traded futures price (“basis”); appreciation or depreciation between the future exchange contract months (“spread”); and graincommodities stored for others upon which storage fees are earned. The GrainTrade Group business also offers a number of unique grain marketing, risk management and corn origination services to its customers and affiliated ethanol facilities for which it collects fees.
The Company has a lease and marketing agreement with Cargill, Incorporated (“Cargill”) for Cargill's Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill holds marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. The lease of the Cargill-owned facilities covers approximately 6%, or 8.7 million bushels, of the Company's total storage space.
Grain prices are not predetermined, so salesSales are negotiated by the Company's merchandising staff. Thestaff as commodity prices are not predetermined. As previously mentioned the Trade group has diversified the physical commodities that are sold, however, the principal grainscommodities sold by the Company are corn, wheat and soybeans and wheat.which are consistent with the prior year. Approximately 92%72% of graincommodity sales by the Company in 20172019 were purchased by U.S. grain processors and feeders, and approximately 8%28% were exported. Most of the Company's exported graincommodity sales are made through intermediaries while some grain iscommodities are shipped directly to foreign countries, mainly Canada. The Company ships grain from its facilities by rail, truck, or boat. Rail shipments are made primarily to grain processors and feeders with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo.Toledo or the Port of Houston. In addition, grain iscommodities are transported via truck for direct ship transactions in which producers sell grain to the Company, but have it delivered directly to the end user.
The Company's graintrade operations rely principally on forward purchase contracts with producers, dealers and commercial elevators to ensure an adequate supply of graincommodities to the Company's facilities throughout the year. The Company makes graincommodity purchases at prices referenced to the Chicago Mercantile Exchange (“the CME”).regulated commodity exchanges.
The Company competes in the sale of graincommodities with other public and private grain brokers, elevator operators and farmer owned cooperative elevators. Some of the Company's competitors are also its customers. Competition is based primarily on price, service and reliability. Because the Company generally buys in smaller lots, its competition for the purchase of grain is generally local or regional in scope, although there are some large national and international companies that maintain regional grain purchase and storage facilities. Significant portions of grain bushels purchased and sold are made using forward contracts.
The grain handling business is seasonal in nature in that the largest portion of the principal grains are harvested and delivered from the farm and commercial elevators typically in July Octoberfor wheat and September through November for corn and beans, although a significant portion of the principal grains are bought, sold and handled throughout the year.
Fixed price purchase and sale commitments as well as graincommodities held in inventory expose the Company to risks related to adverse changes in market prices. Grain prices are typically comprised of two components, futures prices on the CMEregulated commodity exchanges and local basis adjustments. The Company manages the futures price risk by entering into exchange-traded futures and option contracts with the CME.regulated commodity exchanges. The contracts are economic hedges of price risk but are not designated or accounted for as hedging instruments.
The CME is a These regulated commodity futures exchange that maintainsexchanges maintain futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.
The Company's grain risk management practices are designed to reduce the risk of changing commodity prices. In that regard, such practices also limit potential gains from further changes in market prices. The Company has policies that provide key controls over its risk management practices. These policies include a description of the objectives of the programs and review of daily position limits by key management outside of the trading function along with other internal controls. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company monitors its counterparties on a regular basis for credit worthiness, defaults and non-delivery.
Purchases of graincommodities can be made the day the grainproduct is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of graincommodities generally are made by contract for delivery in a future period. When the Company purchases graincommodities at a fixed price or at a price where a component of the purchase price is fixed via reference to a futures price on the CME,a regulated commodity exchange, it also enters into an offsetting sale of a futures contract on the CME.regulated commodity exchange. Similarly, when the Company sells graincommodities at a fixed price, the sale is offset with the purchase of a futures contract on the CME.regulated commodity exchange. At the close of business each day, inventory and open purchase and sale contracts as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company's ownership positions due to changing market prices are netted with, and generallysubstantially offset in the statement of operations by, losses and gains in the value of the Company's futures positions.
When a futures contract is entered into, an initial margin deposit must be sent to the CME.regulated commodity exchange. The amount of the margin deposit is set by the CMEregulated commodity exchange and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company's position, an additional margin deposit, called a maintenance margin, is required by the CME.regulated commodity exchanges. Subsequent price changes could require additional maintenance margin deposits or result in the return of maintenance margin deposits by the CME.regulated commodity exchange. Significant increases in market prices, such as those that occur when grain supplies are affected by unfavorable weather conditions and/or when increases in demand occur, can have an effect on the Company's liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize CMEregulated commodity exchange option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.
The Company owns 33%has a lease and marketing agreement with Cargill, Incorporated for Cargill's Maumee and Toledo, Ohio grain handling and storage facilities. As part of the equityagreement, Cargill holds certain marketing rights to grain in Lansing Trade Group LLC (“LTG”). LTG is largely focused on the movementCargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. The marketing agreement contains a profit-sharing provision whereby cumulative earnings generated from the grain facilities are contractually shared. As of physical commodities, including grain and ethanol, and is exposed to someDecember 31, 2019, the lease of the same risks asCargill-owned facilities covers approximately 4%, or 8.8 million bushels, of the Company's grain and ethanol businesses. LTG also trades in commodities that the Company's grain and ethanol businesses do not trade in, some of which are not exchange traded. This investment provides the Company with further opportunity to diversify and complement its income through activity outside of its traditional product and geographic regions. This investment is accounted for under the equity method. The Company, along with LTG, also established joint ventures and purchased a grain and food-bean handler and agronomy input provider with 12 locations across Ontario, Canada and Minnesota. These investments are accounted for under the equity method. The Company periodically enters into transactions with these joint ventures as disclosed in Note 12 to the Consolidated Financial Statements in Item 8.total storage space.
Ethanol Group
The Ethanol Group has ownership interests in four limited liability companies (“the ethanol LLCs” or “LLCs”). Each of the LLCs owns an ethanol plant that is operated by the Company's Ethanol Group. The plants are located in Iowa, Indiana, Michigan, and Ohio and have combined nameplate capacity of 385 million gallons of ethanol. The Groupproduces, purchases and sells ethanol, offers facility operations, risk management, and ethanol and corn oil marketing services to the ethanol plants it invests in and operates.
The Company holds Through the first nine months of 2019 the Ethanol Group held ownership interests in three limited liability companies (“the ethanol LLCs” or “LLCs”), each of which owned an 85% interest inethanol plant that was operated by the Company's Ethanol Group. On October 1, 2019, the Ethanol Group entered into an agreement to merge the LLCs and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC ("TADE"), which isinto a consolidated entity. The Company holds a 55% interest in The Andersons Albion Ethanol LLC (“TAAE”) and a 39% interest in The Andersons Clymers Ethanol LLC (“TACE”). On January 1, 2017, The Andersons Ethanol Investment LLC (“TAEI”) was merged with and intonew legal entity, The Andersons Marathon EthanolHoldings LLC (“TAME”("TAMH"). The Company had owned (66)%As a result of TAEI, which, in turn, had owned 50% of TAME. Pursuant to the merger, the Company’s ownership unitsCompany and Marathon Petroleum Corporation ("Marathon") own 50.1% and 49.9% of TAMH equity, respectively. The transaction resulted in TAEI were canceled and converted into ownership unitsthe consolidation of TAMH’s results in TAME. As a result, the Company now directly owns 33%Company's financial statements effective October 1, 2019. Prior to October 1, 2019 the results of the outstanding ownership units of TAME. All operating ethanol LLC investments, except TADE, areEthanol LLCs were accounted for usingunder the equity method of accounting. The four ethanol plants within TAMH are located in Iowa, Indiana, Michigan, and Ohio. These plants have a combined nameplate capacity of 405 million gallons of ethanol.
The Company hasalso owns 51% of ELEMENT, LLC ("ELEMENT") and ICM, Inc. ("ICM") owns the remaining 49% interest. In the current year ELEMENT completed the construction of a 70 million-gallon-per-year bio-refinery which began limited production in the third quarter of 2019. ICM operates the facility under a management agreement with eachcontract and managed the initial construction of the LLCs. As part of these agreements,facility, while the Ethanol Group runs the day-to-day operations of the plantsCompany provides corn origination, ethanol marketing, and provides all administrative functions.risk management services. The Company is compensated for these services based on a fixed cost plus an indexed annual increase determined by a consumer price index. Additionally, the Company has entered into agreements with each of the unconsolidated LLCs under which it has the exclusive right to act as supplier for
100% of the corn used by the LLCsfully consolidates ELEMENT's results in the production of ethanol. For this service, the Company receives a fee for each bushel of corn sold. The Company has entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchases most, if not all, of the ethanol produced by the LLCs at the same price it will resell the ethanol to external customers. The Ethanol Group receives a fee for each gallon of ethanol sold to external customers sourced from these LLCs. Under the distillers dried grains ("DDG") and corn oil marketing agreements, the Company markets the DDG and corn oil and receives a fee on units sold.Company's financial statements.
Plant Nutrient Group
The Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients, corncob-based products, and pelleted lime and gypsum products in the U.S. Corn Belt and Puerto Rico. The Groupgroup provides warehousing, packaging and manufacturing services to basic nutrient producers and other distributors. The Groupgroup also manufactures and distributes a variety of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air pollution control systems used in coal-fired power plants, and water treatment and dust abatement products.
In its plant nutrient businesses, the Company competes with regional and local cooperatives, wholesalers and retailers, predominantly publicly owned manufacturers and privately ownedprivately-owned retailers, wholesalers and importers. Some of these competitors are also suppliers and have considerably larger resources than the Company. Competition in the nutrient business is based largely on depth of product offering, price, location and service. Sales and warehouse shipments of agricultural nutrients are heaviest in the spring and fall.
Wholesale Nutrients- The Wholesale Nutrients business manufactures, stores, and distributes dry and liquid agricultural nutrients, and pelleted lime and gypsum products annually. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur. Product lines include baseprimary nutrients which are typically bought and sold as commodities and value addedspecialty products which support more sustainable farming practices and command higher margins. The distribution and sales channels for both types of nutrients are shared within the Wholesale Nutrients business.
Farm Centers - The Farm Centers offer a variety of essential crop nutrients, crop protection chemicals and seed products in addition to application and agronomic services to commercial and family farmers. Soil and tissue sampling along with global satellite assisted services provide for pinpointing crop or soil deficiencies and prescriptive agronomic advice is provided to farmers.
Cob Products - Corncob-based products are manufactured for a variety of uses including laboratory animal bedding and private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. The products are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for corncobs are seed corn producers.
TurfLawn Products - Proprietary professional turflawn care products are produced for the golf course and professional turf care markets, serving both U.S. and international customers. These products are sold both directly and through distributors to golf courses and lawn service applicators. The Company also produces and sellsperforms contract manufacturing services to sell fertilizer and control products to various markets.
Rail Group
The Company's Rail Group leases, repairs, and sells various types of railcars, locomotives and barges. In addition, the Rail Group offers fleet management services to private railcar owners.
The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. The Company operates in both the new and used car markets, allowing the Company to diversify its fleet both in terms of car types, industries and age of cars, as well as repairing and refurbishing used cars for specific markets and customers.
A significant portion of the railcars, locomotives and barges managed by the Company are included on the balance sheet as long-lived assets. The others are either in off-balance sheetincluded as operating leases (with the Company leasing assets from financial intermediaries and leasing those same assets to the end-users) or non-recourse arrangements (in which the Company is not subject to any lease arrangement related to the assets but provides management services to the owner of the assets). The Company generally holds purchase options on most assets owned by financial intermediaries. We are under contract to provide maintenance services for many of the Rail Group assets that we own or manage. Refer to the Off-Balance Sheet TransactionsProperties section within Item 2 of Management's Discussion and Analysis for a breakdown of our railcar, locomotive and barge positions at December 31, 2017.2019.
In the case of the Company's off-balance sheetleased Rail Group assets, the Company's risk management philosophy is to match-fund the lease commitments where possible. Match-funding (in relation to lease transactions) means matching the terms of the financial intermediary funding arrangement with the lease terms of the customer in which the Company is both lessee and sublessor. If the Company is unable to match-fund, it will attempt to negotiate an early buyout provision within the funding arrangement to match the underlying customer lease. The Company does not attempt to match-fund lease commitments for Rail Group assets that are on its balance sheet.
Competition for marketing and fleet maintenance services is based primarily on price, service ability, and access to both used equipment and third-party financing. Repair facility competition is based primarily on price, quality and location.
Retail GroupOther
The Company's Retail Group“Other” activities include corporate income, a small corporate venture fund and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments, including a portion of our ERP project. The results of our former retail business, which was closed in 2017, are also included large retail stores operated as “The Andersons,” which were located in the Columbus and Toledo, Ohio markets. The stores focused on providing significant product breadth with offerings in home improvement and other mass merchandise categories as well as specialty foods, wine and indoor and outdoor garden centers."Other" activities.
In January 2017, the Company announced its decision to close all retail operations. As of December 31, 2017, the Retail Group has closed all stores, completed its liquidation efforts, and sold three of the four properties.
Employees
The Andersons offers a broad range of full-time and part-time career opportunities. Each position in the Company is important to its success, and the Company recognizes the worth and dignity of every individual. The Company strives to treat each person with respect and utilize his or her unique talents. At December 31, 2017,2019, the Company had 1,7952,247 full-time and 4873 part-time or seasonal employees.
Government Regulation
Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).
The production levels, markets and prices of the grains that the Company merchandises are affected by United States government programs, which include acreage control and price support programs of the USDA. In regardsregard to our investments in ethanol production facilities, the U.S. government has mandated a ten percent blend for motor fuel gasoline sold.
The U.S. Food and Drug Administration (“FDA”) has developed bioterrorism prevention regulations for food facilities, which require that the Company registers its grain operations with the FDA, provide prior notice of any imports of food or other agricultural commodities coming into the United States and maintain records to be made available upon request that identifies the immediate previous sources and immediate subsequent recipients of its grain commodities.
The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company's existing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. Compliance with environmental laws and regulations did not materially affect the Company's earnings or competitive position in 2017.2019.
In addition, the Company continues to assess the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and has concluded that the Company is not a major swap dealer or major swap participant. The Company continues to monitor developments in the law, including the regulation of swaps and derivatives.
Available Information
The Company'sCompany’s Annual ReportReports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, and amendments to thosereports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange Commission (the “SEC”). The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge at https://theandersonsinc.gcs-web.com/financial-information/sec-filings when such reports are available on the Company's website soon after filing with the SecuritiesSEC’s website. The SEC maintains an Internet site that contains reports, proxy and Exchange Commission. The Company's website address is http://www.andersonsinc.com. The public may readinformation statements, and copy any materials the Company filesother information regarding issuers that file electronically with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.www.sec.gov. The public may obtainCompany periodically provides other information for investors on its corporate website, www.andersonsinc.com, and its investor relations website, www.theandersonsinc.gcs-web.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the operationCompany’s annual meeting of shareholders. The information contained on the Public Reference Roomwebsites referenced in this Form 10-K is not incorporated by callingreference into this filing. Further, the SEC at 1-800-SEC-0330. These reportsCompany’s references to website URLs are also available at the SEC's website: http://www.sec.gov.intended to be inactive textual references only.
Item 1A. Risk Factors
OurThe Company's operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-K and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained elsewhere in this Form 10-K.
Certain of our business segments are affected by the supply and demand of commodities and are sensitive to factors outside of our control. Adverse price movements could negatively affect our profitability and results of operations.
Our Grain,Trade, Ethanol and Plant Nutrient businesses buy, sell and hold inventories of agricultural input and output commodities, some of which are readily traded on commodity futures exchanges. Unfavorable weather conditions, both local and worldwide, as well as other factors beyond our control, can affect the supply and demand of these commodities and expose us to liquidity pressures to finance hedges in the graincommodity business in rapidly rising markets. In our Plant Nutrient business, changes in the supply and demand of these commodities can also affect the value of inventories that we hold, as well as the price of raw materials as we are unable to effectively hedge these commodities. Increased costs of inventory and prices of raw material would decrease our profit margins and adversely affect our results of operations.
Corn - The principal raw material that the ethanol LLCs useused to produce ethanol and coproductsco-products is corn. As a result, an increase in the price of corn in the absence of a corresponding increase in petroleum basedpetroleum-based fuel prices will typically decrease ethanol margins thus adversely affecting financial results in the ethanol LLCs.Ethanol Group. At certain levels, corn prices may make ethanol uneconomical to produce for fuel markets. The price of corn is influenced by weather conditions and other factors affecting crop yields, shiftshifts in acreage allocated to corn versus other major crops and general economic and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult to predict. Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and potentially harm the income generated from our investments in ethanol LLCs.adversely impact income. In addition, we may also have difficulty, from time to time, in physically sourcing corn on economical terms due to supply shortages. High costs or shortages could require us to suspend ethanol operations until corn is available on economical terms, which would have an adverse effect on operating results.
GrainsCommodities - While we attempt to manage the risk associated with agricultural commodity price changes for our graincommodity inventory positions with derivative instruments, including purchase and sale contracts, we are unable to offset 100% of the price risk of each transaction due to timing, availability of futures and options contracts and third-party credit risk. Furthermore, there is a risk that the derivatives we employ will not be effective in offsetting all of the risks that we are trying to manage. This can happen when the derivative and the underlying value of grain inventories and purchase and sale contracts are not perfectly matched. Our graincommodity derivatives, for example, do not perfectly correlate with the basis component of our graincommodity inventory and contracts. (Basis is defined as the difference between the local cash price of a commodity and the corresponding exchange-traded futures price.) Differences can reflect time periods, locations or product forms. Although the basis component is smaller and generally less volatile than the futures component of our grain market price, basis moves on a large graincommodity position can significantly impact the profitability of the GrainTrade business.
Our futures, options and over-the-counter contracts are subject to margin calls. If there are large movements in the commodities market, we could be required to post significant levels of margin deposits, which would impact our liquidity. There is no assurance that the efforts we have taken to mitigate the impact of the volatility of the prices of commodities upon which we rely will be successful and any sudden change in the price of these commodities could have an adverse effect on our business and results of operations.
Natural gas - We rely on third parties for our supply of natural gas, which is consumed in the drying of wet grain, manufacturing of certain turflawn products, pelleted lime and gypsum, and manufacturing of ethanol within the LLCs.ethanol. The prices for and availability of natural gas are subject to market conditions. These market conditions often are affected by factors beyond our control such as higher prices resulting from colder than average weather and overall economic conditions. Significant disruptions in the supply of natural gas could impair the operations of the ethanol facilities. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect future results of operations and financial position.
Gasoline and oil - We market ethanol as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and as a substitute for petroleum basedpetroleum-based gasoline. As a result,
ethanol prices will be influenced by the supply and demand for gasoline and oil and our future results of operations and financial position may be adversely affected if gasoline and oil demand or price changes.
Frac Sand - In our Trade business we own a frac sand processing, logistics, and transloading operation. Frac sand is a proppant used in the completion and re-completion of natural gas and oil wells through hydraulic fracturing. Frac sand is the most commonly used proppant and is less expensive than ceramic proppant, which is also used in hydraulic fracturing to stimulate and maintain oil and natural gas production. A significant shift in demand from frac sand to other proppants, such as ceramic proppants, could have a material adverse effect on our financial condition and results of operations. The development and use of other effective alternative proppants, or the development of new processes to replace hydraulic fracturing altogether, could also cause a decline in demand for the frac sand we process and transload and could have a material adverse effect on our financial condition and results of operations.
Potash, phosphate and nitrogen - Raw materials used by the Plant Nutrient business include potash, phosphate and nitrogen, for which prices can be volatile and are driven by global and local supply and demand factors. Significant increases in the price of these commoditiesmay result in lower customer demand and higher than optimal inventory levels. In contrast, reductions in the price of these commodities may create lower-of-cost-or-marketlower of cost or net realizable value adjustments to inventories.
Some of our business segments operate in highly regulated industries. Changes in government regulations or trade association policies could adversely affect our results of operations.
Many of our business segments are subject to government regulation and regulation by certain private sector associations, compliance with which can impose significant costs on our business. Other regulations are applicable generally to all our businesses and corporate functions, including, without limitation, those promulgated under the Internal Revenue Code, the Affordable Care Act, the Employee Retirement Income Security Act (ERISA) and other employment and health care related laws, federal and state securities laws, and the US Patriot Act. Failure to comply with such regulations can result in additional costs, fines or criminal action.
A significant part of our operations is regulated by environmental laws and regulations, including those governing the labeling, use, storage, discharge and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in environmental requirements or an unanticipated significant adverse environmental event could have an adverse effect on our business. We cannot assure that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in our products. We are also exposed to residual risk because some of the facilities and land which we have acquired may have environmental liabilities arising from their prior use. In addition, changes to environmental regulations may require us to modify our existing plant and processing facilities andwhich could significantly increase the cost of those operations.
Grain
Trade and Ethanol businesses - In our GrainTrade and Ethanol businesses, agricultural production and trade flows can be affected by government programs and legislation. Production levels, markets and prices of the grainscommodities we merchandise can be affected by U.S. government programs, which include acreage controls and price support programs administered by the USDA and required levels of ethanol in gasoline through the Renewable Fuel Standards as administered by the EPA. Other examples of government policies that can have an impact on our business include tariffs, taxes, duties, subsidies, import and export restrictions, outright embargoes and outright embargoes.price controls on agricultural commodities. Because a portion of our graincommodity sales are to exporters, the imposition of export restrictions and other foreign countries' regulations could limit our sales opportunities and create additional credit risk associated with export brokers if shipments are rejected at their destination.
International trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Trade disputes can lead to the implementing of tariffs on commodities in which we merchandise or otherwise use in our operations. This can lead to significant volatility in commodity prices, disruptions in historical trade flows and shifts in planting patterns in the Company's geographic footprint, which would present challenges and uncertainties for our business. The compliance burdenimposition of new tariffs or uncertainty around future tariff levels can cause significant fluctuations in the futures and basis levels of agricultural commodities, impacting our earnings. We cannot predict theeffects that future trade policy or the terms of any negotiated trade agreements and their impact on our operations and profitability as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations have imposed additional regulatory tasks which took effect in 2014, although the full burden of the Act is not yet fully-known as some areas of regulatory rule making are not yet completed. These efforts to change the regulation of financial markets may subject users of derivatives to extensive oversight and regulation by the Commodity Futures Trading Commission (CFTC). Such initiatives could impose significant additional costs on us, including operating and compliance costs, and could materially affect the availability, as well as the cost and terms, of certain transactions. We will continue to monitor these developments. Any of these matters could have an adverse effect on our business, financial condition, liquidity, results of operations and prospects.business.
Rail - Our Rail business is subject to regulation by the American Association of Railroads and the Federal Railroad Administration. These agencies regulate rail operations with respect to health and safety matters. New regulatory rulings could negatively impact financial results through higher maintenance costs or reduced economic value of railcar assets.
The Rail business is also subject to risks associated with the demands and restrictions of the Class I railroads, a group of rail companies owning a high percentage of the existing rail lines. These companies exercise a high degree of control over whether private railcars can be allowed on their lines and may reject certain railcars or require maintenance or improvements to the railcars. This presents risk and uncertainty for our Rail business and it can increase maintenance costs. In addition, a shift in the railroads' strategy to investing in new rail cars and improvements to existing railcars, instead of investing in locomotives and infrastructure, could adversely impact our business by causing increased competition and creating an oversupply of railcars. Our rail fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives. However, a large concentration of a particular type of railcar could expose us to risk if
demand were to decrease for that railcar type. Failure on our part to identify and assess risks and uncertainties such as these could negatively impact our business.
Similarly, our marine assets and operations are subject to rules and regulations relating to safety, citizenship, emissions, ballast discharges, and other environmental and operational matters enforced by various federal and state agencies, including the Maritime Administration of the U.S. Department of Transportation, the U.S. Coast Guard, and the U.S. Environmental Protection Agency (“EPA”). If we fail to comply with these rules and regulations, we could be prohibited from operating or leasing marine assets in the U.S. market, and under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets.
Plant Nutrient - Our Plant Nutrient business manufactures certain agricultural nutrients and uses potentially hazardous materials. All products containing pesticides, fungicides and herbicides must be registered with the EPA and state regulatory bodies before they can be sold. The inability to obtain or the cancellation of such registrations could have an adverse impact on our business. In the past, regulations governing the use and registration of these materials have required us to adjust the raw material content of our products and make formulation changes. Future regulatory changes may have similar consequences. Regulatory agencies, such as the EPA, may at any time reassess the safety of our products based on new scientific knowledge or other factors. If it were determined that any of our products were no longer considered to be safe, it could result in the amendment or withdrawal of existing approvals, which, in turn, could result in a loss of revenue, cause our inventory to become obsolete or give rise to potential lawsuits against us. Consequently, changes in existing and future government or trade association polices may restrict our ability to do business and cause our financial results to suffer.
Rail - Our Rail business is subject to regulation by the American Association of Railroads and the Federal Railroad Administration. These agencies regulate rail operations with respect to health and safety matters. New regulatory rulings could negatively impact financial results through higher maintenance costs or reduced economic value of railcar assets.
The Rail business is also subject to risks associated with the demands and restrictions of the Class I railroads, a group of rail companies owning a high percentage of the existing rail lines. These companies exercise a high degree of control over whether private railcars can be allowed on their lines and may reject certain railcars or require maintenance or improvements to the railcars. This presents risk and uncertainty for our Rail business and it can increase maintenance costs. In addition, a shift in the railroads' strategy to investing in new rail cars and improvements to existing railcars, instead of investing in locomotives and infrastructure, could adversely impact our business by causing increased competition and creating an oversupply of railcars. Our rail fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives. However, a large concentration of a particular type of railcar could expose us to risk if demand were to decrease for that railcar type. Failure on our part to identify and assess risks and uncertainties such as these could negatively impact our business.
Demand for rail cars closely follows general economic activity and may be adversely affected by recession and general economic or sector related slowdowns.
We are required to carry significant amounts of inventory across all of our businesses. If a substantial portion of our inventory becomes damaged or obsolete, its value would decrease, and our profit margins would suffer.
We are exposed to the risk of a decrease in the value of our inventories due to a variety of circumstances in all of our businesses. For example, within our GrainTrade and Ethanol businesses, there is the risk that the quality of our grain inventory could deteriorate due to damage, moisture, insects, disease or foreign material. If the quality of our graininventory were to deteriorate below an acceptable level, the value of our inventory could decrease significantly. In our Plant Nutrient business, planted acreage, and consequently the volume of fertilizer and crop protection products applied, is partially dependent upon government programs and the producer's perception of demand. Technological advances in agriculture, such as genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could also affect the demand for our crop nutrients and crop protection products. Either of these factors could render some of our inventory obsolete or reduce its value. Within our rail repair business, major design improvements to loading, unloading and transporting of certain products can render existing (especially old) equipment obsolete.
Our substantial indebtedness could negatively affect our financial condition, decrease our liquidity and impair our ability to operate the business.
If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time when we are unable to draw on our credit facility, it could have an adverse affecteffect on our ability to conduct our business. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is dependent on various factors. These factors include general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Certain of our long-term borrowings include provisions that require minimum levels of working capital and equity and impose limitations on additional debt. Our ability to satisfy these provisions can be affected by events beyond our control, such as the demand for and the fluctuating price of grain.commodities. Although we are and have been in compliance with these provisions, noncompliance could result in default and acceleration of long-term debt payments.
We face increasing competition and pricing pressure from other companies in our industries. If we are unable to compete effectively with these companies, our sales and profit margins would decrease, and our earnings and cash flows would be adversely affected.
The markets for our products in each of our business segments are highly competitive. While we have substantial operations in our region, some of our competitors are significantly larger, compete in wider markets, have greater purchasing power, and have considerably larger financial resources. We also may enter into new markets where our brand is not recognized and in which we do not have an established customer base. Competitive pressures in all of our businesses could affect the price of, and customer demand for, our products, thereby negatively impacting our profit margins and resulting in a loss of market share.
Our grainTrade and ethanolEthanol businesses use derivative contracts to reduce volatility in the commodity markets. Non-performance by the counter-parties to those contracts could adversely affect our future results of operations and financial position.
A significant amount of our grain and ethanol purchases and sales within the Trade and Ethanol segment are made through forward contracting. In addition, the Company uses exchange traded and, to a lesser degree, over-the-counter contracts to reduce volatility in changing commodity prices. A significant adverse change in commodity prices could cause a counter-party to one or more of our derivative contracts to not perform on its obligation.
Adverse weather conditions, including as a result of climate change, may adversely affect the availability, quality and price of agricultural commodities and agricultural commodity products, as well as our operations and operating results.
Adverse weather conditions have historically caused volatility in the agricultural commodity industry and consequently in our operating results by causing crop failures or significantly reduced harvests, which may affect the supply and pricing of the agricultural commodities that we sell and use in our business, reduce demand for our fertilizer products and negatively affect the creditworthiness of agricultural producers who do business with us. A significant portion of the Company's assets are geographically concentrated in the Eastern Corn Belt. Localized weather and other market factors may have a disproportionate impact on our business compared to our competitors.
A significant portion of Company's the assets are exposed to conditions in the Eastern Corn Belt. In this region, adverse weather during the fertilizer application, planting, and harvest seasons can have negative impacts on our GrainTrade, Ethanol and Plant Nutrient businesses. Higher basis levels or adverse crop conditions in the Eastern Corn Belt can increase the input costs or lower the market value of our Ethanol facilitiesproducts relative to other market participants that do not have the same geographic concentration.
Additionally, the potential physical impacts of climate change are uncertain and may vary by region. These potential effects could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business operations, the location, costs and competitiveness of agricultural commodity production and related storage and processing facilities and the supply and demand for agricultural commodities. These effects could be material to our results of operations, liquidity or capital resources.
We rely on a limited number of suppliers for certain of our raw materials and other products and the loss of one or several of these suppliers could increase our costs and have a material adverse effect on any one of our business segments.
We rely on a limited number of suppliers for certain of our raw materials and other products. If we were unable to obtain these raw materials and products from our current vendors, or if there were significant increases in our supplier's prices, it could significantly increase our costs and reduce our profit margins.
Our investments in unconsolidated entities accounted for under the equity methodWe are subject to risks beyondglobal and regional economic downturns and related risks.
The level of demand for our control.
We currentlyproducts is affected by global and regional demographic and macroeconomic conditions, including population growth rates and changes in standards of living. A significant downturn in global economic growth, or recessionary conditions in major geographic regions, may lead to reduced demand for agricultural commodities and food products, which could adversely affect our business and results of operations. The pace of economic improvement is uncertain, and there can be no assurance that economic and political conditions will not continue to affect market and consumer confidence or deteriorate further in the near term. Additionally, a slowdown in China's economy over a prolonged period could lead to reduced global demand for agricultural commodities. For example, in December 2019, a novel strain of coronavirus surfaced in Wuhan, China. Although cases have investmentsbeen confirmed in numerous limited liability companies and joint ventures. By operatingother countries, the outbreak has been largely concentrated in China where certain businesses have suspended or terminated operations, a business through this arrangement, we do not have control over operating decisions as we would if we owned the business outright. Specifically, we cannot act on major business initiatives without the consentportion of the other investors, who may not alwayspopulation has been subject to self-imposed or mandatory quarantines and economic activity has slowed. To the extent that such economic and political conditions negatively impact consumer and business confidence and consumption patterns or volumes, our business and results of operations could be in agreement with our ideas.significantly and adversely affected.
The Company may not be able to effectively integrate future businesses it acquires.
We continuously look for opportunities to enhance our existing businesses through strategic acquisitions. The process of integrating an acquired business into our existing business and operations may result in unforeseen operating difficulties and expenditures as well as require a significant amount of management resources. There is also the risk that our due diligence efforts may not uncover significant business flaws or hidden liabilities. In addition, we may not realize the anticipated benefits of an acquisition and they may not generate the anticipated financial results. Additional risks may include the inability to effectively integrate the operations, products, technologies and personnel of the acquired companies. The inability to maintain uniform standards, controls, procedures and policies would also negatively impact operations.
If our goodwill or amortizable intangible assets become impaired, then we could be required to record a significant charge to earnings.
GAAP requires us to test for goodwill impairment at least annually. In addition, we review our goodwill and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include prolonged declines in stock price, market capitalization or cash flows, and slower growth rates in our industry. Depending on the results of our review, we could be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets were determined, negatively impacting our results of operations.
Our business involves considerable safety risks. Significant unexpected costs and liabilities would have an adverse effect on our profitability and overall financial position.
Due to the nature of some of the businesses in which we operate, we are exposed to significant operational hazards such as grain dust explosions, fires, malfunction of equipment, abnormal pressures, blowouts, pipeline and tank ruptures, chemical spills or run-off, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage and may result in suspension of operations and the imposition of civil or criminal penalties. If grain dust were to explode at one of our elevators, if an ethanol plant were to explode or catch fire, or if one of our pieces of equipment were to fail or malfunction due to an accident or improper maintenance, it could put our employees and others at serious risk.
The Company's information technology systems may impose limitations or failures, or may face external threats, which may affect the Company's ability to conduct its business.
The Company's information technology systems, some of which are dependent on services provided by third parties, provide critical data connectivity, information and services for internal and external users. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, human resources and other processes necessary to manage the
business. The Company has put in place business continuity plans for its critical systems. However, if the Company's information technology systems are damaged, or cease to function properly due to any number of causes, such as catastrophic events or power outages, and the Company's business continuity plans do not allow it to effectively recover on a timely basis, the Company may suffer interruptions in the ability to manage its operations, which may adversely impact the Company's operating results. Our security measures may also be breached due to employee error, malfeasance, or otherwise. In addition, although the systems have beencontinue to be refreshed periodically, portions of the infrastructure are outdated and may not be adequate to support new business processes, accounting for new transactions, or implementation of new accounting standards if requirements are complex or materially different than what is currently in place.
Additionally, outside parties may attempt to destroy critical information, or fraudulently induce employees, third-party service providers, or users to disclose sensitive information in order to gain access to our data or our users' data. As a response, the Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company and user data or accounts. The Company also conducts annual tests and assessments using independent third parties. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. We cannot assure our ability to prevent, repel or mitigate the effects of such an attack by outside parties. The Company also relies on third parties to maintain and process certain information which could be subject to breach or unauthorized access to Company or employee information. Any such breach or unauthorized access could result in an inability to perform critical functions, significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our services that could potentially have an adverse affecteffect on our business.
The Company's design and implementation of a newits Enterprise Resource Planning system could face significant difficulties.
In early 2012, theThe Company began the designis designing and implementation of a newimplementing Enterprise Resource Planning ("ERP") system,systems, requiring significant capital and human resources to deploy. The first waveThere is risk of implementation wassuch implementations being more expensive and tooktaking longer to fully implement than originally planned, includingresulting in increased capital investment, higher fees and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented. Future releases would be subject to similar risksimplemented, and, as such, the ultimate costs and schedules are not yet known. If for any reason portions of the implementation are not successful, the Company could be required to expense rather than capitalize related amounts. Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company's ability to operate successfully and efficiently. These risks include, without limitation, inefficient use of employees, distractions to the Company's core businesses, adverse customer reactions, loss of key information, delays in decision making, as well as unforeseen additional costs due to the inability to integrate vital information processes.
Unauthorized disclosure of sensitive or confidential customer information could harm the Company's business and standing with our customers.
The protection of our customer, employee and Company data is critical to us. The Company relies on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. The Company also conducts annual tests and assessments using independent third parties. Despite the security measures the Company has in place, its facilities and systems, and those of its third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by the Company or its vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations and harm our business.
A change in tax laws or regulations of any federal, state or international jurisdiction in which we operate could increase our tax burden and otherwise adversely affect our financial position, results of operations, cash flows and liquidity.
We continue to assess the impact of various U.S. federal, state, local and international legislative proposals that could result in a material increase to our U.S. federal, state, local and/or international taxes. We cannot predict whether any specific legislation will be enacted or the terms of any such legislation. However, if such proposals were to be enacted, or if modifications were to be made to certain existing regulations, the consequences could have a material adverse impact on us, including increasing our tax burden, increasing our cost of tax compliance or otherwise adversely affecting our financial position, results of operations, cash flows and liquidity. Moreover,Changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application, including the full impact on the company, its suppliers or customerspossibility of retroactive effect, could affect our tax expense and profitability as they did in 2017 upon passage of the recently enacted Tax Cuts and Jobs Act of 2017 is not yet fully known.Act. Such impact may also be affected positively or negatively by subsequent potential judicial interpretation or related regulation or legislation which cannot be predicted with certainty.
Item 1B. Unresolved Staff Comments
The Company has no unresolved staff comments.
Item 2. Properties
The Company's principal agriculture, rail, and other properties are described below. The Company believes that its properties are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.
Agriculture and Ethanol Facilities
| | | | | | | | | | | | | | | | | |
| | | | | Agricultural Fertilizer | | Ethanol | | Trade | | Plant Nutrient |
| (in thousands) | | Grain Storage | | Dry Storage | | Liquid Storage | | Nameplate Capacity | | Grain Storage | | Dry Fertilizer Storage | | Liquid Fertilizer Storage |
| Location | | (bushels) | | (tons) | | (tons) | | (gallons) | | (bushels) | | (tons) | | (tons) |
| Canada | | 562 |
| | — |
| | — |
| | — |
| | 22,256 |
| | — |
| | — |
|
| Colorado | | | — |
| | 1,586 |
| | — |
| | — |
|
| Idaho | | | — |
| | 16,655 |
| | — |
| | — |
|
| Illinois | | 11,359 |
| | 55 |
| | 11 |
| | — |
| | 16,164 |
| | 56 |
| | 11 |
|
| Indiana | | 26,094 |
| | 142 |
| | 141 |
| | 110,000 |
| | 22,494 |
| | 145 |
| | 143 |
|
| Iowa | | 2,600 |
| | — |
| | 69 |
| | 55,000 |
| | — |
| | — |
| | 70 |
|
| Kansas | | | 70,000 |
| | — |
| | — |
| | — |
|
| Kentucky | | | — |
| | 1,410 |
| | — |
| | — |
|
| Louisiana | | | — |
| | 24,948 |
| | — |
| | — |
|
| Michigan | | 30,411 |
| | 70 |
| | 48 |
| | 130,000 |
| | 28,710 |
| | 70 |
| | 47 |
|
| Minnesota | | — |
| | — |
| | 47 |
| | — |
| | 1,717 |
| | — |
| | 47 |
|
| Nebraska | | 13,222 |
| | — |
| | 45 |
| | — |
| | 18,714 |
| | — |
| | 45 |
|
| New York | | | — |
| | 1,390 |
| | — |
| | — |
|
| Ohio | | 40,203 |
| | 189 |
| | 64 |
| | 110,000 |
| | 41,912 |
| | 188 |
| | 64 |
|
| Puerto Rico | | — |
| | — |
| | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
| Tennessee | | 14,570 |
| | — |
| | — |
| | — |
| | 2,506 |
| | — |
| | — |
|
| Texas | | 1,386 |
| | — |
| | — |
| | — |
| | 6,152 |
| | — |
| | — |
|
| Wisconsin | | — |
| | 24 |
| | 77 |
| | — |
| | — |
| | 27 |
| | 78 |
|
| | | 140,407 |
| | 480 |
| | 512 |
| | 475,000 |
| | 206,614 |
| | 486 |
| | 515 |
|
The grain facilities are mostly concrete and steel tanks, with some flat storage buildings. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps. Approximately 91%80% of the total storage capacity noted above, which excludesincludes temporary pile storage, is owned, while the remaining 9%20% of the total capacity is leased from third parties.
The Plant Nutrient Group's wholesale nutrient and farm center properties consist mainly of fertilizer warehouse and formulation and packaging facilities for dry and liquid fertilizers. The Company owns approximately 99% of the dry and liquid storage capacity noted above.
Other Properties
The Company owns an ethanol facility in Denison, Iowa with a nameplate capacity of 55 million gallons. The Company owns lawn fertilizer production facilities in Maumee, Ohio,Ohio; Bowling Green, Ohio,Ohio; Montgomery, Alabama,Alabama; and Mocksville, North Carolina. It also owns a corncob processing and storage facility in Delphi, Indiana. The Company leases 370,000a 245,000 square foot distribution center and 159,000 square feet of a lawn fertilizer warehouse facility in Toledo, OhioMaumee, Ohio.
Rail Equipment
|
| | | | |
| | | | | |
| Equipment | | Number of Units | | Percentage of Fleet |
| Covered Hoppers | | 15,822 | | 63.6% |
| Tanks | | 4,713 | | 18.9% |
| Gondolas | | 1,094 | | 4.4% |
| Open-top Hoppers | | 1,022 | | 4.1% |
| Boxcars | | 947 | | 3.8% |
| Pressure Differential Covered Hoppers | | 724 | | 2.9% |
| Flat Cars | | 514 | | 2.1% |
| Other | | 25 | | 0.1% |
| Locomotives | | 23 | | 0.1% |
| | | 24,884 | | 100% |
The Company’s revenue-generating equipment, either owned or long-term leased, consists of freight cars and locomotives as described below.
Covered hoppers - Have a 245,000 square foot distribution centerpermanent roof and are segregated based upon commodity density. Lighter bulk commodities such as grain, fertilizer, flour, salt, plastics, DDGs and lime are shipped in Maumee, Ohio. medium, large and jumbo covered hoppers. Heavier commodities like cement, fly ash, ground limestone and industrial sand are shipped in small cube covered hoppers.
Tanks - Transports liquid and gaseous commodities.
Gondolas - Supports metals markets, coal, aggregates and stone, and provides transport for woodchips and other bulk commodities.
Open-top hoppers - Transports heavy dry bulk commodities such as coal, coke, stone, sand, ores and gravel that are resistant to weather conditions.
Boxcars - Includes a variety of tonnages, sizes, door configurations and heights to accommodate a wide range of finished products, including building materials, metal products, minerals, cement and food products.
PD hoppers - Transports cement, fertilizers, flour, grain products, clay and sand that utilize a pressure differential (PD) system on the hopper cars that assists with unloading of the commodities from either side of the car.
Flat cars - Used for shipping bulk and finished goods, such as lumber, steel, pipe, plywood, drywall and pulpwood.
Other cars - Primarily leased refrigerator cars and barges.
Locomotives - Primarily to pull trains.
The Company operates 1926 railcar repair facilities throughout the country.
In January 2017, the Company announced its decision to close all retail operations. The Retail Group closed all of its stores in 2017. The Toledo store, which consists of about 162,000 square feet, is the only remaining store that has not been sold and is currently included in Assets held for sale.
The Company's administrative office building is leased under a build-to-suit financing arrangement. The Company owns approximately 2,031 acres of land on which the above properties and facilities are located and approximately 412 acres of farmland and land held for future use.
The Company believes that its properties are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.
Item 3. Legal Proceedings
The Company is currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counterclaims. The Company accrues liabilities in which litigation losses are deemed probable and estimable. The Company believes it is unlikely that the results of its current legal proceedings, even if unfavorable, will be materially different from what it currently has accrued. There can be no assurance, however, that any claims or suits arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.
Item 4. Mine Safety
Not applicable.We are committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values, and we strive to ensure that safe production is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating performance to mitigate any potential loss to people, equipment, production and the environment. We have implemented intensive employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment through the development and coordination of requisite information, skills and attitudes. We believe that through these policies, we have developed an effective safety management system.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 of Item 15. Exhibits and Financial Statement Schedules, and Reports on Form 8-K.
Executive Officers of the Registrant
The information is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The executive officers of The Andersons, Inc., their positions and ages (as of February 26, 2018) are presented in the table below.
|
| | | |
| Name | Position | Age | Year Assumed |
| | | | |
Jeffrey C. Blair
| President, Plant Nutrient Group Vice President of Sales (Intrepid Potash, Inc) Director of Potash Sales (Intrepid Potash, Inc) Commercial Director - Sales and Account Management (Orica Mining Services)
| 45 | 2017 2016 2013 2011
|
| Valerie M. Blanchett | Vice President, Human Resources Vice President, Human Resources, Food Ingredients and Systems (Cargill) | 56 | 2016 2010 |
| Patrick E. Bowe | President and Chief Executive Officer Corporate Vice President, Food Ingredients and Systems (Cargill) | 59 | 2015 2007 |
| Naran U. Burchinow | Senior Vice President, General Counsel and Secretary | 64 | 2005 |
Srikanth R. Dasari
| Vice President, Treasurer Treasurer (Westinghouse Electric Company) Head of Treasury Front Office (Dow Corning) | 47 | 2017 2016 2010
|
| Tamara S. Goetz | Vice President, Financial Planning & Analysis Vice President, Corporate Business /Financial Analysis | 49 | 2015 2007 |
| John J. Granato | Chief Financial Officer
| 52 | 2012 |
| Michael S. Irmen | President, Ethanol Group Vice President and General Manager, Ethanol Group Vice President, Commodities and Risk, Ethanol Group | 64 | 2016 2015 2012 |
| Corbett J. Jorgenson | President, Grain Group Vice President, Americas, Corporate Transportation (Cargill) Vice President, Commercial Lead, AgHorizons USA (Cargill) | 43 | 2016 2015 2013 |
| Anthony A. Lombardi | Chief Information Officer Vice President, Global Business Services and Chief Information Officer (Armstrong World Industries) | 59 | 2016 2010
|
| Joseph E. McNeely | President, Rail Group President and Chief Executive Officer (FreightCar America, Inc.) Vice President Finance, Chief Financial Officer and Treasurer (FreightCar America, Inc.)
| 53 | 2017 2013 2010
|
| Anne G. Rex | Vice President, Corporate Controller | 53 | 2012 |
Rasesh H. Shah
| Senior Director - Rail President, Rail Group
| 63 | 2017 1999
|
Part II.
Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities
The Common Shares of The Andersons, Inc. trade on the Nasdaq Global Select Market under the symbol “ANDE.” On February 18, 2014, the Company effected a three-for-two stock split to its outstanding shares as of January 21, 2014. All share, dividend and per share information set forth in this 10-K has been retroactively adjusted to reflect the stock split.“ANDE”.
Shareholders
At February 15, 2018,14, 2020, there were approximately 28.2 million common shares outstanding, 1,1311,098 shareholders of record and approximately 10,17613,024 shareholders for whom security firms acted as nominees.
