UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019March 31, 2020
|
| |
☐ | 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 000-20557
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
|
| | | |
Ohio | | 34-1562374 |
(State of incorporation or organization) | | (I.R.S. Employer Identification No.) |
|
| | | | | |
1947 Briarfield Boulevard | | |
Maumee | Ohio | | | 43537 |
(Address of principal executive offices) | | | (Zip Code) |
(419) 893-5050
(Telephone Number)
(Former name, former address and former fiscal year, if changed since last report.)
|
| | | | |
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 |
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. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically 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 registrant was required to submit such files. files). Yes ý No ¨
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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | |
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. | ☐ |
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 registrant had approximately 32.632.9 million common shares outstanding at July 26, 2019.April 24, 2020.
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 |
THE ANDERSONS, INC.
INDEX
|
| |
| Page No. |
PART I. FINANCIAL INFORMATION | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
PART II. OTHER INFORMATION | |
| |
| |
| |
| |
| |
Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands) | The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands) | The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands) |
| | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Assets | | | | | | | | | | |
Current assets: | | | | | | | | | | |
Cash and cash equivalents | $ | 11,087 |
| | $ | 22,593 |
| | $ | 58,611 |
| |
Cash, cash equivalents and restricted cash | | $ | 19,693 |
| | $ | 54,895 |
| | $ | 29,991 |
|
Accounts receivable, net | 712,294 |
| | 207,285 |
| | 218,476 |
| 539,671 |
| | 536,367 |
| | 611,290 |
|
Inventories (Note 2) | 753,641 |
| | 690,804 |
| | 495,611 |
| |
Commodity derivative assets – current (Note 5) | 233,015 |
| | 51,421 |
| | 54,259 |
| |
| | 1,028,076 |
| | 1,170,536 |
| | 1,026,465 |
|
Commodity derivative assets – current (Note 5) | | 149,070 |
| | 107,863 |
| | 158,277 |
|
Other current assets | 58,439 |
| | 50,703 |
| | 42,648 |
| 85,372 |
| | 75,681 |
| | 60,586 |
|
Assets held for sale | 151 |
| | 392 |
| | 9,816 |
| |
Total current assets | 1,768,627 |
| | 1,023,198 |
| | 879,421 |
| 1,821,882 |
| | 1,945,342 |
| | 1,886,609 |
|
Other assets: | | | | | | | | | | |
Commodity derivative assets – noncurrent (Note 5) | 6,161 |
| | 480 |
| | 1,008 |
| |
Goodwill | 135,872 |
| | 6,024 |
| | 6,024 |
| 135,360 |
| | 135,360 |
| | 119,641 |
|
Other intangible assets, net | 188,818 |
| | 99,138 |
| | 105,289 |
| 167,398 |
| | 175,312 |
| | 206,572 |
|
Right of use assets, net | 74,073 |
| | — |
| | — |
| 62,182 |
| | 76,401 |
| | 85,766 |
|
Equity method investments | | 22,910 |
| | 23,857 |
| | 121,781 |
|
Other assets, net | 21,841 |
| | 22,341 |
| | 26,888 |
| 24,305 |
| | 21,753 |
| | 30,449 |
|
Equity method investments | 120,929 |
| | 242,326 |
| | 232,159 |
| |
| 547,694 |
| | 370,309 |
| | 371,368 |
| |
Rail Group assets leased to others, net (Note 3) | 559,711 |
| | 521,785 |
| | 458,424 |
| |
Property, plant and equipment, net (Note 3) | 695,827 |
| | 476,711 |
| | 408,575 |
| |
Total other assets | | 412,155 |
| | 432,683 |
| | 564,209 |
|
Rail Group assets leased to others, net (Note 3) | | 597,069 |
| | 584,298 |
| | 537,629 |
|
Property, plant and equipment, net (Note 3) | | 921,585 |
| | 938,418 |
| | 671,805 |
|
Total assets | $ | 3,571,859 |
| | $ | 2,392,003 |
| | $ | 2,117,788 |
| $ | 3,752,691 |
| | $ | 3,900,741 |
| | $ | 3,660,252 |
|
The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) | The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) | The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) |
| | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Liabilities and equity | | | | | | | | | | |
Current liabilities: | | | | | | | | | | |
Short-term debt (Note 4) | $ | 426,125 |
| | $ | 205,000 |
| | $ | 185,000 |
| |
| | $ | 392,450 |
| | $ | 147,031 |
| | $ | 434,304 |
|
Trade and other payables | 527,250 |
| | 462,535 |
| | 282,221 |
| 553,416 |
| | 873,081 |
| | 590,258 |
|
Customer prepayments and deferred revenue | 49,761 |
| | 32,533 |
| | 16,103 |
| 121,148 |
| | 133,585 |
| | 148,345 |
|
Commodity derivative liabilities – current (Note 5) | 69,369 |
| | 32,647 |
| | 85,160 |
| |
Commodity derivative liabilities – current (Note 5) | | 90,491 |
| | 46,942 |
| | 66,623 |
|
Current maturities of long-term debt (Note 4) | | 80,758 |
| | 62,899 |
| | 55,160 |
|
Accrued expenses and other current liabilities | 165,383 |
| | 79,046 |
| | 74,512 |
| 147,225 |
| | 176,381 |
| | 151,648 |
|
Current maturities of long-term debt (Note 4) | 66,678 |
| | 21,589 |
| | 13,700 |
| |
Total current liabilities | 1,304,566 |
| | 833,350 |
| | 656,696 |
| 1,385,488 |
| | 1,439,919 |
| | 1,446,338 |
|
Long-term lease liabilities | 48,401 |
| | — |
| | — |
| 43,308 |
| | 51,091 |
| | 57,451 |
|
Long-term debt, less current maturities (Note 4) | | 987,526 |
| | 1,016,248 |
| | 982,025 |
|
Deferred income taxes | | 156,804 |
| | 146,155 |
| | 138,598 |
|
Other long-term liabilities | 18,398 |
| | 32,184 |
| | 30,325 |
| 65,703 |
| | 51,673 |
| | 37,554 |
|
Commodity derivative liabilities – noncurrent (Note 5) | 3,985 |
| | 889 |
| | 3,202 |
| |
Employee benefit plan obligations | 22,019 |
| | 22,542 |
| | 26,131 |
| |
Long-term debt, less current maturities (Note 4) | 1,007,012 |
| | 496,187 |
| | 435,580 |
| |
Deferred income taxes | 146,839 |
| | 130,087 |
| | 118,864 |
| |
Total liabilities | 2,551,220 |
| | 1,515,239 |
| | 1,270,798 |
| 2,638,829 |
| | 2,705,086 |
| | 2,661,966 |
|
Commitments and contingencies (Note 15) |
| |
| |
| |
Commitments and contingencies (Note 13) | |
| |
| |
|
Shareholders’ equity: | | | | | | | | | | |
Common shares, without par value (63,000 shares authorized; 33,357 shares issued at 6/30/2019, 29,430 shares issued at 12/31/2018 and 6/30/2018) | 137 |
| | 96 |
| | 96 |
| |
Common shares, without par value (63,000 shares authorized; 33,550 shares issued at 3/31/2020, 12/31/2019 and 3/31/2019) | | 137 |
| | 137 |
| | 137 |
|
Preferred shares, without par value (1,000 shares authorized; none issued) | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
Additional paid-in-capital | 331,186 |
| | 224,396 |
| | 223,259 |
| 341,382 |
| | 345,359 |
| | 324,753 |
|
Treasury shares, at cost (173, 936 and 943 shares at 6/30/2019, 12/31/2018 and 6/30/2018, respectively) | (6,449 | ) | | (35,300 | ) | | (35,561 | ) | |
Treasury shares, at cost (21, 207 and 193 shares at 3/31/2020, 12/31/2019 and 3/31/2019, respectively) | | (652 | ) | | (7,342 | ) | | (7,216 | ) |
Accumulated other comprehensive income (loss) | (6,241 | ) | | (6,387 | ) | | (5,347 | ) | (27,649 | ) | | (7,231 | ) | | 2,474 |
|
Retained earnings | 651,481 |
| | 647,517 |
| | 635,438 |
| 599,039 |
| | 642,687 |
| | 627,136 |
|
Total shareholders’ equity of The Andersons, Inc. | 970,114 |
| | 830,322 |
| | 817,885 |
| 912,257 |
| | 973,610 |
| | 947,284 |
|
Noncontrolling interests | 50,525 |
| | 46,442 |
| | 29,105 |
| 201,605 |
| | 222,045 |
| | 51,002 |
|
Total equity | 1,020,639 |
| | 876,764 |
| | 846,990 |
| 1,113,862 |
| | 1,195,655 |
| | 998,286 |
|
Total liabilities and equity | $ | 3,571,859 |
| | $ | 2,392,003 |