The following table sets forth the high and low bid prices for the Company's Common Shares for the four fiscal quarters in each of 2017 and 2016.
|
| | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| Quarter Ended | | | | | | | |
| March 31 | $43.30 | | $36.75 | | $32.24 | | $24.01 |
| June 30 | $38.80 | | $32.20 | | $36.46 | | $25.94 |
| September 30 | $34.65 | | $31.00 | | $38.30 | | $34.40 |
| December 31 | $37.45 | | $29.85 | | $44.80 | | $34.50 |
The Company's transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, IL 60602. Telephone: 312-588-4991.
Dividends
The Company has declared and paid consecutive quarterly dividends since the end of 1996, its first year of trading on the Nasdaq market. Dividends paid from January 20162018 to January 20182020 are as follows:
|
| | |
| Payment Date | | Amount |
1/25/2016 | | $0.1550 |
4/22/2016 | | $0.1550 |
7/22/2016 | | $0.1550 |
10/24/2016 | | $0.1550 |
1/24/2017 | | $0.1600 |
4/24/2017 | | $0.1600 |
7/24/2017 | | $0.1600 |
10/23/2017 | | $0.1600 |
1/23/2018 | | $0.16500.165 |
| 4/23/2018 | | $0.165 |
| 7/23/2018 | | $0.165 |
| 10/22/2018 | | $0.165 |
| 1/23/2019 | | $0.170 |
| 4/22/2019 | | $0.170 |
| 7/22/2019 | | $0.170 |
| 10/22/2019 | | $0.170 |
| 1/23/2020 | | $0.175 |
While the Company's objective is to pay a quarterly cash dividend, dividends are subject to Board of Director approval.
Equity Plans
The following table gives information as of December 31, 20172019 about the Company's Common Shares that may be issued upon the exercise of options under all of its existing equity compensation plans.
| | | | Equity Compensation Plan Information | | Equity Compensation Plan Information |
| Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| Equity compensation plans approved by security holders | 1,010,984 (1) |
| $ | 34.93 |
| 668,213 (2) |
| | 1,091,137 (1) |
| | $ | 37.45 |
| | 2,751,131 (2) |
|
Equity compensation plans not approved by security holders | — |
| — |
| — |
| | 467,002 |
| | 34.87 |
| | 48,323 |
|
| |
| (1) | This number includes 325,000 Non-Qualified Stock Options (“Options”), 182,596263,410 total shareholder return-based performance share units, 274,798263,242 earnings per share-based performance share units, and 228,590239,485 restricted shares outstanding under The Andersons, Inc. 20142019 Long-Term Performance Compensation Plan. This number does not include any shares related to the Employee Share Purchase Plan. The Employee Share Purchase Plan allows employees to purchase common shares at the lower of the market value on the beginning or end of the calendar year through payroll withholdings. These purchases are completed as of December 31. |
| |
| (2) | This number includes 95,918229,909 Common Shares available to be purchased under the Employee Share Purchase Plan and 572,2952,521,222 shares available under equity compensation plans. |
| |
| (3) | In connection with the Company’s acquisition of the interests in LTG the Company did not already own, the Company established the Lansing Acquisition 2018 Inducement and Retention Award Plan (the “Inducement Plan"). The Inducement Plan is to be used exclusively for the grant of equity awards to individuals who were not previously an employee or non-employee director of the Company (or following a bona fide period of non-employment), as an inducement material to each such individual entering into employment with the Company and to replace existing LTG equity awards. The Company issued 608,680 shares of restricted stock under the Inducement Plan in multiple grants during 2019. Approximately 130,000 shares vested as of June 30, 2019. The remaining shares have vesting dates of January 1, 2020, April 1, 2020, January 1, 2021, April 1, 2021 and January 1, 2022. All awards under the Inducement Plan are subject to each such employee’s continued employment with the Company on such vesting dates. Unvested shares of restricted stock are entitled to vote, entitled to dividends (provided that the actual payment of dividends is conditioned upon the vesting of the shares) and are not transferable. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In October 2014, |
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 2019 | | — |
| | $ | — |
| | — |
| | — |
|
| November 2019 | | — |
| | — |
| | — |
| | — |
|
| December 2019 | | 2,111 |
| | 24.01 |
| | — |
| | — |
|
| Total | | 2,111 |
| | $ | 24.01 |
| | — |
| | — |
|
(1) During the Board approvedthree months ended December 31, 2019, the repurchaseCompany acquired shares of common stock held by employees who tendered owned shares at a value not to exceed $50.0 million. The Company repurchased approximately 1.2 million shares, exhausting the October 2014 authorization amount in 2015.satisfy tax withholding obligations.
(2) No shares were repurchasedpurchased as part of publicly announced plans or programs.
Sale of Unregistered Securities
On January 2, 2019, in 2017 or 2016.connection with the LTG acquisition, the Company issued 4.4 million shares of common stock as partial consideration to acquire the portion of LTG that the Company did not previously own. This represented approximately 38.9% of the total consideration paid by the Company. The Company relied on the exemption from registration provided by Regulation D and other applicable federal and state securities law exemptions.
Performance Graph
The graph below compares the total shareholder return on the Corporation'sCompany's Common Shares to the cumulative total return for the Nasdaq U.S. Index and a Peer Group Index. The indices reflect the year-end market value of an investment in the stock of each company in the index, including additional shares assumed to have been acquired with cash dividends, if any. The Peer Group Index, weighted for market capitalization, includes the following companies:
|
| |
Agrium, Inc.Archer-Daniels-Midland Co. | Ingredion IncorporatedNutrien |
Archer-Daniels-Midland Co.GATX Corp. | The Greenbrier Companies, Inc. |
GATX Corp.Green Plains, Inc. | The Scott's Miracle-Gro Company |
Green Plains, Inc.Ingredion Incorporated | |
This Peer Group Index was adjusted in 2017 to better reflect the Company’s business. We removed Lowe's Companies, Inc. as we closed the Retail business and we added Green Plains, Inc. to include additional representation of our Ethanol group.
The graph assumes a $100 investment in The Andersons, Inc. Common Shares on December 31, 20122014 and also assumes investments of $100 in each of the Nasdaq U.S. and Peer Group indices, respectively, on December 31 of the first year of the graph. The value of these investments as of the following calendar year-ends is shown in the table below the graph.
| | | | Base Period | Cumulative Returns | | Base Period | | Cumulative Returns |
| | December 31, 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | | December 31, 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
| The Andersons, Inc. | $ | 100.00 |
| $ | 210.05 |
| $ | 189.34 |
| $ | 114.54 |
| $ | 164.80 |
| $ | 117.05 |
| | $ | 100.00 |
| | $ | 60.49 |
| | $ | 87.04 |
| | $ | 61.82 |
| | $ | 60.51 |
| | $ | 52.52 |
|
| NASDAQ U.S. | 100.00 |
| 140.12 |
| 160.78 |
| 171.97 |
| 187.22 |
| 242.71 |
| | 100.00 |
| | 106.96 |
| | 116.45 |
| | 150.96 |
| | 146.67 |
| | 200.49 |
|
| Peer Group Index | 100.00 |
| 130.57 |
| 154.68 |
| 130.65 |
| 168.04 |
| 174.20 |
| | 100.00 |
| | 69.52 |
| | 88.21 |
| | 91.49 |
| | 82.70 |
| | 93.85 |
|
| | | | |
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 2017 are2019 is derived from the Consolidated Financial Statements of the Company. The data presented below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7, and the Consolidated Financial Statements and notes thereto included in Item 8.
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands, except for per share and ratios and other data) | For the years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Operating results | | | | | | | | | |
| Sales and merchandising revenues (a) | $ | 3,686,345 |
| | $ | 3,924,790 |
| | $ | 4,198,495 |
| | $ | 4,540,071 |
| | $ | 5,604,574 |
|
| Gross profit | 318,799 |
| | 345,506 |
| | 375,838 |
| | 397,139 |
| | 365,225 |
|
| Equity in earnings of affiliates | 16,723 |
| | 9,721 |
| | 31,924 |
| | 96,523 |
| | 68,705 |
|
| Other income, net (b) | 23,444 |
| | 14,775 |
| | 46,472 |
| | 31,125 |
| | 14,876 |
|
| Net income (loss) | 42,609 |
| | 14,470 |
| | (11,322 | ) | | 122,645 |
| | 95,702 |
|
| Net income (loss) attributable to The Andersons, Inc. | 42,511 |
| | 11,594 |
| | (13,067 | ) | | 109,726 |
| | 89,939 |
|
| EBITDA (c) | 87,356 |
| | 123,949 |
| | 85,219 |
| | 254,992 |
| | 219,917 |
|
| | | | | For the year ended December 31, |
| (in thousands, except for per share and ratios and other data) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Operating results | | | | | | | | | | |
| Sales and merchandising revenues (a) | | $ | 8,170,191 |
| | $ | 3,045,382 |
| | $ | 3,686,345 |
| | $ | 3,924,790 |
| | $ | 4,198,495 |
|
| Gross profit | | 517,892 |
| | 302,005 |
| | 318,799 |
| | 345,506 |
| | 375,838 |
|
| Equity in earnings of affiliates | | (7,359 | ) | | 27,141 |
| | 16,723 |
| | 9,721 |
| | 31,924 |
|
| Other income, net (b) | | 20,109 |
| | 16,002 |
| | 22,507 |
| | 12,473 |
| | 46,472 |
|
| Net income (loss) | | 15,060 |
| | 41,225 |
| | 42,609 |
| | 14,470 |
| | (11,322 | ) |
| Net income (loss) attributable to The Andersons, Inc. | | 18,307 |
| | 41,484 |
| | 42,511 |
| | 11,594 |
| | (13,067 | ) |
| EBITDA (c) | | 233,968 |
| | 171,560 |
| | 87,356 |
| | 123,949 |
| | 85,219 |
|
| EBITDA attributable to The Andersons, Inc. (c) | | 226,608 |
| | 169,716 |
| | 86,393 |
| | 122,132 |
| | 83,402 |
|
| Financial position | | | | | | | | | | | | | | | | | | |
| Total assets | 2,162,354 |
| | 2,232,849 |
| | 2,359,101 |
| | 2,364,692 |
| | 2,273,556 |
| 3,900,741 |
| | 2,392,003 |
| | 2,162,354 |
| | 2,232,849 |
| | 2,359,101 |
|
| Working capital | 260,495 |
| | 258,350 |
| | 241,485 |
| | 226,741 |
| | 229,451 |
| 505,423 |
| | 189,848 |
| | 260,495 |
| | 258,350 |
| | 241,485 |
|
| Long-term debt (d) | 418,339 |
| | 397,065 |
| | 436,208 |
| | 298,638 |
| | 371,150 |
| |
| Long-term debt, recourse (d) | | 693,831 |
| | 349,834 |
| | 418,339 |
| | 397,065 |
| | 436,208 |
|
| Long-term debt, non-recourse (d) | — |
| | — |
| | — |
| | — |
| | 4,063 |
| 331,024 |
| | 146,353 |
| | — |
| | — |
| | — |
|
| Total equity | 822,899 |
| | 790,697 |
| | 783,739 |
| | 824,049 |
| | 724,421 |
| 1,195,655 |
| | 876,764 |
| | 822,899 |
| | 790,697 |
| | 783,739 |
|
| | | | | | | | | | | |
| Cash flows / liquidity | | | | | | | | | | | | | | | | | | |
| Cash flows from (used in) operations | 75,285 |
| | 39,585 |
| | 154,134 |
| | (10,071 | ) | | 337,188 |
| 348,562 |
| | (35,519 | ) | | 75,285 |
| | 39,585 |
| | 154,134 |
|
| Depreciation and amortization | 86,412 |
| | 84,325 |
| | 78,456 |
| | 62,005 |
| | 55,307 |
| 146,166 |
| | 90,297 |
| | 86,412 |
| | 84,325 |
| | 78,456 |
|
| Cash invested in acquisitions (e) | (3,507 | ) | | — |
| | (128,549 | ) | | (20,037 | ) | | (15,252 | ) | (102,580 | ) | | (2,248 | ) | | (3,507 | ) | | — |
| | (128,549 | ) |
| Purchase of investments (f) | (5,679 | ) | | (2,523 | ) | | (938 | ) | | (238 | ) | | (49,251 | ) | |
| Purchase of investments | | (1,490 | ) | | (1,086 | ) | | (5,679 | ) | | (2,523 | ) | | (938 | ) |
| Investments in property, plant and equipment and capitalized software | (34,602 | ) | | (77,740 | ) | | (72,469 | ) | | (59,675 | ) | | (46,786 | ) | (165,223 | ) | | (142,579 | ) | | (34,602 | ) | | (77,740 | ) | | (72,469 | ) |
| Net proceeds from (investment in) Rail Group assets (g) | (106,124 | ) | | (28,579 | ) | | (38,407 | ) | | (57,968 | ) | | 4,648 |
| |
| | | | | | | | | | | |
| Per share data (h) | | | | | | | | | | |
| Net proceeds from (investment in) Rail Group assets (f) | | (87,164 | ) | | (87,566 | ) | | (106,124 | ) | | (28,579 | ) | | (38,407 | ) |
| Per share data (g) | | | | | | | | | | |
| Net income (loss) - basic | 1.51 |
| | 0.41 |
| | (0.46 | ) | | 3.85 |
| | 3.20 |
| 0.56 |
| | 1.47 |
| | 1.51 |
| | 0.41 |
| | (0.46 | ) |
| Net income (loss) - diluted | 1.50 |
| | 0.41 |
| | (0.46 | ) | | 3.84 |
| | 3.18 |
| 0.55 |
| | 1.46 |
| | 1.50 |
| | 0.41 |
| | (0.46 | ) |
| Dividends declared | 0.6450 |
| | 0.6250 |
| | 0.5750 |
| | 0.4700 |
| | 0.4300 |
| 0.6850 |
| | 0.6650 |
| | 0.6450 |
| | 0.6250 |
| | 0.5750 |
|
| Year-end market value | 31.15 |
| | 44.70 |
| | 31.63 |
| | 53.14 |
| | 59.45 |
| 25.28 |
| | 29.89 |
| | 31.15 |
| | 44.70 |
| | 31.63 |
|
| | | | | | | | | | | |
| Ratios and other data | | | | | | | | | | | | | | | | | | |
| Net income attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc. | 5.5 | % | | 1.5 | % | | (1.6 | )% | | 15.6 | % | | 15.1 | % | |
| Funded long-term debt to equity ratio (i) | 0.5-to-1 |
| | 0.5-to-1 |
| | 0.6-to-1 |
| | 0.4-to-1 |
| | 0.5-to-1 |
| |
| Net income (loss) attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc. | | 2.2 | % | | 5.1 | % | | 5.5 | % | | 1.5 | % | | (1.6 | )% |
| Funded long-term debt to equity ratio (h) | | 0.8-to-1 |
| | 0.6-to-1 |
| | 0.5-to-1 |
| | 0.5-to-1 |
| | 0.6-to-1 |
|
| Weighted average shares outstanding (000's) | 28,126 |
| | 28,193 |
| | 28,288 |
| | 28,367 |
| | 27,986 |
| 32,570 |
| | 28,258 |
| | 28,126 |
| | 28,193 |
| | 28,288 |
|
| Effective tax rate | 307.6 | % | | 32.3 | % | | 2.1 | % | | 33.4 | % | | 36.0 | % | 46.4 | % | | 22.5 | % | | 307.6 | % | | 32.3 | % | | 2.1 | % |
(a) Includes sales of $456.7 million in 2019, $625.2 million in 2018, $1,089.7 million in 2017, $854.6 million in 2016 and $872.1 million in 2015, $1,064.4 million in 2014, and $1,333.2 million in 2013 pursuant to marketing and origination agreements between the Company and the unconsolidated ethanol LLCs.LLCs, prior to the TAMH merger and consolidation of these entities in the fourth quarter of 2019. Sales amounts from 2019 are for the first nine months of the year, prior to the TAMH merger. In 2018, the adoption of ASC 606 led to a change in treatment of grain origination transactions that are now shown net versus gross. This change caused a decrease in revenue and an equal offsetting decrease to cost of sales.
(b) Includes $23.1 million for the gain on dilution and partial share redemption of the LTG investment in 2015 and $17.1 million for the gain on partial share redemption of LTG in 2014.2015.
(c) Earnings before interest, taxes, depreciation and amortization, or EBITDA is aand EBITDA attributable to The Andersons, Inc., are non-GAAP measure.measures. The Company believes these EBITDA providesmeasures provide additional information to investors and others about its operations allowing an evaluation of underlying operating performance and better period-to-period comparability. EBITDA doesand EBITDA attributable to The Andersons, Inc. is not and should not be considered as an alternative to net income or income before income taxes as determined by generally accepted accounting principles.
(d) Excludes current portion of long-term debt.debt but includes finance lease amounts.
(e) DuringIn 2015, the Company acquired 100% of the stock of Kay Flo Industries, Inc.
(f) During 2013, In 2019, the Company and LTG established 50/50 joint ventures to acquire 100%acquired the remaining equity of the stock ofLansing Trade Group and Thompsons Limited and its related U.S. operating company.completed the TAMH merger.
(g)(f) Represents the net of purchases of Rail Group assets offset by proceeds on sales of Rail Group assets.
(h)(g) Earnings per share are calculated based on Income attributable to The Andersons, Inc.
(i)(h) Calculated by dividing long-term debt by total year-end equity as stated under “Financial position.”
The following table sets forth our calculationreconciliation of EBITDA.Net Income (Loss) to non-GAAP measures of EBITDA and EBITDA attributable to The Andersons, Inc.
| | | | For the years ended December 31, | For the years ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Net income (loss) attributable to The Andersons, Inc. | $ | 42,511 |
| | $ | 11,594 |
| | $ | (13,067 | ) | | $ | 109,726 |
| | $ | 89,939 |
| |
| Net Income (Loss) | | $ | 15,060 |
| | $ | 41,225 |
| | $ | 42,609 |
| | $ | 14,470 |
| | $ | (11,322 | ) |
| Add: | | | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | (63,134 | ) | | 6,911 |
| | (242 | ) | | 61,501 |
| | 53,811 |
| 13,051 |
| | 11,931 |
| | (63,134 | ) | | 6,911 |
| | (242 | ) |
| Interest expense | 21,567 |
| | 21,119 |
| | 20,072 |
| | 21,760 |
| | 20,860 |
| 59,691 |
| | 27,848 |
| | 21,567 |
| | 21,119 |
| | 20,072 |
|
| Depreciation and amortization | 86,412 |
| | 84,325 |
| | 78,456 |
| | 62,005 |
| | 55,307 |
| 146,166 |
| | 90,297 |
| | 86,412 |
| | 84,325 |
| | 78,456 |
|
| EBITDA | 87,356 |
| | 123,949 |
| | 85,219 |
| | 254,992 |
| | 219,917 |
| 233,968 |
| | 171,301 |
| | 87,454 |
| | 126,825 |
| | 86,964 |
|
| Less: | | | | | | | | | | |
| Net income (loss) attributable to the noncontrolling interests | | (3,247 | ) | | (259 | ) | | 98 |
| | 2,876 |
| | 1,745 |
|
| Provision (benefit) for income taxes attributable to the noncontrolling interests | | 12 |
| | — |
| | — |
| | — |
| | — |
|
| Interest expense attributable to the noncontrolling interests | | 1,318 |
| | 929 |
| | 77 |
| | 929 |
| | 929 |
|
| Depreciation and amortization attributable to the noncontrolling interests | | 9,277 |
| | 915 |
| | 886 |
| | 888 |
| | 888 |
|
| EBITDA attributable to The Andersons, Inc. | | $ | 226,608 |
| | $ | 169,716 |
| | $ | 86,393 |
| | $ | 122,132 |
| | $ | 83,402 |
|
The Company has included its Computationuses earnings before taxes, interest, and depreciation and amortization (EBITDA) and EBITDA attributable to The Andersons, Inc., non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, EarningsGAAP financial measures.
Management believes that EBITDA and EBITDA attributable to Fixed Charges in Item 15. Exhibits, Financial Statement Schedules,The Andersons, Inc. are useful measures of the Company’s performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and Reports on Form 10-K as Exhibit 12.better period-to-period comparability. EBITDA and EBITDA attributable are not intended to replace or be alternatives to Net Income or Net Income attributable to The Andersons, Inc., the most directly comparable amounts reported under GAAP.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management's Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. The reader is urged to carefully consider these risks and factors, including those listed under Item 1A, “Risk Factors.” In some cases, the reader can identify forward-looking statements by terminology such as “may”, “anticipates”, “believes”, “estimates”, “predicts”, or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Executive Overview
Our operations are organized, managed and classified into fivefour reportable business segments: Grain,Trade, Ethanol, Plant Nutrient, Rail, and Retail.Rail. Each of these segments is generally based on the nature of products and services offered. In January 2019, the Company completed the acquisition of 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The presentation here includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group, with the remaining pieces of the acquired business included in Ethanol as stated in the segment footnote (Note 13).
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the periodbetween periods may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes toin gross profit.
GrainTrade Group
The GrainTrade Group's performance reflects continued recoveryan increase in merchandising activity through the acquisition of LTG which helped to offset the weak storage income from the priorgrain elevator component business as adverse weather conditions severely impacted the geographic footprint of the Company's grain storage business early in the year. Holding corn, beans,The group also recorded several asset impairments in the current year, the largest of which related to the Company's frac sand business as the industry has faced significant challenges due to the market penetration of in-basin sand and wheat has led to higher space income. Additionally, our risk management services, trading income,a prolonged reduction in oil and earnings from affiliates have improved. While the 2017 harvest quality and yield was good, a drawn out harvest prevented strong margins on bushels sold. The Group continues to refine its portfolio and signed an agreement in February 2018 to sell three of its Tennessee locations. Assets associated with these locations have been classified as Held for Sale, including approximately 3.4 million bushels of inventory.natural gas prices.
Total grain storage capacity, including temporary pile storage, iswas approximately 150206.6 million bushels as of December 31, 2017, similar to capacity at2019 and 141.0 million bushels as of December 31, 2016. Grain2018. This increase in capacity is a result of the LTG acquisition. Commodity inventories on hand at December 31, 20172019 were 113.8152.8 million bushels, of which 1.06.4 million bushels were stored for others. This compares to 108.4109.4 million bushels on hand at December 31, 2016,2018, of which 0.9 million bushelsa de minimis amount were stored for others.
The group estimates that growers will plant 87 to 90 million acresfocus on growth of corn in 2018, perhaps slightly beloworiginations, risk management services and the 90 million acres planted in 2017. Soybean planted acres are expected to be 89 to 92 million, compared to 90 million acres planted last year. Total wheat acres planted have been reported to be approximately 46 million in 2017 compared to 50 million in 2016. Normal weather conditions during planting and growing seasons should create good storage and merchandising opportunitiesfood ingredient business while monitoring macroeconomic events which could cause more volatility in the coming year.market.
Ethanol Group
The Ethanol Group remained profitable for the full year despite a challenging margin environment and recorded a large one time gain as a result of the TAMH merger. The Ethanol Group's current year results reflect record industry productionhigher sales volumes of ethanol from the recently acquired ethanol trading business and excess supplythe newly constructed ELEMENT facility which are now being included in the market leading to lower margins on ethanol sold. Additionally, higher input costs negatively impacted margins. DDG margins were also impacted by vomitoxin issues remaining from the 2016 harvest. Weak ethanol and DDG margins were partially offset by high ethanol export demand and strong E-85 and corn oil sales. DDG margins rebounded at year-end, in part due to a lack of significant vomitoxin issues noted in the 2017 harvest.Company's Consolidated Financial Statements. As we move into 2018, we expect margins to continue to be impacted by2020, the Ethanol Group expects continued margin headwinds from a current oversupply of ethanol and the high industry production and inventory levels.corn basis across the Eastern Corn Belt.
Volumes shipped for the years ended December 31, 20172019 and 2016December 31, 2018 were as follows:
| | | | Twelve months ended December 31, | Twelve months ended December 31, |
| (in thousands) | 2017 | | 2016 | 2019 | | 2018 |
| Ethanol (gallons) | 411,087 |
| | 295,573 |
| 542,146 |
| | 451,306 |
|
| E-85 (gallons) | 47,676 |
| | 37,709 |
| 47,708 |
| | 61,382 |
|
| Corn Oil (pounds) | 17,959 |
| | 14,794 |
| 48,702 |
| | 20,348 |
|
| DDG (tons) | 162 |
| | 164 |
| 446 |
| | 158 |
|
The above table shows only shipped volumes that flow through the Company's revenues.Consolidated Financial Statements of the Company. As the Company merged its former unconsolidated LLCs into the consolidated TAMH entity in the fourth quarter of 2019, these consolidated volumes in the fourth quarter are now included in the 2019 amounts above. Total ethanol, DDG, and corn oil production by the unconsolidated LLCs for the first three quarters of 2019 and the whole year of 2018 is higher. However, the portion of this volume that iswas sold from the unconsolidated LLCs directly to their customers for the first nine months of 2019 is excluded here.
Plant Nutrient Group
The Plant Nutrient Group's results reflectdecreased year-over-year due to a continued, depressedwet spring that compressed the planting time frame in areas that we supply and large profitable specialty nutrient market. The oversupply of base nutrientsmanufacturing contracts that were entered into in the market has continued to put pressure on prices,prior year which has compressed overall margins, while volumes remained steady.did not recur in the current year.
Total storage capacity at our wholesale nutrient and farm center facilities was approximately 480486 thousand tons for dry nutrients and approximately 512515 thousand tons for liquid nutrients at December 31, 2017.
During the year, the Plant Nutrient Group recorded goodwill impairment losses related2019, which is similar to the Wholesale reporting unit of $59.1 million. As a result, there is no remaining goodwill in the Wholesale reporting unit as of December 31, 2017.prior year.
Looking ahead, we expect low pricesthe group expects to face a continued challenging margin environment and oversupply conditions to persist, putting further pressure on margins into next year. The Group will remainremained focused on productivity, operational efficiencyincreasing sales and sales force development.working capital management.
Tons shipped byof product line (including sales and service tons)sold for the years ended December 31, 20172019 and 2016December 31, 2018 were as follows:
|
| | | | | |
| (in thousands) | Twelve months ended December 31, |
| | 2017 | | 2016 |
| Wholesale Nutrients - Base Nitrogen, Phosphorus, Potassium | 1,262 |
| | 1,246 |
|
| Wholesale Nutrients - Value added products | 489 |
| | 491 |
|
| Other (Includes Farm Center, Turf, and Cob) | 447 |
| | 553 |
|
| Total tons | 2,198 |
| | 2,290 |
|
|
| | | | | |
| (in thousands) | Twelve months ended December 31, |
| | 2019 | | 2018 |
| Primary Nutrients | 1,394 |
| | 1,424 |
|
| Specialty Nutrients | 605 |
| | 694 |
|
| Other | 56 |
| | 56 |
|
| Total tons | 2,055 |
| | 2,174 |
|
In the table above, primary nutrients are comprised of nitrogen, phosphorus, and potassium from our wholesale and farm center businesses. Specialty nutrients encompasses low-salt liquid starter fertilizers, micronutrients for wholesale and farm center businesses, as well as the lawn business. Other tons shipped decreasedinclude those from 553 in 2016 to 447 in 2017 as a result of the sale of four farm center locations in Florida.cob business.
Rail Group
The Rail Group's results were lower than the prior year, primarilyyear. The reduction in its base leasing business. This was due to decreases in lease utilization andearnings were driven by lower average lease rates. Rail Group assets under management (owned, leased or managed for financial institutionsrates, lower North American railcar loading and certain customer defaults particularly in non-recourse arrangements) at December 31, 2017 were 24,104 compared to 23,236 at December 31, 2016.the sand and ethanol markets. The average utilization rate (Rail Group assets under management that are in lease service, exclusive of those managed for third-party investors) was 85.0%92.4% for the year ended December 31, 20172019 which was 2.8 percent lower1.5% higher than the prior year.
For the year ended December 31, 2017, Rail recorded gains on sales of Rail Group assets and related leasesunder management (owned, leased or managed for financial institutions in the amount of $11.0 million and a similar amount for the year endednon-recourse arrangements) at December 31, 2016.2019 were 24,884 compared to 23,463 at December 31, 2018.
In 2018 the Group will continue to focus on ways to strategically grow the rail fleet while increasing the average remaining life of the fleet and continue to look for opportunities to open new repair facilities and other adjacent businesses. The Rail Group expects an increase in 2018 tank car recertification expense. Additionally, sales will be impacted by changes in accounting standardscontinued pressure on new and renewing lease rates across most commodities throughout 2020. The utilization rates, however, are expected to remain above 90 percent. The group is also looking for additional growth on its repair business as certain transactions the group has engaged in over time will not qualify for sale treatment under the new revenue recognition rules in 2018.we expand our network.
Retail Group
In January 2017, the Company announced its decision to close all remaining retail operations. The Retail Group closed all stores, completed its liquidation efforts, and has sold all but one the retail properties, which is currently being actively marketed for sale.
Other
OurIn 2019, the Company acquired the remaining interest not previously owned in LTG and in 2018 incurred $6.5 million in one-time expenses related to the acquisition.
The Company's “Other” represents corporate functions that provide support and services to the operating segments. The results contained within this group include expenses and benefits not allocated back to the operating segments, including a significant portion of our ERP project and the settlement chargesretail from the terminationprior year.
Results for Fiscal 2018 compared to Fiscal 2017
For comparisons of our defined benefit pension plan in 2015.the Company's consolidated and segment results of operations and consolidated cash flows for the fiscal years ended December 31, 2018 to December 31, 2017, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 27, 2019.
Operating Results
On February 14, 2018,12, 2020, we furnished a Current Report on Form 8-K to the SEC that included a press release issued that same day announcing the fourth quarter and full-year financial results for the period ended December 31, 2017,2019, which was furnished as Exhibit 99.1 thereto (the Earnings Release)"Earnings Release"). The Earnings Release reported: (a) net income attributable to The Andersons, Inc.Other current assets of $68.4$92.3 million and $41.2 million;(b) Goodwill of $137.8 million, (c) Accrued expenses and (b) diluted earnings per common share attributable to The Andersons, Inc. shareholdersother current liabilities of $2.42$190.6 million, (d) Deferred income taxes of $149.4 million and $1.46, each for the three and twelve months ended(e) Total equity of $1,201.0 million as of December 31, 2017.2019. The Consolidated Statements of OperationsBalance Sheet and accompanying notes in this Annual Report on Form 10-K reports (a) net income attributable to The Andersons, Inc.Other current assets of $69.7$75.7 million and $42.5 million;(b) Goodwill of $135.4 million, (c) Accrued expenses and (b) diluted earnings per common share attributable to The Andersons, Inc. shareholdersother current liabilities of $2.47$176.4 million, (d) Deferred income taxes of $146.2 million and $1.50, each for the three and twelve months ended(e) Total equity of $1,195.7 million as of December 31, 2017.2019. Subsequent to the Earnings Release, we recorded additional tax benefitan adjustment related to deferred taxes in conjunction with purchase price accounting finalization of $1.3 million as we finalized our tax provision.the LTG acquisition.
Operating Results
The following discussion focuses on the operating results as shown in the Consolidated Statements of Operations with a separate discussion by segment. Additional segment information is included in Note 13 to the Company's Consolidated Financial Statements in Item 8.
| | | | Year ended December 31, | Year ended December 31, 2019 |
| (in thousands) | 2017 | | 2016 | | 2015 | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
| Sales and merchandising revenues | $ | 3,686,345 |
| | $ | 3,924,790 |
| | $ | 4,198,495 |
| $ | 6,387,744 |
| | $ | 968,779 |
| | $ | 646,730 |
| | $ | 166,938 |
| | $ | — |
| | $ | 8,170,191 |
|
| Cost of sales and merchandising revenues | 3,367,546 |
| | 3,579,284 |
| | 3,822,657 |
| 6,052,519 |
| | 942,341 |
| | 547,626 |
| | 109,813 |
| | — |
| | 7,652,299 |
|
| Gross profit | 318,799 |
| | 345,506 |
| | 375,838 |
| 335,225 |
| | 26,438 |
| | 99,104 |
| | 57,125 |
| | — |
| | 517,892 |
|
| Operating, administrative and general expenses | 287,930 |
| | 318,395 |
| | 337,829 |
| 279,502 |
| | 17,417 |
| | 84,719 |
| | 27,132 |
| | 28,072 |
| | 436,842 |
|
| Pension settlement | — |
| | — |
| | 51,446 |
| |
| Asset impairment | 10,913 |
| | 9,107 |
| | 285 |
| 38,536 |
| | — |
| | 2,175 |
| | — |
| | 501 |
| | 41,212 |
|
| Goodwill impairment | 59,081 |
| | — |
| | 56,166 |
| |
| Interest expense | 21,567 |
| | 21,119 |
| | 20,072 |
| |
| Equity in earnings of affiliates | 16,723 |
| | 9,721 |
| | 31,924 |
| |
| Other income, net | 23,444 |
| | 14,775 |
| | 46,472 |
| |
| Interest expense (income) | | 35,202 |
| | 584 |
| | 7,954 |
| | 16,486 |
| | (535 | ) | | 59,691 |
|
| Equity in earnings (losses) of affiliates, net | | (6,835 | ) | | (524 | ) | | — |
| | — |
| | — |
| | (7,359 | ) |
| Other income (expense), net | | 10,070 |
| | 37,199 |
| | 4,903 |
| | 1,583 |
| | 1,568 |
| | 55,323 |
|
| Income (loss) before income taxes | (20,525 | ) | | 21,381 |
| | (11,564 | ) | (14,780 | ) | | 45,112 |
| | 9,159 |
| | 15,090 |
| | (26,470 | ) | | 28,111 |
|
| Income attributable to noncontrolling interests | 98 |
| | 2,876 |
| | 1,745 |
| |
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (20,623 | ) | | $ | 18,505 |
| | $ | (13,309 | ) | |
| Income (loss) before income taxes attributable to the noncontrolling interests | | — |
| | (3,247 | ) | | — |
| | — |
| | — |
| | (3,247 | ) |
| Non-GAAP Income (loss) before income taxes, attributable to The Andersons, Inc. | | $ | (14,780 | ) | | $ | 48,359 |
| | $ | 9,159 |
| | $ | 15,090 |
| | $ | (26,470 | ) | | $ | 31,358 |
|
Comparison of 2017 with 2016
Grain Group
| | | | Year ended December 31, | Year ended December 31, 2018 |
| (in thousands) | 2017 | | 2016 | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
| Sales and merchandising revenues | $ | 2,106,464 |
| | $ | 2,357,171 |
| $ | 1,433,660 |
| | $ | 747,009 |
| | $ | 690,536 |
| | $ | 174,177 |
| | $ | — |
| | $ | 3,045,382 |
|
| Cost of sales and merchandising revenues | 1,975,076 |
| | 2,249,089 |
| 1,307,121 |
| | 725,289 |
| | 591,635 |
| | 119,332 |
| | — |
| | 2,743,377 |
|
| Gross profit | 131,388 |
| | 108,082 |
| 126,539 |
| | 21,720 |
| | 98,901 |
| | 54,845 |
| | — |
| | 302,005 |
|
| Operating, administrative and general expenses | 107,478 |
| | 112,507 |
| 105,190 |
| | 13,768 |
| | 82,867 |
| | 24,897 |
| | 31,150 |
| | 257,872 |
|
| Asset impairment | 10,913 |
| | — |
| 1,564 |
| | — |
| | — |
| | 4,708 |
| | — |
| | 6,272 |
|
| Interest expense | 8,320 |
| | 7,955 |
| |
| Equity in earnings of affiliates | 4,509 |
| | (8,746 | ) | |
| Other income, net | 3,658 |
| | 5,472 |
| |
| Interest expense (income) | | 11,845 |
| | (1,890 | ) | | 6,499 |
| | 11,377 |
| | 17 |
| | 27,848 |
|
| Equity in earnings (losses) of affiliates, net | | 12,932 |
| | 14,209 |
| | — |
| | — |
| | — |
| | 27,141 |
|
| Other income (expense), net | | 843 |
| | 2,766 |
| | 2,495 |
| | 3,516 |
| | 6,382 |
| | 16,002 |
|
| Income (loss) before income taxes | 12,844 |
| | (15,654 | ) | 21,715 |
| | 26,817 |
| | 12,030 |
| | 17,379 |
| | (24,785 | ) | | 53,156 |
|
| Loss attributable to noncontrolling interests | — |
| | (3 | ) | |
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 12,844 |
| | $ | (15,651 | ) | |
| Income (loss) before income taxes attributable to the noncontrolling interests | | — |
| | (259 | ) | | — |
| | — |
| | — |
| | (259 | ) |
| Non-GAAP Income (loss) before income taxes, attributable to The Andersons, Inc. | | $ | 21,715 |
| | $ | 27,076 |
| | $ | 12,030 |
| | $ | 17,379 |
| | $ | (24,785 | ) | | $ | 53,415 |
|
The Company uses Income (loss) before income taxes, attributable to The Andersons, Inc., a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Management believes that Income (loss) before income taxes, attributable to The Andersons, Inc. is useful measures of the Company’s performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. This measure is not intended to replace or be alternatives to Net Income or Net Income attributable to The Andersons, Inc., the most directly comparable amounts reported under GAAP.
Comparison of 2019 with 2018
Trade Group
Operating results for the GrainTrade Group improved $28.5decreased $36.5 million compared to fullprior year 2016 results. Sales and merchandising revenues decreased $250.7increased $4,954.1 million compared to 2016 due to a 24% decrease in bushels sold. This decreaseprior year amounts which was driven by two main factors. First, more bushels are being strategically stored due to strong space income opportunities in the market. Second, there was an intentional reduction in bushels sold directly from supplier to customerlargely offset as the group continues to focus only on the most profitable markets to increase margins. Costcost of sales and merchandising revenues decreased due to the same items above but to a lesser extentincreased by $4,745.4 million for a net favorablean increase in gross profit impact of approximately $23.3$208.7 million. TheSubstantially all of the gross profit increase was driven by a $31.5 million increase in space income relating to corn, beans, and wheat as the value of storage capacity significantly improved, as well as a $7.8 million increase from risk management fees, trading income and other items compared to the prior year. These gains were partially offset byyear was a $12.9 million decreasedirect result of acquiring the remaining equity in dryingLTG and mixing income related to unusual wheat blending opportunities in 2016 that did not occur in 2017 and handling margins related to both harvest timing and grain storage decisions. Thompsons on January 1, 2019.
Operating, administrative and general expenses decreased $5.0increased $174.3 million compared to fullprior year 2016 results. The decrease was primarily due to a reduction of $3.5 million in costs as a resultacquisition of the dispositionremaining equity in LTG and Thompsons accounted for substantially all of this increase as the Iowa facilitiesbusiness is significantly larger. Also, included in 2016 and a $3.6 million decrease due to reductions in labor and benefits at the remaining facilities as a result of productivity initiatives and lower employee costs. The decreases were partially offset by minor increases in 2017 depreciation, maintenanceincreased expenses are purchase accounting and other acquisition-related items, such as, $9.3 million of stock-based compensation expense, $10.2 million of incremental depreciation and amortization expenses and $7.8 million of other transaction related expenses.
The GrainTrade Group recorded asset impairment charges of $10.9$38.5 million relatingand $1.6 million in 2019 and 2018, respectively. The current year asset impairment charges include a $34.8 million impairment of the Company's Frac Sand business following a fundamental shift in the operating environment in the areas we are located and $3.7 million related to the Company's Tennessee assets, as it continued to dispose of its Western Tennessee assets.remaining assets in this region.
Interest expense increased $23.4 million due to higher debt levels resulting from the acquisition and higher borrowing rates.
Equity in earnings of affiliates improved $13.3decreased $19.8 million as LTG and Thompsons, previously accounted for on the equity method, were fully consolidated entities as of January 1, 2019. The loss in the current year primarily duerelates to one investment that realized losses and the improved operating resultsCompany recorded an other-than-temporary impairment charge of LTG, which also continues to recover from under performance in its core markets in 2016.approximately $5.0 million.
Ethanol Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Sales and merchandising revenues | $ | 708,063 |
| | $ | 544,556 |
|
| Cost of sales and merchandising revenues | 688,206 |
| | 524,252 |
|
| Gross profit | 19,857 |
| | 20,304 |
|
| Operating, administrative and general expenses | 13,216 |
| | 11,211 |
|
| Interest expense | (67 | ) | | 35 |
|
| Equity in earnings of affiliates | 12,214 |
| | 18,467 |
|
| Other income, net | 54 |
| | 77 |
|
| Income before income taxes | 18,976 |
| | 27,602 |
|
| Income attributable to noncontrolling interests | 98 |
| | 2,879 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 18,878 |
| | $ | 24,723 |
|
Operating results attributable to the Company for the Ethanol Group declined $5.8increased $21.3 million from full year 2016 results.the prior year. Sales and merchandising revenues increased $163.5 million. This was driven by a 39% increase in ethanol gallons sold, a portion of which is attributable to the Albion plant expansion. Cost$221.8 million and cost of sales and merchandising revenues increased $164.0$217.1 million compared to prior year results primarily attributable to the TAMH merger and the LTG acquisition. Gross profit increased by $4.7 million from increased sales volumes as a result of increased merchandising activity due to an increase in input cost and lower DDG values. Despite higher volumes, higher input costs caused gross profit to decrease $0.4 million.the LTG acquisition.
Operating, administrative and general expenses increased $2.0$3.6 million comparedfrom the prior year due to the same periodELEMENT facility commencing operations in 2016, primarily as a result2019, and the impact of the write-offTAMH merger in October 2019. Prior to the merger, the Company's share of a potential capital project. operating, administrative and general expenses would have been recognized in equity earnings.
Interest expense increased $2.5 million due to the cessation of the capitalization of interest related to the construction of the ELEMENT facility which was completed in 2019.
Equity in earnings of affiliates decreased $6.3$14.7 million due to lower results fromas a result of the unconsolidated ethanol LLCs. TheseLLCs experiencing compressed margins from higher corn costs for the first three quarters of the year. The fourth quarter 2019 results were primarily driven by lowof the previously unconsolidated ethanol and DDG margins. The decrease is also driven by our merging TAEI with and into TAMELLCs are now included in the first quarter. Prior to this transaction, the noncontrolling interest in TAEI was attributed 33%consolidated financial results of the gains and losses of TAME recorded by the Company in its equity in earnings of affiliates. With a 33% direct ownership in TAME now, our share of gains and losses recorded in equity in earnings of affiliates will decrease, with a correlated decrease in income attributable to noncontrolling interests.Company.
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Sales and merchandising revenues | $ | 651,824 |
| | $ | 725,176 |
|
| Cost of sales and merchandising revenues | 547,179 |
| | 603,045 |
|
| Gross profit | 104,645 |
| | 122,131 |
|
| Operating, administrative and general expenses | 89,357 |
| | 102,892 |
|
| Asset impairment | — |
| | 2,331 |
|
| Goodwill impairment | 59,081 |
| | — |
|
| Interest expense | 6,420 |
| | 6,448 |
|
| Other income, net | 5,092 |
| | 3,716 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (45,121 | ) | | $ | 14,176 |
|
Operating results for the Plant Nutrient Group declined $59.3 million compared to full year 2016 results. Sales and merchandising revenues decreased $73.4 million. Approximately 64% of the decrease is due to a 30% decrease in farm center tons sold as a result of the sales of our farm center locations in Florida in the first quarter of 2017 and Iowa in the first quarter of 2016 and a 6% decrease in average sales prices for all locations. A 6% decrease in average sale prices in the wholesale business accounts for the majority of the remaining decrease. Cost of sales and merchandising revenues decreased $55.9 million, for the same reasons. As such, gross profit decreased by $17.5 million. Margins remain tight due to competitive pressures, excess nutrient supply in the wholesale and farm center businesses, and lower crop prices.
Operating, administrative, and general expenses decreased $13.5 million from the prior year. The largest driver was a $8.1 million decrease in labor and benefits, much of it relating to the sale of farm center locations in Florida in the first quarter of 2017 and the sale of the farm center locations in Iowa in the first quarter of 2016. Smaller reductions were also realized in a number of other categories as part of our overall cost control efforts. The group recognized goodwill impairment charges of $59.1 million after experiencing several periods of compressed margins and lower sales volumes, as well as anticipated unfavorable operating conditions in the nutrient market for some time. The group recognized a $2.3 million asset impairment in 2016 associated with the closure of a cob facility.
Other income increased $1.4 million primarily as a result of a $4.7 million gain on the sale of farm center locations in Florida in the first quarter of 2017. This increase was partially offset by a $1.8 million legal settlement, net of insurance recoveries, in the third quarter of 2017.
Rail Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Sales and merchandising revenues | $ | 172,123 |
| | $ | 163,658 |
|
| Cost of sales and merchandising revenues | 119,664 |
| | 107,729 |
|
| Gross profit | 52,459 |
| | 55,929 |
|
| Operating, administrative and general expenses | 23,270 |
| | 18,971 |
|
| Asset impairment | — |
| | 287 |
|
| Interest expense | 7,023 |
| | 6,461 |
|
| Other income, net | 2,632 |
| | 2,218 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 24,798 |
| | $ | 32,428 |
|
Operating results for the Rail Group declined $7.6$2.9 million compared to the full year 2016 results. Sales and merchandising revenues increased $8.5 million. Revenue from car sales increased by $11.0 million due to a higher volume of car sales and repair and other revenue increased $2.0 million as a result of revenue generated by new shops. These increases were partially offset by a $4.5 million decreasesame period in leasing revenues due to average utilization of 85.0% in the current year and 87.8% in the prior year, as well as a 2% decrease in lease rates compared to the prior year. Cost of sales and merchandising revenues increased $11.9 million due to an $11.0 million increases in car sales and $0.8 million related to leasing costs. As a result of these factors, Rail gross profit decreased $3.5 million compared to the prior year.
Operating expenses increased by $4.3 million, largely due to higher labor and benefit costs from opening new repair shops. Interest expense increased due to higher rates and more debt resulting from purchases in 2017.
Retail Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Sales and merchandising revenues | $ | 47,871 |
| | $ | 134,229 |
|
| Cost of sales and merchandising revenues | 37,421 |
| | 95,169 |
|
| Gross profit | 10,450 |
| | 39,060 |
|
| Operating, administrative and general expenses | 28,119 |
| | 41,430 |
|
| Asset impairment | — |
| | 6,489 |
|
| Interest expense | 324 |
| | 496 |
|
| Other income, net | 10,684 |
| | 507 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (7,309 | ) | | $ | (8,848 | ) |
Operating results for the Retail Group improved $1.5 million compared to the prior year. Sales and merchandising revenues decreased $86.4$43.8 million whileand cost of sales and merchandising revenues decreased $57.7 million. These decreases$44.0 million from a significant decrease in primary and specialty ton volumes. The volume declines were due to lowera compressed Spring planting season as well as volumes as a resultin the lawn business that did not recur in the current year. The decrease in primary and specialty volumes was more than offset by improved pricing discipline and favorable raw material sourcing which led to an increased gross profit of $0.2 million for the group overall.
Operating, administrative and general expenses increased $1.9 million primarily due to increases in rent and storage costs from holding more product on hand and unfavorable production costs resulting in low volumes from weak market conditions.
Interest expense increased $1.5 million from carrying higher levels of inventories at the beginning of the closureyear due to the wet weather that delayed and reduced planting.
Rail Group
Operating results for the Rail Group decreased $2.3 million from the same period in the prior year. Sales and merchandising revenues decreased $7.2 million and cost of sales and merchandising revenues decreased $9.5 million compared to prior year results. The decreased revenues were driven by a decrease of $13.7 million in car sale revenues as the retail businessCompany sold more cars in 2018 when scrap rates were more favorable and was partially offset by an increase of $4.7 million in leasing revenues due to higher utilization rates with more cars on lease and an increase of $1.7 million in repair and other revenues.
Operating, administrative and general expenses increased $2.2 million from the prior year primarily from the impact of headwinds in the frac sand and ethanol industries, resulting in an additional $2.7 million of bad debt expense being incurred in the current year.
Asset impairment charges of $4.7 million were recorded in the prior year from a decision to scrap certain idled, out-of-favor cars during the second quarter of 2017. Additionally, inventory liquidation markdowns caused2018, taking advantage of high scrap prices.
Interest expense increased $5.1 million due to higher borrowings, as the Company was a significant decreasenet buyer of rail cars in margins leadingthe current year.
Other income decreased $1.9 million due to a $28.6$2.4 million decreasegain on the sale of barges in gross profit.the prior year that did not recur in the current year.
Other Group
Operating, administrative and general expenses decreased by $13.3$3.1 million as a result of the mid-year closure. This decrease was partially offset by one time exit charges of $11.5 million, most ofdue to severance, acquisition due diligence costs and other IT implementation costs reflected in 2018 which was for severance costs.did not recur in 2019. Other income increased $10.2for 2018 includes $3.9 million primarily fromof gains onrelated to the sale of three store propertiesan investment and fixtures.
Other
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Sales and merchandising revenues | $ | — |
| | $ | — |
|
| Cost of sales and merchandising revenues | — |
| | — |
|
| Gross profit | — |
| | — |
|
| Operating, administrative and general expenses | 26,490 |
| | 31,384 |
|
| Interest expense (income) | (453 | ) | | (276 | ) |
| Other income, net | 1,324 |
| | 2,785 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (24,713 | ) | | $ | (28,323 | ) |
The Other operating loss not allocated to business segments decreased $3.6a $1.2 million comparedgain related to the prior year primarily due to a reduction in IT costs and higher severance costs in the prior year.revaluation of another investment.
Income Taxes
Income tax benefit of $63.1 million was provided at 307.6%. In 2016,2019, the Company recorded income tax expense of $6.9$13.1 million was provided at 32.3%an effective rate of 46.4%. The higherIn 2018, the Company recorded income tax expense of $11.9 million at an effective tax rate of 22.5%. The increase in 2017 relative to the loss before income taxes was due primarily to the US enacted Tax Cuts and Jobs Act, also commonly referred toeffective tax rate as “US tax reform” and non-deductible goodwill impairment charges.
Comparison of 2016 with 2015
Grain Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | 2,357,171 |
| | $ | 2,483,643 |
|
| Cost of sales and merchandising revenues | 2,249,089 |
| | 2,359,998 |
|
| Gross profit | 108,082 |
| | 123,645 |
|
| Operating, administrative and general expenses | 112,507 |
| | 121,833 |
|
| Goodwill impairment | — |
| | 46,422 |
|
| Interest expense | 7,955 |
| | 5,778 |
|
| Equity in earnings of affiliates | (8,746 | ) | | 14,703 |
|
| Other income, net | 5,472 |
| | 26,229 |
|
| Income (loss) before income taxes | (15,654 | ) | | (9,456 | ) |
| Loss attributable to noncontrolling interests | (3 | ) | | (10 | ) |
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (15,651 | ) | | $ | (9,446 | ) |
Operating results for the Grain Group decreased $6.2 million compared to full year 2015 results. Sales and merchandising revenues decreased $126.5 million compared to 2015. This was partially offset by a decrease of cost of sales and merchandising revenues of $110.9 million for a net unfavorable gross profit impact of approximately $15.6 million. The decrease was driven by $6.0 million in gross profit reduction from the 2016 sale of underperforming assets in Iowa as well as $4.4 million of decrease in margins on sale of grain. We also saw a significant decline in opportunities for basis appreciation compared to 2015 for a negative gross profit variance of $14.2 million compared to the prior year. This was caused by a poor harvest causing elevated basis levels in the fourth quarter of 2015. These items were partially offset by $4.5 million of increased income from blending operations, $3.9 million of increased earnings on risk management fees, and a $1.7 million favorable variance on trading income.
Operating, administrative and general expenses were $9.3 million lower than in 2015. The decreasesame period last year was primarily due to $8.2 million in reduced costs from the sale of Iowa facilities with cost reductions in labor and benefits at remaining facilities accounting for an additional $1.7 million. The decreases were offset by $2.7 million of additional allocation charges, including amortization and support costs for the company's new Enterprise Resource Planning system.
The Grain Group recognized a goodwill impairment charge of $46.4 million in 2015 driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets, including oil and ethanol, as well as foreign currency exchange impacts.
Equity in earnings of affiliates decreased $23.4 million due to the reduced operating results of LTG and Thompsons Limited. The declines were largely driven by reduced performance at LTG caused by historically soft margins at grain handling facilities. Also included in our equity results is a charge of $1.5 million (our proportional share) related to an LTG debt refinancing completed in the fourth quarter of 2016. This refinancing should result in lower relative interest charges in future years.
Other income decreased $20.3 million, which is attributable to a prior year gain of $23.1 million from equity ownership transactions in LTG which reduced our ownership from 39 percent to 31 percent.
Ethanol Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | 544,556 |
| | $ | 556,188 |
|
| Cost of sales and merchandising revenues | 524,252 |
| | 531,864 |
|
| Gross profit | 20,304 |
| | 24,324 |
|
| Operating, administrative and general expenses | 11,211 |
| | 11,594 |
|
| Interest expense | 35 |
| | 70 |
|
| Equity in earnings of affiliates | 18,467 |
| | 17,221 |
|
| Other income, net | 77 |
| | 377 |
|
| Income (loss) before income taxes | 27,602 |
| | 30,258 |
|
| Income attributable to noncontrolling interests | 2,879 |
| | 1,755 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 24,723 |
| | $ | 28,503 |
|
Operating results for the Ethanol Group decreased $3.8 million from full year 2015 results. Sales and merchandising revenues decreased $11.6 million which was partially offset by a decrease in cost of sales and merchandising revenues of $7.6 million for a net gross profit impact of $4.0 million. The decline in revenues and associated cost of sales is largely driven by a three percent decline in average ethanol sales price and a fifteen percent decline in average DDG sales price compared to the prior year. While corn and natural gas costs declined during 2016, we also saw a nine percent decrease in DDG sales prices realized relative to the value of the corn feedstock. Marketing fees received from our joint venture due to a renegotiated operating agreement.
Equity in earnings of affiliates increased $1.2 million from 2015 and represents an increase in income from investments in three unconsolidated ethanol LLCs. Throughout 2016, the ethanol facilities' productivity and output remained strong, and the increase in earnings is primarily attributable to modest increases in average margins compared to the prior year.
Plant Nutrient Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | 725,176 |
| | $ | 848,338 |
|
| Cost of sales and merchandising revenues | 603,045 |
| | 728,798 |
|
| Gross profit | 122,131 |
| | 119,540 |
|
| Operating, administrative and general expenses | 102,892 |
| | 105,478 |
|
| Asset impairment | 2,331 |
| | — |
|
| Goodwill impairment | — |
| | 9,744 |
|
| Interest expense | 6,448 |
| | 7,243 |
|
| Other income, net | 3,716 |
| | 3,046 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 14,176 |
| | $ | 121 |
|
Operating results for the Plant Nutrient Group increased $14.1 million compared to full year 2015 results. Sales and merchandising revenues decreased $123 million primarily due to lower base nutrient prices throughout the year. Volumes were up two percent, however the impact on revenues from that increase was minimal. Cost of sales and merchandising revenues decreased $126 million, in line with the decline in revenues. Margins did improve modestly dueattributed to the impact of 2015 Kay Flo inventory being stepped up to fair value atan acquisition causing margin compression in the second half of 2015. Total gross profit increased by $2.8 million.
Operating, administrative, and general expenses decreased $2.6 million from 2015. This included a reduction in labor and benefits of $3.4 million and maintenance reductions of $1.2 million. Smaller reductions were realized in a number of other categories as part of our overall cost control efforts. These items were partially offset by a $3.4 million increase in depreciation and amortization, largely duerelated permanent item related to the full-year impact of the Kay FloLTG acquisition. The prior year included goodwill impairment charges of $9.7 million for our Farm Center and Cob businesses due to reduced volumes over the past several years while the current year included $2.3 million of asset impairments associated with the closure of a cob processing facility.
Rail Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | 163,658 |
| | $ | 170,848 |
|
| Cost of sales and merchandising revenues | 107,729 |
| | 103,161 |
|
| Gross profit | 55,929 |
| | 67,687 |
|
| Operating, administrative and general expenses | 18,971 |
| | 25,650 |
|
| Asset impairment | 287 |
| | 285 |
|
| Interest expense | 6,461 |
| | 7,006 |
|
| Other income, net | 2,218 |
| | 15,935 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 32,428 |
| | $ | 50,681 |
|
Operating results for the Rail Group decreased $18.3 million compared to the full year 2015 results. Sales and merchandising revenues decreased $7.2 million. The decreaseThis was drivenslightly offset by a five percentage point decrease in average lease utilization rates during the year as well as a reduction in car sales compared to 2015. Cost of sales and merchandising revenues increased $4.6 million due to higher storage costs associated with our reduced utilization rates as well as a periodic revision to our repair overhead rates which increased the amount of cost absorption. As a result of these factors, Rail gross profit declined $11.8 million compared to 2015.
Operating expenses decreased by $6.7 million, largely due to the impact of higher overhead rates noted above. Otherdiscrete net tax benefits from provision to return items and federal income decreased $13.7 million, primarily due to higher than normal lease settlement activity in 2015.
Retail Group
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | 134,229 |
| | $ | 139,478 |
|
| Cost of sales and merchandising revenues | 95,169 |
| | 98,836 |
|
| Gross profit | 39,060 |
| | 40,642 |
|
| Operating, administrative and general expenses | 41,430 |
| | 41,298 |
|
| Asset impairment | 6,489 |
| | — |
|
| Interest expense | 496 |
| | 356 |
|
| Other income, net | 507 |
| | 557 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (8,848 | ) | | $ | (455 | ) |
Operating results for the Retail Group declined $8.4 million compared to 2015. The largest contributors to this decline weretax credits including a $6.5 million impairment of long-lived assets as well as approximately $0.7 million of incremental cost associated with closing the segment's specialty food store in the fourth quarter of 2016. Customer count declined 4 percent compared 2015.
Other
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2016 | | 2015 |
| Sales and merchandising revenues | $ | — |
| | $ | — |
|
| Cost of sales and merchandising revenues | — |
| | — |
|
| Gross profit | — |
| | — |
|
| Operating, administrative and general expenses | 31,384 |
| | 31,976 |
|
| Pension settlement | — |
| | 51,446 |
|
| Interest income | (276 | ) | | (381 | ) |
| Other income, net | 2,785 |
| | 328 |
|
| Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (28,323 | ) | | $ | (82,713 | ) |
The net corporate operating loss (costs not allocated back to the business units) decreased $54.4 million to a loss of $28.3 million for 2016. The most significant decrease was due to the prior year $51.4 million settlement charge for the termination of the defined benefit pension plan.
Income Taxes
Income tax expense of $6.9 million was provided at 32.3%. In 2015, an income tax benefit of $0.2$6.5 million was provided at 2.1%. The lower effectivefor Federal Research & Development Credits (“R&D Credits”) related to tax rate inyears 2015 relative to the loss before income taxes was due primarily to a goodwill write-off that did not provide a corresponding tax benefit2019.
Liquidity and Capital Resources
Working Capital
At December 31, 2017,2019, the Company had working capital of $260.5$505.4 million, an increase of $2.1$315.6 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:
| | | (in thousands) | December 31, 2017 | | December 31, 2016 | | Variance | December 31, 2019 | | December 31, 2018 | | Variance |
| Current Assets: | | | | | | | | | | |
| Cash and cash equivalents | $ | 34,919 |
| | $ | 62,630 |
| | $ | (27,711 | ) | $ | 54,895 |
| | $ | 22,593 |
| | $ | 32,302 |
|
| Restricted cash | — |
| | 471 |
| | (471 | ) | |
| Accounts receivables, net | 183,238 |
| | 194,698 |
| | (11,460 | ) | 536,367 |
| | 207,285 |
| | 329,082 |
|
| Inventories | 648,703 |
| | 682,747 |
| | (34,044 | ) | 1,170,536 |
| | 690,804 |
| | 479,732 |
|
| Commodity derivative assets – current | 30,702 |
| | 45,447 |
| | (14,745 | ) | 107,863 |
| | 51,421 |
| | 56,442 |
|
| Other current assets | 63,790 |
| | 72,133 |
| | (8,343 | ) | 75,681 |
| | 51,095 |
| | 24,586 |
|
| Assets held for sale | 37,859 |
| | — |
| | 37,859 |
| |
| Total current assets | 999,211 |
| | 1,058,126 |
| | (58,915 | ) | 1,945,342 |
| | 1,023,198 |
| | 922,144 |
|
| Current Liabilities: | | | | | | | | | | |
| Short-term debt | 22,000 |
| | 29,000 |
| | (7,000 | ) | 147,031 |
| | 205,000 |
| | (57,969 | ) |
| Trade and other payables | 503,571 |
| | 581,826 |
| | (78,255 | ) | 873,081 |
| | 462,535 |
| | 410,546 |
|
| Customer prepayments and deferred revenue | 59,710 |
| | 48,590 |
| | 11,120 |
| 133,585 |
| | 32,533 |
| | 101,052 |
|
| Commodity derivative liabilities – current | 29,651 |
| | 23,167 |
| | 6,484 |
| 46,942 |
| | 32,647 |
| | 14,295 |
|
| Accrued expenses and other current liabilities | 69,579 |
| | 69,648 |
| | (69 | ) | 176,381 |
| | 79,046 |
| | 97,335 |
|
| Current maturities of long-term debt | 54,205 |
| | 47,545 |
| | 6,660 |
| 62,899 |
| | 21,589 |
| | 41,310 |
|
| Total current liabilities | 738,716 |
| | 799,776 |
| | (61,060 | ) | 1,439,919 |
| | 833,350 |
| | 606,569 |
|
| Working capital | $ | 260,495 |
| | $ | 258,350 |
| | $ | 2,145 |
| $ | 505,423 |
| | $ | 189,848 |
| | $ | 315,575 |
|
InDecember 31, 2019 current assets increased $922 million in comparison to prior year. This increase was primarily related to the Trade Group as the current assets balance for the group increased by $790 million from the prior year current assets decreased primarily due to a decrease in cash, accounts receivable, inventory, commodity derivativethe LTG acquisition. Current assets and other current assets. Accounts receivable decreased due to a decrease in Grain receivablesalso increased approximately $122 million as a result of lower sales and shipment activity. Inventory decreased for several reasons including the closure of the retail stores, an intentional reduction of inventory levelsTAMH merger in the wholesale business, plus good sales volume immediately prior to year-end, and $11.4 million of grain inventory was moved to assets held for sale. Other current assets decreasedyear. Accounts receivable increased due primarily due to a decrease in the numberhigher volume of rail cars classified as a current asset. Assets held for sale increased as Retail assets, certain Grain assets, and a Plant Nutrient administrative office were moved to Assets held for sale. Current commodity derivative assets and liabilities, which reflect the customer net asset or liability based on the value of forward contracts asshipments compared to market prices at the end of the period, have decreased.prior year. See also the discussion below on additional sources and uses of cash for an understanding of the decreaseincrease in cash from prior year.
Current liabilities decreasedincreased $607 million compared to the prior year primarily as a result of lower payables due to a significant decreasethe acquisition of LTG, the TAMH merger, and the debt related changes detailed in hold pay amounts within the Grain businesses as well as a decrease in Accounts Payable related to the closed Retail business. This decrease was partially offset by an increase in customer prepayments and deferred revenue due to an increase in Grain sales that have been prepaid in December but not yet delivered.Note 4, Debt.
Sources and Uses of Cash 20172019 compared to 20162018
Operating Activities and Liquidity
Our operating activities provided cash of $75.3$348.6 million in 20172019 compared to cash provided byused in operations of $39.6$35.5 million in 2016.2018. The increase in cash provided was due to several factors. Net income excludingchanges in working capital, as discussed above, driven primarily by increased activity from the non-cash impact of impairments, gains on sale of assets and deferred tax change increased by $6.0 million compared to the prior year and the impact of operating asset and liability fluctuations resulted in a $50.0 million increase in operating cash flows. This was partially offset by a $25.3 million decrease due to improved operating results at our equity affiliates which were not fully distributed in the form of cash, as well as other individually small fluctuations in operating activities.LTG acquisition.
Net income tax refundstaxes of $2.1$2.0 million were paid in 2019 and $10.6net income taxes of $5.4 million were received in 2017 and 2016, respectively. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The net refunds received in 2016 are primarily due to a $12.0 million refund of overpaid 2015 Federal income taxes.2018.
Investing Activities
Investing activities used $113.5$325.0 million in 20172019 compared to $28.2$186.0 million used in 2016. 2018. The increase was largely driven by the LTG acquisition in the current year. Cash used for the purchases of property, plant, equipment, and capitalized software increased $22.6 million primarily due to costs associated with the construction of the bio-refinery facility in 2018 and 2019.
Purchases of Rail Group assets increased to $143.0were $105.3 million in the current year compared to $85.3$167.0 million in 2016. This increase was partially offset by proceedsthe prior year as the Company replaced idle and scrapped cars with newer cars under lease. Proceeds from the sale of Rail Group assets which were $36.9$18.1 million in 20172019 and $56.7$79.4 million in 2016.2018. The decrease is primarily due to the unfavorable scrap rates in the current year. As such, net spend on Rail assets increased $77.5decreased $0.4 million compared to the prior year. Property, plant, and equipment and capitalized software decreased $43.1 million compared to the same period in 2016 with the largest decrease related to the corporate headquarter spend in the prior year.
Capital spending of $161.0 million for 20172019 on property, plant and equipment includes: GrainTrade - $10.9$31.2 million; Ethanol - $3.7$104.0 million; Plant Nutrient - $10.7$20.4 million; Rail - $3.5$1.8 million; and $5.8$3.5 million in corporate / enterprise resource planning project spending.
Proceeds from the sale of assets decreased $36.0 million.$16.9 million due to the 2018 sale of three Tennessee grain locations and the sale of a corporate investment that exceeded the 2019 facility sales in the current year.
We expect to spend approximately $65$150.0 million in 20182020 on conventional property, plant and equipment whichequipment. Which includes estimated 2018 capital spending for the continuing project to replace current technology with an enterprise resource planning system. An additional $145Trade - $49.0 million; Ethanol - $21.0 million; Plant Nutrient - $20.0 million; Rail - $56.0 million; and $4.0 million is estimated to be spent on the purchase and capitalized modifications of railcars and barges with related sales or financings of approximately $120 million.in corporate.
Financing Arrangements
Net cash provided by financing activities was $10.5$8.7 million in 2017,2019, compared to $12.5$209.2 million used in 2016. The change in financing activity is primarily the result of a decrease in the pay down of long term debt compared2018. This was largely due to 2016 which was partially offset by an increase in cash being paidproceeds from new debt issued to reduce short term borrowings.
We have significant amounts of committedfinance the LTG acquisition offset by a reduction in short-term lines of credit availableborrowing used to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We arecapital. Further, in 2018 we received proceeds from our noncontrolling interest owner related to their 49% investment in the ELEMENT bio-refinery facility, which incurred significant construction costs.
As of December 31, 2019, the Company was party to a borrowing arrangementarrangements with a syndicate of banks that providesprovide a total of $815.0$1,777.8 million in borrowing capacity, including $15.0borrowings. This amount includes $70.0 million in non-recourse debt offor ELEMENT, $200.0 million for The Andersons Denison Ethanol LLC.Railcar Leasing Company LLC and $130 million for TAMH, all of which are non-recourse to the Company. Of that total, we had $660.5$1,305.3 million remaining available for borrowing at December 31, 2017. Peak short-term borrowings were $367.0 million on February 15, 2017.2019. Typically, the Company'sour highest borrowing occurs in the first half of the yearlate winter and early spring due to seasonal inventory requirements in theour fertilizer and grain businesses.
WeThe Company paid $18.2$22.1 million in dividends in 20172019 compared to $17.4$18.6 million in 2016. We2018. The Company paid $0.16$0.170 per common share for the dividends paid in January, April, July and October 2017,2019, and $0.155$0.165 per common share for the dividends paid in January, April, July and October 2016.2018. On December 20, 2017,13, 2019, we declared a cash dividend of $0.165$0.175 per common share, payable on January 23, 20182020 to shareholders of record on January 2, 2018.2020.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of December 31, 2017.2019. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets and railcar assets.
Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and / or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.
We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends in the foreseeable future.
Sources and Uses of Cash 2016 compared to 2015
Operating Activities and Liquidity
Our operating activities provided cash of $39.6 million in 2016 compared to cash provided by operations of $154.1 million in 2015. The significant change in operating cash flows in 2016 relates primarily to the changes in working capital, particularly accounts receivable and accounts payable as discussed above, which were partly offset by reduced inventory balances. Additionally, while net income has improved compared to the prior year, our operating cash flows are down since the loss incurred in the prior year included significant non-cash charges related to goodwill impairment and the settlement of our defined benefit pension plan.
In 2016, the Company received refunds, net of taxes paid, of $10.6 million, compared to $4.9 million of taxes paid, net of refunds received, in 2015. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The net refunds received in 2016 are primarily due to a $12.0 million refund of overpaid 2015 Federal income taxes.
Investing Activities
Investing activities used $28.2 million in 2016 compared to $238.5 million used in 2015. The decrease in cash used for investing activities is primarily driven by the 2015 acquisition of Kay Flo Industries, Inc. for $128.5 million. In addition, a portion of 2016 spending relates to purchases of Rail Group assets in the amount of $85.3 million, which is lower than the prior year. These purchases of Rail Group assets were partially offset in the current year by proceeds from the sale of Rail Group assets in the amount of $56.7 million, however net spend on Rail assets is still down from the prior year. The current year results include cash received of $15.0 million primarily from the redemption of our investment in IANR as well as proceeds from the sale of facilities in Iowa totaling $54.3 million which reduce our net outflow from investing activities. Capital spending for 2016 on property, plant and equipment includes: Grain - $21.4 million; Ethanol - $2.3 million; Plant Nutrient - $15.2 million; Rail - $4.3 million; Retail - $0.4 million and $34.1 million in corporate / enterprise resource planning project spending.
Financing Arrangements
Net cash used in financing activities was $12.5 million in 2016, compared to $33.4 million provided in 2015. The change in financing activity is primarily the result of significant debt issuance in the prior year to fund the Kay Flo acquisition which was partly offset by the 2015 completion of our $50 million share repurchase program.
We have significant amounts of committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks that provides a total of $871.3 million in borrowing capacity, including $21.3 million in non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $779.6 million remaining available for borrowing at December 31, 2016. Peak short-term borrowings were $412.0 million on January 6, 2016. Typically, the Company's highest borrowing occurs in the first half of the year due to seasonal inventory requirements in the fertilizer and retail businesses.
We paid $17.4 million in dividends in 2016 compared to $15.9 million in 2015. We paid $0.155 per common share for the dividends paid in January, April, July and October 2016, and $0.14 per common share for the dividends paid in January, April, July and October 2015. On December 16, 2016, we declared a cash dividend of $0.16 per common share, payable on January 24, 2017 to shareholders of record on January 3, 2017.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We were in compliance with all such covenants as of December 31, 2016. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets.
Contractual Obligations
Future payments due under contractual obligations at December 31, 20172019 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
(in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | After 5 years | | Total |
| Long-term debt | $ | 54,336 |
| | $ | 32,400 |
| | $ | 186,295 |
| | $ | 202,357 |
| | $ | 475,388 |
|
| Interest obligations (a) | 17,632 |
| | 32,219 |
| | 24,840 |
| | 46,623 |
| | 121,314 |
|
| Operating leases (b) | 24,031 |
| | 30,507 |
| | 17,764 |
| | 13,268 |
| | 85,570 |
|
| Purchase commitments (c) | 758,966 |
| | 59,370 |
| | — |
| | — |
| | 818,336 |
|
| Other long-term liabilities (d) | 2,445 |
| | 4,983 |
| | 5,102 |
| | 16,542 |
| | 29,072 |
|
| Total contractual cash obligations | $ | 857,410 |
| | $ | 159,479 |
| | $ | 234,001 |
| | $ | 278,790 |
| | $ | 1,529,680 |
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| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
(in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | After 5 years | | Total |
| Long-term debt, recourse | $ | 36,013 |
| | $ | 113,219 |
| | $ | 190,574 |
| | $ | 368,893 |
| | $ | 708,699 |
|
| Long-term debt, non-recourse | 9,250 |
| | 209,750 |
| | 31,113 |
| | 89,802 |
| | 339,915 |
|
| Interest obligations (a) | 39,898 |
| | 63,097 |
| | 44,985 |
| | 77,707 |
| | 225,687 |
|
| Finance Leases | 17,636 |
| | 3,641 |
| | 3,429 |
| | 14,432 |
| | 39,138 |
|
| Operating leases | 28,145 |
| | 32,804 |
| | 15,454 |
| | 6,956 |
| | 83,359 |
|
| Purchase commitments (b) | 3,288,084 |
| | 102,784 |
| | — |
| | — |
| | 3,390,868 |
|
| Other long-term liabilities (c) | 2,602 |
| | 3,953 |
| | 3,140 |
| | 7,078 |
| | 16,773 |
|
| Construction commitment (d) | 3,906 |
| | — |
| | — |
| | — |
| | 3,906 |
|
| Total contractual cash obligations | $ | 3,425,534 |
| | $ | 529,248 |
| | $ | 288,695 |
| | $ | 564,868 |
| | $ | 4,808,345 |
|
(a) Future interest obligations are calculated based on interest rates in effect as of December 31, 20172019 for the Company's variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit.
(b) Approximately 48% of the operating lease commitments above relate to Rail Group assets that the Company leases from financial intermediaries. See “Off-Balance Sheet Transactions” below.
(c) Includes the amounts related to purchase obligations in the Company's operating units, including $588$3,277 million for the purchase of grain from producers and $160 million for the purchase of ethanol from the ethanol joint ventures.producers. There are also forward grain and ethanol sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of businesses for the Grain and Ethanol Groups in Item 1 of this Annual Report on Form 10-K for further discussion.
(d)(c) Other long-term liabilities include estimated obligations under our retiree healthcare programs and principal and interest payments for the financing arrangement on our headquarters. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 20212024 have considered recent payment trends and actuarial assumptions.
(d) In 2018, the Company entered into an agreement to construct a bio-refinery. The facility is substantially complete, and the remaining construction commitment will be paid in 2020.
At December 31, 2017,2019, we had standby letters of credit outstanding of $32.5$28.0 million.
Off-Balance Sheet Transactions
Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leases. Rail Group assets we own or lease from a financial intermediary are generally leased to a customer under an operating lease.leasebacks. We also arrange non-recourse lease transactions under which we sell assets to a financial intermediary and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing maintenance and management services for the financial intermediary and receive a fee for such services. We have a total of 332 railcars that would be considered off balance sheet at December 31, 2019.
Industrial Revenue Bonds.
On mostDecember 3, 2019, we closed an industrial revenue bond transaction with the City of Colwich, Kansas (the "City") in order to receive a 20-year real property tax abatement on our renovated and newly-constructed ELEMENT ethanol facility. Pursuant to this transaction, the assets, we hold an optionCity issued a principal amount of $166.1 million of its industrial revenue bonds to us and then used the proceeds to purchase the assets atland and facility from us. The City then leased the endfacilities back to us under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds. Subsequent to the issuance of the lease.
The following table describes our Rail Group asset positions at December 31, 2017.
|
| | | | |
Method of Control | Financial Statement | | Units |
Owned - railcars available for sale | On balance sheet – current | | 533 |
|
Owned - railcar assets leased to others | On balance sheet – non-current | | 17,025 |
|
Railcars leased from financial intermediaries | Off balance sheet | | 3,375 |
|
Railcars in non-recourse arrangements | Off balance sheet | | 2,556 |
|
Total Railcars | | | 23,489 |
|
Locomotive assets leased to others | On balance sheet – non-current | | 32 |
|
Locomotive leased from financial intermediaries | Off balance sheet | | 4 |
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Total Locomotive Assets | | | 36 |
|
Barge assets leased to others | On balance sheet – non-current | | — |
|
Barge assets leased from financial intermediaries | Off balance sheet | | 65 |
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Total Barges | | | 65 |
|
In addition, we manage approximately 514 railcars for third-party customers or owners forbonds, the Company redeemed $165.1 million of the bonds, leaving $1 million issued and outstanding.Our obligation to pay rent under the lease is in the same amount and due on the same date as the City’s obligation to pay debt service on the bonds which we receivehold. The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled. The bonds' maturity date is 2029, at which time the facilities will revert to us without costs. If we were to present the bonds for cancellation prior to maturity, a fee.
nominal fee would be incurred. We recorded the land and buildings as assets in property, plant, and equipment, net, on our Consolidated Balance Sheets. Because we own all outstanding bonds, have futurea legal right to set-off, and intend to set-off the corresponding lease and interest payment, commitments aggregating $40.7 millionwe have netted the capital lease obligation with the bond asset. No amount for our obligation under the capital lease is reflected on our Consolidated Balance Sheet, nor do we reflect an amount for the Rail Group assets we lease from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding fifteen years. Wherecorresponding industrial revenue bond asset (Note 15).
appropriate, we utilize non-recourse arrangements in order to minimize credit risk. Refer to Note 14 to the Company's Consolidated Financial Statements in Item 8 for more information on our leasing activities.28
Critical Accounting Estimates
The process of preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Management evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical experience and management's knowledge and understanding of current facts and circumstances. Actual results, under conditions and circumstances different from those assumed, may change from these estimates.
Certain of our accounting estimates are considered critical, as they are important to the depiction of the Company's financial statements and / and/or require significant or complex judgment by management. There are other items within our financial statements that require estimation, however, they are not deemed critical as defined above. Note 1 to the Consolidated Financial Statements in Item 8 describes our significant accounting policies which should be read in conjunction with our critical accounting estimates.
Management believes that the accounting for graincommodity inventories and commodity derivative contracts, including adjustments for counterparty risk, and impairment of long-lived assets, goodwill and equity method investments and business combinations involve significant estimates and assumptions in the preparation of the Consolidated Financial Statements.
GrainCommodity Inventories and Commodity Derivative Contracts
GrainCommodity inventories are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company marks to market all forward purchase and sale contracts for graincommodities and ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options contracts. The overall market for graincommodity inventories is very liquid and active; market value is determined by reference to prices for identical commodities on the CMEa regulated commodity exchange (adjusted primarily for transportation costs); and the Company's graincommodity inventories may be sold without significant additional processing. The Company uses forward purchase and sale contracts and both exchange traded and over-the-counter contracts (such as derivatives generally used by the International Swap Dealers Association). Management estimates fair value based on exchange-quoted prices, adjusted for differences in local markets, as well as counter-party non-performance risk in the case of forward and over-the-counter contracts. The amount of risk, and therefore the impact to the fair value of the contracts, varies by type of contract and type of counter-party.counterparty. With the exception of specific customers thought to be at higher risk, the Company looks at the contracts in total, segregated by contract type, in its quarterly assessment of non-performance risk. For those customers that are thought to be at higher risk, the Company makes assumptions as to performance based on past history and facts about the current situation. Changes in fair value are recorded as a component of cost of sales and merchandising revenues in the statement of operations.
Impairment of Long-Lived Assets, Goodwill,and Equity Method Investments
The Company's business segments are each highly capital intensive and require significant investment. FixedLong-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This is done by evaluating the recoverability based on undiscounted projected cash flows, excluding interest. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group's carrying amount exceeds its fair value.
We also annually review the balance of goodwill for impairment in the fourth quarter, using quantitative analyses. Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below the operating segment. The quantitative review for impairment takes into account our estimates of future cash flows. Our estimates of future cash flows are based upon a number of assumptions including lease rates, lease terms, operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. These factors are discussed in more detail in Note 4,19, Goodwill and Intangible Assets.
As part of the Company's on-going assessment of goodwill, management determined that in the third quarter a triggering event occurred due to the Company's market capitalization being less than the carrying value for a prolonged period as there was a significant decline in the Company's share price. Accordingly, an interim impairment test was performed during the third quarter over the Company's goodwill as well as its other intangible and long-lived assets. Based on the results of the impairment test, none of the Company's reportable segments recorded an impairment charge. The results of our September 30, 2019 impairment test indicated the estimated fair values of all reporting units that have goodwill were in excess of their carrying values, with the Trade Group's Grain storage and Merchandising and Food and Specialty Ingredients reporting units' excess fair value exceeding carrying value by approximately 3 and 8 percent, respectively. The remaining reporting unit within the Trade Group's reporting segment with goodwill, had an estimated fair value over carrying value of greater than 30 percent.
Our annual goodwill impairment test is performed as of October 1st each year. The results of our annual test were consistent with our interim test performed as of September 30, 2019 resulting in no goodwill impairment being recognized.
As our market capitalization remained below our book value through the end of the year, we performed an update to our annual test whereby management reviewed market influences and any relevant changes in assumptions from our annual test. Based on the methodologies used it was determined that the Company's reporting units estimated fair values continued to exceed that of their carrying values.
In addition, the Company holds investments in several companies that are accounted for using the equity method of accounting. The Company reviews its investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other than temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.
Management considers several factors to be significant when estimating fair value including expected financial outlook of the business, changes in the Company's stock price, the impact of changing market conditions on financial performance and expected future cash flows, the geopolitical environment and other factors. Deterioration in any of these factors may result in a lower fair value assessment, which could lead to impairment charges in the future. Specifically, actual results may vary from the Company's forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions could result in non-cash impairment charges.
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.
Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to the future expected cash flows of the acquired company's operations, the assumptions regarding the attrition rates associated with customer relationships and the period of time non-compete agreements will continue, and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Uncertain Tax Positions
Conclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior year audit settlements. To account for uncertainty in income taxes, the Company evaluates the likelihood of a tax position based on the technical merits of the position, performs a subsequent measurement related to the maximum benefit and degree of likelihood, and determines the benefits to be recognized in the financial statements, if any. During the year ended December 31, 2019, the Company recognized tax benefits of $6.5 million for Federal Research and Development Credits ("R&D Credits") related to tax years 2015 to 2019. Unrecognized tax benefits of $22.4 million include $18.7 million recorded as a reduction of the deferred tax assets and refundable credits associated with the R&D Credits.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in the Company's market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.
Commodity Prices
The Company's daily net commodity position consists of inventories, related purchase and sale contracts, exchange-traded futures, and over-the-counter contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. The Company has established controls to manage and limit risk exposure, which consists of a daily review of position limits and effects of potential market price moves on those positions.
A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its net commodity futures position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices. The result of this analysis, which may differ from actual results, is as follows:
| | | | December 31, | December 31, |
| (in thousands) | 2017 | | 2016 | 2019 | | 2018 |
| Net commodity position | $ | (1,224 | ) | | $ | (2,166 | ) | $ | (8,969 | ) | | $ | 3,373 |
|
| Market risk | (122 | ) | | (217 | ) | 896 |
| | 337 |
|
Foreign Currency
The Company has subsidiaries located outside the United States where the local currency is the functional currency. To reduce the risks associated with foreign currency exchange rate fluctuations, the Company enters into currency exchange contracts to minimize its foreign currency position related to transactions denominated primarily in the British pound, Mexican peso and Canadian dollar. These currencies represent the major functional or local currencies in which recurring business transactions occur. The Company does not use currency exchange contracts as hedges against amounts indefinitely invested in foreign subsidiaries and affiliates. The currency exchange contracts used are forward contracts, swaps with banks, exchange-traded futures contracts, and over-the-counter options. The changes in market value of such contracts have a high correlation to the price changes in the currency of the related transactions. The potential loss in fair value for such net currency position resulting from a hypothetical 10% adverse change in foreign currency exchange rates is not material.
Interest Rates
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 and credit ratings for similar types of borrowing arrangements. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:
| | | | December 31, | December 31, |
| (in thousands) | 2017 | | 2016 | 2019 | | 2018 |
| Fair value of long-term debt, including current maturities | $ | 474,769 |
| | $ | 450,940 |
| $ | 1,096,010 |
| | $ | 517,998 |
|
| Fair value in excess of carrying value | 1,451 |
| | 3,116 |
| |
| Carrying value less fair value | | 8,257 |
| | 5,813 |
|
| Market risk | 7,643 |
| | 8,833 |
| 7,573 |
| | 6,611 |
|
Actual results may differ. The estimated fair value and market risk will vary from year to year depending on the total amount of long-term debt and the mix of variable and fixed rate debt.
Additionally, the Company may enter into interest rate swaps from time to time to manage our mix of fixed and variable interest rate debt effectively which may decrease market risk noted above. See Note 5 for further discussion on the impact of these hedging instruments.
Item 8. Financial Statements and Supplementary Data
The Andersons, Inc.
Index to Financial Statements
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Consolidated Statements of Cash Flows | |
Consolidated Statements of Equity | |
Notes to Consolidated Financial Statements | |
| Schedule II - Consolidated Valuation and Qualifying Accounts | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
The Andersons, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Andersons, Inc. and subsidiaries (the "Company") as of December 31, 20172019 and 2016,2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017,2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, based on our audits and the reports of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Lansing Trade Group, LLC or Lux JV Treasury Holding Company S.à.r.l. as of and for the years ended December 31, 2017, 2016,2018 and 2015, or Lux JV Treasury Holding Company S.à r.l. as of and for the years ended December 31, 2017, and 2016, the Company’s investments in which arewere accounted for by use of the equity method. The accompanying financial statements of the Company include its equity investment in Lansing Trade Group, LLC of $93 million and $89$102 million and Lux JV Treasury Holding Company S.à r.l..r.l. of $47 million and $46$45 million as of December 31, 2017 and 2016, respectively,2018, and its equity in earnings (losses) in Lansing Trade Group, LLC of $4 million, ($9.9)$10.4 million and $12$4.0 million, and Lux JV Treasury Holding Company S.à.r.l. of $2.2 million and $0.5 million, for the years ended December 31, 2017, 2016,2018 and 2015, respectively, and Lux JV Treasury Holding Company S.à r.l. of $.5 million and $1.2 million for the years ended December 31, 2017, and 2016, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Lansing Trade Group, LLC and Lux JV Treasury Holding Company S.à r.l..r.l., is based solely on the reports of the other auditors.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2019, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2018,27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting based on our audit.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (ASC 842), using the modified retrospective transition approach and changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Income Taxes - Uncertain Tax Positions - Refer to Notes 1 and 8 to the consolidated financial statements
Critical Audit Matter Description
Conclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior year audit settlements. To account for uncertainty in income taxes, the Company evaluates the likelihood of a tax position based on the technical merits of the position, performs a subsequent measurement related to the maximum benefit and degree of likelihood, and determines the benefits to be recognized in the financial statements, if any. During the year ended December 31, 2019, the Company recognized tax benefits of $6.5 million for Federal Research & Development Credits (“R&D Credits”) related to tax years 2015 to 2019. Unrecognized tax benefits of $22.4 million include $18.7 million recorded as a reduction of the deferred tax assets and refundable credits associated with the R&D Credits.
Given the complexity and the subjective nature of the use of R&D Credits, evaluating management’s estimates relating to their determination of uncertain tax positions require extensive audit effort and a high degree of auditor judgment, including involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate management’s estimates of uncertain tax positions related to the use of R&D Credits included the following:
We evaluated the appropriateness and consistency of management’s methods and assumptions used in the identification, recognition, measurement, and disclosure of uncertain tax positions related to R&D Credits, which included testing the effectiveness of the related internal controls.
We read and evaluated management’s documentation, including relevant accounting policies and information obtained by management from outside tax specialists, that detailed the basis of the uncertain tax position.
We tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax position, including an evaluation of the technical merits of the uncertain tax position.
For those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information that could significantly change the recognition, measurement or disclosure of the uncertain tax.
We evaluated the reasonableness of management’s estimates by considering how tax law, including statutes, regulations and case law, impacted management’s judgments.
Basis of Consolidation of The Andersons Marathon Holdings LLC - Refer to Note 1 to the consolidated financial statements
Critical Audit Matter Description
At inception of joint venture transactions, the Company identifies entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company consolidates investments in VIEs when the Company is determined to be the primary beneficiary. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance. The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE. On October 1, 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon Ethanol LLC and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC, into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company evaluated its interest in TAMH and determined that TAMH is a VIE and that the Company is the primary beneficiary of TAMH due to the fact that the Company had both the power to direct the activities that most significantly impact TAMH and the obligation to absorb losses or the right to receive benefits from TAMH. Therefore, the Company consolidated TAMH in its financial statements.
The determination of whether the Company was the primary beneficiary of TAMH required a high degree of auditor judgment and an increased extent of effort in evaluating the audit evidence obtained related to the Company’s ability to direct the activities that impact the VIE due to the complexity of the agreements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included the following:
We tested the effectiveness of controls over management’s consolidation analysis.
We obtained and analyzed the agreements and evaluated the interests of each party.
With the assistance of professionals in our firm having expertise in VIE accounting we evaluated the Company’s conclusions regarding the factors that led it to consolidate TAMH.
/s/ DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 26, 201827, 2020
We have served as the Company's auditor since 2015.