| | $ | 2,117,788 |
| $ | 3,752,691 |
| | $ | 3,900,741 |
| | $ | 3,660,252 |
|
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Sales and merchandising revenues | $ | 2,325,041 |
| | $ | 911,402 |
| | $ | 4,301,833 |
| | $ | 1,547,141 |
|
Cost of sales and merchandising revenues | 2,164,313 |
| | 820,928 |
| | 4,031,441 |
| | 1,392,962 |
|
Gross profit | 160,728 |
| | 90,474 |
| | 270,392 |
| | 154,179 |
|
Operating, administrative and general expenses | 106,918 |
| | 59,853 |
| | 220,267 |
| | 124,110 |
|
Asset impairment | 3,081 |
| | 6,272 |
| | 3,081 |
| | 6,272 |
|
Interest expense | 15,727 |
| | 7,825 |
| | 31,637 |
| | 14,824 |
|
Other income: | | | | | | | |
Equity in earnings (loss) of affiliates, net | (157 | ) | | 9,803 |
| | 1,362 |
| | 13,376 |
|
Other income (loss), net | 5,563 |
| | 2,828 |
| | 4,049 |
| | 4,514 |
|
Income (loss) before income taxes | 40,408 |
| | 29,155 |
| | 20,818 |
| | 26,863 |
|
Income tax provision (benefit) | 10,997 |
| | 7,742 |
| | 5,555 |
| | 7,432 |
|
Net income (loss) | 29,411 |
| | 21,413 |
| | 15,263 |
| | 19,431 |
|
Net income (loss) attributable to the noncontrolling interests | (477 | ) | | (116 | ) | | (632 | ) | | (398 | ) |
Net income (loss) attributable to The Andersons, Inc. | $ | 29,888 |
| | $ | 21,529 |
| | $ | 15,895 |
| | $ | 19,829 |
|
Per common share: | | | | | | | |
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 0.92 |
| | $ | 0.76 |
| | $ | 0.49 |
| | $ | 0.70 |
|
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 0.91 |
| | $ | 0.76 |
| | $ | 0.48 |
| | $ | 0.70 |
|
|
| | | | | | | |
| Three months ended March 31, |
| 2020 | | 2019 |
Sales and merchandising revenues | $ | 1,853,105 |
| | $ | 1,976,792 |
|
Cost of sales and merchandising revenues | 1,789,975 |
| | 1,867,128 |
|
Gross profit | 63,130 |
| | 109,664 |
|
Operating, administrative and general expenses | 105,060 |
| | 113,349 |
|
Interest expense, net | 15,587 |
| | 15,910 |
|
Other income, net: | | | |
Equity in earnings of affiliates, net | 129 |
| | 1,519 |
|
Other income (loss), net | 4,813 |
| | (1,514 | ) |
Loss before income taxes | (52,575 | ) | | (19,590 | ) |
Income tax benefit | (1,464 | ) | | (5,442 | ) |
Net loss | (51,111 | ) | | (14,148 | ) |
Net loss attributable to the noncontrolling interests | (13,449 | ) | | (155 | ) |
Net loss attributable to The Andersons, Inc. | $ | (37,662 | ) | | $ | (13,993 | ) |
Per common share: | | | |
Basic loss attributable to The Andersons, Inc. common shareholders | $ | (1.15 | ) | | $ | (0.43 | ) |
Diluted loss attributable to The Andersons, Inc. common shareholders | $ | (1.15 | ) | | $ | (0.43 | ) |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income (loss) | $ | 29,411 |
| | $ | 21,413 |
| | $ | 15,263 |
| | $ | 19,431 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in fair value of convertible preferred securities (net of income tax of $0, $0, $0 and $(87)) | — |
| | — |
| | — |
| | (87 | ) |
Change in unrecognized actuarial loss and prior service cost (net of income tax of $(250), $(86), $(293) and $(101)) | (728 | ) | | (287 | ) | | (854 | ) | | (338 | ) |
Cash flow hedge activity (net of income tax of $(1,974), $17, $(3,175) and $17) | (5,952 | ) | | 51 |
| | (9,574 | ) | | 51 |
|
Foreign currency translation adjustments (net of income tax of $0, $0, $0 and $0) | (2,035 | ) | | (1,123 | ) | | 10,574 |
| | (2,273 | ) |
Other comprehensive income (loss) | (8,715 | ) | | (1,359 | ) | | 146 |
| | (2,647 | ) |
Comprehensive income (loss) | 20,696 |
| | 20,054 |
| | 15,409 |
| | 16,784 |
|
Comprehensive income (loss) attributable to the noncontrolling interests | (477 | ) | | (116 | ) | | (632 | ) | | (398 | ) |
Comprehensive income (loss) attributable to The Andersons, Inc. | $ | 21,173 |
| | $ | 20,170 |
| | $ | 16,041 |
| | $ | 17,182 |
|
|
| | | | | | | |
| Three months ended March 31, |
| 2020 | | 2019 |
Net loss | $ | (51,111 | ) | | $ | (14,148 | ) |
Other comprehensive income (loss), net of tax: | | | |
Change in unrecognized actuarial loss and prior service cost (net of income tax of $26 and $43) | (116 | ) | | (126 | ) |
Cash flow hedge activity (net of income tax of $4,519 and $1,201) | (13,663 | ) | | (3,622 | ) |
Foreign currency translation adjustments (net of income tax of $0 for both periods) | (6,639 | ) | | 12,609 |
|
Other comprehensive income (loss) | (20,418 | ) | | 8,861 |
|
Comprehensive loss | (71,529 | ) | | (5,287 | ) |
Comprehensive loss attributable to the noncontrolling interests | (13,449 | ) | | (155 | ) |
Comprehensive loss attributable to The Andersons, Inc. | $ | (58,080 | ) | | $ | (5,132 | ) |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
| | | Six months ended June 30, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Operating Activities | | | | | | |
Net income (loss) | $ | 15,263 |
| | $ | 19,431 |
| |
Net loss | | $ | (51,111 | ) | | $ | (14,148 | ) |
Adjustments to reconcile net income (loss) to cash used in operating activities: | | | | | | |
Depreciation and amortization | 64,146 |
| | 45,232 |
| 46,898 |
| | 33,760 |
|
Bad debt expense (recovery) | 1,703 |
| | (837 | ) | |
Equity in (earnings) losses of affiliates, net of dividends | (1,034 | ) | | (11,192 | ) | |
Bad debt expense | | 4,310 |
| | 318 |
|
Equity in earnings of affiliates, net of dividends | | (129 | ) | | (1,465 | ) |
Gains on sales of Rail Group assets and related leases | (1,298 | ) | | (3,989 | ) | (645 | ) | | (736 | ) |
Loss (gain) on sales of assets | 106 |
| | (342 | ) | |
Stock-based compensation expense | 7,292 |
| | 3,006 |
| 2,880 |
| | 4,799 |
|
Deferred federal income tax | 5,793 |
| | — |
| 16,474 |
| | (5,640 | ) |
Asset impairment | 3,081 |
| | 6,272 |
| |
Inventory write down | | 10,571 |
| | — |
|
Other | 1,102 |
| | (138 | ) | 4,001 |
| | 4,528 |
|
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | (181,917 | ) | | (33,859 | ) | (11,737 | ) | | (79,295 | ) |
Inventories | 394,630 |
| | 151,095 |
| 122,323 |
| | 124,741 |
|
Commodity derivatives | (82,933 | ) | | 34,850 |
| 1,231 |
| | (9,149 | ) |
Other assets | 27,420 |
| | 17,552 |
| (10,887 | ) | | 11,337 |
|
Payables and other accrued expenses | (338,201 | ) | | (271,010 | ) | (362,609 | ) | | (191,095 | ) |
Net cash provided by (used in) operating activities | (84,847 | ) | | (43,929 | ) | |
Net cash used in operating activities | | (228,430 | ) | | (122,045 | ) |
Investing Activities | | | | | | |
Acquisition of business, net of cash acquired | (147,693 | ) | | — |
| — |
| | (147,343 | ) |
Purchases of Rail Group assets | (43,435 | ) | | (68,087 | ) | (13,270 | ) | | (15,873 | ) |
Proceeds from sale of Rail Group assets | 7,389 |
| | 40,967 |
| 2,405 |
| | 1,948 |
|
Purchases of property, plant and equipment and capitalized software | (87,209 | ) | | (54,300 | ) | (19,307 | ) | | (44,728 | ) |
Proceeds from sale of assets | 795 |
| | 34,981 |
| 36 |
| | 400 |
|
Purchase of investments | (1,240 | ) | | — |
| (280 | ) | | (240 | ) |
Net cash provided by (used in) investing activities | (271,393 | ) | | (46,439 | ) | |
Net cash used in investing activities | | (30,416 | ) | | (205,836 | ) |
Financing Activities | | | | | | |
Net change in short-term borrowings | (660 | ) | | 163,000 |
| 251,712 |
| | 9,942 |
|
Proceeds from issuance of long-term debt | 748,099 |
| | 50,000 |
| 90,736 |
| | 693,761 |
|
Payments of long-term debt | (390,528 | ) | | (110,150 | ) | (104,913 | ) | | (361,067 | ) |
Proceeds from noncontrolling interest owner | 4,715 |
| | 21,806 |
| |
Contributions by noncontrolling interest owner | | 3,307 |
| | 4,715 |
|