Report of Independent Registered Public Accounting Firm
The Members and Board of Managers
Lansing Trade Group, LLC:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of comprehensive income, equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l (Lux JV) (a 50 percent owned investee company). The Company’s investment in Lux JV at December 31, 2018 was $44.7 million and its equity in earnings of Lux JV was $1.6 million for the year ended December 31, 2018. The consolidated financial statements of Lux JV were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lux JV, is based solely on the report of the other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit and the report of the other auditors provides a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Kansas City, Missouri
February 27, 2019
Report of Independent Registered Public Accounting Firm
To the Members and Board of Managers
Lansing Trade Group, LLC:
Opinion on theConsolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and subsidiaries (the Company) as of December 31, 2017, the related consolidated statements of comprehensive income, equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. (a 50% percent owned investee company). The Company’s investment in Lux JV Treasury Holding Company S.a.r.l. at December 31, 2017 was $46.7 million and its equity in earnings of Lux JV Treasury Holding Company S.a.r.l. was $0.7 million for the year ended December 31, 2017. The consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lux JV Treasury Holding Company S.a.r.l., is based solely on the report of the other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Kansas City, Missouri
February 26, 2018
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Shareholders of
Lux JV Treasury Holding Company S.à r.l.r.l.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Lux JV Treasury Holding Company
S.à r.l. and its subsidiaries, (together, the Company) as of December 31, 20172018 and 2016,2017, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 2017,2018, including the related notes (not included herein) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172018 and 2016,2017, and the results of operations and their cash flows for each of the three years in the period ended
December 31, 20172018 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in note 1 to the consolidated financial statements, the Company changed its method of presentation of deferred tax liabilities in 2017.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
February 16, 201821, 2019
London, Canada
We have served as the Company's auditor since 2013.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers
Lansing Trade Group, LLC
Overland Park, Kansas
We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and Subsidiaries (the “Company”) as of December 31, 2016 and the related consolidated statements of comprehensive income, equity and cash flows for each of the years in the two-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.à.r.l., an entity in which Lansing Trade Group, LLC has an investment in and accounts for under the equity method of accounting, for which Lansing Trade Group, LLC reflects an investment of $42.9 million as of December 31, 2016, respectively, and equity in earnings of affiliates of $2.6 million and $2.9 million for each of the years in the two-year period ended December 31, 2016, respectively. The financial statements of Lux JV Treasury Holding Company S.à.r.l. were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements expressed herein, insofar as it relates to the amounts included for Lux JV Treasury Holding Company S.à.r.l., is based solely on the report of the other auditors.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of, December 31, 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
/s/ Crowe Chizek LLP
Elkhart, Indiana
February 27, 2017
The Andersons, Inc. Consolidated Balance Sheets (In thousands) | The Andersons, Inc. Consolidated Balance Sheets (In thousands) | The Andersons, Inc. Consolidated Balance Sheets (In thousands) |
| | | December 31,
2017 | | December 31,
2016 | December 31, 2019 | | December 31, 2018 |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 34,919 |
| | $ | 62,630 |
| |
| Restricted cash | — |
| | 471 |
| |
| Accounts receivable, less allowance for doubtful accounts of $9,156 in 2017; $7,706 in 2016 | 183,238 |
| | 194,698 |
| |
| Inventories (Note 2) | 648,703 |
| | 682,747 |
| |
| Commodity derivative assets – current (Note 6) | 30,702 |
| | 45,447 |
| |
| Cash, cash equivalents and restricted cash | | $ | 54,895 |
| | $ | 22,593 |
|
| Accounts receivable, less allowance for doubtful accounts of $12,781 in 2019; $8,325 in 2018 | | 536,367 |
| | 207,285 |
|
| | 1,170,536 |
| | 690,804 |
|
Commodity derivative assets – current (Note 5) | | 107,863 |
| | 51,421 |
|
| Other current assets | 63,790 |
| | 72,133 |
| 75,681 |
| | 51,095 |
|
| Assets held for sale | 37,859 |
| | — |
| |
| Total current assets | 999,211 |
| | 1,058,126 |
| 1,945,342 |
| | 1,023,198 |
|
| Other assets: | | | | | | |
| Commodity derivative assets – noncurrent (Note 6) | 310 |
| | 100 |
| |
| Goodwill (Note 4) | 6,024 |
| | 63,934 |
| |
| Other intangible assets, net (Note 4) | 112,893 |
| | 106,100 |
| |
Commodity derivative assets – noncurrent (Note 5) | | 949 |
| | 480 |
|
| Goodwill | | 135,360 |
| | 6,024 |
|
| Other intangible assets, net | | 175,312 |
| | 99,138 |
|
| Right of use assets, net | | 76,401 |
| | — |
|
| Equity method investments | | 23,857 |
| | 242,326 |
|
| Other assets | 12,557 |
| | 10,411 |
| 20,804 |
| | 22,341 |
|
| Equity method investments | 223,239 |
| | 216,931 |
| |
| | 355,023 |
| | 397,476 |
| |
| Rail Group assets leased to others, net (Note 3) | 423,443 |
| | 327,195 |
| |
| Property, plant and equipment, net (Note 3) | 384,677 |
| | 450,052 |
| |
| Total other assets | | 432,683 |
| | 370,309 |
|
Rail Group assets leased to others, net (Note 3) | | 584,298 |
| | 521,785 |
|
Property, plant and equipment, net (Note 3) | | 938,418 |
| | 476,711 |
|
| Total assets | $ | 2,162,354 |
| | $ | 2,232,849 |
| $ | 3,900,741 |
| | $ | 2,392,003 |
|
The Andersons, Inc. Consolidated Balance Sheets (continued) (In thousands) | The Andersons, Inc. Consolidated Balance Sheets (continued) (In thousands) | The Andersons, Inc. Consolidated Balance Sheets (continued) (In thousands) |
| | | December 31,
2017 | | December 31,
2016 | December 31, 2019 | | December 31, 2018 |
| Liabilities and equity | | | | | | |
| Current liabilities: | | | | | | |
| Short-term debt (Note 5) | $ | 22,000 |
| | $ | 29,000 |
| |
| | $ | 147,031 |
| | $ | 205,000 |
|
| Trade and other payables | 503,571 |
| | 581,826 |
| 873,081 |
| | 462,535 |
|
| Customer prepayments and deferred revenue | 59,710 |
| | 48,590 |
| 133,585 |
| | 32,533 |
|
| Commodity derivative liabilities – current (Note 6) | 29,651 |
| | 23,167 |
| |
Commodity derivative liabilities – current (Note 5) | | 46,942 |
| | 32,647 |
|
| Accrued expenses and other current liabilities | 69,579 |
| | 69,648 |
| 176,381 |
| | 79,046 |
|
| Current maturities of long-term debt (Note 5) | 54,205 |
| | 47,545 |
| |
Current maturities of long-term debt (Note 4) | | 62,899 |
| | 21,589 |
|
| Total current liabilities | 738,716 |
| | 799,776 |
| 1,439,919 |
| | 833,350 |
|
| Long-term lease liabilities | | 51,091 |
| | — |
|
Commodity derivative liabilities – noncurrent (Note 5) | | 505 |
| | 889 |
|
Employee benefit plan obligations (Note 6) | | 25,359 |
| | 22,542 |
|
Long-term debt, less current maturities (Note 4) | | 1,016,248 |
| | 496,187 |
|
Deferred income taxes (Note 8) | | 146,155 |
| | 130,087 |
|
| Other long-term liabilities | 33,129 |
| | 27,833 |
| 25,809 |
| | 32,184 |
|
| Commodity derivative liabilities – noncurrent (Note 6) | 825 |
| | 339 |
| |
| Employee benefit plan obligations (Note 7) | 26,716 |
| | 35,026 |
| |
| Long-term debt, less current maturities (Note 5) | 418,339 |
| | 397,065 |
| |
| Deferred income taxes (Note 8) | 121,730 |
| | 182,113 |
| |
| Total liabilities | 1,339,455 |
| | 1,442,152 |
| 2,705,086 |
| | 1,515,239 |
|
| Commitments and contingencies (Note 14) |
| |
| |
Commitments and contingencies (Note 15) | | | | |
| Shareholders’ equity: | | | | | | |
| Common shares, without par value (63,000 shares authorized; 29,430 shares issued in 2017 and 2016) | 96 |
| | 96 |
| |
| Common shares, without par value (63,000 shares authorized; 33,550 shares issued in 2019; 29,430 shares issued in 2018) | | 137 |
| | 96 |
|
| Preferred shares, without par value (1,000 shares authorized; none issued) | — |
| | — |
| — |
| | — |
|
| Additional paid-in-capital | 224,622 |
| | 222,910 |
| 345,359 |
| | 224,396 |
|
| Treasury shares, at cost (1,063 in 2017; 1,201 in 2016) | (40,312 | ) | | (45,383 | ) | |
| Treasury shares, at cost (207 in 2019; 936 in 2018) | | (7,342 | ) | | (35,300 | ) |
| Accumulated other comprehensive loss | (2,700 | ) | | (12,468 | ) | (7,231 | ) | | (6,387 | ) |
| Retained earnings | 633,496 |
| | 609,206 |
| 642,687 |
| | 647,517 |
|
| Total shareholders’ equity of The Andersons, Inc. | 815,202 |
| | 774,361 |
| 973,610 |
| | 830,322 |
|
| Noncontrolling interests | 7,697 |
| | 16,336 |
| 222,045 |
| | 46,442 |
|
| Total equity | 822,899 |
| | 790,697 |
| 1,195,655 |
| | 876,764 |
|
| Total liabilities and equity | $ | 2,162,354 |
| | $ | 2,232,849 |
| $ | 3,900,741 |
| | $ | 2,392,003 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
The Andersons, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
| | | | Year ended December 31, | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Sales and merchandising revenues | $ | 3,686,345 |
| | $ | 3,924,790 |
| | $ | 4,198,495 |
| $ | 8,170,191 |
| | $ | 3,045,382 |
| | $ | 3,686,345 |
|
| Cost of sales and merchandising revenues | 3,367,546 |
| | 3,579,284 |
| | 3,822,657 |
| 7,652,299 |
| | 2,743,377 |
| | 3,367,546 |
|
| Gross profit | 318,799 |
| | 345,506 |
| | 375,838 |
| 517,892 |
| | 302,005 |
| | 318,799 |
|
| Operating, administrative and general expenses | 287,930 |
| | 318,395 |
| | 337,829 |
| 436,842 |
| | 257,872 |
| | 286,993 |
|
| Pension settlement | — |
| | — |
| | 51,446 |
| |
| Asset impairment | 10,913 |
| | 9,107 |
| | 285 |
| 41,212 |
| | 6,272 |
| | 10,913 |
|
| Goodwill impairment | 59,081 |
| | — |
| | 56,166 |
| — |
| | — |
| | 59,081 |
|
| Interest expense | 21,567 |
| | 21,119 |
| | 20,072 |
| 59,691 |
| | 27,848 |
| | 21,567 |
|
| Other income: | | | | | | | | | | |
| Equity in earnings of affiliates, net | 16,723 |
| | 9,721 |
| | 31,924 |
| |
| Equity in earnings (losses) of affiliates, net | | (7,359 | ) | | 27,141 |
| | 16,723 |
|
| Gain from remeasurement of equity method investments, net | | 35,214 |
| | — |
| | — |
|
| Other income, net | 23,444 |
| | 14,775 |
| | 46,472 |
| 20,109 |
| | 16,002 |
| | 22,507 |
|
| Income (loss) before income taxes | (20,525 | ) | | 21,381 |
| | (11,564 | ) | 28,111 |
| | 53,156 |
| | (20,525 | ) |
| Income tax provision (benefit) | (63,134 | ) | | 6,911 |
| | (242 | ) | 13,051 |
| | 11,931 |
| | (63,134 | ) |
| Net income (loss) | 42,609 |
| | 14,470 |
| | (11,322 | ) | |
| Net income attributable to the noncontrolling interests | 98 |
| | 2,876 |
| | 1,745 |
| |
| Net income (loss) attributable to The Andersons, Inc. | $ | 42,511 |
| | $ | 11,594 |
| | $ | (13,067 | ) | |
| Net income | | 15,060 |
| | 41,225 |
| | 42,609 |
|
| Net income (loss) attributable to the noncontrolling interest | | (3,247 | ) | | (259 | ) | | 98 |
|
| Net income attributable to The Andersons, Inc. | | $ | 18,307 |
| | $ | 41,484 |
| | $ | 42,511 |
|
| Per common share: | | | | | | | | | | |
| Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 1.51 |
| | $ | 0.41 |
| | $ | (0.46 | ) | |
| Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 1.50 |
| | $ | 0.41 |
| | $ | (0.46 | ) | |
| Dividends declared | $ | 0.6450 |
| | $ | 0.6250 |
| | $ | 0.5750 |
| |
| Basic earnings attributable to The Andersons, Inc. common shareholders | | $ | 0.56 |
| | $ | 1.47 |
| | $ | 1.51 |
|
| Diluted earnings attributable to The Andersons, Inc. common shareholders | | $ | 0.55 |
| | $ | 1.46 |
| | $ | 1.50 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
The Andersons, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net income (loss) | $ | 42,609 |
| | $ | 14,470 |
| | $ | (11,322 | ) |
| Other comprehensive income (loss), net of tax: | | | | | |
| Change in fair value of convertible preferred securities (net of income tax of $0, $74 and $0) | 344 |
| | (126 | ) | | — |
|
| Change in unrecognized actuarial gain and prior service cost (net of income tax of $(1,809), $(4,355) and $(24,746)) | 6,138 |
| | 7,447 |
| | 40,736 |
|
| Foreign currency translation adjustments (net of income tax of $0, $0 and $82) | 3,286 |
| | 1,039 |
| | (7,333 | ) |
| Cash flow hedge activity (net of income tax of $0, $(72) and $(154)) | — |
| | 111 |
| | 253 |
|
| Other comprehensive income (loss) | 9,768 |
| | 8,471 |
| | 33,656 |
|
| Comprehensive income | 52,377 |
| | 22,941 |
| | 22,334 |
|
| Comprehensive income attributable to the noncontrolling interests | 98 |
| | 2,876 |
| | 1,745 |
|
| Comprehensive income attributable to The Andersons, Inc. | $ | 52,279 |
| | $ | 20,065 |
| | $ | 20,589 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Net income | $ | 15,060 |
| | $ | 41,225 |
| | $ | 42,609 |
|
| Other comprehensive income (loss), net of tax: | | | | | |
| Change in fair value of convertible preferred securities (net of income tax of $0 for all periods) | — |
| | (86 | ) | | 344 |
|
| Change in unrecognized actuarial gain and prior service cost (net of income tax of $1,267, $(879) and $(1,809)) | (4,142 | ) | | 359 |
| | 6,138 |
|
| Foreign currency translation adjustments (net of income tax of $(403), $0 and $0) | 12,615 |
| | (3,834 | ) | | 3,286 |
|
| Cash flow hedge activity (net of income tax of $3,081, $42 and $0) | (9,317 | ) | | (126 | ) | | — |
|
| Other comprehensive income (loss) | (844 | ) | | (3,687 | ) | | 9,768 |
|
| Comprehensive income | 14,216 |
| | 37,538 |
| | 52,377 |
|
| Comprehensive income (loss) attributable to the noncontrolling interests | (3,247 | ) | | (259 | ) | | 98 |
|
| Comprehensive income attributable to The Andersons, Inc. | $ | 17,463 |
| | $ | 37,797 |
| | $ | 52,279 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
The Andersons, Inc.
Consolidated Statements of Cash Flows
(In thousands)
| The Andersons, Inc. Consolidated Statements of Cash Flows (In thousands) | | The Andersons, Inc. Consolidated Statements of Cash Flows (In thousands) |
| | | Year ended December 31, | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Operating Activities | | | | | | | | | | |
| Net income (loss) | $ | 42,609 |
| | $ | 14,470 |
| | (11,322 | ) | |
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | | | | | | |
| Net income | | $ | 15,060 |
| | $ | 41,225 |
| | $ | 42,609 |
|
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | | | | | | |
| Depreciation and amortization | 86,412 |
| | 84,325 |
| | 78,456 |
| 146,166 |
| | 90,297 |
| | 86,412 |
|
| Bad debt expense | 3,000 |
| | 1,191 |
| | 3,302 |
| 4,007 |
| | 542 |
| | 3,000 |
|
| Equity in (earnings) losses of affiliates, net of dividends | (10,494 | ) | | 14,766 |
| | (677 | ) | 7,671 |
| | (23,167 | ) | | (10,494 | ) |
| Gain on sale of assets | (14,401 | ) | | (667 | ) | | (20,802 | ) | |
| Loss (gain) on sales of assets | | (7,063 | ) | | (5,218 | ) | | (14,401 | ) |
| Gains on sales of Rail Group assets and related leases | (10,990 | ) | | (11,019 | ) | | (13,281 | ) | (4,122 | ) | | (9,558 | ) | | (10,990 | ) |
| Deferred income taxes | (63,234 | ) | | 6,030 |
| | 27,279 |
| |
| Stock based compensation expense | 6,097 |
| | 6,987 |
| | 1,899 |
| 16,229 |
| | 6,624 |
| | 6,097 |
|
| Pension settlement charge, net of cash contributed | — |
| | — |
| | 48,344 |
| |
| Deferred income tax | | 5,114 |
| | 11,018 |
| | (63,234 | ) |
| Goodwill impairment | 59,081 |
| | — |
| | 56,166 |
| — |
| | — |
| | 59,081 |
|
| Asset impairment charge | 10,913 |
| | 9,107 |
| | 285 |
| |
| Asset impairment | | 41,212 |
| | 6,272 |
| | 10,913 |
|
| Gain from remeasurement of equity method investments, net | | (35,214 | ) | | — |
| | — |
|
| Other | (55 | ) | | (2,070 | ) | | (1,439 | ) | 3,540 |
| | (1,451 | ) | | (55 | ) |
| Changes in operating assets and liabilities: | | | | | | | | | | |
| Accounts receivable | 9,781 |
| | (26,429 | ) | | 45,058 |
| 1,487 |
| | (24,788 | ) | | 9,781 |
|
| Inventories | 16,141 |
| | 28,165 |
| | 73,350 |
| (1,578 | ) | | (44,060 | ) | | 16,141 |
|
| Commodity derivatives | 20,285 |
| | (9,990 | ) | | 14,098 |
| 21,714 |
| | (16,610 | ) | | 20,285 |
|
| Other assets | (5,623 | ) | | 19,407 |
| | (26,315 | ) | 30,497 |
| | 3,290 |
| | (74,237 | ) |
| Accounts payable and accrued expenses | (74,237 | ) | | (94,688 | ) | | (120,267 | ) | |
| Payables and other accrued expenses | | 103,842 |
| | (69,935 | ) | | (5,623 | ) |
| Net cash provided by (used in) operating activities | 75,285 |
| | 39,585 |
| | 154,134 |
| 348,562 |
| | (35,519 | ) | | 75,285 |
|
| Investing Activities | | | | | | | | | | |
| Acquisition of businesses, net of cash acquired | (3,507 | ) | | — |
| | (128,549 | ) | (102,580 | ) | | (2,248 | ) | | (3,507 | ) |
| Purchases of Rail Group assets | (143,020 | ) | | (85,268 | ) | | (115,032 | ) | (105,254 | ) | | (167,005 | ) | | (143,020 | ) |
| Proceeds from sale of Rail Group assets | 36,896 |
| | 56,689 |
| | 76,625 |
| 18,090 |
| | 79,439 |
| | 36,896 |
|
| Purchases of property, plant and equipment and capitalized software | (34,602 | ) | | (77,740 | ) | | (72,469 | ) | (165,223 | ) | | (142,579 | ) | | (34,602 | ) |
| Proceeds from sale of assets | 33,879 |
| | 69,904 |
| | 284 |
| |
| Proceeds from sale of assets and businesses | | 30,617 |
| | 47,486 |
| | 33,879 |
|
| Proceeds from returns of investments in affiliates | 1,069 |
| | 9,186 |
| | 1,620 |
| — |
| | — |
| | 1,069 |
|
| Purchase of investments | (5,679 | ) | | (2,523 | ) | | (938 | ) | (1,490 | ) | | (1,086 | ) | | (5,679 | ) |
| Other | 1,470 |
| | 1,534 |
| | (21 | ) | 808 |
| | — |
| | 1,470 |
|
| Net cash provided by (used in) investing activities | (113,494 | ) | | (28,218 | ) | | (238,480 | ) | |
| Net cash used in investing activities | | (325,032 | ) | | (185,993 | ) | | (113,494 | ) |
| Financing Activities | | | | | | | | | | |
| Net change in short-term borrowings | (8,059 | ) | | 14,000 |
| | 15,000 |
| (278,824 | ) | | 183,000 |
| | (8,059 | ) |
| Proceeds from issuance of long-term debt | 85,175 |
| | 81,760 |
| | 181,767 |
| 922,594 |
| | 132,000 |
| | 85,175 |
|
| Payments of long-term debt | (57,189 | ) | | (97,606 | ) | | (92,474 | ) | (608,483 | ) | | (121,090 | ) | | (57,189 | ) |
| Proceeds from long-term financing arrangements | 12,195 |
| | 14,027 |
| | — |
| |
| Distributions to noncontrolling interest owner | (377 | ) | | (5,853 | ) | | (3,206 | ) | |
| Proceeds from long-term financing agreements | | — |
| | — |
| | 12,195 |
|
| Proceeds from noncontrolling interest owner | | 4,714 |
| | 46,736 |
| | (377 | ) |
| Payments of debt issuance costs | (2,024 | ) | | (323 | ) | | (296 | ) | (6,561 | ) | | (1,446 | ) | | (2,024 | ) |
| Purchases of treasury stock | — |
| | — |
| | (49,089 | ) | |
| Acquisition of noncontrolling interest | | — |
| | (10,000 | ) | | — |
|
| Dividends paid | (18,152 | ) | | (17,362 | ) | | (15,921 | ) | (22,118 | ) | | (18,639 | ) | | (18,152 | ) |
| Other | (1,071 | ) | | (1,130 | ) | | (2,389 | ) | (2,615 | ) | | (1,375 | ) | | (1,071 | ) |
| Net cash provided by (used in) financing activities | 10,498 |
| | (12,487 | ) | | 33,392 |
| |
| Increase (decrease) in cash and cash equivalents | (27,711 | ) | | (1,120 | ) | | (50,954 | ) | |
| Cash and cash equivalents at beginning of year | 62,630 |
| | 63,750 |
| | 114,704 |
| |
| Cash and cash equivalents at end of year | $ | 34,919 |
| | $ | 62,630 |
| | $ | 63,750 |
| |
| Net cash provided by financing activities | | 8,707 |
| | 209,186 |
| | 10,498 |
|
| Effect of exchange rates on cash, cash equivalents and restricted cash | | 65 |
| | — |
| | — |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | | 32,302 |
|
| (12,326 | ) | | (27,711 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | | 22,593 |
| | 34,919 |
| | 62,630 |
|
| Cash, cash equivalents and restricted cash at end of year | | $ | 54,895 |
| | $ | 22,593 |
| | $ | 34,919 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
The Andersons, Inc.
Consolidated Statements of Equity
(In thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Andersons, Inc. Shareholders’ Equity | | | | |
| | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests | | Total |
| Balance at January 1, 2015 | $ | 96 |
| | $ | 222,789 |
| | $ | (9,743 | ) | | $ | (54,595 | ) | | $ | 644,556 |
| | $ | 20,946 |
| | $ | 824,049 |
|
| Net income | | | | | | | | | (13,067 | ) | | 1,745 |
| | (11,322 | ) |
| Other comprehensive loss | | | | | | | 33,656 |
| | | | | | 33,656 |
|
| Cash distributions to noncontrolling interest | | | | |
|
| | | | | | (3,206 | ) | | (3,206 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $819 (187 shares) | | | (4,382 | ) | | 5,930 |
| | | | | | | | 1,548 |
|
| Purchase of treasury shares (1,193 shares) | | | | | (49,089 | ) | | | | | | | | (49,089 | ) |
| Dividends declared ($0.575 per common share) | | | | | | | | | (16,200 | ) | | | | (16,200 | ) |
| Shares issued for acquisitions (77 shares) | | | 4,303 |
| | | | | | | | | | 4,303 |
|
| Performance share unit dividends equivalents | | | 138 |
| | | | | | (138 | ) | | | | — |
|
| Balance at December 31, 2015 | 96 |
| | 222,848 |
| | (52,902 | ) | | (20,939 | ) | | 615,151 |
| | 19,485 |
| | 783,739 |
|
| Net income | | | | | | | | | 11,594 |
| | 2,876 |
| | 14,470 |
|
| Other comprehensive loss | | | | | | | 8,471 |
| | | | | | 8,471 |
|
| Cash distributions to noncontrolling interest | | | | | | | | | | | (5,853 | ) | | (5,853 | ) |
| Other changes in noncontrolling interest | | | | | | | | | | | (172 | ) | | (172 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $458 (196 shares) | | | 67 |
| | 7,489 |
| | | | | | | | 7,556 |
|
| Dividends declared ($0.625 per common share) | | | | | | | | | (17,514 | ) | | | | (17,514 | ) |
| Performance share unit dividends equivalents | | | (5 | ) | | 30 |
| | | | (25 | ) | | | | — |
|
| Balance at December 31, 2016 | 96 |
| | 222,910 |
| | (45,383 | ) | | (12,468 | ) | | 609,206 |
| | 16,336 |
| | 790,697 |
|
| Net income | | | | | | | | | 42,511 |
| | 98 |
| | 42,609 |
|
| Other comprehensive income | | | | | | | 9,768 |
| | | | | | 9,768 |
|
| Cash distributions to noncontrolling interest | | | | | | | | | | | (377 | ) | | (377 | ) |
| Other changes in noncontrolling interest | | | | | | | | | | | (8,360 | ) | | (8,360 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $(323) (138 shares) | | | 1,707 |
| | 5,007 |
| | | | | | | | 6,714 |
|
| Dividends declared ($0.645 per common share) | | | | | | | | | (18,152 | ) | | | | (18,152 | ) |
| Stock award dividend equivalents | | | 5 |
| | 64 |
| | | | (69 | ) | | | | — |
|
| Balance at December 31, 2017 | $ | 96 |
| | $ | 224,622 |
|
| $ | (40,312 | ) |
| $ | (2,700 | ) |
| $ | 633,496 |
|
| $ | 7,697 |
|
| $ | 822,899 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Andersons, Inc. Shareholders’ Equity | | | | |
| | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests | | Total |
| Balance at January 1, 2017 | $ | 96 |
| | $ | 222,910 |
| | $ | (45,383 | ) | | $ | (12,468 | ) | | $ | 609,206 |
| | $ | 16,336 |
| | $ | 790,697 |
|
| Net Income | | | | | | | | | 42,511 |
| | 98 |
| | 42,609 |
|
| Other comprehensive income | | | | | | | 9,768 |
| | | | | | 9,768 |
|
| Cash distributions to noncontrolling interest | | | | | | | | | | | (377 | ) | | (377 | ) |
| Other changes to noncontrolling interest | | | | | | | | | | | (8,360 | ) | | (8,360 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of ($323) (138 shares) | | | 1,707 |
| | 5,007 |
| | | | | | | | 6,714 |
|
| Dividends declared ($0.645 per common share) | | | | | | | | | (18,152 | ) | | | | (18,152 | ) |
| Performance share unit dividends | | | 5 |
| | 64 |
| | | | (69 | ) | | | | — |
|
| Balance at December 31, 2017 | 96 |
| | 224,622 |
| | (40,312 | ) | | (2,700 | ) | | 633,496 |
| | 7,697 |
| | 822,899 |
|
| Net income (loss) | | | | | | | | | 41,484 |
| | (259 | ) | | 41,225 |
|
| Other comprehensive loss | | | | | | | (3,687 | ) | | | | | | (3,687 | ) |
| Cash received from (paid to) noncontrolling interest, net | | | (2,268 | ) | | | | | | | | 39,004 |
| | 36,736 |
|
| Adoption of accounting standard, net of income tax of $3,492 | | | | | | | | | (7,818 | ) | | | | (7,818 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of ($267) (127 shares) | | | 2,042 |
| | 4,871 |
| | | | | | | | 6,913 |
|
| Dividends declared ($0.665 per common share) | | | | | | | | | (19,504 | ) | | | | (19,504 | ) |
| Restricted share award dividend equivalents | | | | | 141 |
| | | | (141 | ) | | | | — |
|
| Balance at December 31, 2018 | 96 |
| | 224,396 |
| | (35,300 | ) | | (6,387 | ) | | 647,517 |
| | 46,442 |
| | 876,764 |
|
| Net income (loss) | | | | | | | | | 18,307 |
| | (3,247 | ) | | 15,060 |
|
| Other comprehensive loss | | | | | | | (12,734 | ) | | | | | | (12,734 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | | 11,890 |
| | | | | | 11,890 |
|
| Cash received from noncontrolling interest, net | | | 164 |
| | | | | | | | 4,715 |
| | 4,879 |
|
| Noncontrolling interests recognized in connection with business combination | | | 5,112 |
| | | | | |
| | 174,135 |
| | 179,247 |
|
| Cumulative adjustment for adoption of leasing standard, net of income tax of ($76) | | | | | | | | | (550 | ) | | | | (550 | ) |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (723 shares) | | | (12,121 | ) | | 27,708 |
| | | | | | | | 15,587 |
|
| Dividends declared ($0.685 per common share) | | | | | | | | | (22,329 | ) | | | | (22,329 | ) |
| Shares issued for acquisition | 41 |
| | 127,800 |
| | | | | | | | | | 127,841 |
|
| Restricted share award dividend equivalents | | | 8 |
| | 250 |
| | | | (258 | ) | | | | — |
|
| Balance at December 31, 2019 | $ | 137 |
| | $ | 345,359 |
|
| $ | (7,342 | ) |
| $ | (7,231 | ) |
| $ | 642,687 |
|
| $ | 222,045 |
|
| $ | 1,195,655 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
The Andersons, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All material 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.
InAt inception of joint venture transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the opinionprimary beneficiary of management, all adjustments consistingits operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company consolidates investments in VIEs when the Company is determined to be the primary beneficiary. This evaluation is based on an enterprise’s ability to direct and influence the activities of normal recurring items, considered necessary for a fair presentationVIE that most significantly impact that entity’s economic performance.
The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the resultsfollowing characteristics: (i) the power to direct the activities of operations for the periods indicated, have been made.VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.
On October 1, 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC (“TAAE”), The Andersons Clymers Ethanol LLC (“TACE”), The Andersons Marathon Ethanol LLC (“TAME”) and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC (“TADE”), into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company evaluated its interest in TAMH and determined that TAMH is a VIE and that the Company is the primary beneficiary of TAMH due to the fact that the Company had both the power to direct the activities that most significantly impact TAMH and the obligation to absorb losses or the right to receive benefits from TAMH. Therefore, the Company consolidated TAMH in its financial statements.
On March 2, 2018, the Company invested in ELEMENT. The Company owns 51% of ELEMENT and ICM, Inc. owns the remaining 49% interest. As part of the Company’s investment into ELEMENT, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the initial construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The Company evaluated its interest in ELEMENT and determined that ELEMENT is a VIE and that the Company is the primary beneficiary of ELEMENT due to the fact that the Company had both the power to direct the activities that most significantly impact ELEMENT and the obligation to absorb losses or the right to receive benefits from ELEMENT. Therefore, the Company consolidates ELEMENT.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and short-term investments with an initial maturity of three months or less. The carrying values of these assets approximate their fair values.
The Company had restricted cash of $8.7 million as of December 31, 2019. The restricted cash balance is a result of an ongoing royalty claim assumed in the TAMH merger and, accordingly, is now in the Consolidated Financial Statements of the Company.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and may bear interest if past due. The allowance for doubtful accounts is the best estimate of the amount of probablecurrent expected credit losses in existing accounts receivable. The allowance for doubtful accounts is reviewed quarterly. The allowance is based both on specific identification of potentially uncollectible accounts and the application of a consistent policy, based on historical experience, to estimate the allowance necessary for the remaining accounts receivable. For those customers that are thought to be at higher risk, the Company makes assumptions as to collectability based on past history and facts about the current situation. Account balances are charged off against the allowance when it becomes more certain that the receivable will not be recovered. The Company manages its exposure to counter-partycounterparty credit risk through credit analysis and approvals, credit limits and monitoring procedures.
Commodity Derivatives and Inventories
The Company's operating results can be affected by changes to commodity prices. The GrainTrade 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 mitigate the price risk associated with those contracts and inventory). To reduce the exposure to market price risk on commodities owned and forward graincommodity 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 Chicago Mercantile Exchange ("CME".) The forward purchase and sale 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.
The Company accounts for its commodity derivatives at 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, fair value is adjusted for differences in local markets and non-performance risk. While the Company considers certain of its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges.
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 in the Consolidated Statements of Operations. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 65 and 11 to the Consolidated Financial Statements.
Grain and other agricultural inventories, which are agricultural commodities and may be acquired under provisionally priced contracts, are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
All other inventories are stated at the lower of cost or net realizable value. Cost is determined by the average cost method. Additional information about inventories is presented in Note 2 to the Consolidated Financial Statements.
Derivatives - Master Netting Arrangements
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, options 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 Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Consolidated Balance Sheets. Additional information about the Company's master netting arrangements is presented in Note 65 to the Consolidated Financial Statements.
Derivatives - Interest Rate and Foreign Currency Contracts
The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. The Company has long-term interest rate swaps recorded in other assets or other long-term liabilities that expire from 2021 to 2025 and have been designated as cash flow hedges; accordingly, changes in the fair value of the instruments are recognized in other comprehensive income. The Company has other interest rate contracts recorded in other assets that are not designated as hedges. While the Company considers all of its derivative positions to be effective economic hedges of specified risks, these interest rate contracts for which hedge accounting is not applied are recorded on the Consolidated Balance Sheets in either other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature), and changes in fair value are recognized in incomecurrent earnings as interest expense. Upon termination of a derivative instrument or a change in the hedged item, any remaining fair value recorded on the balance sheet is recorded as interest expense consistent with the cash flows associated with the underlying hedged item. Information regarding the nature and terms of the Company's interest rate derivatives is presented in Note 65 to the Consolidated Financial Statements.
Marketing Agreement
The Company has a marketing agreement that covers certain of its grain facilities, some of which are leased from Cargill, Incorporated (“Cargill”).Cargill. Under the five-year amended and restated agreement (renewed in December 2013June 2018 and ending May 2018)2023), any grain the Company sells grain from these facilities to Cargill is at market prices.price. Income earned from operating the facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) over a specified threshold is shared equally with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill on an annual basis. The Company recognizes its pro rata share of incomethis profit-sharing arrangement as a reduction of revenue in our Consolidated Statements of Operations every month and accrues for any payment owed to Cargill. The balance included in customer prepayments and deferred revenue was $3.3impact of the profit-sharing arrangement to the Company's revenues were de minimis, $0.2 million and $5.8$3.7 million as offor the years ended December 31, 20172019, 2018 and December 31, 2016,2017, respectively.
Rail Group Assets Leased to Others
The Company's Rail Group purchases, leases, markets and manages railcars and barges for third parties and for internal use. Rail Group assets to which the Company holds title are shown on the balance sheet in one of two categories - other current assets (for those that are available for sale) or Rail Group assets leased to others. Rail Group assets leased to others, both on short and long-term leases, are classified as long-term assets and are depreciated over their estimated useful lives.
Railcars have statutory lives of either 40 or 50 years, measured from the date built. Barges have estimated lives of 30 to 40 years, measured from the date built. At the time of purchase, the remaining life is used in determining useful lives which are
depreciated on a straight-line basis. Repairs and maintenance costs are charged to expense as incurred. Additional information regarding Rail Group assets leased to others is presented in Note 3 to the Consolidated Financial Statements.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Repairs and maintenance costs are charged to expense as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided over the estimated useful lives of the individual assets, by the straight-line method. Estimated useful lives are generally as follows: land improvements - 16 years; leasehold improvements - the shorter of the lease term or the estimated useful life of the improvement, ranging from 3 to 20 years; buildings and storage facilities - 10 to 40 years; and machinery and equipment - 3 to 20 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts, with any gain or loss realized upon sale or disposal credited or charged to operations.
Additional information regarding the Company's property, plant and equipment is presented in Note 3 to the Consolidated Financial Statements.
Deferred Debt Issue Costs
Costs associated with the issuance of debt are deferred.deferred and recorded net with debt. These costs are amortized, as a component of interest expense, over the earlier of the stated term of the debt or the period from the issue date through the first early payoff date without penalty, or the expected payoff date if the loan does not contain a prepayment penalty. Deferred costs associated with the borrowing arrangement with a syndication of banks are amortized over the term of the agreement.
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests or more often when events or circumstances indicate that the carrying amount of goodwill may be impaired. A goodwill impairment loss is recognized to the extent the carrying amount of goodwill exceeds the implied fair value of goodwill.business enterprise value. Additional information about the Company's goodwill and other intangible assets is presented in Note 419 to the Consolidated Financial Statements.
Acquired intangible assets are recorded at cost, less accumulated amortization, if not indefinite lived. In addition, we capitalize the salaries and payroll-related costs of employees and consultants who devote time to the development of internal-use software projects. If a project constitutes an enhancement to previously-developed software, we assess whether the enhancement is significant and creates additional functionality to the software, thus qualifying the work incurred for capitalization. Once a project is complete, we estimate the useful life of the internal-use software, and we periodically assess whether the software is impaired.software. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period.
Amortization of intangible assets is provided over their estimated useful lives (generally 31 to 10 years) on the straight-line method.
Impairment of Long-lived Assets and Equity Method Investments
Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the assets to the undiscounted future net cash flows the Company expects to generate with the assets. If such assets are considered to be impaired, the Company recognizes an impairment loss for the amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company reviews its equity method investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other-than-temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.
Provisionally Priced GrainCommodity Contracts
Accounts payable includes certain amounts related to graincommodity purchases for which, even though the Company has taken ownership and possession of the grain,commodity the final purchase price has not been fully established. If the futures and basis components are unpriced, it is referred to as a delayed price payable. If the futures component has not been established, but the basis has been set, it is referred to as a basis payable. The unpriced portion of these payables will be exposed to changes in the fair value of the underlying commodity based on quoted prices on commodity exchanges (or basis levels). Those payables that are fully priced are not considered derivative instruments.
The Company also enters into contracts with customers for risk management purposes that allow the customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushelscommodities 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 Chicago Board of Trade ("CBOT")exchange prices. See Note 11 for additional discussion on these instruments.
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, adjusted for revisions to performance expectations. Additional information about the Company's stock compensation plans is presented in Note 1617 to the Consolidated Financial Statements.
Deferred Compensation Liability
Included in accrued expenses are $9.6$6.7 million and $9.7$7.5 million at December 31, 20172019 and 2016,2018, respectively, of deferred compensation for certain employees who, due to Internal Revenue Service guidelines, may not take full advantage of the Company's qualified defined contribution plan. Assets funding this plan are recorded at fair value in other current assets and have been classified as trading securities with changes in the fair value recorded in earnings as a component of other income, net. Changes in the fair value of the deferred compensation liability are reflected in earnings as a component of operating, administrative, and general expenses.
Revenue Recognition
The Company’s revenue consists of sales from commodity contracts that are accounted for under ASC 815, Derivatives and Hedging (ASC 815), rental revenues from leases that are accounted for under ASC 842, Leases,and sales of other products and services that are accounted for under ASC 606, Revenue from Contracts with Customers (ASC 606).
Revenue from commodity contracts (ASC 815)
Revenue from commodity contracts primarily relates to forward sales of commodities in the Company’s Trade and Ethanol segments, such as corn, soybeans, wheat, oats, ethanol, and corn oil, which are accounted for as derivatives at fair value under ASC 815. These forward sales meet the definition of a derivative under ASC 815 as they have an underlying (e.g. the price of corn), a notional amount (e.g. metric tons), no initial net investment and can be net settled since the commodity is readily convertible to cash. The Company follows a policydoes not apply the normal purchase and normal sale exception available under ASC 815 to these contracts.
Revenue from commodity contracts is recognized in Sales and merchandising revenues for the contractually stated amount when the contracts are settled. Settlement of recognizing sales revenue at the time ofcommodity contracts generally occurs upon shipment or delivery of the product, and when all of the following have occurred: a sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured.
Sales of grain and ethanol are primarily recognized at the time of shipment, which is when title and riskrisks and rewards of lossownership transfers to the customer. Prior to settlement, these forward sales contracts are recognized at fair value with the unrealized gains or losses recorded within Cost of sales and merchandising revenues. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 5 and 11 to the Consolidated Financial Statements.
There are certain transactions that allow for pricing to occur after title of the goods has passed to the customer. In these cases, the Company continues to report the goods in inventory until it recognizes the sales revenue once the price has been determined. Direct ship graincommodity sales (where the Company never takes physical possession of the grain)commodity) are recognized whenbased on the grain arrives at the customer's facility. Revenues from other grain and ethanol merchandising activities are recognized as services are provided. Sales of other products are recognized at the time title and risk of loss transfers to the customer, which is generally at the time of shipment or, in the caseterms of the retail store sales, when the customer takes possession of the goods. Revenues for all other services are recognized as the service is provided.contract.
Certain of the Company's operations provide for customer billings, deposits or prepayments for product that is stored at the Company's facilities. The sales and gross profit related to these transactions are not recognized until the product is shipped in accordance with the previously stated revenue recognition policy and these amounts are classified as a current liability titled “Customer prepayments and deferred revenue”.
Rental revenues onRevenue from leases (ASC 842)
The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, flat cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. While most of these assets are owned by the Company, it also leases assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leases. The Company's Rail Group leases these assets to customers under operating leases, arewhich includes managing the assets for third parties. In exchange for conveying the right to use these railcars to the lessee, the Company receives a fixed monthly rental payment, which is typically expressed on a “per car” basis in the lease agreement. Revenue from these arrangements is recognized on a straight-line basis over the term of the lease. Sales to financial intermediaries of owned railcars or other assets which are subject to an operating lease (with the Company being the lessor in such operating leases prior to the sale, referred to as a “non-recourse transaction”) are recognized as revenue on the date of sale if the Company does not maintain substantial risk of ownership in the sold assets. Revenue related to railcar or other asset servicing and maintenance contracts is recognized over the term of the lease or service contract.
Sales returns and allowances are provided for at the time sales are recorded based on historical experience. Shipping and handling charges are included in cost of sales. Sales taxes and motor fuel taxes on ethanol sales are presented on a net basis and are excluded from revenues.
Rail Lease Accounting
In addition to the sale of Rail Group assets that the Company makes to financial intermediaries on a non-recourse basis and records as revenue as discussed above, the Company also acts as the lessor and / or the lessee in various leasing arrangements as described below.
The Company's Rail Group leases assets to customers, manages assets for third parties and leases assets for internal use. The Company acts as the lessor in various operating leases of assets that are owned by the Company, or leased by the Company from financial intermediaries and, in turn, leased by the Company to end-users of the assets. The leases from financial
intermediaries are generally structured as sale-leaseback transactions, with the leaseback by the Company being treated as an operating lease.
Certain of the Company's leases include monthly lease fees that are contingent upon some measure of usage (“per diem” leases). This monthly usage is tracked, billed and collected by third-party service providers and funds are generally remitted to the Company along with usage data three months after they are earned. The Company records lease revenue for these per diem arrangements based on recent historical usage patterns and records a true-up adjustment when the actual data is received. Such true-up adjustments were not significant for any period presented.
Revenue related to railcar or other asset servicing and maintenance contracts is recognized over the term of the lease or service contract.
Revenue from contracts with customers (ASC 606)
Revenue from contracts with customers accounted for under ASC 606 is primarily generated in the Plant Nutrient segment through the sale of agricultural and related plant nutrients, corncob-based products, pelleted lime and gypsum products. The Company recognizes revenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a customer, generally when legal title and risks and rewards of ownership transfer to the customer.
Additional information regarding our revenue recognition policy under ASC 606 is presented in Note 7 to the Consolidated Financial Statements.
Rail Lease Accounting
The Company expenses operatingrecognizes a right of use asset and a corresponding lease liability equal to the present value of the remaining minimum lease payments on a straight-line basis over the lease term.related to both its operating and finance rail leases. Additional information about leasing activities is presented in Note 14 to the Consolidated Financial Statements.
Income Taxes
Income tax expense for each period includes current tax expense plus deferred expense, which is related to the change in deferred income tax assets and liabilities. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using enacted tax rates and laws governing periods in which the differences are expected to reverse. The Company evaluates the realizability of deferred tax assets and provides a valuation allowance for amounts that management does not believe are more likely than not to be recoverable, as applicable.
The annual effective tax rate is determined by income tax expense described above, from continuing operations described above, as a percentage of pretax book income. Differences in the effective tax rate and the statutory tax rate may be due to permanent items, tax credits, foreign tax rates and state tax rates in jurisdictions in which the Company operates, or changes in valuation allowances.
The Company records reserves for uncertain tax positions when, despite the belief that tax return positions are fully supportable, it is anticipated that certain tax return positions are likely to be challenged and that the Company may not prevail. These reserves are adjusted in light offor changing facts and circumstances, such as the progress of a tax audit or the lapse of statutes of limitations.
Additional information about the Company’s income taxes is presented in Note 8 to the Consolidated Financial Statements.
Employee Benefit Plans
The Company provides full-time employees hired before January 1, 2003 with postretirement health care benefits. In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including employee turnover rates, anticipated mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are based on the Company's historical experience combined with management's knowledge and understanding of current facts and circumstances. The selection of the discount rate is based on an index given projected plan payouts. Additional information about the Company's employee benefit plans is presented in Note 76 to the Consolidated Financial Statements.
Advertising
Advertising costs are expensed as incurred. Advertising expense of $2.5 million, $4.9$1.9 million and $5.2$2.5 million in 2017, 2016,2019, 2018, and 2015,2017, respectively, is included in operating, administrative and general expenses.
NewRecently Adopted Accounting StandardsPronouncements
Revenue Recognition
In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers(No. 2016-02, Leases (ASC 606)842). The FASB issued subsequent amendments to the initial guidance in July 2018 with ASU 2018-10 and in August 2015, March 2016, April 2016, May 2016, and December 2016 within2018 with 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 adopted 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 ASC 606 and revenues excluded from the scope of ASC 606.
The Company has assessed the impact of this standard by reviewing representative samples of customer contracts for each revenue stream, analyzing those contracts under the new revenue standard, and comparing the conclusions to the current accounting policies and practices to identify potential changes. As a result of this assessment, which was completed during the fourth quarter of 2017, the Company believes the following items will be impacted upon adoption:
- Revenues not in the Scope of ASC 606: Many of the Company's Grain and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging, and therefore will be outside the scope of ASC 606. In addition, the Rail Group's leasing revenue is accounting for under ASC 840, Leases, and will be outside the scope of ASC 606. While we do not believe that the timing or measurement of revenue will be impacted by this conclusion, we will be required to disclose this revenue separately from revenue that is earned from contracts with customers upon adoption of ASC 606. The Company expects approximately 70 percent to 80 percent of consolidated revenues will be accounted for outside the scope of ASC 606, including at least 95 percent of Grain’s revenues, 80 percent to 90 percent of Ethanol’s revenues and 50 percent to 60 percent of Rail's revenues;
- Corn Origination Agreements: While these sales contracts will be accounted for under ASC 815, as noted above, we are still required to evaluate the principal versus agent guidance in ASC 606 to determine whether realized gains or losses should be presented on a gross or net basis in the consolidated statements of operations upon physical settlement. Currently the Company presents these amounts on a gross basis as it has concluded, on the basis of risks and rewards, that it is the principal in the contract. However, ASC 606 requires an entity to evaluate whether it is a principal or agent on the basis of control, rather than risks and rewards. The Company has determined that it is the agent in certain origination arrangements within our Grain Group and therefore realized gains or losses will be presented on a net basis upon adoption of ASC 606. However, as this change relates only to presentation within our consolidated statement of income, there will be no impact on gross profit.
While the impact is dependent on commodity price levels, the Company expects consolidated revenues and cost of sales to each decrease by approximately 10 percent to 20 percent for the Company and 20 percent to 30 percent for the Grain segment, respectively;
- Certain Rail Financing Transactions: In its normal course of operations, the Rail Group enters into transactions with financial institutions in which it agrees to sell railcars to the financial institution in exchange for an upfront payment. Each of the railcars included in a transaction are subject to existing operating leases at the time of sale and the Rail Group assigns all of its rights and obligations pursuant to the underlying lease agreements to financial institution on a non-recourse basis. In such arrangements, the group typically also provides ongoing maintenance and management services related to the cars on behalf of the financial institution in exchange for a stated monthly fee. The group typically holds an option to repurchase the assets at the end of the underlying lease term.
Due to the fact that the group holds an option to repurchase the railcars at the end of the lease term, the group has concluded that it does not transfer control of those railcars to the financial institution and therefore such transactions will no longer be treated as sales upon adoption of ASC 606. Rather, these transactions will be accounted for as collateralized borrowings in which the cash received from the financial institution will be recorded as a financial liability and the railcars will remain recorded as assets within the “Rail Group assets leased to others, net” financial statement caption.
Upon adoption, the Company will recognize a cumulative catch-up transition adjustment in beginning retained earnings at January 1, 2018 for non-recourse financing transactions that are open and have not yet recognized substantially all of the revenue under the contract as of December 31, 2017. The effect of this transition adjustment will be to recognize the railcar assets at their net book value and a financial liability representing the remaining amount owed to the financial institution. This will result in $25 million increase in Rail Group net assets, $43 million increase in financing liabilities and deferred tax liabilities and $18 million decrease to retained earnings.