Distributions to noncontrolling interest owner | | (10,298 | ) | | — |
|
Payments of debt issuance costs | (5,788 | ) | | (787 | ) | (250 | ) | | (5,788 | ) |
Dividends paid | (11,041 | ) | | (9,312 | ) | (5,723 | ) | | (5,515 | ) |
Other | (387 | ) | | (497 | ) | (994 | ) | | 2 |
|
Net cash provided by (used in) financing activities | 344,410 |
| | 114,060 |
| |
Effect of exchange rates on cash and cash equivalents | 324 |
| | — |
| |
Increase (Decrease) in cash and cash equivalents | (11,506 | ) | | 23,692 |
| |
Cash and cash equivalents at beginning of period | 22,593 |
| | 34,919 |
| |
Cash and cash equivalents at end of period | $ | 11,087 |
| | $ | 58,611 |
| |
Net cash provided by financing activities | | 223,577 |
| | 336,050 |
|
Effect of exchange rates on cash, cash equivalents and restricted cash | | 67 |
| | (771 | ) |
Increase (Decrease) in cash, cash equivalents and restricted cash | | (35,202 | ) | | 7,398 |
|
Cash, cash equivalents and restricted cash at beginning of period | | 54,895 |
| | 22,593 |
|
Cash, cash equivalents and restricted cash at end of period | | $ | 19,693 |
| | $ | 29,991 |
|
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at March 31, 2018 | $ | 96 |
| | $ | 221,990 |
| | $ | (36,028 | ) | | $ | (3,988 | ) | | $ | 618,572 |
| | $ | 22,115 |
| | $ | 822,757 |
|
Net income (loss) | | | | | | | | | 21,529 |
| | (116 | ) | | 21,413 |
|
Other comprehensive income (loss) | | | | | | | (1,359 | ) | | | | | | (1,359 | ) |
Cash received from noncontrolling interest | | | | | | | | | | | 7,106 |
| | 7,106 |
|
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (12 shares) | | | 1,269 |
| | 467 |
| | | | | | | | 1,736 |
|
Dividends declared ($0.165 per common share) | | | | | | | | | (4,663 | ) | | | | (4,663 | ) |
Balance at June 30, 2018 | $ | 96 |
| | $ | 223,259 |
| | $ | (35,561 | ) | | $ | (5,347 | ) | | $ | 635,438 |
| | $ | 29,105 |
| | $ | 846,990 |
|
| | | | | | | | | | | | | |
Balance at March 31, 2019 | $ | 137 |
| | $ | 324,753 |
| | $ | (7,216 | ) | | $ | 2,474 |
| | $ | 627,136 |
| | $ | 51,002 |
| | $ | 998,286 |
|
Net income (loss) | | | | | | | | | 29,888 |
| | (477 | ) | | 29,411 |
|
Other comprehensive income (loss) | | | | | | | (8,544 | ) | | | | | | (8,544 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | (171 | ) | | | | | | (171 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (20 shares) | | | 1,738 |
| | 754 |
| | | | | | | | 2,492 |
|
Dividends declared ($0.170 per common share) | | | | | | | | | (5,530 | ) | | | | (5,530 | ) |
Stock award purchase price accounting adjustment | | | 4,695 |
| | | | | | | | | | 4,695 |
|
Restricted share award dividend equivalents | | | | | 13 |
| | | | (13 | ) | | | | — |
|
Balance at June 30, 2019 | $ | 137 |
| | $ | 331,186 |
| | $ | (6,449 | ) | | $ | (6,241 | ) | | $ | 651,481 |
| | $ | 50,525 |
| | $ | 1,020,639 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2017 | $ | 96 |
| | $ | 224,622 |
| | $ | (40,312 | ) | | $ | (2,700 | ) | | $ | 633,496 |
| | $ | 7,697 |
| | $ | 822,899 |
|
Net income (loss) | | | | | | | | | 19,829 |
| | (398 | ) | | 19,431 |
|
Other comprehensive income (loss) | | | | | | | (2,647 | ) | | | | | | (2,647 | ) |
Cash received from noncontrolling interest | | | | | | | | | | | 21,806 |
| | 21,806 |
|
Adoption of accounting standard, net of income tax of $2,869 | | | | | | | | | (8,441 | ) | | | | (8,441 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (120 shares) | | | (1,363 | ) | | 4,631 |
| | | | | | | | 3,268 |
|
Dividends declared ($0.33 per common share) | | | | | | | | | (9,326 | ) | | | | (9,326 | ) |
Restricted share award dividend equivalents | | |
|
| | 120 |
| | | | (120 | ) | | | | — |
|
Balance at June 30, 2018 | $ | 96 |
| | $ | 223,259 |
| | $ | (35,561 | ) | | $ | (5,347 | ) | | $ | 635,438 |
| | $ | 29,105 |
| | $ | 846,990 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2018 | $ | 96 |
| | $ | 224,396 |
| | $ | (35,300 | ) | | $ | (6,387 | ) | | $ | 647,517 |
| | $ | 46,442 |
| | $ | 876,764 |
|
Net income (loss) | | | | | | | | | 15,895 |
| | (632 | ) | | 15,263 |
|
Other comprehensive income (loss) | | | | | | | (11,314 | ) | | | | | | (11,314 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | 11,460 |
| | | | | | 11,460 |
|
Cash received from noncontrolling interest | | | | | | | | | | | 4,715 |
| | 4,715 |
|
Adoption of accounting standard, net of income tax of ($237) | | | | | | | | | (711 | ) | | | | (711 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (764 shares) | | | (21,018 | ) | | 28,698 |
| | | | | | | | 7,680 |
|
Dividends declared ($0.34 per common share) | | | | | | | | | (11,059 | ) | | | | (11,059 | ) |
Stock awards granted due to acquisition | 41 |
| | 127,800 |
| | | | | | | | | | 127,841 |
|
Restricted share award dividend equivalents | | | 8 |
| | 153 |
| | | | (161 | ) | | | | — |
|
Balance at June 30, 2019 | $ | 137 |
| | $ | 331,186 |
| | $ | (6,449 | ) | | $ | (6,241 | ) | | $ | 651,481 |
| | $ | 50,525 |
| | $ | 1,020,639 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2018 | $ | 96 |
| | $ | 224,396 |
| | $ | (35,300 | ) | | $ | (6,387 | ) | | $ | 647,517 |
| | $ | 46,442 |
| | $ | 876,764 |
|
Net loss | | | | | | | | | (13,993 | ) | | (155 | ) | | (14,148 | ) |
Other comprehensive loss | | | | | | | (2,770 | ) | | | | | | (2,770 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | 11,631 |
| | | | | | 11,631 |
|
Contributions received from noncontrolling interest | | |
| | | | | | | | 4,715 |
| | 4,715 |
|
Adoption of accounting standard, net of income tax of ($237) | | | | | | | | | (711 | ) | | | | (711 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (740 shares) | | | (22,756 | ) | | 27,944 |
| | | | | | | | 5,188 |
|
Dividends declared ($0.17 per common share) | | | | | | | | | (5,529 | ) | | | | (5,529 | ) |
Shares issued for acquisition | 41 |
| | 123,105 |
| | | | | | | | | | 123,146 |
|
Restricted share award dividend equivalents | | | 8 |
| | 140 |
| | | | (148 | ) | | | | — |
|
Balance at March 31, 2019 | $ | 137 |
| | $ | 324,753 |
| | $ | (7,216 | ) | | $ | 2,474 |
| | $ | 627,136 |
| | $ | 51,002 |
| | $ | 998,286 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2019 | $ | 137 |
| | $ | 345,359 |
| | $ | (7,342 | ) | | $ | (7,231 | ) | | $ | 642,687 |
| | $ | 222,045 |
| | $ | 1,195,655 |
|
Net loss | | | | | | | | | (37,662 | ) | | (13,449 | ) | | (51,111 | ) |
Other comprehensive loss | | | | | | | (20,974 | ) | | | | | | (20,974 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | 556 |
| | | | | | 556 |
|
Contributions from noncontrolling interest | | |
|
| | | | | | | | 3,307 |
| | 3,307 |
|
Distributions to noncontrolling interest | | | | | | | | | | | (10,298 | ) | | (10,298 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (181 shares) | | | (3,977 | ) | | 6,452 |
| | | | | | | | 2,475 |
|
Dividends declared ($0.175 per common share) | | | | | | | | | (5,748 | ) | | | | (5,748 | ) |
Restricted share award dividend equivalents | | | | | 238 |
| | | | (238 | ) | | | | — |
|
Balance at March 31, 2020 | $ | 137 |
| | $ | 341,382 |
| | $ | (652 | ) | | $ | (27,649 | ) | | $ | 599,039 |
| | $ | 201,605 |
| | $ | 1,113,862 |
|
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”)., its majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as non-controlling interest. All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.2020. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2018March 31, 2019 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 20182019 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Form 10-K”).