Leasing
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842).2018-11. ASC 842 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. Effective January 1, 2019, the Company adopted the standard using the Comparative Under ASC 842840 method, which requires lease assets and liabilities to be recognized in the 2019 balance sheet and statement of equity and forgo the comparative reporting requirements under the modified retrospective transition method. The Company also made an accounting policy election to keep short-term leases less than twelve months off the balance sheet for all classes of underlying assets, as well as elected to use the practical expedient that allows the combination of lease and non-leasecontract components in all of its underlying asset categories. In addition, the Company elected to apply the package of practical expedients that allows entities to forego reassessing at the transition date: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases; and (3) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance. See Note 14 for additional information.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. The Company adopted this standard in the current year which did not have a material impact on its financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Effective
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within.2019. We have evaluated the impact of this new standard on our consolidated financial statements noting it is not material. Early adoption is permitted, howeverbut the Company does not plan to early adopt. Entities are required to use a modified retrospective approach when transitioning to ASC 842 for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements.do so.
The Company expects this standard to have the effect of bringing certain off balance-sheet rail assets noted in Item 7 of Form 10-K 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. The FASB issued subsequent amendments to the initial guidance in November 2018, April 2019 and May 2019 with ASU 2018-19, ASU 2019-04 and ASU 2019-05,respectively. 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 hasWe have evaluated the impact of this new standard on our consolidated financial statements noting it is not historically incurred significant credit losses and does not currently anticipate circumstances that would leadexpected to a CECL approach differing from the Company's existing allowance estimates in a material way.be material. 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, howeverbut 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:
| | | | December 31, | December 31, |
| (in thousands) | 2017 | | 2016 | 2019 | | 2018 |
| Grain | $ | 505,217 |
| | $ | 495,139 |
| |
| Ethanol and coproducts | 11,003 |
| | 10,887 |
| |
| Grain and other agricultural products | | $ | 907,482 |
| | $ | 527,471 |
|
| Frac sand and propane | | 15,438 |
| | — |
|
| Ethanol and co-products | | 95,432 |
| | 11,918 |
|
| Plant nutrients and cob products | 126,962 |
| | 150,259 |
| 146,164 |
| | 145,693 |
|
| Retail merchandise | — |
| | 20,678 |
| |
| Railcar repair parts | 5,521 |
| | 5,784 |
| 6,020 |
| | 5,722 |
|
| | $ | 648,703 |
| | $ | 682,747 |
| $ | 1,170,536 |
| | $ | 690,804 |
|
Inventories on the Consolidated Balance Sheets at December 31, 2017 and 20162019 do not include 1.0 million and 0.96.4 million bushels of grain respectively, held in storage for others. Grain and other agricultural product inventories held in storage for others was de minimis as of December 31, 2018. The Company does not have title to the graininventory 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:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Land | $ | 40,442 |
| | $ | 29,739 |
|
| Land improvements and leasehold improvements | 103,148 |
| | 68,826 |
|
| Buildings and storage facilities | 373,961 |
| | 284,998 |
|
| Machinery and equipment | 835,156 |
| | 393,640 |
|
| Construction in progress | 59,993 |
| | 102,394 |
|
| | 1,412,700 |
| | 879,597 |
|
| Less: accumulated depreciation | 474,282 |
| | 402,886 |
|
| | $ | 938,418 |
| | $ | 476,711 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Land | $ | 22,388 |
| | $ | 30,672 |
|
| Land improvements and leasehold improvements | 69,127 |
| | 79,631 |
|
| Buildings and storage facilities | 284,820 |
| | 322,856 |
|
| Machinery and equipment | 373,127 |
| | 392,418 |
|
| Construction in progress | 7,502 |
| | 12,784 |
|
| | 756,964 |
| | 838,361 |
|
| Less: accumulated depreciation | 372,287 |
| | 388,309 |
|
| | $ | 384,677 |
| | $ | 450,052 |
|
Depreciation expense on property, plant and equipment amounted to $48.3$82.3 million, $48.9$46.5 million and $46.4$48.3 million for the years ended 2017, 20162019, 2018 and 2015,2017, respectively.
In December 2019, the Company recorded charges of $32.3 million for impairment of property, plant and equipment in the Trade segment related to its frac sand assets. The Company also recorded a $3.7 million impairment of property, plant, and equipment in the Trade segment related to its Tennessee grain assets, of which $3.1 million was recorded in the second quarter.
In June 2018, the Company recorded charges totaling $1.6 million for impairment of property, plant and equipment in the Trade segment related to assets that were reclassified as assets held for sale at June 30, 2018 and were sold in the third quarter.
In December 2017, the Company recorded charges totaling $10.9 million for impairment of property, plant and equipment in the GrainTrade segment, of which $5.6 million relates to assets that arewere deemed held and used and $5.3 million related to assets that havehad been reclassedreclassified as assets held for sale at December 31, 2017. The Company wrote down the value of theseThese assets to the extent their carrying amounts exceeded fair value. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 inputs in the fair value hierarchy.were then sold during 2018.
In December 2016, the Company recorded charges totaling $6.0 million for impairment of property, plant and equipment in the Retail segment. This does not include $0.5 million of impairment charges related to software. 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 the Rail Group assets leased to others are as follows:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Rail Group assets leased to others | $ | 723,004 |
| | $ | 640,349 |
|
| Less: accumulated depreciation | 138,706 |
| | 118,564 |
|
| | $ | 584,298 |
| | $ | 521,785 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Rail Group assets leased to others | $ | 531,391 |
| | $ | 431,571 |
|
| Less: accumulated depreciation | 107,948 |
| | 104,376 |
|
| | $ | 423,443 |
| | $ | 327,195 |
|
Depreciation expense on Rail Group assets leased to others amounted to $20.0$28.5 million, $18.6$24.7 million and $17.6$20.0 million for the years ended 2017, 20162019, 2018 and 2015,2017, respectively.
In June 2018, the Company recorded charges of $4.7 million for impairment of Rail Group assets leased to others that had been reclassified as assets held for sale at June 30, 2018. These assets were sold during the second half of 2018.
4. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
| | | | | | | | | | | | | | | | |
| (in thousands) | | Grain | | Plant Nutrient | | Rail | | Total |
| Balance at January 1, 2015 | | $ | 46,422 |
| | $ | 21,776 |
| | $ | 4,167 |
| | $ | 72,365 |
|
| Acquisitions | | — |
| | 47,735 |
| | — |
| | 47,735 |
|
| Impairments | | (46,422 | ) | | (9,744 | ) | | — |
| | (56,166 | ) |
| Balance at December 31, 2015 | | — |
| | 59,767 |
| | 4,167 |
| | 63,934 |
|
| Acquisitions | | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2016 | | — |
| | 59,767 |
| | 4,167 |
| | 63,934 |
|
| Acquisitions | | 1,171 |
| | — |
| | — |
| | 1,171 |
|
| Impairments | | — |
| | (59,081 | ) | | — |
| | (59,081 | ) |
| Balance at December 31, 2017 | | $ | 1,171 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 6,024 |
|
Goodwill for the Grain segment is $1.2 million and net of accumulated impairment losses of $46.4 million as of December 31, 2017. Goodwill for the Plant Nutrient segment is $0.7 million and net of accumulated impairment losses of $68.9 million as of December 31, 2017.
Goodwill is tested for impairment annually as of October 1, or more frequently if impairment indicators arise. Upon early adoption of ASU No. 2017-04 during the second quarter of 2017, the Company now uses a one-step quantitative approach that compares the BEV of each reporting unit with its carrying value. The BEV was computed based on both an income approach (discounted cash flows) and a market approach. The income approach uses a reporting unit's estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. The market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics to the reporting unit. Any excess of the carrying value of the goodwill over the BEV will be recorded as an impairment loss. The calculation of the BEV is based on significant unobservable inputs, such as price trends, customer demand, material costs and discount rates, and are classified as Level 3 in the fair value hierarchy.
While performing the annual assessment of goodwill impairment in 2017, the Company recorded an impairment loss related to the Wholesale reporting unit for $17.1 million. The discounted cash flow model used for the income approach assumed discrete period revenue growth through 2022 that was reflective of market opportunities, changes in product mix, and cyclical trends within the Wholesale reporting unit. In the terminal year, the Company assumed a long-term earnings growth rate of 2.0 percent that is believed to be appropriate given the current industry-specific expectations. As of the valuation date, the Company utilized a weighted-average cost of capital of 10.4 percent, which reflects the relative risk and time value of money. This is in addition to the $42.0 million of impairment recorded in the Wholesale reporting unit in the second quarter of this year. As a result, there is no remaining goodwill in the Wholesale reporting unit as of December 31, 2017. No other impairments were incurred in the remaining reporting units as a result of the annual assessment.
In 2016 and 2015, the Company performed a two-step quantitative assessment of goodwill. Step 1 compares the business enterprise value ("BEV") of each reporting unit with its carrying value, as described above. If the BEV is less than the carrying value for any reporting unit, then Step 2 must be performed. Step 2 compares the implied fair value of goodwill with the carrying amount of goodwill. Any excess of the carrying value of the goodwill over the implied fair value will be recorded as
an impairment loss. The calculations of the BEV in Step 1 and the implied fair value of goodwill in Step 2 are based on significant unobservable inputs, such as price trends, customer demand, material costs, discount rates and asset replacement costs, and are classified as Level 3 in the fair value hierarchy.
There is a certain degree of uncertainty associated with the key assumptions used. Potential events or changes in circumstances that could reasonably be expected to negatively affect the key assumptions include significant volatility in commodity prices or raw material prices and unanticipated changes in the economy or industries within which the businesses operate.
No goodwill impairment charges were incurred in 2016 as a result of our annual impairment testing.
While performing the annual assessment of goodwill impairment in 2015, the Company recorded impairment losses related to our Grain and Farm Center reporting units of $54.2 million due to compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets, including oil and ethanol, as well as foreign exchange impacts. This is in addition to the $2.0 million of impairment related to our Cob business which was recognized in the third quarter of that year.
The Company's other intangible assets are as follows:
|
| | | | | | | | | | | |
| (in thousands) | Original Cost | | Accumulated Amortization | | Net Book Value |
| December 31, 2017 | | | | | |
| Intangible asset class | | | | | |
| Customer list | $ | 41,151 |
| | $ | 18,437 |
| | $ | 22,714 |
|
| Non-compete agreement | 4,665 |
| | 3,563 |
| | 1,102 |
|
| Supply agreement | 9,806 |
| | 5,699 |
| | 4,107 |
|
| Technology | 15,500 |
| | 5,616 |
| | 9,884 |
|
| Trademarks and patents | 18,185 |
| | 5,882 |
| | 12,303 |
|
| Lease intangible | 12,420 |
| | 5,707 |
| | 6,713 |
|
| Software | 84,339 |
| | 28,372 |
| | 55,967 |
|
| Other | 2,023 |
| | 1,920 |
| | 103 |
|
| | $ | 188,089 |
| | $ | 75,196 |
| | $ | 112,893 |
|
| December 31, 2016 | | | | | |
| Intangible asset class | | | | | |
| Customer list | $ | 41,477 |
| | $ | 14,958 |
| | $ | 26,519 |
|
| Non-compete agreement | 4,594 |
| | 3,064 |
| | 1,530 |
|
| Supply agreement | 9,806 |
| | 4,827 |
| | 4,979 |
|
| Technology | 15,500 |
| | 4,243 |
| | 11,257 |
|
| Trademarks and patents | 18,717 |
| | 4,335 |
| | 14,382 |
|
| Lease intangible | 5,514 |
| | 4,969 |
| | 545 |
|
| Software | 71,362 |
| | 24,592 |
| | 46,770 |
|
| Other | 1,953 |
| | 1,835 |
| | 118 |
|
| | $ | 168,923 |
| | $ | 62,823 |
| | $ | 106,100 |
|
Amortization expense for intangible assets was $18.1 million, $16.8 million and $14.5 million for 2017, 2016 and 2015, respectively. Expected future annual amortization expense is as follows: 2018 -- $18.9 million; 2019 -- $18.0 million; 2020 -- $16.7 million; 2021 -- $15.7 million; and 2022 -- $14.0 million. In December 2016, the Company recorded a $0.5 million impairment related to software in the Retail Group.
5.4. Debt
Borrowing Arrangements
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. The Company can designate up to $400 million of borrowings as long-term when the debt is used for long-term purposes, such as replacing long-term debt that is maturing, funding the purchase of long-term assets, or increasing permanent working capital when needed. It also provides the Company with up to $90
million in letters of credit. Any amounts outstanding on letters of credit will reduce the amount available on the lines of credit. The Company had standby letters of credit outstanding of $32.5 million at December 31, 2017. As of December 31, 2017, the Company had $122.0 million of outstanding borrowings on the lines of credit of which $22.0 million is classified as short-term debt. Borrowings under the lines of credit bear interest at variable interest rates, which are based off LIBOR plus an applicable spread. The maturity date for the line of credit is April 2022. Draw downs and repayments that are less than 90 days are recorded on a net basis in the Consolidated Statements of Cash Flows.
The Company also has a line of credit related to The Andersons Denison Ethanol LLC ("TADE"), a consolidated subsidiary. TADE amended its borrowing arrangement with a syndicate of financial institutions in the fourth quarter of 2017 which provided a $15.0 million long-term line of credit. TADE had no outstanding borrowings under this line of credit as of December 31, 2017. Borrowings under the lines of credit and the term loan bear interest at variable interest rates, which are based off LIBOR plus an applicable spread. The maturity date is July 1, 2021 for the long-term line of credit. TADE was in compliance with all financial and non-financial covenants as of December 31, 2017, including but not limited to minimum working capital and net worth. TADE debt is collateralized by the mortgage on the ethanol facility and related equipment or other assets and is not guaranteed by the Company, therefore it is considered non-recourse debt.
The Company’s short-term and long-term debt at December 31, 20172019 and 20162018 consisted of the following:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Short-term Debt – Non-Recourse | $ | 54,029 |
| | $ | — |
|
| Short-term Debt – Recourse | 93,002 |
| | 205,000 |
|
| Total Short-term Debt | 147,031 |
| | 205,000 |
|
| | | | |
| Current Maturities of Long-term Debt – Non-Recourse | 9,250 |
| | 4,842 |
|
| Current Maturities of Long-term Debt – Recourse | 36,013 |
| | 16,747 |
|
| Finance lease liability | 17,636 |
| | — |
|
| Total Current Maturities of Long-term Debt | 62,899 |
| | 21,589 |
|
| |
|
| |
|
|
| Long-term Debt, Less: Current Maturities – Non-Recourse | 329,891 |
| | 146,353 |
|
| Long-term Debt, Less: Current Maturities – Recourse | 664,856 |
| | 349,834 |
|
| Finance lease liability | 21,501 |
| | — |
|
| Total Long-term Debt, Less: Current Maturities | $ | 1,016,248 |
| | $ | 496,187 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Short-term debt - non-recourse | $ | — |
| | $ | — |
|
| Short-term debt - recourse | 22,000 |
| | 29,000 |
|
| Total short-term debt | $ | 22,000 |
| | $ | 29,000 |
|
| Current maturities of long-term debt – non-recourse | $ | — |
| | $ | — |
|
| Current maturities of long-term debt – recourse | 54,205 |
| | 47,545 |
|
| Total current maturities of long-term debt | $ | 54,205 |
| | $ | 47,545 |
|
| Long-term debt, less current maturities – non-recourse | $ | — |
| | $ | — |
|
| Long-term debt, less current maturities – recourse | 418,339 |
| | 397,065 |
|
| Total long-term debt, less current maturities | $ | 418,339 |
| | $ | 397,065 |
|
On January 2, 2019, in conjunction with the LTG acquisition, the Company assumed a revolving line of credit and a term loan with a syndicate of banks, which are non-recourse to the Company. The credit agreement provides the Company with a maximum availability of $184.8 million and had $130.8 million available for borrowing on this line of credit as of December 31, 2019. Any borrowings under the line of credit bear interest at variable rates, which are based on LIBOR or Bankers’ Acceptances plus an applicable spread. The maturity date for the revolving line of credit is June 26, 2023. The term note assumed in conjunction with the LTG acquisition was non-recourse to the Company with a syndicate of banks and had a balance of $15.5 million at December 31, 2019. The interest rate for the term loan was 4.51% as of December 31, 2019 and is based on LIBOR plus an applicable spread. Payments on the term loans are made on a quarterly basis.
On January 11, 2019, the Company entered into a 5-year recourse term loan in the amount of $250 million and a 7-year recourse term loan of $250 million. A portion of the term loans were used to pay down debt assumed in the LTG acquisition. Interest rates are based on LIBOR plus an applicable spread. At December 31, 2019, the interest rates for the 5-year and 7-year term loan were 3.13% and 3.38%, respectively. Payments on the term loans are made on a quarterly basis.
On October 1, 2019, in conjunction with the TAMH Merger Agreement, TAMH, a consolidated subsidiary of the Company, entered into a non-recourse Credit Agreement that included a $70 million term note and a $130 million revolving credit facility. Borrowings under the Credit Agreement bear interest at variable interest rates, which are based on LIBOR plus an applicable spread. Payments on the term loan will be made on a quarterly basis. As of December 31, 2019, no amounts were drawn on either the term loan or revolving credit facility.
Effective November 14, 2019, the Company entered into a 15-year loan agreement in the amount of $105 million, of which $73 million of the proceeds were used to extinguish existing long-term debt. The remainder of the proceeds were used to pay down a portion of outstanding line of credit borrowings. The agreement was secured by first mortgages on certain real and personal property held by the Company. Borrowings under the agreement bear a fixed interest rate of 4.50% and payments of principal and interest will be made on a quarterly basis.
The Company was in compliance with all financial covenants at and during the years ended December 31, 2019 and 2018.
At December 31, 2019, the Company had short-term lines of credit capacity totaling $1,507.8 million, of which $1,281.4 million was unused. The weighted average interest rates on short-term borrowings outstanding at December 31, 2019 and 2018, were 3.24% and 3.32%, respectively.
The following information relates to short-term borrowings:
|
| | | | | | | | | | | |
| (in thousands, except percentages) | 2017 | | 2016 | | 2015 |
| Maximum amount borrowed | $ | 367,000 |
| | $ | 412,000 |
| | $ | 308,500 |
|
| Weighted average interest rate | 2.56 | % | | 1.94 | % | | 1.64 | % |
Long-Term Debt
Recourse Long-Term Debt
Long-term debt consists of the following:
|
| | | | | | | |
| | December 31, |
| (in thousands, except percentages) | 2017 | | 2016 |
| Note payable, 4.07%, payable at maturity, due 2021 | $ | 26,000 |
| | $ | 26,000 |
|
| Notes payable, 3.72%, paid 2017 | — |
| | 25,000 |
|
| Note payable, 4.55%, payable at maturity, due 2023 | 24,000 |
| | 24,000 |
|
| Note payable, 4.85%, payable at maturity, due 2026 | 25,000 |
| | 25,000 |
|
| Note payable, 6.78%, payable at maturity, due 2018 | 41,500 |
| | 41,500 |
|
| Note payable, 4.92%, payable in increasing amounts ($2.2 million for 2017), plus interest, due 2021 (a) | 18,241 |
| | 20,443 |
|
| Note payable, 4.76%, payable in increasing amounts ($2.1 million for 2017) plus interest, due 2028 (a) | 45,936 |
| | 47,990 |
|
| Note payable, variable rate (3.86% at December 31, 2017), payable in increasing amounts ($1.4 million for 2017) plus interest, due 2023 (a) | 17,786 |
| | 19,179 |
|
| Note payable, 3.29%, payable in increasing amounts ($1.3 million for 2017) plus interest, due 2022 (a) | 20,293 |
| | 21,619 |
|
| Note payable, 4.23%, payable quarterly in varying amounts ($0.7 million for 2017) plus interest, due 2021 (a) | 10,479 |
| | 11,136 |
|
| Notes payable, variable rate, paid 2017 | — |
| | 8,790 |
|
| Note payable, variable rate (3.23% at December 31, 2017), payable in varying amounts ($0.3 million for 2017), plus interest, due 2026 (a) | 8,762 |
| | 9,016 |
|
| Note payable, 4.76%, payable quarterly in varying amounts ($0.4 million for 2017) plus interest, due 2028 (a) | 8,581 |
| | 8,956 |
|
| Note payable, 3.03%, payable at maturity, due 2022 | 100,000 |
| | 30,000 |
|
| Note payable, 3.33%, payable in increasing amounts ($1.0 million for 2017) plus interest, due 2025 (a) | 25,960 |
| | 27,000 |
|
| Note payable, 4.5%, payable at maturity, due 2030 | 16,000 |
| | 16,000 |
|
| Note payable, 5.0%, payable at maturity, due 2040 | 14,000 |
| | 14,000 |
|
| Industrial development revenue bonds: | | | |
| Note payable, variable rate, paid 2017 | — |
| | 6,513 |
|
| Variable rate (2.97% at December 31, 2017), payable at maturity, due 2024 (a) | 14,500 |
| | — |
|
| Variable rate (3.33% at December 31, 2017), payable at maturity, due 2019 (a) | 4,650 |
| | 4,650 |
|
| Variable rate (3.33% at December 31, 2017), payable at maturity, due 2025 (a) | 3,100 |
| | 3,100 |
|
| Variable rate (3.25% at December 31, 2017), payable at maturity, due 2036 | 21,000 |
| | 21,000 |
|
| Debenture bonds, 2.65% to 5.00%, due 2018 through 2032 | 30,432 |
| | 36,931 |
|
| | $ | 476,220 |
| | $ | 447,823 |
|
| Less: current maturities | 54,205 |
| | 47,545 |
|
| Less: unamortized prepaid debt issuance costs | 3,676 |
| | 3,213 |
|
| | $ | 418,339 |
| | $ | 397,065 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands, except percentages) | 2019 | | 2018 |
| Note payable, variable rate (3.38% at December 31, 2019), payable in increasing amounts plus interest, due 2026 | $ | 237,500 |
| | $ | — |
|
| Note payable, variable rate (3.13% at December 31, 2019), payable in increasing amounts plus interest, due 2024 | 157,500 |
| | — |
|
| Note payable, 4.50%, payable at maturity, due 2034 (a) | 105,000 |
| | — |
|
| Note payable, 4.07%, payable at maturity, due 2021 | 26,000 |
| | 26,000 |
|
| Note payable, 4.85%, payable at maturity, due 2026 | 25,000 |
| | 25,000 |
|
| Note payable, 4.55%, payable at maturity, due 2023 | 24,000 |
| | 24,000 |
|
| Note payable, 3.33%, payable in increasing amounts plus interest, due 2025 (a) | 23,780 |
| | 24,888 |
|
| Note payable, 3.29%, payable in increasing amounts plus interest, due 2022 (a) | 17,497 |
| | 18,918 |
|
| Note payable, 4.50%, payable at maturity, due 2030 | 16,000 |
| | 16,000 |
|
| Note payable, 5.00%, payable at maturity, due 2040 | 14,000 |
| | 14,000 |
|
| Note payable, variable rate (3.43% at December 31, 2019), payable quarterly, due 2024 (a) | 12,250 |
| | 13,250 |
|
| Line of credit, variable rate, paid 2019 | — |
| | 50,000 |
|
| Note payable, 4.92%, payable in increasing amounts, plus interest, paid 2019 (a) | — |
| | 16,227 |
|
| Note payable, 4.23%, payable in increasing amounts plus interest, paid 2019 (a) | — |
| | 9,948 |
|
| Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a) | — |
| | 44,330 |
|
| Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a) | — |
| | 16,452 |
|
| Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a) | — |
| | 8,417 |
|
| Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a) | — |
| | 8,288 |
|
| | | | |
| Industrial development revenue bonds: | | | |
| Variable rate (3.41% at December 31, 2019), payable at maturity, due 2036 | 21,000 |
| | 21,000 |
|
| Variable rate (3.44% at December 31, 2019), payable at maturity, due 2025 (a) | 3,100 |
| | 3,100 |
|
| Variable rate, paid 2019 (a) | — |
| | 4,650 |
|
| Debenture bonds, 2.65% to 5.00%, payable in increasing amounts plus interest, due 2020 through 2031 | 26,075 |
| | 27,323 |
|
| Finance lease obligations, due serially to 2030 (a) | 38,482 |
| | — |
|
| | 747,184 |
| | 371,791 |
|
| Less: current maturities | 53,353 |
| | 16,747 |
|
| Less: unamortized prepaid debt issuance costs | 7,833 |
| | 5,210 |
|
| | $ | 685,998 |
| | $ | 349,834 |
|
(a) Debt is collateralized by first mortgages on certain facilities and related equipment or other assets with a book value of $159.9 million$435.8 million.
The Company's short-term and long-term borrowing agreements include both financial and non-financial covenants that, among other things, require the Company at a minimum to maintain:
tangible net worth of not less than $255 million;
current ratio net of hedged inventory of not less than 1.25 to 1.00;
long-term debt to capitalization of not more than 70%;
working capital of not less than $150 million; and
interest coverage ratio of not less than 2.65 to 1.00.
The Company was in compliance with these financial covenants at and during the years ended December 31, 2017 and 2016.
The aggregate annual maturities of recourse, long-term debt are as follows: 2018 -- $54.6 million; 2019 -- $12.1 million; 2020 -- $20.8$53.4 million; 2021 -- $35.6$66.6 million; 2022 -- $150.8$49.9 million; 2023 -- $58.6 million; 2024 -- $135.4 million; and $202.3$383.3 million thereafter.
Non-Recourse Long-Term Debt
The Company's non-recourse long-term debt including the linesconsists of credit, held by TADE includes separate financial covenants relating solely to the collateralized TADE assets. The covenants require the following:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Line of credit, 3.76%, payable at maturity, due 2021 | $ | 180,000 |
| | $ | 118,000 |
|
| Note Payable, variable rate (4.92% at December 31, 2019), payable at maturity, due 2026 | 66,094 |
| | — |
|
| Industrial revenue bond, variable rate (3.44% at December 31, 2019), payable at maturity, due 2032 (a) | 49,500 |
| | — |
|
| Note payable, variable rate (4.51% at December 31, 2019), payable in increasing amounts plus interest, due 2023 | 15,465 |
| | — |
|
| Non-recourse financing obligations, 3.60% to 4.94%, payable at maturity, due 2020 through 2026 | 28,855 |
| | 34,019 |
|
| Finance lease obligations, due serially to 2023 | 655 |
| | — |
|
| | 340,569 |
| | 152,019 |
|
| Less: current maturities | 9,545 |
| | 4,842 |
|
| Less: unamortized prepaid debt issuance costs | 774 |
| | 824 |
|
| | $ | 330,250 |
| | $ | 146,353 |
|
working capital not less than $14
The aggregate annual maturities of non-recourse, long-term debt are as follows: 2020 - $9.5 million; 2021 -- $188.1 million; 2022 -- $22.0 million; 2023 -- $19.0 million; 2024 -- $12.1 million; and $89.9 million thereafter.
debt service coverage ratio of not less than 1.25 to 1.00.
The Company was in compliance with these financial covenants at and during the years ended December 31, 2017 and 2016.
6.5. Derivatives
Commodity Contracts
The Company’s operating results are affected by changes to commodity prices. The GrainTrade 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 counterover-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via the regulated CME.commodity exchanges. 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.
AllMost 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 primarily 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 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 Consolidated Balance Sheets.
The following table presents at December 31, 20172019 and 2016,2018, 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 Consolidated Balance Sheets:
|
| | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| (in thousands) | Net Derivative Asset Position | | Net Derivative Liability Position | | Net Derivative Asset Position | | Net Derivative Liability Position |
| Collateral paid | $ | 56,005 |
| | $ | — |
| | $ | 14,944 |
| | $ | — |
|
| Fair value of derivatives | (10,323 | ) | | — |
| | 22,285 |
| | — |
|
| Balance at end of period | $ | 45,682 |
| | $ | — |
| | $ | 37,229 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (in thousands) | Net Derivative Asset Position | | Net Derivative Liability Position | | Net Derivative Asset Position | | Net Derivative Liability Position |
| Collateral paid | $ | 1,351 |
| | $ | — |
| | $ | 28,273 |
| | $ | — |
|
| Fair value of derivatives | 17,252 |
| | — |
| | 1,599 |
| | — |
|
| Balance at end of period | $ | 18,603 |
| | $ | — |
| | $ | 29,872 |
| | $ | — |
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
| | | | December 31, 2017 | December 31, 2019 |
| (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
| Commodity derivative assets | $ | 36,929 |
| | $ | 311 |
| | $ | 489 |
| | $ | 1 |
| | $ | 37,730 |
| $ | 92,429 |
| | $ | 1,045 |
| | $ | 7,439 |
| | $ | 18 |
| | $ | 100,931 |
|
| Commodity derivative liabilities | (7,578 | ) | | (1 | ) | | (30,140 | ) | | (826 | ) | | (38,545 | ) | (40,571 | ) | | (96 | ) | | (54,381 | ) | | (523 | ) | | (95,571 | ) |
| Cash collateral | 1,351 |
| | — |
| | — |
| | — |
| | 1,351 |
| 56,005 |
| | — |
| | — |
| | — |
| | 56,005 |
|
| Balance sheet line item totals | $ | 30,702 |
| | $ | 310 |
| | $ | (29,651 | ) | | $ | (825 | ) | | $ | 536 |
| $ | 107,863 |
| | $ | 949 |
| | $ | (46,942 | ) | | $ | (505 | ) | | $ | 61,365 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
| Commodity derivative assets | $ | 43,463 |
| | $ | 484 |
| | $ | 706 |
| | $ | 5 |
| | $ | 44,658 |
|
| Commodity derivative liabilities | (6,986 | ) | | (4 | ) | | (33,353 | ) | | (894 | ) | | (41,237 | ) |
| Cash collateral | 14,944 |
| | — |
| | — |
| | — |
| | 14,944 |
|
| Balance sheet line item totals | $ | 51,421 |
| | $ | 480 |
| | $ | (32,647 | ) | | $ | (889 | ) | | $ | 18,365 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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 |
|
The net pre-tax gains on commodity derivatives not designated as hedging instruments included in the Company’s Consolidated Statements of Operations and the line items in which they are located for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 are as follows:
|
| | | | | | | | | | | |
| | Year Ended
December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Gains (Losses) on commodity derivatives included in Cost of sales and merchandising revenues | $ | 1,939 |
| | $ | 4,236 |
| | $ | 5,417 |
|
|
| | | | | | | | | |
| | Year Ended
December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Gains (Losses) on commodity derivatives included in cost of sales and merchandising revenues | $ | 5,417 |
| | (15,012 | ) | | 62,541 |
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) as of December 31, 20172019 and 2016:2018:
| | | | December 31, 2017 | December 31, 2019 |
| Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
| Non-exchange traded: | | | | | | | | | | | | | | |
| Corn | 218,391 |
| |
|
| |
|
| | — |
| 552,359 |
| | — |
| | — |
| | — |
|
| Soybeans | 18,127 |
| | — |
| | — |
| | — |
| 34,912 |
| | — |
| | — |
| | — |
|
| Wheat | 14,577 |
| | — |
| | — |
| | — |
| 100,996 |
| | — |
| | — |
| | — |
|
| Oats | 25,953 |
| | — |
| | — |
| | — |
| 24,700 |
| | — |
| | — |
| | — |
|
| Ethanol | — |
| | 197,607 |
| | — |
| | — |
| — |
| | 116,448 |
| | — |
| | — |
|
| Corn oil | — |
| | — |
| | 6,074 |
| | — |
| — |
| | — |
| | 14,568 |
| | — |
|
| Other | 47 |
| | — |
| | — |
| | 97 |
| 11,363 |
| | 4,000 |
| | 305 |
| | 2,263 |
|
| Subtotal | 277,095 |
| | 197,607 |
| | 6,074 |
| | 97 |
| 724,330 |
| | 120,448 |
| | 14,873 |
| | 2,263 |
|
| Exchange traded: | | | | | | | | | | | | | | |
| Corn | 82,835 |
| | — |
| | — |
| | — |
| 221,740 |
| | — |
| | — |
| | — |
|
| Soybeans | 37,170 |
| | — |
| | — |
| | — |
| 39,145 |
| | — |
| | — |
| | — |
|
| Wheat | 65,640 |
| | — |
| | — |
| | — |
| 68,171 |
| | — |
| | — |
| | — |
|
| Oats | 1,345 |
| | — |
| | — |
| | — |
| 2,090 |
| | — |
| | — |
| | — |
|
| Ethanol | — |
| | 39,438 |
| | — |
| | — |
| — |
| | 175,353 |
| | — |
| | — |
|
| Propane | | — |
| | 5,166 |
| | — |
| | — |
|
| Other | — |
| | 840 |
| | — |
| | — |
| — |
| | 15 |
| | — |
| | 232 |
|
| Subtotal | 186,990 |
| | 40,278 |
| | — |
| | — |
| 331,146 |
| | 180,534 |
| | — |
| | 232 |
|
| Total | 464,085 |
| | 237,885 |
| | 6,074 |
| | 97 |
| 1,055,476 |
| | 300,982 |
| | 14,873 |
| | 2,495 |
|
|
| | | | | | | | | | | |
| | December 31, 2018 |
| Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
| Non-exchange traded: | | | | | | | |
| Corn | 250,408 |
| | — |
| | — |
| | — |
|
| Soybeans | 22,463 |
| | — |
| | — |
| | — |
|
| Wheat | 14,017 |
| | — |
| | — |
| | — |
|
| Oats | 26,230 |
| | — |
| | — |
| | — |
|
| Ethanol | — |
| | 244,863 |
| | — |
| | — |
|
| Corn oil | — |
| | — |
| | 2,920 |
| | — |
|
| Other | 494 |
| | 2,000 |
| | — |
| | 66 |
|
| Subtotal | 313,612 |
| | 246,863 |
| | 2,920 |
| | 66 |
|
| Exchange traded: | | | | | | | |
| Corn | 130,585 |
| | — |
| | — |
| | — |
|
| Soybeans | 26,985 |
| | — |
| | — |
| | — |
|
| Wheat | 33,760 |
| | — |
| | — |
| | — |
|
| Oats | 1,475 |
| | — |
| | — |
| | — |
|
| Ethanol | — |
| | 77,112 |
| | — |
| | — |
|
| Subtotal | 192,805 |
| | 77,112 |
| | — |
| | — |
|
| Total | 506,417 |
| | 323,975 |
| | 2,920 |
| | 66 |
|
|
| | | | | | | | | | | |
| | 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 |
|
Interest Rate and Other Derivatives
The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature) and changes in fair value are recognized currently in earnings as a component of interest expense. The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks.
The following table presents the open interest rate contracts at December 31, 2017:
|
| | | | | | | | | | | | |
| Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Hedged Item | |
Interest Rate |
| Long-term | | | | | | | | | | |
| Swap | | 2012 | | 2023 | | $ | 23.0 |
| | Interest rate component of debt - not accounted for as a hedge | | 1.9% |
| Collar | | 2013 | | 2021 | | 40.0 |
| | Interest rate component of debt - not accounted for as a hedge | | 2.9% to 4.8% |
| Total | | | | | | $ | 63.0 |
| | | | |
At December 31, 20172019 and 2016,2018, the Company had recorded the following amounts for the fair value of the Company's other derivatives not designated as hedging instruments:derivatives:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Derivatives not designated as hedging instruments | | | |
| Interest rate contracts included in Other long-term assets (Other long-term liabilities) | $ | (1,007 | ) | | $ | (353 | ) |
| Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities) | 2,742 |
| | (1,122 | ) |
| Derivatives designated as hedging instruments | | | |
| Interest rate contracts included in Other current assets (Accrued expenses and other current liabilities) | (3,118 | ) | | — |
|
| Interest rate contracts included in Other long-term assets (Other long-term liabilities) | $ | (9,382 | ) | | $ | (168 | ) |
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Interest rate contracts included in Other long term liabilities | $ | (1,244 | ) | | $ | (2,530 | ) |
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)
| $ | 426 |
| | $ | (112 | ) |
The recording of derivatives gains and losses included inand the Company's Consolidated Statements of Operations and thefinancial statement line item in which they are located for derivatives not designated as hedging instruments are as follows:
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 |
| Derivatives not designated as hedging instruments | | | |
| Interest rate derivative gains (losses) included in Interest income (expense) | $ | (718 | ) | | $ | 1,115 |
|
| Foreign currency derivative gains (losses) included in Other income, net | (437 | ) | | (1,548 | ) |
| Derivatives designated as hedging instruments | | | |
| Interest rate derivative gains (losses) included in Other comprehensive income | (12,398 | ) | | (168 | ) |
| Interest rate derivative gains (losses) included in Interest income (expense) | $ | (761 | ) | | $ | 158 |
|
The following table presents the open interest rate contracts at December 31, 2019:
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 |
| Interest rate derivative gains (losses) included in Interest expense | $ | 1,286 |
| | $ | 603 |
|
| Foreign currency contracts included in Other income | $ | 539 |
| | $ | (112 | ) |
|
| | | | | | | | | | | | |
| Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Hedged Item | |
Interest Rate |
| Long-term | | | | | | | | | | |
| Swap | | 2014 | | 2023 | | $ | 23.0 |
| | Interest rate component of debt - not accounted for as a hedge | | 1.9% |
| Collar | | 2016 | | 2021 | | $ | 40.0 |
| | Interest rate component of debt - not accounted for as a hedge | | 3.5% to 4.8% |
| Swap | * | 2017 | | 2022 | | $ | 20.0 |
| | Interest rate component of debt - accounted for as a hedge | | 1.8% |
| Swap | * | 2018 | | 2023 | | $ | 10.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.6% |
| Swap | * | 2018 | | 2025 | | $ | 20.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.7% |
| Swap | | 2018 | | 2021 | | $ | 40.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.6% |
| Swap | | 2019 | | 2021 | | $ | 25.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.5% |
| Swap | | 2019 | | 2021 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.5% |
| Swap | | 2019 | | 2025 | | $ | 100.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.5% |
| Swap | | 2019 | | 2025 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.5% |
| Swap | | 2019 | | 2025 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 2.5% |
* Acquired on 1/1/2019 in conjunction with the acquisition of LTG.
6. Employee Benefit Plans
The Company provides certain full-time employees with pension benefits under defined benefit and defined contribution plans. The measurement date for all plans is December 31. The Company's expense for its defined contribution plans amounted to $8.8 million in 2019, $7.2 million in 2018 and $7.3 million in 2017, $7.8 million in 2016 and $8.7 million in 2015.2017. The Company also provides health insurance benefits to certain employees and retirees.
The Company has an unfunded noncontributory defined benefit pension plan. The plan provides defined benefits based on years of service and average monthly compensation using a career average formula. Pension benefits were frozen at July 1, 2010. The Company also had a funded defined benefit plan which was terminated in 2015.
Effective December 2015, the funded defined benefit plan (the "Plan") was amended to include a lump-sum pension benefit payout option for certain plan participants. In addition, in December 2015, the Plan completed the purchase of group annuity contracts that transferred the liability for the remaining retirees and active employees who did not elect a lump sum option to an insurance company. As a result of these changes, we recognized pension settlement charges of $31.9 million after tax ($51.4 million pre-tax) during the twelve months ended December 31, 2015.
The Company also has postretirement health care benefit plans covering substantially all of its full timefull-time employees hired prior to January 1, 2003. These plans are generally contributory and include a cap on the Company's share of the related costs.
Obligation and Funded Status
Following are the details of the obligation and funded status of the pension and postretirement benefit plans:
| | | (in thousands) | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| Change in benefit obligation | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| Benefit obligation at beginning of year | $ | 7,112 |
| | $ | 8,677 |
| | $ | 29,757 |
| | $ | 39,152 |
| $ | 4,362 |
| | $ | 5,832 |
| | $ | 20,638 |
| | $ | 22,602 |
|
| Service cost | — |
| | — |
| | 391 |
| | 760 |
| — |
| | — |
| | 365 |
| | 319 |
|
| Interest cost | 155 |
| | 194 |
| | 985 |
| | 1,549 |
| 116 |
| | 130 |
| | 854 |
| | 752 |
|
| Actuarial (gains) losses | (245 | ) | | (421 | ) | | (7,903 | ) | | (10,823 | ) | 44 |
| | (282 | ) | | 4,687 |
| | (1,623 | ) |
| Participant contributions | — |
| | — |
| | 463 |
| | 653 |
| — |
| | — |
| | 297 |
| | 145 |
|
| Retiree drug subsidy received | — |
| | — |
| | 184 |
| | 5 |
| — |
| | — |
| | — |
| | 125 |
|
| Benefits paid | (1,190 | ) | | (1,338 | ) | | (1,275 | ) | | (1,539 | ) | (1,434 | ) | | (1,318 | ) | | (1,969 | ) | | (1,682 | ) |
| Benefit obligation at end of year | $ | 5,832 |
| | $ | 7,112 |
| | $ | 22,602 |
| | $ | 29,757 |
| $ | 3,088 |
| | $ | 4,362 |
| | $ | 24,872 |
| | $ | 20,638 |
|
|
| | | | | | | | | | | | | | | |
| (in thousands) | Pension Benefits | | Postretirement Benefits |
| Change in plan assets | 2019 | | 2018 | | 2019 | | 2018 |
| Fair value of plan assets at beginning of year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Actual gains on plan assets | — |
| | — |
| | — |
| | — |
|
| Company contributions | 1,434 |
| | 1,318 |
| | 1,672 |
| | 1,537 |
|
| Participant contributions | — |
| | — |
| | 297 |
| | 145 |
|
| Benefits paid | (1,434 | ) | | (1,318 | ) | | (1,969 | ) | | (1,682 | ) |
| Fair value of plan assets at end of year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
| Under funded status of plans at end of year | $ | (3,088 | ) | | $ | (4,362 | ) | | $ | (24,872 | ) | | $ | (20,638 | ) |
|
| | | | | | | | | | | | | | | |
| (in thousands) | Pension Benefits | | Postretirement Benefits |
| Change in plan assets | 2017 | | 2016 | | 2017 | | 2016 |
| Fair value of plan assets at beginning of year | $ | — |
| | $ | 285 |
| | $ | — |
| | $ | — |
|
| Actual gains on plan assets | — |
| | — |
| | — |
| | — |
|
| Company contributions | 1,190 |
| | 1,053 |
| | 812 |
| | 886 |
|
| Participant contributions | — |
| | — |
| | 463 |
| | 653 |
|
| Benefits paid | (1,190 | ) | | (1,338 | ) | | (1,275 | ) | | (1,539 | ) |
| Fair value of plan assets at end of year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
| Under funded status of plans at end of year | $ | (5,832 | ) | | $ | (7,112 | ) | | $ | (22,602 | ) | | $ | (29,757 | ) |
Amounts recognized in the Consolidated Balance Sheets at December 31, 20172019 and 20162018 consist of:
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| (in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| Accrued expenses | $ | 1,309 |
| | $ | 1,516 |
| | $ | 1,292 |
| | $ | 1,162 |
|
| Employee benefit plan obligations | 1,779 |
| | 2,846 |
| | 23,580 |
| | 19,476 |
|
| Net amount recognized | $ | 3,088 |
| | $ | 4,362 |
| | $ | 24,872 |
| | $ | 20,638 |
|
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| (in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
| Accrued expenses | $ | (1,232 | ) | | $ | (1,295 | ) | | $ | (1,098 | ) | | $ | (1,148 | ) |
| Employee benefit plan obligations | (4,600 | ) | | (5,817 | ) | | (21,504 | ) | | (28,609 | ) |
| Net amount recognized | $ | (5,832 | ) | | $ | (7,112 | ) | | $ | (22,602 | ) | | $ | (29,757 | ) |
Following are the details of the pre-tax amounts recognized in accumulated other comprehensive loss at December 31, 2017:2019:
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| (in thousands) | Unamortized Actuarial Net Losses | | Unamortized Prior Service Costs | | Unamortized Actuarial Net Losses | | Unamortized Prior Service Costs |
| Balance at beginning of year | $ | 3,222 |
| | $ | — |
| | $ | (9,129 | ) | | $ | 1,365 |
|
| Amounts arising during the period | 44 |
| | — |
| | 4,687 |
| | — |
|
| Amounts recognized as a component of net periodic benefit cost | (232 | ) | | — |
| | — |
| | 911 |
|
| Balance at end of year | $ | 3,034 |
| | $ | — |
| | $ | (4,442 | ) | | $ | 2,276 |
|
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| (in thousands) | Unamortized Actuarial Net Losses | | Unamortized Prior Service Costs | | Unamortized Actuarial Net Losses | | Unamortized Prior Service Costs |
| Balance at beginning of year | $ | 4,244 |
| | $ | — |
| | $ | 397 |
| | $ | — |
|
| Amounts arising during the period | (245 | ) | | — |
| | (7,903 | ) | | — |
|
| Amounts recognized as a component of net periodic benefit cost | (252 | ) | | — |
| | — |
| | 455 |
|
| Balance at end of year | $ | 3,747 |
| | $ | — |
| | $ | (7,506 | ) | | $ | 455 |
|
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year, excluding the impact of the pension termination, are as follows:
|
| | | | | | | | | | | |
| (in thousands) | Pension | | Postretirement | | Total |
| Prior service cost | $ | — |
| | $ | (455 | ) | | $ | (455 | ) |
| Net actuarial loss | 252 |
| | — |
| | 252 |
|
Amounts applicable to the Company's defined benefit plans with accumulated benefit obligations in excess of plan assets are as follows:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Projected benefit obligation | $ | 3,088 |
| | $ | 4,362 |
|
| Accumulated benefit obligation | $ | 3,088 |
| | $ | 4,362 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Projected benefit obligation | $ | 5,832 |
| | $ | 7,112 |
|
| Accumulated benefit obligation | $ | 5,832 |
| | $ | 7,112 |
|
The combined benefits expected to be paid for all Company defined benefit plans over the next ten years (in thousands) are as follows:
|
| | | | | | | |
| (in thousands) | Expected Pension Benefit Payout | | Expected Postretirement Benefit Payout |
| 2020 | $ | 1,309 |
| | $ | 1,292 |
|
| 2021 | 1,006 |
| | 1,341 |
|
| 2022 | 250 |
| | 1,356 |
|
| 2023 | 208 |
| | 1,364 |
|
| 2024 | 208 |
| | 1,360 |
|
| 2025-2029 | 211 |
| | 6,867 |
|
|
| | | | | | | | |
| Year | | Expected Pension Benefit Payout | | Expected Postretirement Benefit Payout |
| 2018 | | $ | 1,232 |
| | $ | 1,098 |
|
| 2019 | | 1,316 |
| | 1,125 |
|
| 2020 | | 1,255 |
| | 1,146 |
|
| 2021 | | 1,168 |
| | 1,173 |
|
| 2022 | | 311 |
| | 1,204 |
|
| 2023-2027 | | 957 |
| | 6,262 |
|
Following are components of the net periodic benefit cost for each year:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| | December 31, | | December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | 365 |
| | $ | 319 |
| | $ | 391 |
|
| Interest cost | 116 |
| | 130 |
| | 155 |
| | 854 |
| | 752 |
| | 985 |
|
| Expected return on plan assets | — |
| | — |
| | — |
| | (911 | ) | | (910 | ) | | (455 | ) |
| Recognized net actuarial loss | 232 |
| | 243 |
| | 252 |
| | — |
| | — |
| | — |
|
| Benefit cost (income) | $ | 348 |
| | $ | 373 |
| | $ | 407 |
| | $ | 308 |
| | $ | 161 |
| | $ | 921 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits |
| | December 31, | | December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Service cost | $ | — |
| | $ | — |
| | $ | 236 |
| | $ | 391 |
| | $ | 760 |
| | $ | 900 |
|
| Interest cost | 155 |
| | 194 |
| | 182 |
| | 985 |
| | 1,549 |
| | 1,584 |
|
| Expected return on plan assets | — |
| | — |
| | — |
| | (455 | ) | | (355 | ) | | (543 | ) |
| Recognized net actuarial loss | 252 |
| | 146 |
| | 1,516 |
| | — |
| | 768 |
| | 1,517 |
|
| Benefit cost (income) | $ | 407 |
| | $ | 340 |
| | $ | 1,934 |
| | $ | 921 |
| | $ | 2,722 |
| | $ | 3,458 |
|
Following are weighted average assumptions of pension and postretirement benefits for each year:
| | | | Pension Benefits | | Postretirement Benefits | Postretirement Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Used to Determine Benefit Obligations at Measurement Date | | | | | | | | | | | | | |
| Discount rate (a) | N/A | | N/A | | N/A |
| | 3.4 | % | | 4.0 | % | | 4.2 | % | 3.0 | % | | 4.1 | % | | 3.4 | % |
| Used to Determine Net Periodic Benefit Cost for Years ended December 31 | | | | | | | | | | | | | |
| Discount rate (b) | N/A | | N/A | | 0.65 | % | | 3.7 | % | | 4.2 | % | | 3.9 | % | 4.1 | % | | 3.4 | % | | 3.7 | % |
| Expected long-term return on plan assets | N/A | | N/A | | N/A |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| Rate of compensation increases | N/A | | N/A | | N/A |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
| |
| (a) | The calculated rate for the unfunded employee retirement plan was 2.50%2.00%, 2.40%3.20% and 2.60%2.50% in 2017, 20162019, 2018, and 2015,2017, respectively. Since it was terminated in 2015, the defined benefit pension plan did not have a discount rate in 2015, 2016 or 2017.during the three-year period presented above. |
| |
| (b) | The calculated rate for the unfunded employee retirement plan was 2.40%3.20%, 2.60%2.50% and 2.40% in 2017, 20162019, 2018, and 2015,2017, respectively. Since it was terminated in 2015, the defined benefit pension plan did not have a discount rate in 2015, 2016 or 2017.during the three-year period presented above. |
|
| | | | | |
| Assumed Health Care Cost Trend Rates at Beginning of Year | | | |
| | 2019 | | 2018 |
| Health care cost trend rate assumed for next year | 3.0 | % | | 3.0 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (a) | N/A |
| | N/A |
|
| Year that the rate reaches the ultimate trend rate (a) | N/A |
| | N/A |
|
|
| | | | | |
| Assumed Health Care Cost Trend Rates at Beginning of Year | | | |
| | 2017 | | 2016 |
| Health care cost trend rate assumed for next year | 3.0 | % | | 5.0 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (a) | N/A |
| | 5.0 | % |
| Year that the rate reaches the ultimate trend rate (a) | N/A |
| | 2017 |
|
| |
| (a) | In 2017, the Company's remaining uncapped participants were converted to a Medicare Exchange Health Reimbursement Arrangement, which put a 2% cap on the Company's share of the related costs. |
7. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:
|
| | | | | | | | |
| | | For the Year Ended December 31, |
| (in thousands) | | 2019 | | 2018 |
| Revenues under ASC 606 | | $ | 1,391,848 |
| | $ | 898,885 |
|
| Revenues under ASC 842 | | 118,411 |
| | 105,631 |
|
| Revenues under ASC 815 | | 6,659,932 |
| | 2,040,866 |
|
| Total Revenues | | $ | 8,170,191 |
| | $ | 3,045,382 |
|
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line:
|
| | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
| (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
| Specialty nutrients | $ | 46,065 |
| | $ | — |
| | $ | 239,051 |
| | $ | — |
| | $ | 285,116 |
|
| Primary nutrients | 33,612 |
| | — |
| | 377,648 |
| | — |
| | 411,260 |
|
| Service | 13,108 |
| | 8,775 |
| | 4,202 |
| | 36,926 |
| | 63,011 |
|
| Products and Co-products | 217,297 |
| | 131,178 |
| | — |
| | — |
| | 348,475 |
|
| Frac sand and propane | 238,100 |
| | — |
| | — |
| | — |
| | 238,100 |
|
| Other | 8,634 |
| | 860 |
| | 25,829 |
| | 10,563 |
| | 45,886 |
|
| Total | $ | 556,816 |
| | $ | 140,813 |
| | $ | 646,730 |
| | $ | 47,489 |
| | $ | 1,391,848 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2018 |
| (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
| Specialty nutrients | $ | — |
| | $ | — |
| | $ | 260,821 |
| | $ | — |
| | $ | 260,821 |
|
| Primary nutrients | — |
| | — |
| | 399,566 |
| | — |
| | 399,566 |
|
| Service | 11,347 |
| | 14,105 |
| | 4,411 |
| | 35,179 |
| | 65,042 |
|
| Products and Co-products | — |
| | 114,489 |
| | — |
| | — |
| | 114,489 |
|
| Other | 1,035 |
| | — |
| | 25,738 |
| | 32,194 |
| | 58,967 |
|
| Total | $ | 12,382 |
| | $ | 128,594 |
| | $ | 690,536 |
| | $ | 67,373 |
| | $ | 898,885 |
|
For the years ended December 31, 2019 and 2018, approximately 4% and 7% of revenues, respectively, are accounted for under ASC 606 are recorded over time which primarily relates to service revenues noted above.
Specialty and primary nutrients
The Company sells several different types of specialty nutrient products, including: low-salt liquid starter fertilizers, micro-nutrients and other specialty lawn products. These products can be sold through the wholesale distribution channels as well as directly to end users at the farm center locations. Similarly, the Company sells several different types of primary nutrient products, including nitrogen, phosphorus and potassium. These products may be purchased and re-sold as is or sold as finished goods resulting from a blending and manufacturing process. The contracts associated with specialty and primary nutrients generally have just a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer. Payment terms generally range from 0 - 30 days.
Service
Service revenues primarily relate to the railcar repair business. The Company owns several railcar repair shops which repair railcars through specific contracts with customers or by operating as an agent for a particular railroad to repair cars that are on its rail line per Association of American Railroads (“AAR”) standards. These contracts contain a single performance obligation which is to complete the requested and/or required repairs on the railcars. As the customer simultaneously receives and consumes the benefit of the repair work we perform, revenue for these contracts is recognized over time. The Company uses an input-based measure of progress using costs incurred to total expected costs as that is the measure that most faithfully depicts our progress towards satisfying our performance obligation. Upon completion of the work, the invoice is sent to the customer, with payment terms that generally range from 0 - 30 days.
Products and Co-products
In addition to the ethanol sales contracts that are considered derivative instruments, the Ethanol Group sells several other co-products that remain subject to ASC 606, including E-85, DDGs, syrups and renewable identification numbers (“RINs”). RINs are credits for compliance with the Environmental Protection Agency's Renewable Fuel Standard program and are created by renewable fuel producers. Contracts for these co-products generally have a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer which follows shipping terms on the contract. Payment terms generally range from 5 - 15 days.
Frac Sand and Propane
Our sand products and propane products are primarily sold to United States customers in the energy industry. We recognize revenue at a point in time when obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped for direct sales to customers or when the product is picked up by a customer either at our plant location or transload location. Our contracts contain one performance obligation which is the delivery to the customer at a point in time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. We recognize the cost for shipping as an expense in cost of sales when control over the product has transferred to the customer. Payment terms generally range from 0 - 30 days.
The Company recorded revenues under ASC 842 consisting of $105.1 million of operating lease revenue, $8.0 million of sales-type lease revenue and $5.3 million of variable lease revenue for the year ended December 31, 2019.
Contract balances
The opening and closing balances of the Company’s contract liabilities are as follows:
|
| | | | | | | |
| (in thousands) | 2019 | | 2018 |
| Balance at January 1 | $ | 28,858 |
| | $ | 25,520 |
|
| Balance at December 31 | 28,467 |
| | 28,858 |
|
The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. Contract liabilities relate to the Plant Nutrient business for payments received in advance of fulfilling our performance obligations under our customer contracts. Contract liabilities are built up at year-end and through the first quarter as a result of payments in advance of fulfilling our performance obligations under our customer contracts in preparation for the spring planting season. The contract liabilities are then relieved as obligations are met through the year and begin to build in preparation for a new season as we approach year-end.
8. Income Taxes
Income tax provision (benefit) applicable to continuing operations consists of the following:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Current: | | | | | |
| Federal | $ | 1,079 |
| | $ | (549 | ) | | $ | (1,668 | ) |
| State and local | 1,215 |
| | 323 |
| | 643 |
|
| Foreign | 4,361 |
| | 1,138 |
| | 1,125 |
|
| | 6,655 |
| | 912 |
| | 100 |
|
| | | | | | |
| Deferred: | | | | | |
| Federal | 4,409 |
| | 10,073 |
| | (61,655 | ) |
| State and local | 1,925 |
| | 578 |
| | (2,107 | ) |
| Foreign | 62 |
| | 367 |
| | 528 |
|
| | 6,396 |
| | 11,018 |
| | (63,234 | ) |
| | | | | | |
| Total: | | | | | |
| Federal | 5,488 |
| | 9,525 |
| | (63,323 | ) |
| State and local | 3,140 |
| | 901 |
| | (1,464 | ) |
| Foreign | 4,423 |
| | 1,505 |
| | 1,653 |
|
| | $ | 13,051 |
| | $ | 11,931 |
| | $ | (63,134 | ) |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | (1,668 | ) | | $ | (702 | ) | | $ | (3,237 | ) |
| State and local | 643 |
| | 199 |
| | (762 | ) |
| Foreign | 1,125 |
| | 1,385 |
| | 1,224 |
|
| | $ | 100 |
| | $ | 882 |
| | $ | (2,775 | ) |
| | | | | | |
| Deferred: | | | | | |
| Federal | $ | (61,655 | ) | | $ | 3,523 |
| | $ | 1,756 |
|
| State and local | (2,107 | ) | | 1,696 |
| | 519 |
|
| Foreign | 528 |
| | 810 |
| | 258 |
|
| | $ | (63,234 | ) | | $ | 6,029 |
| | $ | 2,533 |
|
| | | | | | |
| Total: | | | | | |
| Federal | $ | (63,323 | ) | | $ | 2,821 |
| | $ | (1,481 | ) |
| State and local | (1,464 | ) | | 1,895 |
| | (243 | ) |
| Foreign | 1,653 |
| | 2,195 |
| | 1,482 |
|
| | $ | (63,134 | ) | | $ | 6,911 |
| | $ | (242 | ) |
Income (loss) before income taxes from continuing operations consists of the following:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| U.S. | $ | 18,982 |
| | $ | 46,678 |
| | $ | (25,645 | ) |
| Foreign | 9,129 |
| | 6,478 |
| | 5,120 |
|
| | $ | 28,111 |
| | $ | 53,156 |
| | $ | (20,525 | ) |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| U.S. | $ | (25,645 | ) | | $ | 11,526 |
| | $ | (18,867 | ) |
| Foreign | 5,120 |
| | 9,855 |
| | 7,303 |
|
| | $ | (20,525 | ) | | $ | 21,381 |
| | $ | (11,564 | ) |
A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:
|
| | | | | | | | |
| | Year ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Statutory U.S. federal tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
| Increase (decrease) in rate resulting from: | | | | | |
| Acquisition related permanent item | 24.0 |
| | — |
| | — |
|
| Federal income tax credits | (23.2 | ) | | (3.4 | ) | | — |
|
| State and local income taxes, net of related federal taxes | 7.3 |
| | 3.4 |
| | (4.2 | ) |
| Equity method investments | 5.7 |
| | 1.1 |
| | (0.4 | ) |
| Nondeductible compensation | 4.6 |
| | 1.5 |
| | (2.5 | ) |
| Impact of unrecognized tax benefits | 3.9 |
| | (0.1 | ) | | 3.0 |
|
| Effect of noncontrolling interest | 2.4 |
| | 0.1 |
| | 0.2 |
|
| Change in federal and state tax rates | 2.1 |
| | (2.1 | ) | | 374.8 |
|
| Income taxes on foreign earnings | (0.6 | ) | | (1.5 | ) | | (2.2 | ) |
| Tax effect of GILTI | 0.4 |
| | 1.4 |
| | — |
|
| Other, net | (1.2 | ) | | 0.5 |
| | 4.4 |
|
| Impacts related to the 2017 Tax Act | — |
| | 0.6 |
| | (7.1 | ) |
| Goodwill impairment | — |
| | — |
| | (93.5 | ) |
| Tax associated with accrued and unpaid dividends | — |
| | — |
| | 0.1 |
|
| Effective tax rate | 46.4 | % | | 22.5 | % | | 307.6 | % |
|
| | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Statutory U.S. federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Increase (decrease) in rate resulting from: | | | | | |
| Effect of noncontrolling interest | 0.2 |
| | (4.7 | ) | | 5.3 |
|
| State and local income taxes, net of related federal taxes | (4.2 | ) | | 5.8 |
| | 1.4 |
|
| Income taxes on foreign earnings | (2.2 | ) | | (1.3 | ) | | 9.4 |
|
| Change in federal and state tax rates | 374.8 |
| | — |
| | — |
|
| Goodwill impairment | (93.5 | ) | | — |
| | (35.6 | ) |
| Equity Method Investments | (0.4 | ) | | 0.3 |
| | 1.9 |
|
| Tax effect of one-time transition tax | (7.1 | ) | | — |
| | — |
|
| Release of unrecognized tax benefts | 3.0 |
| | 0.1 |
| | 0.5 |
|
| Nondeductible compensation | (2.5 | ) | | 2.0 |
| | (5.0 | ) |
| Tax associated with accrued and unpaid dividends | 0.1 |
| | 3.2 |
| | (13.6 | ) |
| Federal income tax credits | — |
| | (7.3 | ) | | — |
|
| Change in pre-acquisition tax liability and other costs | — |
| | — |
| | 3.5 |
|
| Other, net | 4.4 |
| | (0.8 | ) | | (0.7 | ) |
| Effective tax rate | 307.6 | % | | 32.3 | % | | 2.1 | % |
Net income taxes of $2.0 million were paid in 2019, net income tax paymentsrefunds of $5.4 million were received in 2018, and net income taxes of $2.1 million were paid in 2017. Net income refunds of $10.6 million were received in 2016. Net income taxes of $4.9 million were paid in 2015.
Significant components of the Company's deferred tax liabilities and assets are as follows:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Deferred tax liabilities: | | | |
| Property, plant and equipment and Rail Group assets leased to others | $ | (149,317 | ) | | $ | (169,558 | ) |
| Identifiable intangibles | (13,736 | ) | | — |
|
| Investments | (41,354 | ) | | (24,732 | ) |
| Other | (10,228 | ) | | (7,999 | ) |
| | (214,635 | ) | | (202,289 | ) |
| Deferred tax assets: | | | |
| Employee benefits | 20,583 |
| | 13,161 |
|
| Accounts and notes receivable | 3,577 |
| | 2,069 |
|
| Inventory | 2,437 |
| | 7,595 |
|
| Federal income tax credits | 12,005 |
| | 13,075 |
|
| Identifiable intangibles | — |
| | 1,213 |
|
| Net operating loss carryforwards | 5,259 |
| | 12,766 |
|
| Deferred interest (a) | 2,385 |
| | 6,476 |
|
| Lease liability | 11,072 |
| | 8,473 |
|
| Other | 12,093 |
| | 8,839 |
|
| Total deferred tax assets | 69,411 |
| | 73,667 |
|
| less: Valuation allowance | 931 |
| | 1,185 |
|
| | 68,480 |
| | 72,482 |
|
| Net deferred tax liabilities | $ | (146,155 | ) | | $ | (129,807 | ) |
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Deferred tax liabilities: | | | |
| Property, plant and equipment and Rail Group assets leased to others | $ | (129,876 | ) | | $ | (179,250 | ) |
| Equity method investments | (31,223 | ) | | (45,244 | ) |
| Other | (8,754 | ) | | (22,286 | ) |
| | (169,853 | ) | | (246,780 | ) |
| Deferred tax assets: | | | |
| Employee benefits | 15,229 |
| | 25,403 |
|
| Accounts and notes receivable | 2,317 |
| | 2,964 |
|
| Inventory | 6,100 |
| | 9,979 |
|
| Federal income tax credits | 10,225 |
| | 7,150 |
|
| Net operating loss carryforwards | 5,753 |
| | 3,322 |
|
| Other | 9,674 |
| | 16,224 |
|
| Total deferred tax assets | 49,298 |
| | 65,042 |
|
| Valuation allowance | (1,024 | ) | | (310 | ) |
| | 48,274 |
| | 64,732 |
|
| Net deferred tax liabilities | $ | (121,579 | ) | | $ | (182,048 | ) |
On December 22, 2017, the US enacted the Tax Cuts and Jobs Act (the “Act”). The Act, which is also commonly referred to as “US tax reform”, significantly changes US corporate income tax laws by, among other things, reducing the US corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of US subsidiaries. As a result, the Company recorded a net benefit of $73.5 million during the fourth quarter of 2017. This amount, which is included in tax expense (benefit) in the Consolidated Statement of Income (Loss), consists of two components: (i) a $1.4 million net charge relating to the one-time mandatory tax on previously deferred earnings of certain non-US subsidiaries
that are owned either wholly or partially by a US subsidiary of the Company, and (ii) a $74.9 million credit resulting from the remeasurement of the Company's net deferred tax liabilities in the US based on the new lower corporate income tax rate.
Although the $73.5 million net benefit represents what the Company believes is a reasonable estimate of the impact of the income tax effects of the Act on the Company's Consolidated Financial Statements as of December 31, 2017, it should be considered provisional. Once the Company finalizes certain tax positions when it files its 2017 US tax return, it will be able to conclude whether any further adjustments are required to its net deferred tax liability balance in the US of $122 million as of December 31, 2017, as well as to the liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will be reported as a component of Tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.
On December 31, 2017,2019, the Company had $15.7$11.0 million, $81.9$64.7 million and $0.1$1.0 million of U.S. Federal, state and non-U.S. net operating loss carryforwards that begin to expire in 2034, 20182020 and 2035, respectively. The Company also has $7.1$11.4 million of general business credits that expire after 2036 and $3.1$0.4 million of foreign tax credits that begin to expire after 2025.2027.
During 2016,Additionally, the Company entered into agreements with several unrelated third-partiescompany has elected to fund qualified railroad track maintenance expenditures. In return, railroad track miles were assigned to the Company which enabled the Company to claim railroad track maintenance credits pursuant to section 45G of the Internal Revenue Code of 1986. $2.6 million of tax benefit was realizedtreat Global Intangible Low Tax Income (“GILTI”), as a result of the agreementsperiod cost and, therefore, has not recognized deferred taxes for the year ended December 31, 2016, resultingbasis differences that may reverse as GILTI tax in a $0.9 million current tax provision benefit.future years. As of December 31, 2016, $6.0 million of credits have been deferred to future periods which, upon realization, will result2019, this resulted in a $1.8net financial statement expense of $0.1 million current tax provision benefit. The railroad track maintenance credits are general business credits included in federal income tax credits above. The current year impact for the tax period ending December 31, 2017 was immaterial to the overall provision.year.
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If it is more-likely-than-not that the deferred tax asset will be realized, no valuation allowance is recorded. Management's judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the net deferred tax assets. The valuation allowance would need to be adjusted in the event future taxable income is materially different than amounts estimated. Significant judgments, estimates and factors considered by management in its determination of the probability of the realization of deferred tax assets include:
•Historical operating results
•Expectations of future earnings
•Tax planning strategies; and
•The extended period of time over which retirement, medical, and pension liabilities will be paid.
DuringOur unrecognized tax benefits represent tax positions for which reserves have been established. At the fourth quarterend of fiscal year2019, 2018 and 2017, due to a three-year cumulative loss andif our unrecognized tax benefits were recognized in future economic uncertainty, we concluded that a valuation allowance was required related to additional State net operating losses. This resulted in a non-cash charge to incomeperiods, they would favorably impact our effective tax expense of $0.6 million.
The Company or one of its subsidiaries files income tax returns in the U.S., various foreign jurisdictions and various state and local jurisdictions. The Company is no longer subject to examinations by foreign jurisdictions for years before 2012 and is no longer subject to examinations by U.S. tax authorities for years before 2014. The Company is no longer subject to examination by state tax authorities in most states for tax years before 2014.
rate. A reconciliation of the January 1, 2015 to December 31, 2017 amount oftheses unrecognized tax benefits is as follows:
|
| | | |
| (in thousands) | |
| Balance at January 1, 2017 | $ | 1,452 |
|
| Additions based on tax positions related to the current year | — |
|
| Additions based on tax positions related to prior years | — |
|
| Reductions based on tax positions related to prior years | (92 | ) |
| Reductions as a result of a lapse in statute of limitations | (573 | ) |
| Balance at December 31, 2017 | 787 |
|
| | |
| Additions based on tax positions related to the current year | — |
|
| Reductions based on tax positions related to prior years | — |
|
| Reductions as a result of a lapse in statute of limitations | (169 | ) |
| Balance at December 31, 2018 | 618 |
|
| | |
| Additions based on tax positions related to the current year | 1,766 |
|
| Additions based on tax positions related to prior years | 20,649 |
|
| Reductions based on tax positions related to prior years | (155 | ) |
| Reductions as a result of a lapse in statute of limitations | (463 | ) |
| Balance at December 31, 2019 | $ | 22,415 |
|
|
| | | |
(in thousands) | |
Balance at January 1, 2015 | $ | 1,487 |
|
Additions based on tax positions related to the current year | 55 |
|
Additions based on tax positions related to prior years | 691 |
|
Reductions based on tax positions related to prior years | (518 | ) |
Reductions as a resultAs of a lapse in statute of limitations | (284 | ) |
Balance at December 31, 2015 | 1,431 |
|
| |
Additions based on tax positions related to the current year | 113 |
|
Reductions based on tax positions related to prior years | (40 | ) |
Reductions as a result of a lapse in statute of limitations | (52 | ) |
Balance at December 31, 2016 | 1,452 |
|
| |
Additions based on tax positions related to the current year | — |
|
Additions based on tax positions related to prior years | — |
|
Reductions based on tax positions related to prior years | (92 | ) |
Reductions as a result of a lapse in statute of limitations | (573 | ) |
Balance at December 31, 2019, 2018 and 2017, | $ | 787 |
|
The Company anticipates $0.2 million decrease in the reserve during the next 12 months due to the settling of state tax appeals and a lapse in statute of limitations. Dependent upon the lapse in statute of limitations and the outcome of the state tax appeals, the total liability foramount of unrecognized tax benefits aswas $22.4 million, $0.6 million and $0.8 million, respectively, of December 31, 2017 could impactwhich in 2019 the effectiveunrecognized tax rate.benefits were primarily associated with R&D Credits.
The Company has electedCompany’s practice is to classifyrecognize interest and penalties as interest expenseon uncertain tax positions in the provision for income taxes in the Consolidated Statement of Operations. At December 31, 2019 and penalty expense, respectively, rather than as income tax expense. The Company has2018, the company recorded reserves of $2.1 million and $0.3 million, accrued for the paymentrespectively, of interest and penalties at December 31, 2017. The net interest and penalties benefit for 2017 is $0.1 million, due to decreasedon uncertain tax positions. The Company had $0.4 million accrued forpositions in the payment of interest and penalties at December 31, 2016. The net interest and penalties expense for 2016 was $0.2 million.Consolidated Balance Sheet.
The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities in the U.S., multiple foreign, state and local jurisdictions. The Company’s Mexican federal income tax return for tax year 2015 is currently under audit. One of the company’s subsidiary partnership returns is under audit by the IRS for 2015. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations could change the Company’s unrecognized tax benefits during the next twelve months. It is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefit in the next twelve months.
In addition to the audits listed above, the company has open tax years primarily from 2013 to 2018 with various taxing jurisdictions, including the U.S., Canada, Mexico and the U.K. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The Company has recorded a tax benefit only for those positions that meet the more-likely-than-not standard.
9. Accumulated Other Comprehensive LossIncome (Loss)
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the years ended December 31, 2017, 2016,2019, 2018, and 2015:2017:
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) | | | | | | | For the Year Ended December 31, 2019 |
| | (in thousands) | | Foreign Currency Translation Adjustments | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total | (in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
| Beginning Balance | Beginning Balance | | $ | (11,002 | ) | | $ | — |
| | $ | (1,466 | ) | | $ | (12,468 | ) | Beginning Balance | | $ | (126 | ) | | $ | (11,550 | ) | | $ | 258 |
| | $ | 5,031 |
| | $ | (6,387 | ) |
| | Other comprehensive income before reclassifications | | 3,286 |
| | 344 |
| | 6,485 |
| | 10,115 |
| Other comprehensive income (loss) before reclassifications | | (10,224 | ) | | 949 |
| | — |
| | (3,459 | ) | | (12,734 | ) |
| | Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | (347 | ) | | (347 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | 907 |
| | 11,666 |
| | — |
| | (683 | ) | | 11,890 |
|
| Net current-period other comprehensive income |
| 3,286 |
| | 344 |
| | 6,138 |
| | 9,768 |
| |
| Net current-period other comprehensive income (loss) | | Net current-period other comprehensive income (loss) | | (9,317 | ) |
| 12,615 |
| | — |
| | (4,142 | ) | | (844 | ) |
| Ending balance | Ending balance | | $ | (7,716 | ) | | $ | 344 |
| | $ | 4,672 |
| | $ | (2,700 | ) | Ending balance | | $ | (9,443 | ) | | $ | 1,065 |
| | $ | 258 |
| | $ | 889 |
| | $ | (7,231 | ) |
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) | | | | For the Year Ended December 31, 2016 | | | For the Year Ended December 31, 2018 |
| | (in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total | (in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investments in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
| Beginning Balance | Beginning Balance | | $ | (111 | ) | | $ | (12,041 | ) | | $ | 126 |
| | $ | (8,913 | ) | | $ | (20,939 | ) | Beginning Balance | | $ | — |
| | $ | (7,716 | ) | | $ | 344 |
| | $ | 4,672 |
| | $ | (2,700 | ) |
| | Other comprehensive income before reclassifications | | 111 |
| | 1,039 |
| | — |
| | 7,668 |
| | $ | 8,818 |
| Other comprehensive income (loss) before reclassifications | | (284 | ) | | (3,834 | ) | | (86 | ) | | 1,031 |
| | (3,173 | ) |
| | Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | (126 | ) | | (221 | ) | | $ | (347 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | 158 |
| | — |
| | — |
| | (672 | ) | | (514 | ) |
| Net current-period other comprehensive income | | 111 |
|
| 1,039 |
| | (126 | ) | | 7,447 |
| | 8,471 |
| |
| Net current-period other comprehensive income (loss) | | Net current-period other comprehensive income (loss) | | (126 | ) | | (3,834 | ) | | (86 | ) | | 359 |
| | (3,687 | ) |
| Ending balance | Ending balance | | $ | — |
|
| $ | (11,002 | ) | | $ | — |
| | $ | (1,466 | ) | | $ | (12,468 | ) | Ending balance | | $ | (126 | ) | | $ | (11,550 | ) | | $ | 258 |
| | $ | 5,031 |
| | $ | (6,387 | ) |
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) | | | | For the Year Ended December 31, 2015 | | For the Year Ended December 31, 2017 |
| | (in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total | (in thousands) | | Foreign Currency Translation Adjustments | | Investments in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
| Beginning Balance | Beginning Balance | | $ | (364 | ) | | $ | (4,709 | ) | | $ | 126 |
| | $ | (49,648 | ) | | $ | (54,595 | ) | Beginning Balance | | $ | (11,002 | ) | | $ | — |
| | $ | (1,466 | ) | | $ | (12,468 | ) |
| | Other comprehensive income before reclassifications | | 253 |
| | (7,332 | ) | | — |
| | (24,746 | ) | | $ | (31,825 | ) | Other comprehensive income before reclassifications | | 3,286 |
| | 344 |
| | 6,485 |
| | 10,115 |
|
| | Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | — |
| | 65,481 |
| | $ | 65,481 |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | (347 | ) | | (347 | ) |
| Net current-period other comprehensive income | Net current-period other comprehensive income | | 253 |
| | (7,332 | ) | | — |
| | 40,735 |
| | 33,656 |
| Net current-period other comprehensive income | | 3,286 |
| | 344 |
| | 6,138 |
| | 9,768 |
|
| Ending balance | Ending balance | | $ | (111 | ) | | $ | (12,041 | ) | | $ | 126 |
| | $ | (8,913 | ) | | $ | (20,939 | ) | Ending balance | | $ | (7,716 | ) | | $ | 344 |
| | $ | 4,672 |
| | $ | (2,700 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The Following tables show the reclassification adjustments from accumulated other comprehensive income to net income for the years ended December 31, 2017, 2016,2019, 2018, and 2015:2017: | | Reclassifications Out of Accumulated Other Comprehensive Income (a) | | (in thousands) | | For the Year Ended December 31, 2017 | | For the Year Ended December 31, 2019 |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented |
| Defined Benefit Plan Items | | | | | | |
| Amortization of prior-service cost | | $ | (455 | ) | | (b) | | $ | (911 | ) | | (b) |
| | | (455 | ) | | Income (loss) before income taxes | | (911 | ) | | Total before taxes |
| | | 108 |
| | Income tax benefit | | 228 |
| | Income tax benefit |
| | | $ | (347 | ) | | Net income (loss) | | $ | (683 | ) | | Net of tax |
| | | | | | | |
| Cash Flow Hedges | | | | |
| Interest payments | | | $ | 1,210 |
| | Interest Expense |
| | | | 1,210 |
| | Total before taxes |
| | | | (303 | ) | | Income tax expense |
| | | | $ | 907 |
| | Net of tax |
| | | | | |
| Foreign Currency Translation Adjustment | | | $ | 11,666 |
| | Other income, net |
| | | | 11,666 |
| | Total before taxes |
| | | | — |
| | Income tax expense |
| | | | $ | 11,666 |
| | Net of tax |
| | | | | |
| Total reclassifications for the period | | $ | (347 | ) | | Net income (loss) | | $ | 11,890 |
| | Net of tax |
| | Reclassifications Out of Accumulated Other Comprehensive Income (a) | | (in thousands) | | For the Year Ended December 31, 2016 | | For the Year Ended December 31, 2018 |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented |
| Defined Benefit Plan Items | | | | | | |
| Amortization of prior-service cost | | $ | (354 | ) | | (b) | | $ | (910 | ) | | (b) |
| | | (354 | ) | | Income (loss) before income taxes | | (910 | ) | | Total before taxes |
| | | 133 |
| | Income tax benefit | | 238 |
| | Income tax benefit |
| | | $ | (221 | ) | | Net income (loss) | | $ | (672 | ) | | Net of tax |
| Other Items | | | | |
| Recognition of gain on sale of investment | | (200 | ) | | (b) | |
| Cash Flow Hedges | | | | |
| Interest payments | | | $ | 214 |
| | Interest expense |
| | | (200 | ) | | Income before income taxes | | 214 |
| | Total before taxes |
| | | 74 |
| | Income tax benefit | | (56 | ) | | Income tax expense |
| | | (126 | ) | | Net income (loss) | | $ | 158 |
| | Net of tax |
| | | | | | | |
| Total reclassifications for the period | | $ | (347 | ) | | Net income (loss) | | $ | (514 | ) | | Net of tax |
| | Reclassifications Out of Accumulated Other Comprehensive Income (a) | | (in thousands) | | For the Year Ended December 31, 2015 | | For the Year Ended December 31, 2017 |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income Is Presented |
| Defined Benefit Plan Items | | | | | | |
| Amortization of prior-service cost | | $ | (543 | ) | | (b) | | $ | (455 | ) | | (b) |
| | | (543 | ) | | Income (loss) before income taxes | | (455 | ) | | Total before taxes |
| | | 204 |
| | Income tax benefit | | 108 |
| | Income tax benefit |
| | | $ | (339 | ) | | Net income (loss) | | $ | (347 | ) | | Net of tax |
| Other Items | | | | |
| Settlement of defined benefit plan | | (64,939 | ) | | |
| | | (64,939 | ) | | Income (loss) before income taxes | |
| | | 24,746 |
| | Income tax benefit | |
| | | (40,193 | ) | | Net income (loss) | |
| | | | | | | |
| Total reclassifications for the period | | $ | (40,532 | ) | | Net income (loss) | | $ | (347 | ) | | Net of tax |
(a) Amounts in parentheses indicate debits to profit/loss
(b) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (see Note 7. Employee Benefit Plans footnote for additional details)
10. 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. The Company’s non-vested restricted stock grantedSubsequent to the 2015 awards, the unvested share-based payment awards no longer included non-forfeitable rights to dividends. As the final awards with the non-forfeitable rights fully vested in 2017 the two-class method is considered a participating security sinceno longer used by the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.Company.
The computation of basic and diluted earnings per share is as follows:
|
| | | | | | | | | | | |
| (in thousands except per common share data) | Year ended December 31, |
| 2019 | | 2018 | | 2017 |
| Net income attributable to The Andersons, Inc. | $ | 18,307 |
| | $ | 41,484 |
| | $ | 42,511 |
|
| Less: Distributed and undistributed earnings allocated to non-vested restricted stock | — |
| | — |
| | 1 |
|
| Earnings available to common shareholders | $ | 18,307 |
| | $ | 41,484 |
| | $ | 42,510 |
|
| Earnings per share – basic: | | | | | |
| Weighted average shares outstanding – basic | 32,570 |
| | 28,258 |
| | 28,126 |
|
| Earnings (losses) per common share – basic | $ | 0.56 |
| | $ | 1.47 |
| | $ | 1.51 |
|
| Earnings per share – diluted: | | | | | |
| Weighted average shares outstanding – basic | 32,570 |
| | 28,258 |
| | 28,126 |
|
| Effect of dilutive awards | 526 |
| | 194 |
| | 170 |
|
| Weighted average shares outstanding – diluted | 33,096 |
| | 28,452 |
| | 28,296 |
|
| Earnings per common share – diluted | $ | 0.55 |
| | $ | 1.46 |
| | $ | 1.50 |
|
|
| | | | | | | | | | | |
| (in thousands except per common share data) | Year ended December 31, |
| 2017 | | 2016 | | 2015 |
| Net income (loss) attributable to The Andersons, Inc. | $ | 42,511 |
| | $ | 11,594 |
| | $ | (13,067 | ) |
| Less: Distributed and undistributed earnings allocated to non-vested restricted stock | 1 |
| | 9 |
| | 29 |
|
| Earnings (losses) available to common shareholders | $ | 42,510 |
| | $ | 11,585 |
| | $ | (13,096 | ) |
| Earnings per share – basic: | | | | | |
| Weighted average shares outstanding – basic | 28,126 |
| | 28,193 |
| | 28,288 |
|
| Earnings (losses) per common share – basic | $ | 1.51 |
| | $ | 0.41 |
| | $ | (0.46 | ) |
| Earnings per share – diluted: | | | | | |
| Weighted average shares outstanding – basic | 28,126 |
| | 28,193 |
| | 28,288 |
|
| Effect of dilutive awards | 170 |
| | 238 |
| | — |
|
| Weighted average shares outstanding – diluted | 28,296 |
| | 28,431 |
| | 28,288 |
|
| Earnings (losses) per common share – diluted | $ | 1.50 |
| | $ | 0.41 |
| | $ | (0.46 | ) |
There were 88 thousand, 13 thousand and 22 thousand antidilutive share-based awards outstanding at December 31, 2017. No antidilutive share-based awards were outstanding at2019, December 31, 2016. All outstanding share-based awards were antidilutive in 2015 as the Company experienced a net loss.2018 and December 31, 2017, respectively.
11. Fair Value Measurements
Generally accepted accounting principles define fair value as an exit price and also establish a framework for measuring fair value. An exit price represents the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is used, which prioritizes the inputs used in measuring fair value as follows:
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
Level 3 inputs: Unobservable inputs (e.g., a reporting entity's own data).
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
The following tables present the Company's assets and liabilities that are measured at fair value on a nonrecurring basis at December 31, 2017:
|
| | | | | | | | | | | | | | | |
| (in thousands) | December 31, 2017 |
| Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| Property, plant and equipment (a) | $ | — |
| | $ | — |
| | $ | 29,347 |
| | $ | 29,347 |
|
| Total | $ | — |
| | $ | — |
| | $ | 29,347 |
| | $ | 29,347 |
|
| |
(a) | The Company recognized impairment charges on certain grain assets during 2017 and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the grain assets was determined using prior transactions, prior third-party appraisals and a pending sale of grain assets held by the Company. |
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis at December 31, 20172019 and 2016:2018:
| | | (in thousands) | December 31, 2017 | December 31, 2019 |
| Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
| Commodity derivatives, net (a) | 18,603 |
| | (18,067 | ) | | — |
| | 536 |
| $ | 45,682 |
| | $ | 15,683 |
| | $ | — |
| | $ | 61,365 |
|
| Provisionally priced contracts (b) | (98,190 | ) | | (67,094 | ) | | — |
| | (165,284 | ) | (118,414 | ) | | (68,237 | ) | | — |
| | (186,651 | ) |
| Convertible preferred securities (c) | — |
| | — |
| | 7,388 |
| | 7,388 |
| — |
| | — |
| | 8,404 |
| | 8,404 |
|
| Other assets and liabilities (d) | 9,705 |
| | (1,244 | ) | | — |
| | 8,461 |
| 9,469 |
| | (13,507 | ) | | — |
| | (4,038 | ) |
| Total | $ | (69,882 | ) | | $ | (86,405 | ) | | $ | 7,388 |
| | $ | (148,899 | ) | $ | (63,263 | ) | | $ | (66,061 | ) | | $ | 8,404 |
| | $ | (120,920 | ) |
|
| | | | | | | | | | | | | | | |
| (in thousands) | December 31, 2018 |
| Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| Commodity derivatives, net (a) | $ | 37,229 |
| | $ | (18,864 | ) | | $ | — |
| | $ | 18,365 |
|
| Provisionally priced contracts (b) | (76,175 | ) | | (58,566 | ) | | — |
| | (134,741 | ) |
| Convertible preferred securities (c) | — |
| | — |
| | 7,154 |
| | 7,154 |
|
| Other assets and liabilities (d) | 5,186 |
| | (353 | ) | | — |
| | 4,833 |
|
| Total | $ | (33,760 | ) | | $ | (77,783 | ) | | $ | 7,154 |
| | $ | (104,389 | ) |
|
| | | | | | | | | | | | | | | |
| (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 | ) |
| |
| (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 Consolidated Balance Sheets related to certain available for sale securities. |
| |
| (d) | Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans, 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 exchanged-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 quoted on the CME or the New York Mercantile Exchangevarious exchanges 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 Agribusinessagribusiness industry, we have concluded that “basis” is typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. 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 significant 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 graina commodity, 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 graincommodity and a subsequent payable or receivable is set up for any future changes in the graincommodity price, quoted CBOTexchange 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 CBOTexchange 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 recurring fair value measurements using Level 3 inputs is as follows:
|
| | | | | | | |
| | Convertible Preferred Securities |
| (in thousands) | 2019 | | 2018 |
| Assets (liabilities) at January 1, | $ | 7,154 |
| | $ | 7,388 |
|
| New investments | 1,250 |
| | 1,086 |
|
| Sales proceeds | — |
| | (6,400 | ) |
| Realized gains (losses) included in earnings | — |
| | 3,900 |
|
| Unrealized gains (losses) included in other comprehensive income | — |
| | 1,180 |
|
| Assets (liabilities) at December 31, | $ | 8,404 |
| | $ | 7,154 |
|
|
| | | | | | | | | | | | | | | |
| | Convertible Preferred Securities | | Contingent Consideration |
| (in thousands) | 2017 |
| 2016 | | 2017 | | 2016 |
| Assets (liabilities) at January 1, | $ | 3,294 |
| | $ | 13,550 |
| | $ | — |
| | $ | (350 | ) |
| New investments | 3,750 |
| | 2,500 |
| | — |
| | — |
|
| Sales proceeds | — |
| | (13,485 | ) | | — |
| | — |
|
| Gains (losses) included in earnings | — |
| | 729 |
| | — |
| | 350 |
|
| Unrealized gains (losses) included in other comprehensive income | 344 |
| | — |
| | — |
| | — |
|
| Assets (liabilities) at December 31, | $ | 7,388 |
| | $ | 3,294 |
| | $ | — |
| | $ | — |
|
The following tables summarize information about the Company's Level 3 fair value measurements as of December 31, 20172019 and 2016:2018:
|
| | | | | | | | | |
| Quantitative Information about Recurring Level 3 Fair Value Measurements |
| (in thousands) | Fair Value as of 12/31/19 | | Valuation Method | | Unobservable Input | | Weighted Average |
| Convertible preferred securities (a) | $ | 8,404 |
| | Implied based on market prices | | N/A | | N/A |
|
| | | | | | | | | |
| (in thousands) | Fair Value as of 12/31/18 | | Valuation Method | | Unobservable Input | | Weighted Average |
| Convertible preferred securities (a) | $ | 7,154 |
| | Implied based on market prices | | N/A | | N/A |
(a) The Company considers observable price changes and other additional market data available in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
|
| | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements |
| (in thousands) | Fair Value as of 12/31/17 | | Valuation Method | | Unobservable Input | | Weighted Average |
| Convertible preferred securities (a) | $ | 7,388 |
| | Implied based on market prices
| | Various | | N/A |
| Real Property (b) | $ | 29,347 |
| | Third-Party Appraisal | | N/A | | N/A |
|
| | | | | | | | | |
| Quantitative Information about Non-Recurring Level 3 Fair Value Measurements |
| (in thousands) | Fair Value as of 12/31/19 | | Valuation Method | | Unobservable Input | | Weighted Average |
| Frac sand assets (a) | $ | 16,546 |
| | Third party appraisal | | Various | | N/A |
| Real property (b) | 608 |
| | Market approach | | Various | | N/A |
| Equity method investment (c) | 12,424 |
| | Discounted cash flow analysis | | Various | | N/A |
(a) The Company recognized impairment charges on long lived related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis. |
| | | | | | | | | |
| (in thousands) | Fair Value as of 12/31/16 | | Valuation Method | | Unobservable Input | | Weighted Average |
| Convertible preferred (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 data is available to consider in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones and other relevant market data points. |
| |
(b) | The Company recognized impairment charges on certain grain assets during 2017 and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the grain assets was determined using prior transactions, prior third-party appraisals and a pending sale of grain assets held by the Company. |
(c) The Company recorded an other-than-temporary impairment charge on an existing equity method investment. The fair value of the investment was determined using a discounted cash flow analysis.
Fair Value of Debt Instruments
Certain long-term notes payable and the Company’s debenture bonds bear fixed rates of interest and terms of up to 15 years. Based upon the Company’s credit standing and current interest rates offered by the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities, the Company estimates the fair values of its fixed rate long-term debt instruments outstanding at December 31, 20172019 and 2016,2018, as follows:
|
| | | | | | | | | |
| (in thousands) | Carrying Amount | | Fair Value | | Fair Value Hierarchy Level |
| 2019 | | | | | |
| Fixed rate long-term notes payable | $ | 300,446 |
| | $ | 307,904 |
| | Level 2 |
| Debenture bonds | 26,075 |
| | 25,852 |
| | Level 2 |
| | $ | 326,521 |
| | $ | 333,756 |
| | |
| | | | | | |
| 2018 | | | | | |
| Fixed rate long-term notes payable | $ | 261,618 |
| | $ | 256,447 |
| | Level 2 |
| Debenture bonds | 27,324 |
| | 26,154 |
| | Level 2 |
| | $ | 288,942 |
| | $ | 282,601 |
| | |
|
| | | | | | | | | |
| (in thousands) | Carrying Amount | | Fair Value | | Fair Value Hierarchy Level |
| 2017 | | | | | |
| Fixed rate long-term notes payable | $ | 275,989 |
| | $ | 275,340 |
| | Level 2 |
| Debenture bonds | 30,432 |
| | 29,452 |
| | Level 2 |
| | $ | 306,421 |
| | $ | 304,792 |
| | |
| | | | | | |
| 2016 | | | | | |
| Fixed rate long-term notes payable | $ | 308,645 |
| | $ | 310,338 |
| | Level 2 |
| Debenture bonds | 36,931 |
| | 37,883 |
| | Level 2 |
| | $ | 345,576 |
| | $ | 348,221 |
| | |
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
12. 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 generally presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
received or other-than-temporary impairments recognized. The amount of equity method investments has decreased substantially from the prior year as two acquisitions in 2019 resulted in the consolidation of the former significant equity method investments. In January 2003,2019, the Company becamepurchased the remaining equity of LTG and Thompsons Limited and in October 2019, the Company merged its existing equity method ethanol investments to create the consolidated entity of TAMH.