NewRecently Adopted Accounting StandardsGuidance
Leasing
In February 2016, theMeasurement of Credit Losses on Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") (No. 2016-02, Leases (ASC 842). The FASB issued subsequent amendments to the initial guidance in July 2018 with ASU 2018-10 and in August 2018 with ASU 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 840 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.
Other applicable standards
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, 2019. We have evaluated the impact of this new standard on our consolidated financial statements noting it is not material. Early adoption is permitted, but the Company has not chosen to do so at this time.
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.Instruments
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments.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. Effective January 1, 2020, we adopted ASU 2016-13 using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The Company has not historically incurred significantamendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. The impact of adopting this new standard on the Condensed Consolidated Financial Statements was not material.
Cloud Computing Software
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and does not currently anticipate circumstances that would lead to a CECL approach differing from the Company's existing allowance estimatesOther-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a material manner.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, 20192019. The adoption of this standard effective January 1, 2020 on the consolidated financial statements is not material.
Reference Rate Reform (Topic 848)
In March 2020, the FASB concluded its reference rate reform project and issued ASU 2020-04, Reference Rate Reform (Topic 848). London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. The ASU provides companies with a cumulative-effect adjustmentoptional guidance to retained earningsease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The Company has elected to adopt ASU 2020-04 immediately for all optional expedients provided for contract modification accounting as permissible under the standard. The impact of executing the standard should the need arise will be disclosed, however, at this time there has been no impact to our consolidated financial statements.
Recent Accounting Guidance Issued Not Yet Effective
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The provisions of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The impact of the year of adoption. Early adoptionthis update on our consolidated financial statements is permitted, butcurrently being assessed. At this time the Company does not plan to do so.early adopt the standard.
2. Inventories
Major classes of inventories are as follows:
| | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Grain and other agricultural products | $ | 603,318 |
| | $ | 527,471 |
| | $ | 385,118 |
| $ | 750,281 |
| | $ | 907,482 |
| | $ | 812,361 |
|
Frac sand and propane | 9,287 |
| | — |
| | — |
| 5,723 |
| | 15,438 |
| | 8,172 |
|
Ethanol and co-products | 26,185 |
| | 11,918 |
| | 22,828 |
| 87,706 |
| | 95,432 |
| | 16,302 |
|
Plant nutrients and cob products | 109,156 |
| | 145,693 |
| | 82,230 |
| 178,028 |
| | 146,164 |
| | 183,886 |
|
Railcar repair parts | 5,695 |
| | 5,722 |
| | 5,435 |
| 6,338 |
| | 6,020 |
| | 5,744 |
|
| $ | 753,641 |
| | $ | 690,804 |
| | $ | 495,611 |
| |
Total Inventories | | $ | 1,028,076 |
| | $ | 1,170,536 |
| | $ | 1,026,465 |
|
Inventories on the Condensed Consolidated Balance Sheets at June 30, 2019, and June 30, 2018, do not include 1.33.9 million, 6.4 million and 0.11.9 million bushels of grain respectively, held in storage for others. Grain inventories held in storage for others were de minimis as of March 31, 2020, December 31, 2018.2019 and March 31, 2019, respectively. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
In the first quarter of 2020, the Company recorded a $10.6 million lower of cost or net realizable value charge related to lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Land | $ | 39,241 |
| | $ | 29,739 |
| | $ | 29,579 |
| $ | 40,336 |
| | $ | 40,442 |
| | $ | 39,552 |
|
Land improvements and leasehold improvements | 84,127 |
| | 68,826 |
| | 68,384 |
| 95,327 |
| | 103,148 |
| | 82,681 |
|
Buildings and storage facilities | 327,418 |
| | 284,998 |
| | 280,226 |
| 381,258 |
| | 373,961 |
| | 337,631 |
|
Machinery and equipment | 514,030 |
| | 393,640 |
| | 377,202 |
| 861,812 |
| | 835,156 |
| | 481,454 |
|
Construction in progress | 164,532 |
| | 102,394 |
| | 37,456 |
| 41,824 |
| | 59,993 |
| | 151,895 |
|
| 1,129,348 |
| | 879,597 |
| | 792,847 |
| 1,420,557 |
| | 1,412,700 |
| | 1,093,213 |
|
Less: accumulated depreciation | 433,521 |
| | 402,886 |
| | 384,272 |
| 498,972 |
| | 474,282 |
| | 421,408 |
|
| $ | 695,827 |
| | $ | 476,711 |
| | $ | 408,575 |
| |
Property, plant and equipment, net | | $ | 921,585 |
| | $ | 938,418 |
| | $ | 671,805 |
|
Depreciation expense on property, plant and equipment was $32.7$31.0 million and $23.2 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, depreciation expense on property, plant and equipment was $15.0 million and $11.5$17.9 million for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively.
In the second quarter of 2019, the Company recorded a $3.1 million impairment charge related to its remaining Tennessee facilities in the Trade group. The Company wrote down the value of these assets to the extent their carrying values exceeded their 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.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
| | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Rail Group assets leased to others | $ | 688,320 |
| | $ | 640,349 |
| | $ | 564,555 |
| $ | 740,809 |
| | $ | 723,004 |
| | $ | 660,747 |
|
Less: accumulated depreciation | 128,609 |
| | 118,564 |
| | 106,131 |
| 143,740 |
| | 138,706 |
| | 123,118 |
|
| $ | 559,711 |
| | $ | 521,785 |
| | $ | 458,424 |
| |
Rail Group assets, net | | $ | 597,069 |
| | $ | 584,298 |
| | $ | 537,629 |
|
Depreciation expense on Rail Group assets leased to others amounted to $13.7$7.7 million and $12.2 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to $7.0 million and $6.0$6.7 million for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively.