Prior to the acquisition in January of 2019, the Company was a minority investor in LTG, which focuses on grain merchandising as well as trading relatedLTG. Prior to the energy and biofuels industry. Theacquisition in the current year, the Company accountsaccounted for this investment under the equity method. The Company sellssold and purchasespurchased both grain and ethanol with LTG in the ordinary course of business on terms similar to sales and purchases with unrelated customers. On July 31, 2013, the Company, along with LTG established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in a related U.S. operating company. Each Company owned 50% of the investment. Thompsons Limited was a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, which operated 12 locations across Ontario and Minnesota. The Company did not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures were made by their Board of Directors and the Company did not have a majority of the board seats. Due to these factors, the Company did not have control over these joint ventures and therefore accounted for these investments under the equity method of accounting, as of December 31, 2018. As a result of the LTG acquisition in January 2019, both LTG and Thompsons Limited became consolidated entities of the Company. See Note 18 for additional information on the acquisition.
In October of 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC (TAAE), The Andersons Clymers Ethanol LLC (TACE), The Andersons Marathon Ethanol LLC (TAME) and the Company's wholly-owned The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company now owns 50.1% equity in TAMH, and the transaction resulted in the consolidation of TAMH’s results in the Company's financial statements. See note 18 for additional information on the merger. The background information below related to the former ethanol LLCs applies through September 30, 2019, prior to consolidation.
On December 4, 2015, 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 is 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.
In 2005, the Company became an investor in The Andersons Albion Ethanol LLC.TAAE. TAAE iswas a producer of ethanol and its coproductsco-products DDG and corn oil at its 110 million gallon-per-year ethanol production facility in Albion, Michigan. The Company operatesoperated the facility under a management contract and providesprovided corn origination, ethanol, corn oil and DDG marketing and risk management services. The Company iswas separately compensated for all such services except corn oil marketing. The Company also leasesleased its Albion, Michigan grain facility to TAAE. While the Company now holdsheld 55% of the outstanding units of TAAE, a super-majority vote iswas required for all major operating decisions of TAAE based on the terms of the Operating Agreement. The Company has concluded that the super-majority vote requirement givesgave the minority shareholders substantive participating rights and therefore consolidation for book purposes iswas not appropriate. The Company accountsaccounted for its investment in TAAE under the equity method of accounting.accounting through September 30, 2019.
In 2006, the Company became a minority investor in The Andersons Clymers Ethanol LLC.TACE. TACE iswas also a producer of ethanol and its coproductsco-products DDG and corn oil at a 110 million gallon-per-year ethanol production facility in Clymers, Indiana. The
Company operatesoperated the facility under a management contract and providesprovided corn origination, ethanol, corn oil and DDG marketing and risk management services for which it iswas separately compensated. The Company also leasesleased its Clymers, Indiana grain facility to TACE. The Company accounted for its investment in TACE under the equity method of accounting through September 30, 2019.
In 2006, the Company became a minority investor in The Andersons Marathon Ethanol LLC.TAME. TAME iswas also a producer of ethanol and its coproductsco-products DDG and corn oil at a 110 million gallon-per-year ethanol production facility in Greenville, Ohio. In January 2007, the Company transferred its 50% share in TAME to The Andersons Ethanol Investment LLC, a consolidated subsidiary of the Company, of which a third party owned 34% of the shares. The Company operatesoperated the facility under a management contract and providesprovided corn origination, ethanol, corn oil and DDG marketing and risk management services for which it iswas separately compensated. In 2009, TAEI invested an additional $1.1 million in TAME, retaining a 50% ownership interest. On January 1, 2017, TAEI was merged with and into TAME. The Company had owned (66%) of TAEI. 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 ownsowned 33% of the outstanding ownership units of TAME. The Company accounted for its investment in TAME under the equity method of accounting through September 30, 2019.
The Company hashad marketing agreements with TAAE, TACE, and TAME ("the three unconsolidated ethanol LLCs") under which the Company purchasespurchased and marketsmarketed the ethanol produced to external customers. As compensation for these marketing services, the Company earnsearned a fee on each gallon of ethanol sold. The Company has entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchasespurchased most, if not all, of the ethanol produced by the LLCs at the same price it will resellresold the ethanol to external customers. The Company actsacted as the principal in these ethanol sales transactions to external parties as the Company hashad ultimate responsibility of performance to the external parties. Substantially all of these purchases and subsequent sales arewere executed through forward contracts on matching terms and, outside of the fee the Company earnsearned for each gallon sold, the Company doesdid not recognize any gross profit on the sales transactions. For the nine months ended September 30, 2019 and years ended December 31, 2017, 20162018 and 2015,2017, revenues recognized for the salesales of ethanol and co-products purchased from related parties were $456.7 million, $625.2 million and $590.9 million, $427.8 million and $428.2 million, respectively.
In addition to the ethanol marketing agreements, the Company holdsheld corn origination agreements, under which the Company originatesoriginated all of the corn used in production for each unconsolidated ethanol LLC. For this service, the Company receivesreceived a unit basedunit-based fee. Similar to the ethanol sales described above, the Company actsacted as a principalan agent in these transactions, and accordingly, records revenuesthese transactions were recorded on a grossnet basis. See discussion of the impact that ASC 606 will have on these origination transactions in Note 1. For the yearsyear ended December 31, 2017, 2016 and 2015, revenues recognized for the sale of corn under these agreements were $498.8 million, $426.8 million and $443.9 million, respectively.million. As part of the corn origination agreements, the Company also marketsmarketed the DDG produced by the entities. For this service the Company receivesreceived a unit basedunit-based fee. The Company doesdid not purchase any of the DDG from the ethanol entities; however, as part of the agreement, the Company guaranteesguaranteed payment by the buyer for DDG sales. At December 31, 2017 and 2016,2019, the three3 unconsolidated ethanol entities had a combined receivableno outstanding receivables balance for DDG and a balance of $5.9$7.0 million and $4.1 million, respectively,as of December 31, 2018, of which $132.3 thousand and $9.4 thousand, respectively,$0.1 million was more than thirty days past due. As the Company hashad not experienced historical losses and the DDG receivable balances greater than thirty days past due iswas immaterial, the Company has concluded that the fair value of this guarantee iswas inconsequential.
On July 31, 2013, the Company, along with Lansing Trade Group, LLC established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in a related U.S. operating company. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota. The Company does not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures are made by their Board of Directors and the Company does not have a majority of the board seats. Due to these factors, the Company does not have control over these joint ventures and therefore accounts for these investments under the equity method of accounting.
The following table presents 2019 information for aggregate summarized financial information of TAAE, TACE and TAME through September 30, 2019 along with the Company's equity method investments in Providence Grain Group Inc., Quadra Commodities S.A. and other various investments. In the prior years, the table represents the aggregated summarized financial information of LTG, TAAE, TACE, TAME, Thompsons Limited, and other various investments as they qualified as significant equity method investees in the aggregate. No individual equity investments qualified as significant for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
|
| | | | | | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Sales | $ | 1,930,289 |
| | $ | 6,111,036 |
| | $ | 6,080,795 |
|
| Gross profit | 39,253 |
| | 257,594 |
| | 217,629 |
|
| Income from continuing operations | 1,895 |
| | 71,608 |
| | 50,937 |
|
| Net income | 940 |
| | 68,876 |
| | 42,970 |
|
| | | | | | |
| Current assets | 255,052 |
| | 1,111,826 |
| | 1,045,124 |
|
| Non-current assets | 80,823 |
| | 526,169 |
| | 538,671 |
|
| Current liabilities | 196,163 |
| | 792,184 |
| | 802,161 |
|
| Non-current liabilities | 31,509 |
| | 281,103 |
| | 309,649 |
|
|
| | | | | | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Sales | $ | 6,080,795 |
| | $ | 6,579,413 |
| | $ | 6,868,257 |
|
| Gross profit | 217,629 |
| | 188,350 |
| | 250,847 |
|
| Income from continuing operations | 50,937 |
| | 12,288 |
| | 85,220 |
|
| Net income | 42,970 |
| | 6,445 |
| | 81,368 |
|
| | | | | | |
| Current assets | 1,045,124 |
| | 898,081 |
| | 1,236,171 |
|
| Non-current assets | 538,671 |
| | 565,416 |
| | 500,637 |
|
| Current liabilities | 802,161 |
| | 665,387 |
| | 796,816 |
|
| Non-current liabilities | 309,649 |
| | 359,816 |
| | 342,075 |
|
| Noncontrolling interests | — |
| | 3,628 |
| | 11,716 |
|
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| The Andersons Albion Ethanol LLC (a) | $ | — |
| | $ | 50,382 |
|
| The Andersons Clymers Ethanol LLC (a) | — |
| | 24,242 |
|
| The Andersons Marathon Ethanol LLC (a) | — |
| | 14,841 |
|
| Lansing Trade Group, LLC (b) | — |
| | 101,715 |
|
| Thompsons Limited (b) | — |
| | 48,987 |
|
| Providence Grain Group Inc. (c) | 12,424 |
| | — |
|
| Quadra Commodities S.A. (c) | 5,574 |
| | — |
|
| Other | 5,859 |
| | 2,159 |
|
| Total | $ | 23,857 |
| | $ | 242,326 |
|
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| The Andersons Albion Ethanol LLC | $ | 45,024 |
| | $ | 38,972 |
|
| The Andersons Clymers Ethanol LLC | 19,830 |
| | 19,739 |
|
| The Andersons Marathon Ethanol LLC | 12,660 |
| | 22,069 |
|
| Lansing Trade Group, LLC | 93,088 |
| | 89,050 |
|
| Thompsons Limited (a) | 50,198 |
| | 46,184 |
|
| Other | 2,439 |
| | 917 |
|
| Total | $ | 223,239 |
| | $ | 216,931 |
|
| |
(a) | Thompsons Limited and related U.S. operating company held by joint ventures |
(b) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
(c) The Company acquired the equity method investments in Providence Grain Group Inc. and Quadra Commodities S.A. through the consolidation of LTG.
The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
|
| | | | | | | | | | | | | |
| | % ownership at
December 31, 2019 | | December 31, |
| (in thousands) | | 2019 | | 2018 | | 2017 |
| The Andersons Albion Ethanol LLC (a) | N/A | | $ | (1,292 | ) | | $ | 5,531 |
| | $ | 6,052 |
|
| The Andersons Clymers Ethanol LLC (a) | N/A | | (151 | ) | | 4,846 |
| | 4,591 |
|
| The Andersons Marathon Ethanol LLC (a) | N/A | | 920 |
| | 3,832 |
| | 1,571 |
|
| Lansing Trade Group, LLC (b) | N/A | | — |
| | 10,413 |
| | 4,038 |
|
| Thompsons Limited (b) | N/A | | — |
| | 2,568 |
| | 696 |
|
| Providence Grain Group Inc. (c)(d) | 37.8% | | (7,411 | ) | | — |
| | — |
|
| Quadra Commodities S.A. (c) | 17.7% | | 910 |
| | — |
| | — |
|
| Other | 5% - 52% | | (335 | ) | | (49 | ) | | (225 | ) |
| Total | | | $ | (7,359 | ) | | $ | 27,141 |
| | $ | 16,723 |
|
|
| | | | | | | | | | | | | |
| | % ownership at
December 31, 2017 | | December 31, |
| (in thousands) | | 2017 | | 2016 | | 2015 |
| The Andersons Albion Ethanol LLC | 55% | | $ | 6,052 |
| | $ | 6,167 |
| | $ | 5,636 |
|
| The Andersons Clymers Ethanol LLC | 39% | | 4,591 |
| | 6,486 |
| | 6,866 |
|
| The Andersons Marathon Ethanol LLC | 33% | | 1,571 |
| | 5,814 |
| | 4,718 |
|
| Lansing Trade Group, LLC | 33% (a) | | 4,038 |
| | (9,935 | ) | | 11,880 |
|
| Thompsons Limited (b) | 50% | | 696 |
| | 1,189 |
| | 2,735 |
|
| Other | 5% - 50% | | (225 | ) | | — |
| | 89 |
|
| Total | | | $ | 16,723 |
| | $ | 9,721 |
| | $ | 31,924 |
|
| |
(a) | This does not consider restricted management units which, once vested, will reduce the ownership percentage by approximately 0.7%. |
| |
(b) | Thompsons Limited and related U.S. operating company held by joint ventures |
(a) The Company previously owned approximately 55%, 39%, 33% in The Andersons Albion LLC, The Andersons Clymers Ethanol LLC and The Andersons Marathon Ethanol LLC, respectively. Effective October 1, 2019, the Company contributed its interests in these three entities into TAMH. The transaction resulted in the consolidation of these entities into the Company's Consolidated Financial Statements.
(b) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
(c) The Company acquired the equity method investments in Providence Grain Group Inc. and Quadra Commodities S.A. through the consolidation of LTG.
(d) The Company recorded an other-than-temporary impairment charge of $5.0 million in the equity method investment in Providence Grain Group which is recorded in equity earnings (losses) in affiliates.
Total distributions received from unconsolidated affiliates were $7.1$0.4 million for the year ended December 31, 2017. The balance at December 31, 2017 that represents the undistributed earnings of the Company's equity method investments is $83.2 million.
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.
2019.
Related Party Transactions
In the ordinary course of business and on an arms-length basis, the Company will enter into related party transactions with each of the investments described above, along with other related parties.
On March 2, 2018, the Company invested in ELEMENT. The Company owns 51% of ELEMENT and ICM, Inc. owns the remaining 49% interest. ELEMENT, LLC constructed a 70 million-gallon-per-year bio-refinery. As part of the Company’s investment into ELEMENT, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The results of operations for ELEMENT have been included in the Company's consolidated results and are a component of the Ethanol segment. The construction of the plant was substantially completed, and operations commenced in August of 2019. As of December 31, 2019, approximately $3.9 million of remaining obligation is not yet incurred under a design build contract.
The following table sets forth the related party transactions entered into for the time periods presented:
| | | | December 31, | December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Sales revenues | $ | 893,950 |
| | $ | 749,746 |
| | $ | 825,220 |
| $ | 246,540 |
| | $ | 358,856 |
| | $ | 893,950 |
|
| Service fee revenues (a) | 24,357 |
| | 17,957 |
| | 20,393 |
| 12,181 |
| | 20,843 |
| | 24,357 |
|
| Purchases of product | 615,739 |
| | 463,832 |
| | — |
| 569,619 |
| | 741,736 |
| | 615,739 |
|
| Lease income (b) | 6,175 |
| | 5,966 |
| | 6,664 |
| 3,516 |
| | 6,523 |
| | 6,175 |
|
| Labor and benefits reimbursement (c) | 13,894 |
| | 12,809 |
| | 11,567 |
| 10,973 |
| | 13,487 |
| | 13,894 |
|
| Other expenses (d) | — |
| | 149 |
| | 1,059 |
| |
| |
| (a) | Service fee revenues includeincluded management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.commissions for the prior periods and through September 30, 2019. |
| |
| (b) | Lease income includesincluded the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the unconsolidated ethanol LLCs and IANR.IANR for the prior periods and through September 30, 2019. |
| |
| (c) | The Company providesprovided all operational labor to the unconsolidated ethanol LLCs and chargescharged them an amount equal to the Company’s costs of the related services.services for the prior periods and through September 30, 2019. |
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2019 | | 2018 |
| Accounts receivable (d) | $ | 10,603 |
| | $ | 17,829 |
|
| Accounts payable (e) | 12,303 |
| | 28,432 |
|
| |
| (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 expense. |
|
| | | | | |
| | December 31, |
| (in thousands) | 2017 | | 2016 |
| Accounts receivable (e) | 30,252 |
| | 26,254 |
|
| Accounts payable (f) | 27,866 |
| | 23,961 |
|
| |
(e) | Accounts receivable represents amounts due from related parties for sales of corn, leasing revenueethanol and service fees.other various items. |
| |
(f)(e) | Accounts payable represents amounts due to related parties for purchases of ethanolequipment and other various items. |
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 derivative contracts it enters into with unrelated parties. The fair value of derivative contracts with related parties in a gross asset position as of December 31, 20172019 and 20162018 was $0.2$0.3 million and $4.1$1.9 million, respectively. The fair value of derivative contracts with related parties in a gross liability position were de minimis as of December 31, 20172019 and 2016 was $2.5$6.3 million and $0.1 million, respectively.as of December 31, 2018.
13. Segment Information
The Company’s operations include five4 reportable business segments that are distinguished primarily on the basis of products and services offered. The GrainTrade business includes graincommodity merchandising, the operation of terminal grain elevator facilities and, historically, the investments in LTG and Thompsons Limited. In January 2019, the Company acquired the remaining 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The Company has evaluated its segment reporting structure as a result of the acquisition. The presentation includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group. The acquired ethanol trading business of LTG is included within the Ethanol Group. The Company also moved certain commission income and an elevator lease from the legacy Grain Group to the Ethanol Group to better align business segments. Prior year results have been recast to reflect this change.
The Ethanol business purchases and sells ethanol, and also manages theprovides risk management, origination and management services to ethanol production facilities. Historically, these facilities were organized as limited liability companies, one is2 were consolidated and three are3 were investments accounted for under the equity method. ThereOn October 1, 2019, the Company and Marathon Petroleum Corporation merged the three existing equity method investments and the wholly owned subsidiary, The Andersons Denison Ethanol LLC into TAMH. As a result of this merger, the results of the legacy LLCs accounted for under the equity method are various service contracts for these investments.now consolidated entities in the Company's Consolidated Financial Statements. The Plant Nutrient business manufactures and distributes agricultural inputs, primary nutrients and specialty fertilizers, to dealers and farmers, along with turf care and corncob-based products. 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 base nutrient and value added fertilizers, to dealers and farmers, along with turf care and corncob-based products. The Retail business operated large retail stores, a distribution center, and a lawn and garden equipment sales and service facility. In January 2017, the Company announced its decision to close all retail operations. As of December 31, 2017, theThe Retail Group has closed all stores, completed its liquidation efforts, and sold three of the fourits properties. Included in “Other” are the corporate level costs not attributed to an operating segment.segment and the 2017 Retail business.
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.
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Revenues from external customers | | | | | | | | | | |
| Grain | $ | 2,106,464 |
| | $ | 2,357,171 |
| | $ | 2,483,643 |
| |
| Trade | | $ | 6,387,744 |
| | $ | 1,433,660 |
| | $ | 2,103,222 |
|
| Ethanol | 708,063 |
| | 544,556 |
| | 556,188 |
| 968,779 |
| | 747,009 |
| | 711,305 |
|
| Plant Nutrient | 651,824 |
| | 725,176 |
| | 848,338 |
| 646,730 |
| | 690,536 |
| | 651,824 |
|
| Rail | 172,123 |
| | 163,658 |
| | 170,848 |
| 166,938 |
| | 174,177 |
| | 172,123 |
|
| Retail | 47,871 |
| | 134,229 |
| | 139,478 |
| |
| Other | | — |
| | — |
| | 47,871 |
|
| Total | $ | 3,686,345 |
| | $ | 3,924,790 |
| | $ | 4,198,495 |
| $ | 8,170,191 |
| | $ | 3,045,382 |
| | $ | 3,686,345 |
|
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Inter-segment sales | | | | | | | | | | |
| Grain | $ | 761 |
| | $ | 1,638 |
| | $ | 3,573 |
| |
| Trade | | $ | 2,658 |
| | $ | 2,746 |
| | $ | 761 |
|
| Plant Nutrient | 241 |
| | 470 |
| | 682 |
| 1,166 |
| | — |
| | 241 |
|
| Rail | 1,213 |
| | 1,399 |
| | 1,192 |
| 5,245 |
| | 1,205 |
| | 1,213 |
|
| Total | $ | 2,215 |
| | $ | 3,507 |
| | $ | 5,447 |
| $ | 9,069 |
| | $ | 3,951 |
| | $ | 2,215 |
|
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Interest expense (income) | | | | | | | | | | |
| Grain | $ | 8,320 |
| | $ | 7,955 |
| | $ | 5,778 |
| |
| Trade | | $ | 35,202 |
| | $ | 11,845 |
| | $ | 8,320 |
|
| Ethanol | (67 | ) | | 35 |
| | 70 |
| 584 |
| | (1,890 | ) | | (67 | ) |
| Plant Nutrient | 6,420 |
| | 6,448 |
| | 7,243 |
| 7,954 |
| | 6,499 |
| | 6,420 |
|
| Rail | 7,023 |
| | 6,461 |
| | 7,006 |
| 16,486 |
| | 11,377 |
| | 7,023 |
|
| Retail | 324 |
| | 496 |
| | 356 |
| |
| Other | (453 | ) | | (276 | ) | | (381 | ) | (535 | ) | | 17 |
| | (129 | ) |
| Total | $ | 21,567 |
| | $ | 21,119 |
| | $ | 20,072 |
| $ | 59,691 |
| | $ | 27,848 |
| | $ | 21,567 |
|
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Equity in earnings of affiliates | | | | | | | | | | |
| Grain | $ | 4,509 |
| | $ | (8,746 | ) | | $ | 14,703 |
| |
| Trade | | $ | (6,835 | ) | | $ | 12,932 |
| | $ | 4,509 |
|
| Ethanol | 12,214 |
| | 18,467 |
| | 17,221 |
| (524 | ) | | 14,209 |
| | 12,214 |
|
| Total | $ | 16,723 |
| | $ | 9,721 |
| | $ | 31,924 |
| $ | (7,359 | ) | | $ | 27,141 |
| | $ | 16,723 |
|
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Other income, net | | | | | | | | | | |
| Grain | $ | 3,658 |
| | $ | 5,472 |
| | $ | 26,229 |
| |
| Trade | | $ | 11,142 |
| | $ | 843 |
| | $ | 1,590 |
|
| Ethanol | 54 |
| | 77 |
| | 377 |
| 913 |
| | 2,766 |
| | 2,122 |
|
| Plant Nutrient | 5,092 |
| | 3,716 |
| | 3,046 |
| 4,903 |
| | 2,495 |
| | 5,092 |
|
| Rail | 2,632 |
| | 2,218 |
| | 15,935 |
| 1,583 |
| | 3,516 |
| | 2,632 |
|
| Retail | 10,684 |
| | 507 |
| | 557 |
| |
| Other | 1,324 |
| | 2,785 |
| | 328 |
| 1,568 |
| | 6,382 |
| | 11,071 |
|
| Total | $ | 23,444 |
| | $ | 14,775 |
| | $ | 46,472 |
| $ | 20,109 |
| | $ | 16,002 |
| | $ | 22,507 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Income (loss) before income taxes, net of noncontrolling interest | | | | | |
| Trade | $ | (14,780 | ) | | $ | 21,715 |
| | $ | 8,197 |
|
| Ethanol | 48,359 |
| | 27,076 |
| | 23,525 |
|
| Plant Nutrient | 9,159 |
| | 12,030 |
| | (45,121 | ) |
| Rail | 15,090 |
| | 17,379 |
| | 24,798 |
|
| Other | (26,470 | ) | | (24,785 | ) | | (32,022 | ) |
| Income (loss) before income taxes, net of noncontrolling interest | 31,358 |
| | 53,415 |
| | (20,623 | ) |
| Noncontrolling interests | (3,247 | ) | | (259 | ) | | 98 |
|
| Income (loss) before income taxes | $ | 28,111 |
| | $ | 53,156 |
| | $ | (20,525 | ) |
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 |
| Identifiable assets | | | |
| Trade | $ | 2,012,060 |
| | $ | 978,974 |
|
| Ethanol | 690,548 |
| | 295,971 |
|
| Plant Nutrient | 383,781 |
| | 403,780 |
|
| Rail | 693,931 |
| | 590,407 |
|
| Other | 120,421 |
| | 122,871 |
|
| Total | $ | 3,900,741 |
| | $ | 2,392,003 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Income (loss) before income taxes | | | | | |
| Grain | $ | 12,844 |
| | $ | (15,651 | ) | | $ | (9,446 | ) |
| Ethanol | 18,878 |
| | 24,723 |
| | 28,503 |
|
| Plant Nutrient | (45,121 | ) | | 14,176 |
| | 121 |
|
| Rail | 24,798 |
| | 32,428 |
| | 50,681 |
|
| Retail | (7,309 | ) | | (8,848 | ) | | (455 | ) |
| Other (a) | (24,713 | ) | | (28,323 | ) | | (82,713 | ) |
| Non-controlling interests | 98 |
| | 2,876 |
| | 1,745 |
|
| Total | $ | (20,525 | ) | | $ | 21,381 |
| | $ | (11,564 | ) |
| |
(a) | Includes pension settlement charges in 2015 |
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Identifiable assets | | | | |
| Grain | $ | 948,871 |
| | $ | 961,114 |
| |
| Capital expenditures | | | | | | |
| Trade | | $ | 31,173 |
| | $ | 17,203 |
| | $ | 10,899 |
|
| Ethanol | 180,173 |
| | 171,115 |
| 104,023 |
| | 101,320 |
| | 3,690 |
|
| Plant Nutrient | 379,309 |
| | 484,455 |
| 20,413 |
| | 15,723 |
| | 10,735 |
|
| Rail | 490,448 |
| | 398,446 |
| 1,827 |
| | 5,295 |
| | 3,478 |
|
| Retail | 4,349 |
| | 31,257 |
| |
| Other | 159,204 |
| | 186,462 |
| 3,548 |
| | 3,038 |
| | 5,800 |
|
| Total | $ | 2,162,354 |
| | $ | 2,232,849 |
| $ | 160,984 |
| | $ | 142,579 |
| | $ | 34,602 |
|
| | | | Year ended December 31, | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Capital expenditures | | | | | | |
| Grain | $ | 10,899 |
| | $ | 21,428 |
| | $ | 26,862 |
| |
| Depreciation and amortization | | | | | | |
| Trade | | $ | 50,973 |
| | $ | 16,062 |
| | $ | 18,757 |
|
| Ethanol | 3,690 |
| | 2,301 |
| | 7,223 |
| 23,727 |
| | 6,136 |
| | 5,970 |
|
| Plant Nutrient | 10,735 |
| | 15,153 |
| | 14,384 |
| 25,985 |
| | 26,871 |
| | 26,628 |
|
| Rail | 3,478 |
| | 4,345 |
| | 2,990 |
| 34,122 |
| | 29,164 |
| | 23,081 |
|
| Retail | — |
| | 436 |
| | 1,005 |
| |
| Other | 5,800 |
| | 34,077 |
| | 20,005 |
| 11,359 |
| | 12,064 |
| | 11,976 |
|
| Total | $ | 34,602 |
| | $ | 77,740 |
| | $ | 72,469 |
| $ | 146,166 |
| | $ | 90,297 |
| | $ | 86,412 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Revenues from external customers by geographic region | | | | | |
| United States | $ | 6,350,643 |
| | $ | 2,832,007 |
| | $ | 3,506,053 |
|
| Canada | 666,289 |
| | 136,439 |
| | 148,974 |
|
| Mexico | 294,644 |
| | 34 |
| | — |
|
| Other | 858,615 |
| | 76,902 |
| | 31,318 |
|
| Total | $ | 8,170,191 |
| | $ | 3,045,382 |
| | $ | 3,686,345 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Acquisition of businesses, net of cash acquired and other investments | | | | | |
| Grain | $ | 5,436 |
| | $ | — |
| | $ | — |
|
| Plant Nutrient | — |
| | — |
| | 128,549 |
|
| Other | 3,750 |
| | 2,500 |
| | 750 |
|
| Total | $ | 9,186 |
| | $ | 2,500 |
| | $ | 129,299 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Depreciation and amortization | | | | | |
| Grain | $ | 18,757 |
| | $ | 18,232 |
| | $ | 19,240 |
|
| Ethanol | 5,970 |
| | 5,925 |
| | 5,865 |
|
| Plant Nutrient | 26,628 |
| | 28,663 |
| | 25,179 |
|
| Rail | 23,081 |
| | 20,082 |
| | 18,450 |
|
| Retail | 70 |
| | 2,452 |
| | 2,510 |
|
| Other | 11,906 |
| | 8,971 |
| | 7,212 |
|
| Total | $ | 86,412 |
| | $ | 84,325 |
| | $ | 78,456 |
|
Grain sales for export to foreign markets amounted to $166.2 million, $78.3The net book value of Trade property, plant and equipment in Canada as of December 31, 2019 was $41.2 million and $195.6 million in 2017, 2016 and 2015, respectively -de minimis for the majority of which were sales to Canadian customers. Revenues from leased railcars in Canada totaled $13.3 million, $13.2 million and $11.0 million in 2017, 2016 and 2015, respectively.year ended December 31, 2018. The net book value of the leased railcars in Canada as of December 31, 20172019 and 20162018 was $21.2$22.7 million and $26.8$23.2 million, respectively.
14. Leases
The Company leases certain grain handling and storage facilities, ethanol storage terminals, warehouse space, railcars, locomotives, barges, office space, machinery and equipment, vehicles and information technology equipment under operating leases. Lease expense for these leases is recognized within the Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The following table summarizes the amounts recognized in the Company's Consolidated Balance Sheet related to leases:
|
| | | | | | |
| (in thousands) | | Consolidated Balance Sheet Classification | | December 31, 2019 |
| Assets | | | | |
|
| Operating lease assets | | Right of use assets, net | | $ | 76,401 |
|
| Finance lease assets | | Property, plant and equipment, net | | 23,723 |
|
| Finance lease assets | | Rail Group assets leased to others, net | | 17,465 |
|
| Total leased assets | | | | 117,589 |
|
| | | | | |
| Liabilities | | | | |
|
| Current operating leases | | Accrued expenses and other current liabilities | | 25,700 |
|
| Non-current operating leases | | Long-term lease liabilities | | 51,091 |
|
| Total operating lease liabilities | | | | 76,791 |
|
| | | | | |
| Current finance leases | | Current maturities of long-term debt | | 17,636 |
|
| Non-current finance leases | | Long-term debt | | 21,501 |
|
| Total finance lease liabilities | | | | 39,137 |
|
| Total lease liabilities | | | | $ | 115,928 |
|
The components of lease cost recognized within the Company's Consolidated Statement of Operations were as follows:
|
| | | | | | |
| (in thousands) | | Statement of Operations Classification | | For the Year Ended December 31, 2019 |
| Lease cost: | | | | |
| Operating lease cost | | Cost of sales and merchandising revenues | | $ | 26,230 |
|
| Operating lease cost | | Operating, administrative and general expenses | | 13,711 |
|
| Finance lease cost | | | | |
| Amortization of right-of-use assets | | Cost of sales and merchandising revenues | | 357 |
|
| Amortization of right-of-use assets | | Operating, administrative and general expenses | | 1,119 |
|
| Interest expense on lease liabilities | | Interest expense | | 1,023 |
|
Other lease cost (a) | | Cost of sales and merchandising revenues | | 822 |
|
Other lease cost (a) | | Operating, administrative and general expenses | | 322 |
|
| Total lease cost | | | | $ | 43,584 |
|
(a) Other lease cost includes short-term lease costs and variable lease costs.
The Company often has the option to renew lease terms for buildings and other assets. The exercise of a lease renewal option is generally at the sole discretion of the Company. In addition, certain lease agreements may be terminated prior to their original expiration date at the discretion of the Company. Each renewal and termination option is evaluated at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The following table summarizes the weighted average remaining lease terms as of December 31, 2019:
|
| |
| Weighted Average Remaining Lease Term | |
| Operating leases | 4.1 years |
| Finance leases | 6.5 years |
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The following table summarizes the weighted average discount rate used to measure the Company's lease liabilities as of December 31, 2019:
|
| | |
| Weighted Average Discount Rate | |
|
| Operating leases | 3.88 | % |
| Finance leases | 3.72 | % |
Supplemental Cash Flow Information Related to Leases
|
| | | | | |
| (in thousands) | | | For the Year Ended December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
|
| Operating cash flows from operating leases | | | $ | 25,304 |
|
| Operating cash flows from finance leases | | | 1,023 |
|
| Financing cash flows from finance leases | | | 1,973 |
|
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | | | 29,427 |
|
| Finance leases | | | 16,998 |
|
Maturity Analysis of Leases Liabilities
|
| | | | | | | | | | | |
| | December 31, 2019 |
| (in thousands) | Operating Leases | | Finance Leases | | Total |
| 2020 | $ | 28,145 |
| | $ | 18,185 |
| | $ | 46,330 |
|
| 2021 | 19,230 |
| | 2,334 |
| | 21,564 |
|
| 2022 | 13,574 |
| | 2,341 |
| | 15,915 |
|
| 2023 | 9,887 |
| | 2,342 |
| | 12,229 |
|
| 2024 | 5,567 |
| | 2,176 |
| | 7,743 |
|
| Thereafter | 6,956 |
| | 16,154 |
| | 23,110 |
|
| Total lease payments | 83,359 |
| | 43,532 |
| | 126,891 |
|
| Less: interest | 6,568 |
| | 4,395 |
| | 10,963 |
|
| Total | $ | 76,791 |
| | $ | 39,137 |
| | $ | 115,928 |
|
Prior year lease disclosures
The following pertains to previously disclosed information from Note 15, Commitments and contingencies, contained in the Company's 2018 Annual Report on Form 10-K, which incorporates information about leases now in scope of ASC 842, Leases, disclosed above.
Future minimum lease payments by year and in the aggregate under non-cancelable operating leases with initial term of one year or more at December 31, 2018 are as follows:
|
| | | |
| (in thousands) | Minimum Lease Payments |
| 2019 | $ | 16,978 |
|
| 2020 | 11,906 |
|
| 2021 | 9,959 |
|
| 2022 | 6,438 |
|
| 2023 | 3,763 |
|
| Thereafter | 8,348 |
|
| Total | $ | 57,392 |
|
14.15. Commitments and Contingencies
Litigation activities
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 a charge to income.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. In the fourth quarter of 2017, the settlement was finalized at the reserve amount and a nominal insurance recovery was received.
Prior to the settlement, substantially all the Company’s legal expenses were paid by a liability insurance carrier.
Railcar leasing activities
The Company's Rail Group is a lessor of transportation assets. The majority are leased to customers under operating leases that may be either net leases (in which the customer pays for all maintenance) or full service leases (where the Company provides maintenance and fleet management services). The Company also provides such services to financial intermediaries to whom it has sold assets in non-recourse lease transactions. Fleet management services generally include maintenance, escrow, tax filings and car tracking services.
Many of the Company's leases provide for renewals. The Company also generally holds purchase options for assets it has sold and leased-back from a financial intermediary, and assets sold in non-recourse lease transactions. These purchase options are for stated amounts which are determined at the inception of the lease and are intended to approximate the estimated fair value of the applicable assets at the date for which such purchase options can be exercised.
Lease income from operating leases (with the Company as lessor) to customers (including month-to-month and per diem leases) and rental expense for the Rail Group operating leases (with the Company as lessee) were as follows:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Rental and service income - operating leases | $ | 90,333 |
| | $ | 95,254 |
| | $ | 97,059 |
|
| Rental expense | $ | 16,459 |
| | $ | 16,723 |
| | $ | 15,214 |
|
Lease income recognized under per diem arrangements (described in Note 1) totaled $5.6 million, $4.9 million, and 5.0 million in 2017, 2016 and 2015, respectively, and is included in the amounts above.
Future minimum rentals and service income for all noncancellable Rail operating leases on transportation assets are as follows:
|
| | | | | | | |
| (in thousands) | Future Rental and Service Income - Operating Leases | | Future Minimum Rental Payments |
| Year ended December 31, | | | |
| 2018 | $ | 67,716 |
| | $ | 11,390 |
|
| 2019 | 47,005 |
| | 6,952 |
|
| 2020 | 29,875 |
| | 5,100 |
|
| 2021 | 19,739 |
| | 4,461 |
|
| 2022 | 11,901 |
| | 3,073 |
|
| Future years | 20,784 |
| | 9,768 |
|
| | $ | 197,020 |
| | $ | 40,744 |
|
The Company also arranges non-recourse lease transactions under which it sells assetsrecorded a $5.0 million reserve in its opening balance sheet from the LTG acquisition relating to financial intermediariesan outstanding non-regulatory litigation claim, based upon preliminary settlement negotiations in the first quarter of 2019. The claim is in response to penalties and assigns the related operating lease on a non-recourse basis. The Company generally provides ongoing maintenance and management servicesfines paid to regulatory entities by LTG in 2018 for the financial intermediaries, and receives a feesettlement of matters which focused on certain trading activity.
The estimated losses for such services when earned. Management and service fees earned in 2017, 2016 and 2015 were $5.9 million, $5.7 million and $7.0 million, respectively.all other outstanding claims that are considered reasonably possible are not material.
Build-to-Suit LeaseCommitments
In August, 2015,As of December 2019, the Company entered intocarries $1.0 million in industrial revenue bonds with the City of Colwich, Kansas (the "City") that mature in 2029, and leases back facilities owned by the City that the Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease. The lease agreementpayment on the facilities is sufficient to pay principal and interest on the bonds. Because the Company owns all of the outstanding bonds, has a legal right to set-off, and intends to set-off the corresponding lease and interest payment, the Company netted the capital lease obligation 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. We have recognized anbond asset and, a financing obligation.
The Company has recorded a build-to-suit financingin turn, reflected no amount for the obligation in other long-term liabilities of $24.3 million and $14.0 millionor the corresponding asset on its Consolidated Balance Sheet at December 31, 2017 and December 31, 2016, respectively. The Company has recorded a build-to-suit financing obligation in other current liabilities of $1.4 million and $0.9 million at December 31, 2017 and December 31, 2016, respectively.2019.
Other leasing activities
The Company, as a lessee, leases real property, vehicles and other equipment under operating leases. Certain of these agreements contain lease renewal and purchase options. Rental expense under these agreements was $5.4 million, $12.3 million and $10.9 million in 2017, 2016 and 2015, respectively. Future minimum lease payments under agreements in effect at December 31, 2017 are as follows: 2018 -- $5.4 million; 2019 -- $4.6 million; 2020 -- $4.1 million; 2021 -- $3.8 million; 2022 -- $1.4 million; and $0.5 million thereafter.
In addition to the above, the Company leases its Albion, Michigan and Clymers, Indiana grain elevators under operating leases to two of its ethanol investees. The Albion, Michigan grain elevator lease expires in 2056. The initial term of the Clymers, Indiana grain elevator lease ended in 2014 and was renewed through 2022. The agreement provides for several renewals of 7.5 years each. Lease income for the years ended December 31, 2017, 2016 and 2015 was $2.0 million, $2.0 million and $2.0 million, respectively.
15.
16. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 are as follows:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 | | 2017 |
| Supplemental disclosure of cash flow information: | | | | | |
| Interest paid | $ | 59,640 |
| | $ | 29,607 |
| | $ | 23,958 |
|
| Income taxes paid (refunded), net | 2,008 |
| | (5,439 | ) | | 2,065 |
|
| Noncash investing and financing activity: | | | | | |
| Equity issued in conjunction with acquisition | 127,841 |
| | — |
| | — |
|
| Removal of pre-existing equity method investments | (284,121 | ) | | — |
| | — |
|
| Purchase price holdback/ other accrued liabilities | 29,956 |
| | — |
| | — |
|
| Non-cash consideration in conjunction with acquisition | 7,318 |
| | — |
| | — |
|
| Dividends declared not yet paid | 5,720 |
| | 5,515 |
| | 4,650 |
|
| Capital projects incurred but not yet paid | 2,781 |
| | 14,165 |
| | 6,840 |
|
| Debt resulting from accounting standard adoption | — |
| | 36,953 |
| | — |
|
| Railcar assets resulting from accounting standard adoption | — |
| | 25,643 |
| | — |
|
| Debt financing fees incurred but not yet paid | — |
| | 2,288 |
| | — |
|
| Investment merger (decreasing equity method investments and non-controlling interest) | — |
| | — |
| | 8,360 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Supplemental disclosure of cash flow information | | | | | |
| Interest paid | $ | 23,958 |
| | $ | 21,407 |
| | $ | 19,292 |
|
| Income taxes paid, net of refunds | 2,065 |
| | (10,587 | ) | | 4,909 |
|
| Noncash investing and financing activity | | | | | |
| Capital projects incurred but not yet paid | 6,840 |
| | 3,092 |
| | 7,507 |
|
| Purchase of a productive asset through seller-financing | — |
| | — |
| | 1,010 |
|
| Shares issued for acquisition of business | — |
| | — |
| | 4,303 |
|
| Investment merger (decreasing equity method investments and non-controlling interest) | 8,360 |
| | — |
| | — |
|
| Dividends declared not yet paid | 4,650 |
| | 4,493 |
| | 4,338 |
|
See Footnote 17 for the fair value of assets acquired and liabilities assumed as part of business acquisitions.
16.17. Stock Compensation Plans
The Company's 20142019 Long-Term Incentive Compensation Plan, dated February 28, 201422, 2019 and subsequently approved by Shareholders on May 2, 201410, 2019 (the "2014"2019 LT Plan"), is authorized to issue up to 1.752.3 million shares of common stock as options, share appreciation rights, restricted shares and units, performance shares and units and other stock or cash-based awards. This plan replaced the Company's 2014 Long-Term Incentive Compensation Plan (the "2014 LT Plan"). The shares remaining available for issuance under the 2014 LT Plan rolled over into the 2019 LT Plan. Approximately 572 thousand2.5 million shares remain available for issuance at December 31, 2017.2019.
Stock-based compensation expense for all stock-based compensation awards are based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. Total compensation expense recognized in the Consolidated StatementStatements of IncomeOperations for all stock compensation programs was $16.2 million, $6.6 million, and $6.1 million $7.0in 2019, 2018 and 2017, respectively. Of the $16.2 million recognized in 2019, approximately $9.4 million was related to awards granted as part of the Lansing Acquisition 2018 Inducement and $1.9 million in 2017, 2016 and 2015, respectively.Retention Award Plan.
Non-Qualified Stock Options ("Options")
The Company granted non-qualified stock options during 2015 under the 2014 LT Plan, upon the hiring of our new Chief Executive Officer.a senior executive. The options have a term of seven years and have three yearthree-year annual graded vesting. The fair value of the options was estimated at the date of grant under the Black-Scholes option pricing model with the following assumptions. Expected volatility was estimated based on the historical volatility of the Company's common shares over the 5.5 years prior to the grant date. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury Strips available with maturity period consistent with the expected life. Forfeitures are estimated at the date of grant based on historical experience. The weighted average assumptions used in the determination of fair value for stock option awards were as follows:
|
| | |
| | 2015 |
| Risk free interest rate | 1.80 | % |
| Dividend yield | 1.58 | % |
| Volatility factor of the expected market price of the common shares | 0.35 |
|
| Expected life for the options (in years) | 5.50 |
|
A reconciliation of the number of Options outstanding and exercisable under the 2014 LT Plan as of December 31, 2017,2019, and changes during the period then ended, is as follows:
|
| | | | | | | | | | | | | |
| |
Shares (in thousands) | |
Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value (000's) |
| Options outstanding at January 1, 2019 | 325,000 |
| | $ | 35.40 |
| | | | |
| Options granted | — |
| | — |
| | | | |
| Options exercised | — |
| | — |
| | | | |
| Options cancelled / forfeited | — |
| | — |
| | | | |
| Options outstanding at December 31, 2019 | 325,000 |
| | $ | 35.40 |
| | — |
| | $ | — |
|
| Vested and expected to vest at December 31, 2019 | 325,000 |
| | $ | 35.40 |
| | — |
| | $ | — |
|
| Options exercisable at December 31, 2019 | 325,000 |
| | $ | 35.40 |
| | — |
| | $ | — |
|
|
| | | | | | | | | | | | |
| |
Shares (in thousands) | |
Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value (000's) |
| Options outstanding at January 1, 2017 | 325 |
| | $ | 35.40 |
| | | | |
| Options granted | — |
| | — |
| | | | |
| Options exercised | — |
| | — |
| | | | |
| Options cancelled / forfeited | — |
| | — |
| | | | |
| Options outstanding at December 31, 2017 | 325 |
| | $ | 35.40 |
| | 0.84 | | $ | — |
|
| Vested and expected to vest at December 31, 2017 | 325 |
| | $ | 35.40 |
| | 0.84 | | $ | — |
|
| Options exercisable at December 31, 2017 | 217 |
| | $ | 35.40 |
| | 0.84 | | $ | — |
|
|
| | | |
| Year ended December 31, |
| (in thousands) | 2019 |
| Total intrinsic value of Options exercised | $ | — |
|
| Total fair value of shares vested | $ | — |
|
| Weighted average fair value of Options granted | $ | — |
|
|
| | | |
| | Year ended December 31, |
| (in thousands) | 2017 |
| Total intrinsic value of Options exercised | $ | — |
|
| Total fair value of shares vested | $ | 1,123 |
|
| Weighted average fair value of Options granted | $ | — |
|
As of December 31, 2017,2019, there was $0.3 million0 unrecognized compensation cost related to Options granted under both the 2014 and the 2019 LT Plan. That cost is expected to be fully amortized by October 2018.
Restricted Stock Awards ("RSAs")
TheBoth the 2014 and 2019 LT PlansPlan permit awards of restricted stock. These shares carry voting and dividend equivalent rights upon vesting; however, sale of the shares is restricted prior to vesting. Restricted sharesRSAs vest over a period of 3 years, with one-third vesting each January 1 of the following first, second, and third years. Total restricted stock expense is equal to the market value of the Company's common shares on the date of the award and is recognized over the service period on a straight linestraight-line basis. In 2017, there were 133.8 thousand shares issued to members of management and directors.
A summary of the status of the Company's non-vested restricted sharesRSAs as of December 31, 2017,2019, and changes during the period then ended, is presented below:
| | | | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value |
| Non-vested restricted shares at January 1, 2017 | 223 |
| | $ | 31.93 |
| |
| Non-vested restricted shares at January 1, 2019 | | 218 |
| | $ | 34.25 |
|
| Granted | 134 |
| | 37.13 |
| 767 |
| | 33.87 |
|
| Vested | (113 | ) | | 33.12 |
| (264 | ) | | 31.10 |
|
| Forfeited | (15 | ) | | 34.49 |
| (14 | ) | | 35.50 |
|
| Non-vested restricted shares at December 31, 2017 | 229 |
| | $ | 34.22 |
| |
| Non-vested restricted shares at December 31, 2019 | | 707 |
| | $ | 34.99 |
|
| | | | Year ended December 31, | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Total fair value of shares vested (000's) | $3,751 | | $4,038 | | $4,918 | $ | 8,225 |
| | $ | 4,681 |
| | $ | 3,751 |
|
| Weighted average fair value of restricted shares granted | $37.13 | | $27.20 | | $42.32 | $ | 33.87 |
| | $ | 34.36 |
| | $ | 37.13 |
|
As of December 31, 2017,2019, there was $2.5$8.2 million of total unrecognized compensation cost related to non-vested restricted sharesRSAs granted under both the 2014 and 2019 LT Plans. That cost is expected to be fully amortized by November 2021.October 2022.
EPS-Based Performance Share Units (“EPS PSUs”)
TheBoth the 2014 and 2019 LT PlansPlan also allow for the award of EPS PSUs. Each EPS PSU gives the participant the right to receive common shares dependent on the achievement of specified performance results over a 3 year3-year performance period. At the end of the
performance period, the number of shares of stock issued will be determined by adjusting the award upward or downward from a target award. Fair value of EPS PSUs issued is based on the market value of the Company's common shares on the date of the award. The related compensation expense is recognized over the performance period when achievement of the award is probable and is adjusted for changes in the number of shares expected to be issued if changes in performance are expected. In 2017, there were 84.3 thousand PSUs issued to members of management. Currently, the Company is accounting for the awards granted in 2015, 20162019, 2018 and 2017 at 0%50%, 0%18% and 30%0% of the maximum amount available for issuance, respectively.
EPS PSUs Activity
A summary of the status of the Company's EPS PSUs as of December 31, 2017,2019, and changes during the period then ended, is presented below:
| | | | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value |
| Non-vested at January 1, 2017 | 304 |
| | $ | 40.76 |
| |
| Non-vested at January 1, 2019 | | 247 |
| | $ | 33.47 |
|
| Granted | 84 |
| | 39.20 |
| 122 |
| | 27.23 |
|
| Vested | — |
| | — |
| — |
| | — |
|
| Forfeited | (113 | ) | | 49.67 |
| (106 | ) | | 28.46 |
|
| Non-vested at December 31, 2017 | 275 |
| | $ | 36.61 |
| |
| Non-vested at December 31, 2019 | | 263 |
| | $ | 32.58 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Weighted average fair value of PSUs granted | $ | 27.23 |
| | $ | 35.36 |
| | $ | 39.20 |
|
|
| | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Weighted average fair value of PSUs granted | $39.20 | | $27.54 | | $44.76 |
As of December 31, 2017,2019, there was $0.6$1.4 million unrecognized compensation cost related to non-vested EPS PSUs granted under the LT Plans. That cost is expected to be fully amortized by December 2019.2021.
TSR-Based Performance Share Units (“TSR PSUs”)
Beginning in 2016, the Company began granting Total Shareholder Return-Based PSUs ("TSR PSUs"). Each TSR PSU gives the participant the right to receive common shares dependent on total shareholder return over a 3 year3-year period. At the end of the period, the number of shares of stock issued will be determined by adjusting the award upward or downward from a target award. Fair value of TSR PSUs was estimated at the date of grant using a Monte Carlo Simulation with the following assumptions.assumptions: Expected volatility was estimated based on the historical volatility of the Company's common shares over the 2.83 year period prior to the grant date. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury Strips available with maturity period consistent with the expected life. Forfeitures are estimated at the date of grant based on historical experience. In 2017, there were 84.3 thousand TSR PSUs issued to members of management.
|
| | |
| | 20172019 |
| Risk free interest rate | 1.55 | %2.53% |
| Dividend yield | — | % |
| Volatility factor of the expected market price of the common shares | 0.41 |
37% |
| Expected term (in years) | 2.83 |
2.84 |
| Correlation coefficient | 0.40 |
0.36 |
TSR PSUs Activity
A summary of the status of the Company's TSR PSUs as of December 31, 2017,2019, and changes during the period then ended, is presented below:
| | | | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value | Shares (in thousands) | | Weighted-Average Grant-Date Fair Value |
| Non-vested at January 1, 2017 | 118 |
| | $ | 26.43 |
| |
| Non-vested at January 1, 2019 | | 247 |
| | $ | 38.02 |
|
| Granted | 84 |
| | 42.53 |
| 125 |
| | 49.20 |
|
| Vested | — |
| | — |
| (5 | ) | | 24.82 |
|
| Forfeited | (19 | ) | | 32.04 |
| (104 | ) | | 29.59 |
|
| Non-vested at December 31, 2017 | 183 |
| | $ | 33.26 |
| |
| Non-vested at December 31, 2019 | | 263 |
| | $ | 46.85 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Weighted average fair value of PSUs granted | $ | 49.20 |
| | $ | 46.51 |
| | $ | 42.53 |
|
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Weighted average fair value of PSUs granted | $ | 42.53 |
| | $ | 26.43 |
| | $ | — |
|
As of December 31, 2017,2019, there was approximately $1.6$2.6 million unrecognized compensation cost related to non-vested TSR PSUs granted under the 2014 and 2019 LT Plans. That cost is expected to be fully amortized by December 2019.2021.
Employee Share Purchase Plan (the “ESP Plan”)
The Company's 2004 ESP Plan, Restated and Amended January 2019, dated February 22, 2019 and subsequently approved by Shareholders on May 10, 2019, is authorized to issue up to 230 thousand common shares. The ESP Plan allows employees to purchase common shares through payroll withholdings. The Company has approximately 96230 thousand common shares remaining available for issuance to and purchase by employees under this plan. The ESP Plan also contains an option component. The purchase price per share under the ESP Plan is the lower of the market price at the beginning or end of the year. The Company records a liability for withholdings not yet applied towards the purchase of common stock. This liability is included in Accrued expenses and other current liabilities on the balance sheet.
The fair value of the option component of the ESP Plan is estimated at the date of grant under the Black-Scholes option pricing model with the following assumptions at the grant date. Expected volatility was estimated based on the historical volatility of the Company's common shares over the past year. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury yield curve rate with a one year term. Forfeitures are estimated at the date of grant based on historical experience.
|
| | | | | | | | |
| | Year ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Risk free interest rate | 1.59 | % | | 2.57 | % | | 1.76 | % |
| Dividend yield | 2.27 | % | | 2.23 | % | | 2.06 | % |
| Volatility factor of the expected market price of the common shares | 36 | % | | 33 | % | | 28 | % |
| Expected life for the options (in years) | 1.0 |
| | 1.0 |
| | 1.0 |
|
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Risk free interest rate | 1.76 | % | | 0.61 | % | | 0.25 | % |
| Dividend yield | 2.06 | % | | 1.96 | % | | 1.05 | % |
| Volatility factor of the expected market price of the common shares | 0.28 |
| | 0.36 |
| | 0.41 |
|
| Expected life for the options (in years) | 1.00 |
| | 1.00 |
| | 1.00 |
|
17.
18. Business Acquisitions
Effective January 1, 2019, the Company completed its acquisition of the remaining 67.5% equity of LTG. The Company's acquisitions are accounted fortransaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities as purchasesthey were jointly owned by the Company and LTG in accordance with ASC Topic 805, Business Combinations. Tangible assetsequal portions.
Total consideration transferred by the Company to complete the acquisition of LTG was $328.9 million. The Company paid $171.1 million in cash and $30.0 million of remaining purchase price holdback and other accrued liabilities, and identifiable intangible assets were adjusted to fair valuesissued 4.4 million unregistered shares valued at 127.8 million based upon the acquisition date with the remainderstock price of the purchase price, if any, recorded as goodwill. Operating results of these acquisitions are included in the Company's Consolidated Financial Statements fromCompany at the date of acquisition and are not significant to the Company's consolidated operating results such that pro-forma disclosures are required.acquisition.
2017 Business Acquisitions
The Company's Grain Group completed an insignificant acquisition in 2017 for a purchase price of $3.5 million,
Prior Years 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 current estimated fair value of the contingent consideration arrangement is $0. The Company funded this transaction with long-term debt, short-term debt, and cash on hand.
The purchase price allocation was finalized in the fourth quarter of 2019. A summarized purchase price allocation is summarized below:as follows:
|
| | | |
| (in thousands) | |
| Cash consideration paid | $ | 171,147 |
|
| Equity consideration | 127,841 |
|
| Purchase price holdback/ other accrued liabilities | 29,956 |
|
| Total purchase price consideration | $ | 328,944 |
|
|
| | | |
| (in thousands) | |
| Cash | $ | 880 |
|
| Accounts receivable | 14,699 |
|
| Inventory | 25,094 |
|
| Other assets | 6,155 |
|
| Intangibles | 53,091 |
|
| Goodwill | 47,735 |
|
| Property, plant, and equipment | 27,478 |
|
| Accounts payable | (12,131 | ) |
| Other current liabilities | (4,866 | ) |
| Other non-current liabilities | (28,706 | ) |
| Total purchase price | $ | 129,429 |
|
The final purchase price allocation at January 1, 2019, is as follows:
|
| | | |
| (in thousands) | |
| Cash and cash equivalents | $ | 21,525 |
|
| Accounts receivable | 320,467 |
|
| Inventories | 456,963 |
|
| Commodity derivative assets - current | 82,595 |
|
| Other current assets | 27,474 |
|
| Commodity derivative assets - noncurrent | 13,576 |
|
| Goodwill | 126,610 |
|
| Other intangible assets | 112,900 |
|
| Right of use asset | 37,894 |
|
| Equity method investments | 28,728 |
|
| Other assets, net | 5,355 |
|
| Property, plant and equipment, net | 171,717 |
|
| | 1,405,804 |
|
| | |
| Short-term debt | 218,901 |
|
| Trade and other payables | 303,321 |
|
| Commodity derivative liabilities - current | 29,024 |
|
| Customer prepayments and deferred revenue | 99,530 |
|
| Accrued expense and other current liabilities | 66,109 |
|
| Other long-term liabilities, including commodity derivative liabilities - noncurrent | 3,175 |
|
| Long-term lease liabilities | 21,193 |
|
| Long-term debt, including current maturities | 161,689 |
|
| Deferred income taxes | 15,531 |
|
| | 918,473 |
|
| Fair value of acquired assets and assumed liabilities | 487,331 |
|
| | |
| Removal of preexisting ownership interest, including associated cumulative translation adjustment | (159,459 | ) |
| Pretax loss on derecognition of preexisting ownership interest | 1,072 |
|
| Total purchase price consideration | $ | 328,944 |
|
The goodwill recognized as a result of the Kay Flo Industries, Inc.LTG acquisition was $47.7is $126.6 million and wasis allocated to reporting units within the Plant NutrientTrade Group segment. The portion of the goodwill that is not deductible for tax purposes.purposes is $12.5 million. The goodwill recognized is primarily attributable to expansionthe addition of an assembled workforce and complementary assets with greater scale that significantly expands the Company's reach in the agricultural marketplace. Due to finalization of the segment's geographic rangepurchase price accounting as well as certain working capital adjustments and deferred income taxes during the ability to realize synergies from the combination of product linesfourth quarter, Goodwill decreased $3.2 million, Other intangible assets increased $6.3 million, Deferred income tax liabilities increased $1.1 million and marketing efforts.
Accrued expenses increased $1.6 million.
Details of the intangible assets acquired are as follows:
|
| | | | | |
| (in thousands) | Fair Value | | Useful Life |
| Unpatented technology | $ | 13,400 |
| | 10 years |
| Customer relationships | 22,800 |
| | 10 years |
| Trade names | 15,500 |
| | 7 to 10 years |
| Noncompete agreement | 1,342 |
| | 5 years |
| Favorable leasehold interest | 49 |
| | 5 years |
| Total identifiable intangible assets | $ | 53,091 |
| | 10 years * |
|
| | | | | | |
| (in thousands) | | | Estimated useful life | |
| Customer relationships | $ | 92,400 |
| | 10 years | |
| Noncompete agreements | 20,500 |
| | 3 years | |
| Total other intangible assets | $ | 112,900 |
| | 8 years | * |
*weighted average number of years
On October 1, 2019, The Andersons entered into an agreement with Marathon to merge TAAE, TACE, TAME and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC. As a result of the merger, The Andersons and Marathon now own 50.1% and 49.9% of the equity in TAMH, respectively. Total consideration transferred by the Company to complete the acquisition of TAMH was $182.9 million. The company transferred non-cash consideration of $7.3 million and its equity values of the previously mentioned LLCs.
The purchase price allocation is preliminary, pending completion of the full valuation report, finalization of deferred income taxes and working capital adjustments. A summarized preliminary purchase price allocation is as follows:
|
| | | |
| (in thousands) | |
| Non-cash consideration | $ | 7,318 |
|
| Investments contributed at fair value | 124,662 |
|
| Investment contributed at cost | 50,875 |
|
| Total purchase price consideration | $ | 182,855 |
|
The preliminary purchase price allocation at October 1, 2019, is as follows:
|
| | | |
| (in thousands) | |
| Cash and cash equivalents | $ | 47,042 |
|
| Accounts receivable | 12,175 |
|
| Inventories | 31,765 |
|
| Other current assets | 2,638 |
|
| Goodwill | 2,726 |
|
| Right of use asset | 5,200 |
|
| Other assets, net | 861 |
|
| Property, plant and equipment, net | 321,380 |
|
| | 423,787 |
|
| | |
| Trade and other payables | 13,461 |
|
| Accrued expense and other current liabilities | 3,011 |
|
| Other long-term liabilities | 209 |
|
| Long-term lease liabilities | 2,230 |
|
| Long-term debt, including current maturities | 47,886 |
|
| | 66,797 |
|
| Marathon Noncontrolling Interest | 174,135 |
|
| Net Assets Acquired | $ | 182,855 |
|
| | |
| Removal of preexisting ownership interest | $ | (88,426 | ) |
| Pretax gain on derecognition of preexisting ownership interest | $ | 36,286 |
|
Asset and liability account balances in the opening balance sheet above include the previously consolidated TADE investment balances at carryover basis.
The $2.7 million of goodwill recognized is primarily attributable to expected synergies and the assembled workforce of TAMH. None of the goodwill is expected to be deductible for income tax purposes.
The fair value in the opening balance sheet of the 49.9% noncontrolling interest in TAMH was estimated to be $174.1 million. The fair value was estimated based on 49.9% of the total equity value of TAMH based on the transaction price for the 50.1% stake in TAMH, considering the consideration transferred noted above.
Pro Forma Financial Information (Unaudited)
The summary pro forma financial information for the periods presented below gives effect to the LTG and TAMH acquisitions as if they had occurred at January 1, 2018.
|
| | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2019 | | 2018 |
| Net sales | $ | 8,377,863 |
| | $ | 8,588,978 |
|
| Net income | (24,475 | ) | | 77,007 |
|
Pro forma net income was also adjusted to account for the tax effects of the pro forma adjustments noted above using a statutory tax rate of 25%. The amount of LTG’s and Thompsons’ revenue and earnings included in the Company’s consolidated statement of operations for the period ended December 31, 2019 are not practicable to determine given the level of integration of LTG and Thompsons into the Company’s operations effective January 1, 2019. Additionally, the pro forma amounts for net income above have been adjusted to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to Property, plant and equipment had been applied on January 1, 2019 and 2018 related to the TAMH merger. The amounts of revenue and earnings in the Company's consolidated income statement in relation to the TAMH merger, since the acquisition date are $50.7 million of net sales and $5.1 million of net loss at the Company's ownership level.
Pro forma financial information is not necessarily indicative of the Company's actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost savings that the Company believes are achievable.
18.19. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2019, 2018 and 2017 are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Trade | | Plant Nutrient | | Rail | | Ethanol | | Total |
| Balance at January 1, 2017 | | $ | — |
| | $ | 59,767 |
| | $ | 4,167 |
| | $ | — |
| | $ | 63,934 |
|
| Acquisitions | | 1,171 |
| | — |
| | — |
| | — |
| | 1,171 |
|
| Impairments | | — |
| | (59,081 | ) | | — |
| | — |
| | (59,081 | ) |
| Balance at December 31, 2017 | | 1,171 |
| | 686 |
| | 4,167 |
| | — |
| | 6,024 |
|
| Acquisitions | | — |
| | — |
| | — |
| | — |
| | — |
|
| Impairments | | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2018 | | 1,171 |
| | 686 |
| | 4,167 |
| | — |
| | 6,024 |
|
| Acquisitions | | 126,610 |
| | — |
| | — |
| | 2,726 |
| | 129,336 |
|
| Impairments | | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2019 | | $ | 127,781 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 2,726 |
| | $ | 135,360 |
|
Goodwill for the Trade segment is $127.8 million and net of accumulated impairment losses of $46.4 million as of December 31, 2019. Goodwill for the Plant Nutrient segment is $0.7 million and net of accumulated impairment losses of $68.9 million as of December 31, 2019.
Goodwill is tested for impairment annually as of October 1, or more frequently if impairment indicators arise. The Company uses a one-step quantitative approach that compares the business enterprise value ("BEV") of each reporting unit with its carrying value. The BEV was computed based on both an income approach (discounted cash flows) and a market approach. The income approach uses a reporting unit's estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. The market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics to the reporting unit. Any excess of the carrying value of the goodwill over the BEV will be recorded as an impairment loss. The calculation of the BEV is based on significant unobservable inputs, such as price trends, customer demand, material costs and discount rates, and are classified as Level 3 in the fair value hierarchy. NaN goodwill impairment charges were incurred in 2019 or 2018 as a result of our annual impairment testing.
During 2017, the Company recorded impairment charges totaling $59.1 million related to the Wholesale reporting unit with the Plant Nutrient segment. As a result, there is no remaining goodwill in the Wholesale reporting unit.
The Company's other intangible assets are as follows:
|
| | | | | | | | | | | | | | | |
| (in thousands) | Useful Life (in years) | | Original Cost | | Accumulated Amortization | | Net Book Value |
| December 31, 2019 | | | | | | | | | |
| Intangible asset class | | | | | | | | | |
| Customer list | 3 | to | 10 | | $ | 131,832 |
| | $ | 33,971 |
| | $ | 97,861 |
|
| Non-compete agreements | 1 | to | 7 | | 23,813 |
| | 12,446 |
| | 11,367 |
|
| Supply agreement | 10 | to | 10 | | 9,060 |
| | 6,526 |
| | 2,534 |
|
| Technology | 10 | to | 10 | | 13,400 |
| | 6,197 |
| | 7,203 |
|
| Trademarks and patents | 7 | to | 10 | | 15,810 |
| | 9,491 |
| | 6,319 |
|
| Lease intangible | 1 | to | 8 | | 9,744 |
| | 4,600 |
| | 5,144 |
|
| Software | 2 | to | 10 | | 90,836 |
| | 46,010 |
| | 44,826 |
|
| Other | 3 | to | 5 | | 445 |
| | 387 |
| | 58 |
|
| | | | | | $ | 294,940 |
| | $ | 119,628 |
| | $ | 175,312 |
|
| December 31, 2018 | | | | | | | | | |
| Intangible asset class | | | | | | | | | |
| Customer list | 3 | to | 10 | | $ | 40,570 |
| | $ | 21,706 |
| | $ | 18,864 |
|
| Non-compete agreement | 1 | to | 7 | | 3,313 |
| | 2,753 |
| | 560 |
|
| Supply agreement | 10 | to | 10 | | 9,060 |
| | 5,824 |
| | 3,236 |
|
| Technology | 10 | to | 10 | | 13,400 |
| | 4,857 |
| | 8,543 |
|
| Trademarks and patents | 7 | to | 10 | | 17,985 |
| | 7,682 |
| | 10,303 |
|
| Lease intangible | 1 | to | 8 | | 11,564 |
| | 3,602 |
| | 7,962 |
|
| Software | 2 | to | 10 | | 86,723 |
| | 37,112 |
| | 49,611 |
|
| Other | 3 | to | 5 | | 419 |
| | 360 |
| | 59 |
|
| | | | | | $ | 183,034 |
| | $ | 83,896 |
| | $ | 99,138 |
|
Amortization expense for intangible assets was $35.4 million, $19.1 million and $18.1 million for 2019, 2018 and 2017, respectively. Expected future annual amortization expense for the above assets is as follows: 2020 -- $33.5 million; 2021 -- $32.1 million; 2022 -- $23.3 million; 2023 -- $22.1 million; and 2024 -- $18.8 million.
In December 2019, the Company recorded impairment charges of $2.5 million for intangibles in the Trade segment related to a frac sand non-compete agreement. The Company also recorded a $2.2 million impairment charge for brand related intangibles within the Plant Nutrient segment in the fourth quarter.
20. Sale of Assets
During 2019, the Trade Group sold the agronomy assets of Thompsons Limited, a wholly owned subsidiary, in Ontario, Canada for $25.1 million resulting in a pre-tax gain of $5.7 million recorded in Other income, net. The Plant Nutrient Group sold its farm center assets in Bay City, Michigan for $4.6 million resulting in a pre-tax gain of $2.9 million recorded in Other income, net. The Trade Group sold its assets in Union City, Tennessee for $0.6 million resulting in a pre-tax loss of $0.6 million in Other income, net.
During 2018, the Company sold its grain elevators in Humboldt, Kenton and Dyer, Tennessee for $19.5 million plus working capital during the second quarter of 2018 and its Como location for $1.3 million plus working capital during the third quarter of 2018. The Company sold 1 of its convertible preferred security investments for $6.4 million and recorded a pre-tax gain of $3.9 million in Other income, net. The Company sold 50 barge vessels for $26.9 million and recorded a pre-tax gain of $2.4 million in Other income, net. The Company sold its final retail property for $4.9 million and recorded a nominal gain.
During 2017, the Company sold three3 of its retail properties for $14.7 million and recorded a $8.6 million gain in Other income, net. Additionally, the Company recorded a $1.2 million gain in Other income, net for the sales of fixtures.
On March 31, 2017 the The Company also sold four4 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.
19. 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 exit charges of $11.5 million, consisting primarily of employee severance and related benefits.
The Company classified $37.9 million of Property, plant and equipment, net as Assets held for sale on the Consolidated Balance Sheet at December 31, 2017. This includes $19.5 million of Property, plant and equipment, net, $11.4 million of Inventories, and $1.2 million of Commodity derivative assets related to certain Western Tennessee locations in the Grain group. The Company classified $4.2 million and $1.6 million of additional Property, plant and equipment, net as Assets held for sale related to the remaining Retail store assets and administrative offices at an outlying location in the Plant Nutrient Group, respectively.
20.21. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of the unaudited quarterly results of operations for 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except for per common share data) | Sales and merchandising revenues | | Gross profit | | Net Income (loss) | | Net income (loss) attributable to The Andersons, Inc. | | Earnings (losses) per share-basic | | Earnings (losses) per share-diluted |
| Quarter ended 2019 | | | | | | | | | | | |
| March 31 | $ | 1,976,792 |
| | $ | 109,664 |
| | $ | (14,148 | ) | | $ | (13,993 | ) | | $ | (0.43 | ) | | $ | (0.43 | ) |
| June 30 | 2,325,041 |
| | 160,728 |
| | 29,411 |
| | 29,888 |
| | 0.92 |
| | 0.91 |
|
| September 30 | 1,982,755 |
| | 109,141 |
| | (5,870 | ) | | (4,237 | ) | | (0.13 | ) | | (0.13 | ) |
| December 31 | 1,885,603 |
| | 138,359 |
| | 5,667 |
| | 6,649 |
| | 0.20 |
| | 0.20 |
|
| Year ended 2019 | $ | 8,170,191 |
| | $ | 517,892 |
| | $ | 15,060 |
| | $ | 18,307 |
| | $ | 0.56 |
| | $ | 0.55 |
|
| | | | | | | | | | | | |
| Quarter ended 2018 | | | | | | | | | | | |
| March 31 | $ | 635,739 |
| | $ | 63,705 |
| | $ | (1,982 | ) | | $ | (1,700 | ) | | $ | (0.06 | ) | | $ | (0.06 | ) |
| June 30 | 911,402 |
| | 90,474 |
| | 21,413 |
| | 21,529 |
| | 0.76 |
| | 0.76 |
|
| September 30 | 685,579 |
| | 53,864 |
| | (1,875 | ) | | (2,098 | ) | | (0.07 | ) | | (0.07 | ) |
| December 31 | 812,662 |
| | 93,962 |
| | 23,669 |
| | 23,753 |
| | 0.84 |
| | 0.83 |
|
| Year ended 2018 | $ | 3,045,382 |
| | $ | 302,005 |
| | $ | 41,225 |
| | $ | 41,484 |
| | $ | 1.47 |
| | $ | 1.46 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands, except for per common share data) | Sales and merchandising revenues | | Gross profit | | Net income (loss) attributable to The Andersons, Inc. | | Earnings (losses) per share-basic | | Earnings per share-diluted |
| Quarter ended 2017 | | | | | | | | | |
| March 31 | $ | 852,016 |
| | $ | 76,458 |
| | $ | (3,089 | ) | | $ | (0.11 | ) | | $ | (0.11 | ) |
| June 30 | 993,662 |
| | 87,834 |
| | (26,653 | ) | | (0.94 | ) | | (0.94 | ) |
| September 30 | 836,595 |
| | 69,671 |
| | 2,533 |
| | 0.09 |
| | 0.09 |
|
| December 31 | 1,004,072 |
| | 84,836 |
| | 69,720 |
| | 2.48 |
| | 2.47 |
|
| Year ended 2017 | $ | 3,686,345 |
| | $ | 318,799 |
| | $ | 42,511 |
| | 1.51 |
| | 1.50 |
|
| | | | | | | | | | |
| Quarter ended 2016 | | | | | | | | | |
| March 31 | $ | 887,879 |
| | $ | 67,755 |
| | $ | (14,696 | ) | | $ | (0.52 | ) | | $ | (0.52 | ) |
| June 30 | 1,064,244 |
| | 97,042 |
| | 14,423 |
| | 0.51 |
| | 0.51 |
|
| September 30 | 859,612 |
| | 77,015 |
| | 1,722 |
| | 0.06 |
| | 0.06 |
|
| December 31 | 1,113,055 |
| | 103,694 |
| | 10,145 |
| | 0.36 |
| | 0.36 |
|
| Year ended 2016 | $ | 3,924,790 |
| | $ | 345,506 |
| | $ | 11,594 |
| | 0.41 |
| | 0.41 |
|
Net income (loss) per share is computed independently for each of the quarters presented. As such, the summation of the quarterly amounts may not equal the total net income per share reported for the year.
21. Subsequent Events
On February 13, 2018, the Company signed an agreement to sell three of its Tennessee grain locations. These assets were written down to estimated selling price less costs to sell in the fourth quarter of 2017 and classified as assets held for sale at December 31, 2017. 90
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controlsUnder the supervision and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management of the Company, with the participation of itsour management, including the Chief Executive Officer and Chief Financial Officer, (its "certifying officers"), as appropriate, to allow timely decisions regarding required disclosure.
Management of the Company, with the participation of its certifying officers,we have evaluated the effectiveness of the Company'sour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) underrequired by Exchange Act Rule 13a-15(b) as of the Exchange Act.end of the period covered by this report. Based on that evaluation, the evaluation as of December 31, 2017, the certifying officersChief Executive Officer and Chief Financial Officer have concluded that the Company'sthese disclosure controls and procedures wereare effective.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the certifying officers, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We acquired Lansing Trade Group (“LTG”) on January 1, 2019 and during the fourth quarter of 2019 have finalized the integration of LTG processes and other components of internal control over financial reporting into our internal control structure. Based onupon the results ofevaluation under this evaluation,framework, management concluded that as of December 31, 2017, the Company'sour internal control over financial reporting was effective.effective as of December 31, 2019.
The effectiveness of the Company's internal control over financial reporting as of December 31, 20172019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included under Item 8 of this Annual Report on Form 10-K.below.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholdersshareholders and the Board of Directors of
The Andersons Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Andersons Inc. and subsidiaries (the "Company"“Company”) as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2019, of the Company and our report dated February 26, 2018,27, 2020, expressed an unqualified opinion on those financial statements based on our audit and included an explanatory paragraph regarding the reportsCompany’s change in method of other auditors.
accounting for leases due to the adoption of Accounting Standard Update No. 2016-02, Leases (ASC 842) and Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DeloitteDELOITTE & ToucheTOUCHE LLP
Cleveland, Ohio
February 26, 201827, 2020
Item 9B. Other Information
None.
Part III.
Item 10. Directors, and Executive Officers and Corporate Governance
The information required by this Item is set forth under the headings “Corporate Governance,” “Directors,” “Executive Officers” and “Other Information-Security Ownership of the Registrant
For information with respect to the executive officers of the registrant, see “Executive Officers of the Registrant” included in Part I of this report. For information with respect to the Directors of the registrant, see “Election of Directors”Certain Beneficial Owners and Management” in the Company’s 2020 Proxy Statement to be filed with the SEC within 120 days after December 31, 2019 in connection with the solicitation of proxies for the Annual MeetingCompany’s 2020 annual meeting of the Shareholders to be held on May 11, 2018 (the “Proxy Statement”), whichshareholders, and is incorporated herein by reference; for information concerning 1934 Securities and Exchange Act Section 16(a) Compliance, see such section in the Proxy Statement, incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption “Executive Compensation” in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the caption “Share Ownership” and “Executive Compensation - Equity Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under the caption “Review, Approval or Ratification of Transactions with Related Persons” in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information set forth under “Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.
Part IV.
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K
|
| | | | |
| | | |
(a) (1) |
| | The Consolidated Financial Statements of the Company are set forth under Item 8(a) Documents filed as a part of this report on Form 10-K. | |
| | |
(2 | ) | | The following consolidated financial statement schedule is included in Item 15(d): | Page |
| | |
| II. | Consolidated Valuation and Qualifying Accounts - years ended December 31, 2017, 2016 and 2015 | |
All other schedules for which provisions are made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
|
| | | | | | |
| | | | |
(3 | ) | | Exhibits: | | |
| | | |
| 3.1 |
| Articles of Incorporation. (Incorporated by reference to Exhibit 3(d) to Registration Statement No. 33-16936). | | |
| | | | |
| 3.2 |
| Code of Regulations of The Andersons, Inc. (Incorporated by reference to Exhibit 3.4 to Registration Statement No. 33-58963). | | |
| | | | |
| 3.3 |
| Amended Article Fourth (a) of the Amended and Restated Articles of Incorporation of the Corporation (Incorporated by reference to DEF 14A filed March 15, 2016). | | |
| | | | |
| 3.4 |
| Amendments to Articles of Incorporation or Bylaws (Incorporated by reference to Form 8-K filed July 19, 2017). | | |
| | | | |
| 4.1 |
| Form of Indenture dated as of October 1, 1985, between The Andersons, Inc. and Ohio Citizens Bank, as Trustee (Incorporated by reference to Exhibit 4 (a) in Registration Statement No. 33-819). | | |
| | | | |
| 4.2 |
| Specimen Common Share Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-58963). | | |
| | | | |
| 4.3 |
| Form of Indenture dated June 28, 2012, between The Andersons, Inc. and Huntington National Bank, as Trustee (Incorporated by reference to Exhibit 4.1 in Registration Statement No. 333-182428). | | |
| | | | |
| 10.10 |
| The Andersons, Inc. 2004 Employee Share Purchase Plan * (Incorporated by reference to Appendix B to the Proxy Statement for the May 13, 2004 Annual Meeting). | | |
| | | | |
| 10.11 |
| Note Purchase Agreement, dated March 27, 2008, between The Andersons, Inc., as borrowers, and several purchases with Wells Fargo Capital Markets acting as agent (Incorporated by reference from Form 8-K filed March 27, 2008). | | |
| | | |
| 10.12 |
| Amended and Restated Note Purchase Agreement, dated February 26, 2010, between The Andersons, Inc., as borrower, and Co-Bank, one of the lenders to the original agreement (Incorporated by reference from Form 8-K filed March 5, 2010). | | |
| | | | |
| 10.13 |
| Second Amended and Restated Marketing Agreement between The Andersons, Inc. and Cargill, Incorporated dated June 1, 2013. (The exhibits to the Marketing Agreement have been omitted. The Company will furnish such exhibits to the SEC upon request.) | | |
| | | | |
| 10.14 |
| First Amendment to Lease and Sublease between Cargill, Incorporated and The Andersons, Inc. dated June 1, 2013. (Incorporated by reference to Form 10-K filed February 28, 2014). | | |
| | | | |
| 10.15 |
| Form of Performance Share Unit Agreement. (Incorporated by reference to Form 10-K filed March 2, 2015). | | |
| | | | |
| 10.16 |
| Form of Restricted Share Award Agreement. (Incorporated by reference to Form 10-K filed March 2, 2015). | | |
| | | | |
|
| | | | | | |
| 10.17 |
| Fifth Amended and Restated Loan Agreement, dated March 4, 2014, between The Andersons, Inc., as borrower, and several banks with U.S. Bank National Association acting as agent and lender. (Incorporated by reference to Form 10-Q filed May 9, 2014). | | |
| | | | |
| 10.19 |
| The Andersons, Inc. 2014 Long-Term Incentive Compensation Plan effective May 2, 2014 * (Incorporated by reference to Appendix C to the Proxy Statement for the May 2, 2014 Annual Meeting). | | |
| | | | |
| 10.20 |
| Form of Performance Share Unit Agreement. (Incorporated by reference to Form 10-Q filed May 8, 2015). | | |
| | | | |
| 10.21 |
| Form of Restricted Share Award Agreement. (Incorporated by reference to Form 10-Q filed May 8, 2015). | | |
| | | | |
| 10.22 |
| Form of Restricted Share Award - Cliff Vesting Agreement. (Incorporated by reference to Form 10-Q filed May 8, 2015). | | |
| | | | |
| 10.23 |
| Employment Agreement between The Andersons, Inc. and Patrick E. Bowe (Incorporated by reference to Form 8-K filed November 5, 2015). | | |
| | | | |
| 10.24 |
| Form of Performance Share Unit Agreement - Total Shareholder Return. (Incorporated by reference to Form 10-Q filed May 10, 2016). | | |
| | | | |
| 10.25 |
| Form of Performance Share Unit Agreement - Earnings Per Share. (Incorporated by reference to Form 10-Q filed May 10, 2016). | | |
| | | | |
| 10.26 |
| Form of Restricted Share Award Agreement. (Incorporated by reference to Form 10-Q filed May 10, 2016). | | |
| | | | |
| 10.27 |
| Form of Restricted Share Award - Non-Employee Directors Agreement. (Incorporated by reference to Form 10-Q filed May 10, 2016). | | |
| | | | |
| 10.28 |
| Sixth Amended and Restated Loan Agreement, dated April 13, 2017, between The Andersons, Inc., as borrower, and several banks with U.S. Bank National Association acting as agent and lender. (Incorporated by reference to Form 8-K filed April 17, 2017).
| | |
| | | | |
| 10.29 |
| Form of Performance Share Unit Agreement - Total Shareholder Return. (Incorporated by reference to Form 10-Q filed May 5, 2017). | | |
| | | | |
| 10.30 |
| Form of Performance Share Unit Agreement - Earnings Per Share. (Incorporated by reference to Form 10-Q filed May 5, 2017). | | |
| | | | |
| 10.31 |
| Form of Restricted Share Award Agreement. (Incorporated by reference to Form 10-Q filed May 5, 2017). | | |
| | | | |
| 10.32 |
| Form of Restricted Share Award - Non-Employee Directors Agreement. (Incorporated by reference to Form 10-Q filed May 5, 2017). | | |
| | | | |
| 10.33 |
| Management Performance Program. (filed herewith). | | |
| | | | |
| 10.34 |
| Form of Change in Control and Severance Participation Agreement (filed herewith). | | |
| | | | |
| 10.35 |
| Change in Control and Severance Policy (filed herewith). | | |
| | | | |
| 12 |
| Computation of Ratio of Earnings to Fixed Charges (filed herewith). | | |
| | | | |
| 21 |
| Consolidated Subsidiaries of The Andersons, Inc (filed herewith). | | |
| | | | |
| 23.1 |
| Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP (filed herewith). | | |
| | | | |
| 23.2 |
| Consent of Independent Registered Public Accounting Firm - KPMG LLP (filed herewith). | | |
| | | | |
| 23.3 |
| Consent of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP - Canada (filed herewith). | | |
| | | | |
| 23.4 |
| Consent of Independent Registered Public Accounting Firm - Crowe Chizek LLP (filed herewith). | | |
|
| | | | | | |
| 31.1 |
| Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith). | | |
| | | | |
| 31.2 |
| Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a) (filed herewith). | | |
| | | | |
| 32.1 |
| Certifications Pursuant to 18 U.S.C. Section 1350 (filed herewith). | | |
| | | | |
| 101 |
| Financial statements from the annual report on Form 10-K of The Andersons, Inc. for the year ended December 31, 2017, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to Consolidated Financial Statements. | | |
* Management contract or compensatory plan.
|
| | | |
| | 1. | | |
(b) | | Exhibits: | |
| | |
| | The exhibits listed in Item 15(a)(3) of this report, and not incorporated by reference, follow "Financial Statement Schedule" referred to in (c) below. | Financial Statements |
| | | | The Consolidated Financial Statements of the Company are set forth under Item 8 of this report on Form 10-K. |
(c) | |
| 2. | Financial Statement Schedule | Schedules |
| | | |
| | The financial statement schedule listed | this Form 10-K. All other schedules are not required under the related instructions or are not applicable. |
(b) Exhibit Listing
|
| | | | | | | | | |
| | Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date/ Period End Date |
| | 2.1 | | Agreement and Plan of Merger among The Andersons, Inc., Brisket Merger Sub 1, LLC, Brisket Merger Sub 2, LLC, Brisket Merger Sub 3, LLC, LGC Group, Inc. and Lansing Trade Group, LLC, dated October 15, 2018. | | 8-K | | 2.1 | | October 15, 2018 |
| | | | | | | | | | |
| | 2.2 | | | | 10-K | | 2.2 | | December 31, 2018 |
| | | | | | | | | | |
| | 2.3 | | | | 10-K | | 2.3 | | December 31, 2018 |
| | | | | | | | | | |
| | 3.1** | | | | | | | | |
| | | | | | | | | | |
| | 3.2 | | | | S-4/A | | Annex B | | May 19, 1995 |
| | | | | | | | | | |
| | 4.1 | | Form of Indenture dated as of October 1, 1985, between The Andersons, Inc. and Ohio Citizens Bank, as Trustee. (the Company will furnish the document to the SEC upon request). | | S-3 | | 4(a) | | October 1, 1985 |
| | | | | | | | | | |
| | 4.2 | | | | S-4/A | | 4.1 | | May 19, 1995 |
| | | | | | | | | | |
| | 4.3 | | | | S-3 | | 4.1 | | June 29, 2012 |
| | | | | | | | | | |
| | 10.01 | | | | 10-K | | 10.11 | | December 31, 2018 |
| | | | | | | | | | |
| | 10.02 | | | | 10-K | | 10.58 | | December 31, 2013 |
| | | | | | | | | | |
| | 10.03 | | | | 8-K | | 10.2 | | June 28, 2018 |
| | | | | | | | | | |
| | 10.04 | | | | 8-K | | 10.1 | | June 28, 2018 |
| | | | | | | | | | |
| | 10.05* | | | | DEF 14A | | Appendix B | | March 19, 2019 |
| | | | | | | | | | |
|
| | | | | | | | | |
| | Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date/ Period End Date |
| | 10.06 | | | | DEF 14A | | Appendix C | | March 12, 2014 |
| | | | | | | | | | |
| | 10.07* | | | | DEF 14A | | Appendix C | | March 19, 2019 |
| | | | | | | | | | |
| | 10.08* | | | | 10-Q | | 10 | | September 30, 2015 |
| | | | | | | | | | |
| | 10.09* | | | | 10-K | | 10.33 | | December 31, 2017 |
| | | | | | | | | | |
| | 10.10 | | | | 10-K | | 10.34 | | December 31, 2017 |
| | | | | | | | | | |
| | 10.11 | | | | 10-K | | 10.35 | | December 31, 2017 |
| | | | | | | | | | |
| | 10.12* | | | | 10-Q | | 10.1 | | March 31, 2018 |
| | | | | | | | | | |
| | 10.13* | | | | 10-Q | | 10.2 | | March 31, 2018 |
| | | | | | | | | | |
| | 10.14* | | | | 10-Q | | 10.3 | | March 31, 2018 |
| | | | | | | | | | |
| | 10.15* | | | | 10-Q | | 10.4 | | March 31, 2018 |
| | | | | | | | | | |
| | 10.16 | | | | 8-K | | 10.1 | | August 7, 2018 |
| | | | | | | | | | |
| | 10.17* | | | | S-8 | | 4 | | December 21, 2018 |
| | | | | | | | | | |
| | 10.18* | | | | S-8 | | 10.1 | | December 21, 2018 |
| | | | | | | | | | |
| | 10.19* | | | | 8-K | | 10 | | January 2, 2019 |
| | | | | | | | | | |
| | 10.20 | | | | 8-K | | 10.1 | | January 14, 2019 |
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| | 10.21* | | | | 10-Q | | 10.3 | | March 31, 2019 |
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| | 10.22* | | | | 10-Q | | 10.4 | | March 31, 2019 |
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| | 10.23* | | | | 10-Q | | 10.1 | | June 30, 2019 |
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| | 10.24* | | | | 10-Q | | 10.2 | | June 30, 2019 |
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| | Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date/ Period End Date |
| | 10.25 | | | | 8-K | | 10.1 | | October 3, 2019 |
| | | | | | | | | | |
| | 10.26 | | | | 8-K | | 10.2 | | October 3, 2019 |
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| | 10.27 | | | | 8-K | | 10.1 | | November 18, 2019 |
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| | 10.28 | | | | 8-K | | 10.1 | | December 17, 2019 |
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| | 21.1** | | | | | | | | |
| | | | | | | | | | |
| | 23.1** | | | | | | | | |
| | | | | | | | | | |
| | 23.2** | | | | | | | | |
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| | 23.3** | | | | | | | | |
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| | 23.4** | | | | | | | | |
| | | | | | | | | | |
| | 31.1** | | | | | | | | |
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| | 31.2** | | | | | | | | |
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| | 32.1*** | | | | | | | | |
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| | 95** | | | | | | | | |
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| | 101** | | Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. | | | | | | |
| | | | | | | | | | |
| | 104** | | Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set. | | | | | | |
| | | | | | | | | | |
| | * Indicates management contract or compensatory plan or arrangement. |
| | ** Filed herewith. |
| | *** Furnished herewith. |
Item 16. Form 10-K Summary
Not applicable
THE ANDERSONS, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
|
| | | | | | | | | | | | | | | |
| (in thousands) | | Additions | | |
Allowance for doubtful accounts receivable - Year ended December 31,
| Balance at beginning of period | Charged to costs and expenses | Transferred from (to) allowance for accounts / notes receivable | (1) Deductions | Balance at end of period |
| 2017 | $ | 7,706 |
| $ | 3,000 |
| $ | — |
| $ | (1,550 | ) | $ | 9,156 |
|
| 2016 | 6,938 |
| 1,191 |
| — |
| (423 | ) | 7,706 |
|
| 2015 | 4,644 |
| 3,302 |
| — |
| (1,008 | ) | 6,938 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | | | |
| Description (in thousands) | | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Deductions (1) | | Balance at end of period |
| Allowance for doubtful accounts receivable | | | | | | | | | | |
| 2019 | | $ | 8,325 |
| | $ | 4,678 |
| | $ | — |
| | $ | (222 | ) | | $ | 12,781 |
|
| 2018 | | 9,156 |
| | 542 |
| | — |
| | (1,373 | ) | | 8,325 |
|
| 2017 | | 7,706 |
| | 3,000 |
| | — |
| | (1,550 | ) | | 9,156 |
|
(1) Uncollectible accounts written off, net of recoveries and adjustments to estimates for the allowance for doubtful accounts receivable accounts.
THE ANDERSONS, INC.
EXHIBIT INDEX
|
| | |
| | |
No. | | Description |
| |
10.33 | | |
| | |
10.34 | | |
| | |
10.35 | | |
| | |
12 | | |
| |
21 | | |
| | |
23.1 | | |
| | |
23.2 | | |
| | |
23.3 | | |
| | |
23.4 | | |
| | |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| | |
101 | | Financial Statements from the annual report on Form 10-K of The Andersons, Inc. for the year ended December 31, 2017, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | | THE ANDERSONS, INC. (Registrant) |
| | |
Date: February 26, 201827, 2020 | | By /s/ Patrick E. Bowe |
| | | Patrick E. Bowe |
| | | Chief Executive Officer (Principal Executive Officer) |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | | | |
| Signature | Title | Date | | Signature | Title | Date |
| /s/ Patrick E. Bowe | Chief Executive Officer | 2/26/201827/2020 | | /s/ Catherine M. Kilbane | Director | 2/27/2020 |
| Patrick E. Bowe | (Principal Executive Officer) | | | Catherine M. Kilbane | | |
| | | | | | |
| /s/ Brian A. Valentine | Executive Vice President and Chief Financial Officer | 2/27/2020 | | /s/ Ross W. Manire | Director | 2/26/201827/2020 |
Patrick E. BoweBrian A. Valentine | (Principal ExecutiveFinancial Officer) | | | Ross W. Manire | | |
| | | | | | | |
/s/ John J. GranatoMichael T. Hoelter | Chief Financial Officer | 2/26/2018 | | /s/ Donald L. Mennel | Director | 2/26/2018 |
John J. Granato | (Principal Financial Officer) | | | Donald L. Mennel | | |
| | | | | | |
/s/ Anne G. Rex | Vice President, Corporate Controller | 2/26/201827/2020 | | /s/ Patrick S. Mullin | Director | 2/26/201827/2020 |
Anne G. RexMichael T. Hoelter | (Principal Accounting Officer) | | | Patrick S. Mullin | | |
| | | | | | | |
| /s/ Michael J. Anderson, Sr. | Chairman | 2/26/201827/2020 | | /s/ John T. Stout, Jr. | Director | 2/26/201827/2020 |
| Michael J. Anderson, Sr. | | | | John T. Stout, Jr. | | |
| | | | | | | |
| /s/ Gerard M. Anderson | Director | 2/26/201827/2020 | | /s/ Jacqueline F. Woods | Director | 2/26/201827/2020 |
| Gerard M. Anderson | | | | Jacqueline F. Woods | | |
| | | | | | | |
/s/ Catherine M. KilbaneStephen F. Dowdle | Director | 2/26/201827/2020 | | /s/ Robert J. King, Jr. | Director | 2/26/201827/2020 |
Catherine M. KilbaneStephen F. Dowdle | | | | Robert J. King, Jr. | | |
| | | | | | | |
| /s/ Pamela S. Hershberger | Director | 2/27/2020 | | | | |
| Pamela S. Hershberger | | | | | | |