4. Debt
Short-term and long-term debt at June 30, 2019March 31, 2020, December 31, 20182019 and June 30, 2018March 31, 2019 consisted of the following: | | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Short-term Debt – Non-Recourse (a) | $ | 75,476 |
| | $ | — |
| | $ | — |
| $ | 83,791 |
| | $ | 54,029 |
| | $ | 97,304 |
|
Short-term Debt – Recourse | 350,649 |
| | 205,000 |
| | 185,000 |
| 308,659 |
| | 93,002 |
| | 337,000 |
|
Total Short-term Debt | $ | 426,125 |
| | $ | 205,000 |
| | $ | 185,000 |
| $ | 392,450 |
| | $ | 147,031 |
| | $ | 434,304 |
|
| | | | | | | | | | |
Current Maturities of Long-term Debt – Non-Recourse (b) | $ | 8,903 |
| | $ | 4,842 |
| | $ | 2,922 |
| $ | 5,212 |
| | $ | 9,545 |
| | $ | 7,793 |
|
Current Maturities of Long-term Debt – Recourse (c) | 40,785 |
| | 16,747 |
| | 10,778 |
| 75,546 |
| | 53,354 |
| | 47,367 |
|
Finance lease liability (d) | 16,990 |
| | — |
| | — |
| |
Total Current Maturities of Long-term Debt | $ | 66,678 |
| | $ | 21,589 |
| | $ | 13,700 |
| $ | 80,758 |
| | $ | 62,899 |
| | $ | 55,160 |
|
| | | | | | | | | | |
Long-term Debt, Less: Current Maturities – Non-Recourse (b) | $ | 198,560 |
| | $ | 146,353 |
| | $ | 72,290 |
| |
Long-term Debt, Less: Current Maturities – Recourse (c) | 786,512 |
| | 349,834 |
| | 363,290 |
| |
Finance lease liability (d) | 21,940 |
| | — |
| | — |
| |
Long-term Debt, Less: Current Maturities – Non-Recourse | | $ | 329,462 |
| | $ | 330,251 |
| | $ | 177,955 |
|
Long-term Debt, Less: Current Maturities – Recourse | | 658,064 |
| | 685,997 |
| | 804,070 |
|
Total Long-term Debt, Less: Current Maturities | $ | 1,007,012 |
| | $ | 496,187 |
| | $ | 435,580 |
| $ | 987,526 |
| | $ | 1,016,248 |
| | $ | 982,025 |
|
(a) In conjunction with the recent acquisition, the Company assumed Thompsons' 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 $183.4 million and had $107.9 million available for borrowing on this line of credit as of June 30, 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.
(b) In conjunction with the recent acquisition, the Company also assumed a term loan with a syndicate of banks. The term loan had a balance of $33.9 million at June 30, 2019. Interest rates for the term loans are based on LIBOR plus an applicable spread. Payments of $0.6 million are made on a quarterly basis.
(c) On January 11, 2019 the Company entered into 5-year term loan in the amount of $250 million and a 7-year 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. Payments on the term loans will be made on a quarterly basis. As of June 30, 2019, $6.3 million has been paid on the 5-year term loan and $6.3 million has been paid on the 7-year term loan.
(d) See Note 14, Leases, for additional information. June 30, 2019 balances include the former build-to-suit lease that was reclassed from other current liabilities and other long-term liabilities as a result of the new lease standard.
The total borrowing capacity of the Company's lines of credit at June 30, 2019March 31, 2020 was $1,628.4$1,684.0 million of which the Company had a total of $1,006.1$1,006.4 million available for borrowing under its lines of credit, subject to certain limitations based on debt covenants.credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company is in compliance with all financial covenants as of June 30, 2019.March 31, 2020.
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade 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 purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated
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. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
Most 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 Condensed Consolidated Balance Sheets.
The following table presents at June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018,March 31, 2019, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
| | | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
(in thousands) | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position |
Collateral paid (received) | $ | 109,346 |
| | $ | — |
| | $ | 14,944 |
| | $ | — |
| | $ | (52,888 | ) | | $ | — |
| |
Cash collateral paid | | $ | 22,855 |
| | $ | — |
| | $ | 56,005 |
| | $ | — |
| | $ | 21,751 |
| | $ | — |
|
Fair value of derivatives | (5,996 | ) | | — |
| | 22,285 |
| | — |
| | 68,244 |
| | — |
| 20,977 |
| | — |
| | (10,323 | ) | | — |
| | 38,580 |
| | — |
|
Balance at end of period | $ | 103,350 |
| | $ | — |
| | $ | 37,229 |
| | $ | — |
| | $ | 15,356 |
| | $ | — |
| $ | 43,832 |
| | $ | — |
| | $ | 45,682 |
| | $ | — |
| | $ | 60,331 |
| | $ | — |
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
| | | June 30, 2019 | March 31, 2020 |
(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 | $ | 166,652 |
| | $ | 6,748 |
| | $ | 3,360 |
| | $ | 57 |
| | $ | 176,817 |
| $ | 164,700 |
| | $ | 3,240 |
| | $ | 9,648 |
| | $ | 142 |
| | $ | 177,730 |
|
Commodity derivative liabilities | (42,983 | ) | | (587 | ) | | (72,729 | ) | | (4,042 | ) | | (120,341 | ) | (38,485 | ) | | (119 | ) | | (100,139 | ) | | (2,667 | ) | | (141,410 | ) |
Cash collateral paid (received) | 109,346 |
| | — |
| | — |
| | — |
| | 109,346 |
| |
Cash collateral paid | | 22,855 |
| | — |
| | — |
| | — |
| | 22,855 |
|
Balance sheet line item totals | $ | 233,015 |
| | $ | 6,161 |
| | $ | (69,369 | ) | | $ | (3,985 | ) | | $ | 165,822 |
| $ | 149,070 |
| | $ | 3,121 |
| | $ | (90,491 | ) | | $ | (2,525 | ) | | $ | 59,175 |
|
| | | December 31, 2018 | 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 | $ | 43,463 |
| | $ | 484 |
| | $ | 706 |
| | $ | 5 |
| | $ | 44,658 |
| $ | 92,429 |
| | $ | 1,045 |
| | $ | 7,439 |
| | $ | 18 |
| | $ | 100,931 |
|
Commodity derivative liabilities | (6,986 | ) | | (4 | ) | | (33,353 | ) | | (894 | ) | | (41,237 | ) | (40,571 | ) | | (96 | ) | | (54,381 | ) | | (523 | ) | | (95,571 | ) |
Cash collateral (received) | 14,944 |
| | — |
| | — |
| | — |
| | 14,944 |
| |
Cash collateral paid | | 56,005 |
| | — |
| | — |
| | — |
| | 56,005 |
|
Balance sheet line item totals | $ | 51,421 |
| | $ | 480 |
| | $ | (32,647 | ) | | $ | (889 | ) | | $ | 18,365 |
| $ | 107,863 |
| | $ | 949 |
| | $ | (46,942 | ) | | $ | (505 | ) | | $ | 61,365 |
|
| | | June 30, 2018 | March 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 | $ | 123,917 |
| | $ | 1,022 |
| | $ | 626 |
| | $ | 36 |
| | $ | 125,601 |
| $ | 142,262 |
| | $ | 3,781 |
| | $ | 665 |
| | $ | 93 |
| | $ | 146,801 |
|
Commodity derivative liabilities | (16,770 | ) | | (14 | ) | | (85,786 | ) | | (3,238 | ) | | (105,808 | ) | (5,736 | ) | | (24 | ) | | (67,288 | ) | | (3,914 | ) | | (76,962 | ) |
Cash collateral (received) | (52,888 | ) | | — |
| | — |
| | — |
| | (52,888 | ) | |
Cash collateral paid | | 21,751 |
| | — |
| | — |
| | — |
| | 21,751 |
|
Balance sheet line item totals | $ | 54,259 |
| | $ | 1,008 |
| | $ | (85,160 | ) | | $ | (3,202 | ) | | $ | (33,095 | ) | $ | 158,277 |
| | $ | 3,757 |
| | $ | (66,623 | ) | | $ | (3,821 | ) | | $ | 91,590 |
|
The net pretax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line item in which they are located for the three and sixthree months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues | $ | (13,364 | ) | | $ | 45,844 |
| | $ | 57,291 |
| | $ | 20,608 |
| |
Gains on commodity derivatives included in cost of sales and merchandising revenues | | $ | 30,960 |
| | $ | 66,419 |
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018:March 31, 2019:
| | | June 30, 2019 | March 31, 2020 |
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 | 648,434 |
| | — |
| | — |
| | — |
| 555,782 |
| | — |
| | — |
| | — |
|
Soybeans | 59,594 |
| | — |
| | — |
| | — |
| 33,950 |
| | — |
| | — |
| | — |
|
Wheat | 93,621 |
| | — |
| | — |
| | — |
| 92,374 |
| | — |
| | — |
| | — |
|
Oats | 40,582 |
| | — |
| | — |
| | — |
| 56,582 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 211,352 |
| | — |
| | — |
| — |
| | 103,252 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 8,809 |
| | — |
| — |
| | — |
| | 6,275 |
| | — |
|
Other | 23,875 |
| | 2,532 |
| | — |
| | 3,179 |
| 18,734 |
| | 1,500 |
| | 296 |
| | 2,010 |
|
Subtotal | 866,106 |
| | 213,884 |
| | 8,809 |
| | 3,179 |
| 757,422 |
| | 104,752 |
| | 6,571 |
| | 2,010 |
|
Exchange traded: | | | | | | | | | | | | | | |
Corn | 317,405 |
| | — |
| | — |
| | — |
| 165,295 |
| | — |
| | — |
| | — |
|
Soybeans | 52,762 |
| | — |
| | — |
| | — |
| 37,875 |
| | — |
| | — |
| | — |
|
Wheat | 55,150 |
| | — |
| | — |
| |
|
| 59,135 |
| | — |
| | — |
| | — |
|
Oats | 1,045 |
| | — |
| | — |
| | — |
| 1,490 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 82,988 |
| | — |
| | — |
| — |
| | 44,440 |
| | — |
| | — |
|
Propane | — |
| | 13,230 |
| | — |
| | — |
| — |
| | 11,760 |
| | — |
| | — |
|
Other | — |
| | 35 |
| | — |
| | 180 |
| — |
| | 11,970 |
| | — |
| | 213 |
|
Subtotal | 426,362 |
| | 96,253 |
| | — |
| | 180 |
| 263,795 |
| | 68,170 |
| | — |
| | 213 |
|
Total | 1,292,468 |
| | 310,137 |
| | 8,809 |
| | 3,359 |
| 1,021,217 |
| | 172,922 |
| | 6,571 |
| | 2,223 |
|
| | | December 31, 2018 | 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 | 250,408 |
| | — |
| | — |
| | — |
| 552,359 |
| | — |
| | — |
| | — |
|
Soybeans | 22,463 |
| | — |
| | — |
| | — |
| 34,912 |
| | — |
| | — |
| | — |
|
Wheat | 14,017 |
| | — |
| | — |
| | — |
| 100,996 |
| | — |
| | — |
| | — |
|
Oats | 26,230 |
| | — |
| | — |
| | — |
| 24,700 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 244,863 |
| | — |
| | — |
| — |
| | 116,448 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 2,920 |
| | — |
| — |
| | — |
| | 14,568 |
| | — |
|
Other | 494 |
| | 2,000 |
| | — |
| | 66 |
| 11,363 |
| | 4,000 |
| | 305 |
| | 2,263 |
|
Subtotal | 313,612 |
| | 246,863 |
| | 2,920 |
| | 66 |
| 724,330 |
| | 120,448 |
| | 14,873 |
| | 2,263 |
|
Exchange traded: | | | | | | | | | | | | | | |
Corn | 130,585 |
| | — |
| | — |
| | — |
| 221,740 |
| | — |
| | — |
| | — |
|
Soybeans | 26,985 |
| | — |
| | — |
| | — |
| 39,145 |
| | — |
| | — |
| | — |
|
Wheat | 33,760 |
| | — |
| | — |
| | — |
| 68,171 |
| | — |
| | — |
| | — |
|
Oats | 1,475 |
| | — |
| | — |
| | — |
| 2,090 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 77,112 |
| | — |
| | — |
| — |
| | 175,353 |
| | — |
| | — |
|
Propane | | — |
| | 5,166 |
| | — |
| | — |
|
Other | | — |
| | 15 |
| | — |
| | 232 |
|
Subtotal | 192,805 |
| | 77,112 |
| | — |
| | — |
| 331,146 |
| | 180,534 |
| | — |
| | 232 |
|
Total | 506,417 |
| | 323,975 |
| | 2,920 |
| | 66 |
| 1,055,476 |
| | 300,982 |
| | 14,873 |
| | 2,495 |
|
| | | June 30, 2018 | March 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 | 272,979 |
| | — |
| | — |
| | — |
| 624,612 |
| | — |
| | — |
| | — |
|
Soybeans | 49,208 |
| | — |
| | — |
| | — |
| 42,859 |
| | — |
| | — |
| | — |
|
Wheat | 11,163 |
| | — |
| | — |
| | — |
| 118,909 |
| | — |
| | — |
| | — |
|
Oats | 36,612 |
| | — |
| | — |
| | — |
| 26,361 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 332,761 |
| |
|
| | — |
| — |
| | 233,420 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 6,158 |
| | — |
| — |
| | — |
| | 6,733 |
| | — |
|
Other | 82 |
| | 1,500 |
| |
|
| | 77 |
| 5,574 |
| | 2,032 |
| | 6 |
| | 2,508 |
|
Subtotal | 370,044 |
| | 334,261 |
| | 6,158 |
| | 77 |
| 818,315 |
| | 235,452 |
| | 6,739 |
| | 2,508 |
|
Exchange traded: | | | | | | | | | | | | | | |
Corn | 133,730 |
| | — |
| | — |
| | — |
| 197,210 |
| | — |
| | — |
| | — |
|
Soybeans | 45,775 |
| | — |
| | — |
| | — |
| 47,860 |
| | — |
| | — |
| | — |
|
Wheat | 48,105 |
| | — |
| | — |
| | — |
| 103,955 |
| | — |
| | — |
| | — |
|
Oats | 1,190 |
| | — |
| | — |
| | — |
| 770 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 140,364 |
| | — |
| | — |
| — |
| | 110,758 |
| | — |
| | — |
|
Gasoline | | — |
| | 12,936 |
| | — |
| | — |
|
Propane | | — |
| | 14,784 |
| | — |
| | — |
|
Other | | 2 |
| | — |
| | — |
| | 205 |
|
Subtotal | 228,800 |
| | 140,364 |
| | — |
| | — |
| 349,797 |
| | 138,478 |
| | — |
| | 205 |
|
Total | 598,844 |
| | 474,625 |
| | 6,158 |
| | 77 |
| 1,168,112 |
| | 373,930 |
| | 6,739 |
| | 2,713 |
|
Interest Rate and Other Derivatives
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The gains or losses on the derivatives are recorded in Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
At June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018,March 31, 2019, the Company had recorded the following amounts for the fair value of the Company's other derivatives: | | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Derivatives not designated as hedging instruments | | | | | | | | | | |
Interest rate contracts included in Other long-term assets (Other long-term liabilities) | $ | (10,750 | ) | | $ | (353 | ) | | $ | (37 | ) | |
Interest rate contracts included in Other long-term liabilities | | $ | (1,913 | ) | | $ | (1,007 | ) | | $ | (4,494 | ) |
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities) | $ | (22 | ) | | $ | (1,122 | ) | | $ | (1,109 | ) | $ | 440 |
| | $ | 2,742 |
| | $ | (344 | ) |
Derivatives designated as hedging instruments | | | | | | | | | | |
Interest rate contract included in Accrued expenses and other current liabilities | $ | — |
| | $ | — |
| | $ | (88 | ) | |
Interest rate contract included in Other assets (Other long-term liabilities) | $ | (10,587 | ) | | $ | (168 | ) | | $ | 155 |
| |
Interest rate contracts included in Accrued expenses and other current liabilities | | $ | (8,081 | ) | | $ | (3,118 | ) | | $ | — |
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities) | | $ | (22,620 | ) | | $ | (9,382 | ) | | $ | (4,552 | ) |
The recording of derivatives gains and losses and the financial statement line in which they are located are as follows: | | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Derivatives not designated as hedging instruments | | | | | | | | | | |
Interest rate derivative gains (losses) included in Interest income (expense) | $ | (1,065 | ) | | $ | 351 |
| | $ | (2,055 | ) | | $ | 1,141 |
| |
Foreign currency derivative gains (losses) included in Other income, net | $ | (366 | ) | | $ | (413 | ) | | $ | (1,833 | ) | | $ | (1,535 | ) | |
Interest rate derivative gains (losses) included in Interest income (expense), net | | $ | (784 | ) | | $ | (990 | ) |
Foreign currency derivative gains (losses) included in Other income (loss), net | | $ | — |
| | $ | (1,467 | ) |
Derivatives designated as hedging instruments | | | | | | | | | | |
Interest rate derivative gains (losses) included in Other Comprehensive Income (Loss) | $ | (7,926 | ) | | $ | 67 |
| | $ | (12,917 | ) | | $ | 67 |
| $ | (18,182 | ) | | $ | (4,991 | ) |
Interest rate derivatives gains (losses) included in Interest income (expense) | $ | — |
| | $ | — |
| | $ | 165 |
| | $ | — |
| |
Interest rate derivatives gains (losses) included in Interest income (expense), net | | $ | (1,290 | ) | | $ | 165 |
|
Outstanding interest rate derivatives, as of June 30, 2019,March 31, 2020, are as follows:
|
| | | | | | | | | | | | |
Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Description | |
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% |
Swap | | 2020 | | 2023 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 0.8% |
Swap | | 2020 | | 2023 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 0.7% |
Swap | | 2020 | | 2030 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% |
Swap | | 2020 | | 2030 | | $ | 50.0 |
| | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% |
|
| | | | | | | | | | | | |
Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Description | |
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 | * | 2016 | | 2019 | | $ | 50.0 |
| | Interest rate component of debt - not accounted for as a hedge | | 1.2% |
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 following are components of the net periodic benefit cost for the pension and postretirement benefit plans maintained by the Company for the three and six months ended June 30, 2019 and 2018:
|
| | | | | | | | | | | | | | | |
| Pension Benefits |
(in thousands) | Three months ended June 30, | | Six months ended June 30, |
2019 | | 2018 | | 2019 | | 2018 |
Interest cost | $ | 29 |
| | $ | 32 |
| | $ | 58 |
| | $ | 65 |
|
Recognized net actuarial loss | 58 |
| | 61 |
| | 116 |
| | 122 |
|
Benefit cost | $ | 87 |
| | $ | 93 |
| | $ | 174 |
| | $ | 187 |
|
|
| | | | | | | | | | | | | | | |
| Postretirement Benefits |
(in thousands) | Three months ended June 30, | | Six months ended June 30, |
2019 | | 2018 | | 2019 | | 2018 |
Service cost | $ | 64 |
| | $ | 75 |
| | $ | 138 |
| | $ | 162 |
|
Interest cost | 221 |
| | 190 |
| | 427 |
| | 377 |
|
Amortization of prior service cost | (228 | ) | | (228 | ) | | (456 | ) | | (456 | ) |
Benefit cost | $ | 57 |
| | $ | 37 |
| | $ | 109 |
| | $ | 83 |
|
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:
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Revenues under ASC 606 | $ | 494,266 |
| | $ | 356,883 |
| | $ | 809,438 |
| | $ | 550,533 |
| $ | 347,502 |
| | $ | 315,172 |
|
Revenues under ASC 842 | 31,836 |
| | 26,228 |
| | 60,704 |
| | 52,257 |
| 25,551 |
| | 28,868 |
|
Revenues under ASC 815 | 1,798,939 |
| | 528,291 |
| | 3,431,691 |
| | 944,351 |
| 1,480,052 |
| | 1,632,752 |
|
Total Revenues | $ | 2,325,041 |
| | $ | 911,402 |
| | $ | 4,301,833 |
| | $ | 1,547,141 |
| $ | 1,853,105 |
| | $ | 1,976,792 |
|
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 three and six months ended June 30,March 31, 2020 and 2019, and 2018, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2019 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | 31,870 |
| | $ | — |
| | $ | 87,665 |
| | $ | — |
| | $ | 119,535 |
|
Primary nutrients | 22,364 |
| | — |
| | 174,907 |
| | — |
| | 197,271 |
|
Services | 7,745 |
| | 3,547 |
| | 1,696 |
| | 9,278 |
| | 22,266 |
|
Products and co-products | 55,943 |
| | 32,047 |
| | — |
| | — |
| | 87,990 |
|
Frac sand and propane
| 56,767 |
| | — |
| | — |
| | — |
| | 56,767 |
|
Other | 2,537 |
| | 35 |
| | 6,309 |
| | 1,556 |
| | 10,437 |
|
Total | $ | 177,226 |
| | $ | 35,629 |
| | $ | 270,577 |
| | $ | 10,834 |
| | $ | 494,266 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | — |
| | $ | — |
| | $ | 94,281 |
| | $ | — |
| | $ | 94,281 |
|
Primary nutrients | — |
| | — |
| | 200,288 |
| | — |
| | 200,288 |
|
Service | 3,381 |
| | 2,760 |
| | 2,412 |
| | 9,308 |
| | 17,861 |
|
Co-products | — |
| | 32,462 |
| | — |
| | — |
| | 32,462 |
|
Other | 292 |
| | — |
| | 6,124 |
| | 5,575 |
| | 11,991 |
|
Total | $ | 3,673 |
|
| $ | 35,222 |
|
| $ | 303,105 |
|
| $ | 14,883 |
| | $ | 356,883 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2020 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | — |
| | $ | — |
| | $ | 73,231 |
| | $ | — |
| | $ | 73,231 |
|
Primary nutrients | — |
| | — |
| | 45,690 |
| | — |
| | 45,690 |
|
Services | 1,686 |
| | — |
| | 182 |
| | 8,736 |
| | 10,604 |
|
Ethanol products and co-products | 53,165 |
| | 101,698 |
| | — |
| | — |
| | 154,863 |
|
Frac sand and propane | 49,875 |
| | — |
| | — |
| | — |
| | 49,875 |
|
Other | 3,989 |
| | 616 |
| | 5,810 |
| | 2,824 |
| | 13,239 |
|
Total | $ | 108,715 |
| | $ | 102,314 |
| | $ | 124,913 |
| | $ | 11,560 |
| | $ | 347,502 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2019 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | 35,808 |
| | $ | — |
| | $ | 156,065 |
| | $ | — |
| | $ | 191,873 |
|
Primary nutrients | 22,791 |
| | — |
| | 227,996 |
| | — |
| | 250,787 |
|
Service | 8,570 |
| | 6,983 |
| | 1,858 |
| | 19,225 |
| | 36,636 |
|
Co-products | 118,701 |
| | 53,517 |
| | — |
| | — |
| | 172,218 |
|
Frac sand and propane | 137,230 |
| | — |
| | — |
| | — |
| | 137,230 |
|
Other | 3,697 |
| | 35 |
| | 13,183 |
| | 3,779 |
| | 20,694 |
|
Total | $ | 326,797 |
| | $ | 60,535 |
| | $ | 399,102 |
| | $ | 23,004 |
| | $ | 809,438 |
|
| | | Six months ended June 30, 2018 | Three months ended March 31, 2019 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | — |
| | $ | — |
| | $ | 169,359 |
| | $ | — |
| | $ | 169,359 |
| $ | 3,938 |
| | $ | — |
| | $ | 68,400 |
| | $ | — |
| | $ | 72,338 |
|
Primary nutrients | — |
| | — |
| | 253,507 |
| | — |
| | 253,507 |
| 427 |
| | — |
| | 53,089 |
| | — |
| | 53,516 |
|
Service | 7,799 |
| | 5,305 |
| | 2,621 |
| | 17,425 |
| | 33,150 |
| 825 |
| | 3,436 |
| | 162 |
| | 9,947 |
| | 14,370 |
|
Co-products | — |
| | 59,108 |
| | — |
| | — |
| | 59,108 |
| |
Ethanol products and co-products | | 62,758 |
| | 21,472 |
| | — |
| | — |
| | 84,230 |
|
Frac sand and propane | | 80,463 |
| | — |
| | — |
| | — |
| | 80,463 |
|
Other | 502 |
| | — |
| | 13,235 |
| | 21,672 |
| | 35,409 |
| 1,157 |
| | — |
| | 6,874 |
| | 2,224 |
| | 10,255 |
|
Total | $ | 8,301 |
| | $ | 64,413 |
| | $ | 438,722 |
| | $ | 39,097 |
| | $ | 550,533 |
| $ | 149,568 |
|
| $ | 24,908 |
|
| $ | 128,525 |
|
| $ | 12,171 |
| | $ | 315,172 |
|
Approximately 4%3% and 5% of revenues accounted for under ASC 606 during each of the three and months ended June 30,March 31, 2020 and 2019, respectively, and 2018, are recorded over time which primarily relates to service revenues noted above. Additionally, during the six months ended June 30, 2019 and 2018, approximately 4% and 6% of revenues were accounted for under ASC 606, respectively.
Contract balances
The opening and closing balances of the Company’s contract liabilities arewere $65.8 million and $28.5 million as follows:
|
| | | | | | | |
(in thousands) | 2019 | | 2018 |
Balance at January 1, | $ | 28,858 |
| | $ | 25,520 |
|
Balance at March 31, | 146,824 |
| | 67,715 |
|
Balance at June 30, | 48,225 |
| | 10,047 |
|
Exclusive of acquisition related impacts, the residualMarch 31, 2020 and December 31, 2019, respectively. 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. The main driver of the contract liabilities have two main drivers, including Trade prepayments by counter parties andbalance is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. The primary and specialty business records contract liabilities for payments received in advance of fulfilling our performance obligations under our customer contracts. Further, due to seasonality of this business, contract liabilities were built up in the
first quarter of the year. In the second quarter, the decrease in liabilities is due to the revenue recognized in the current period relating to the liability built up in the first quarter.
8.
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the three months ended June 30, 2019,March 31, 2020, the Company recorded an income tax expensebenefit of $11.0$1.5 million at an effective income tax rate of 27.2%2.8%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due toas the impacttax benefit from consolidated pre-tax losses is completely offset by the portion of state income taxes, nondeductible compensation, and income taxes on foreign earnings.losses owned by non-controlling interests that do not provide for a tax benefit. The effective tax rate for the three-month period ended June 30, 2019 also includes tax benefits from foreign and general business tax credits. The increasedecrease in effective tax rate for the three months ended June 30, 2019March 31, 2020 as compared to the same period last year was primarily attributed to the impacts of nondeductible compensation and noncontrolling interest, partiallytax expense generated from the current period loss before taxes at the estimated annual effective tax rate, offset by tax benefits from income taxes on foreign earnings.anticipated net operating loss carrybacks as result of the Coronavirus Aid, Relief, and. Economic Security Act ("CARES") Act. For the three months ended June 30, 2018,March 31, 2019, the Company recorded an income tax expensebenefit of $7.7$5.4 million at an effective income tax rate of 26.6%27.8%.
For the six months ended June 30, 2019, the Company recorded income tax expense of $5.6 million at an effective income tax rate of 26.7%. The annual2020 effective tax rate differscan be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the statutorycompany’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $25.4 million as of March 31, 2020, and $0.6 million for the period ended March 31, 2019. The unrecognized tax benefits of $25.4 million include $21.7 million recorded as a reduction of the deferred tax asset and refundable credits associated with the R&D Credits.
On March 27, 2020, President Trump signed into U.S. Federalfederal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the Coronavirus (“COVID-19”) pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax rate duecredits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. The Company has analyzed the impact of state income taxes, nondeductible compensation,the CARES Act to determine the estimated impact on 2019 filing positions that could be carried back to prior tax years, and income taxes on foreign earnings.recorded a financial statement benefit of $6.6 million. On April 17, 2020, the Internal Revenue Service issued Revenue Procedure 2020-25, allowing for companies to revoke an election out of bonus depreciation. The effective tax rate forCompany is currently evaluating the six-month period ended June 30, 2019 also includes tax benefits from foreign and general business tax credits. The decrease in effective tax rate for the six months ended June 30, 2019 as compared to the same period last year was primarily attributed to income taxes on foreign earnings and discrete activity in the prior period for a statutory merger that did not recur in the current period. For the six months ended June 30, 2018, the Company recorded an income tax expenseimpact of $7.4 million at an effective income tax rate of 27.7%.this additional guidance.
9.8. Accumulated Other Comprehensive Income (Loss)
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended June 30, 2019March 31, 2020 and 2018:2019:
| | | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | Three months ended June 30, 2019 | | Six months ended June 30, 2019 | | Three months ended March 31, 2020 |
(in thousands) | (in thousands) | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total | | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total | (in thousands) | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
Beginning Balance | Beginning Balance | $ | (3,748 | ) | | $ | 1,059 |
| | $ | 258 |
| | $ | 4,905 |
| | $ | 2,474 |
| | $ | (126 | ) | | $ | (11,550 | ) | | $ | 258 |
| | $ | 5,031 |
| | $ | (6,387 | ) | Beginning Balance | $ | (9,443 | ) | | $ | 1,065 |
| | $ | 258 |
| | $ | 889 |
| | $ | (7,231 | ) |
| Other comprehensive loss before reclassifications | (5,952 | ) | | (2,035 | ) | | — |
| | (557 | ) | | $ | (8,544 | ) | | (9,710 | ) | | (1,092 | ) | | — |
| | (512 | ) | | (11,314 | ) | Other comprehensive loss before reclassifications | (14,390 | ) | | (6,639 | ) | | — |
| | 55 |
| | $ | (20,974 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) (b) | — |
| | — |
| | — |
| | (171 | ) | | $ | (171 | ) | | 136 |
| | 11,666 |
| | — |
| | (342 | ) | | 11,460 |
| Amounts reclassified from accumulated other comprehensive income (loss) | 727 |
| | — |
| | — |
| | (171 | ) | | $ | 556 |
|
Net current-period other comprehensive income (loss) | Net current-period other comprehensive income (loss) | (5,952 | ) | | (2,035 | ) | | — |
| | (728 | ) | | (8,715 | ) | | (9,574 | ) | | 10,574 |
| | — |
| | (854 | ) | | 146 |
| Net current-period other comprehensive income (loss) | (13,663 | ) | | (6,639 | ) | | — |
| | (116 | ) | | (20,418 | ) |
Ending balance | Ending balance | $ | (9,700 | ) | | $ | (976 | ) | | $ | 258 |
| | $ | 4,177 |
| | $ | (6,241 | ) | | $ | (9,700 | ) | | $ | (976 | ) | | $ | 258 |
| | $ | 4,177 |
| | $ | (6,241 | ) | Ending balance | $ | (23,106 | ) | | $ | (5,574 | ) | | $ | 258 |
| | $ | 773 |
| | $ | (27,649 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debitsdebits.
|
| | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | Three months ended March 31, 2019 |
(in thousands) | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
Beginning Balance | $ | (126 | ) | | $ | (11,550 | ) | | $ | 258 |
| | $ | 5,031 |
| | $ | (6,387 | ) |
| Other comprehensive loss before reclassifications | (3,758 | ) | | 943 |
| | — |
| | 45 |
| | $ | (2,770 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) (b) | 136 |
| | 11,666 |
| | — |
| | (171 | ) | | $ | 11,631 |
|
Net current-period other comprehensive income (loss) | (3,622 | ) | | 12,609 |
| | — |
| | (126 | ) | | 8,861 |
|
Ending balance | $ | (3,748 | ) | | $ | 1,059 |
| | $ | 258 |
| | $ | 4,905 |
| | $ | 2,474 |
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
(b) Reflects foreign currency translation adjustments attributable to the consolidation of Thompsons Limited as summarized in Note 17.Limited.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | Three months ended June 30, 2018 | | Six months ended June 30, 2018 |
(in thousands) | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total | | Cash Flow Hedges | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities
| | Defined Benefit Plan Items | | Total |
Beginning Balance | $ | — |
| | $ | (8,866 | ) | | $ | 257 |
| | $ | 4,621 |
| | $ | (3,988 | ) | | $ | — |
| | $ | (7,716 | ) | | $ | 344 |
| | $ | 4,672 |
| | $ | (2,700 | ) |
| Other comprehensive income (loss) before reclassifications | 51 |
| | (1,123 | ) | | — |
| | (119 | ) | | (1,191 | ) | | 51 |
| | (2,273 | ) | | (87 | ) | | (2 | ) | | (2,311 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | — |
| | — |
| | (168 | ) | | (168 | ) | | — |
| | — |
| | — |
| | (336 | ) | | (336 | ) |
Net current-period other comprehensive income (loss) | 51 |
| | (1,123 | ) | | — |
| | (287 | ) | | (1,359 | ) | | 51 |
| | (2,273 | ) | | (87 | ) | | (338 | ) | | (2,647 | ) |
Ending balance | $ | 51 |
| | $ | (9,989 | ) | | $ | 257 |
| | $ | 4,334 |
| | $ | (5,347 | ) | | $ | 51 |
| | $ | (9,989 | ) | | $ | 257 |
| | $ | 4,334 |
| | $ | (5,347 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debits
|
| | | | | | | | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | | Three months ended June 30, 2019 | | Six months ended June 30, 2019 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | | | | | |
Amortization of prior-service cost | | $ | (228 | ) | | (b) | | $ | (456 | ) | | (b) |
| | (228 | ) | | Total before tax | | (456 | ) | | Total before tax |
| | 57 |
| | Income tax provision | | 114 |
| | Income tax provision |
| | $ | (171 | ) | | Net of tax | | $ | (342 | ) | | Net of tax |
| | | | | | | | |
Cash Flow Hedges | | | | | | | | |
Interest payments | | — |
| | Interest expense | | $ | 182 |
| | Interest expense |
| | — |
| | Total before tax | | 182 |
| | Total before tax |
| | — |
| | Income tax provision | | (46 | ) | | Income tax provision |
| | $ | — |
| | Net of tax | | $ | 136 |
| | Net of tax |
| | | | | | | | |
Foreign Currency Translation Adjustment | | | | | | | | |
Realized loss on pre-existing investment | | — |
| | Other income, net | | $ | 11,666 |
| | Other income, net |
| | — |
| | Total before tax | | $ | 11,666 |
| | Total before tax |
| | — |
| | Income tax provision | | $ | — |
| | Income tax provision |
| | $ | — |
| | Net of tax | | $ | 11,666 |
| | Net of tax |
| | | | | | | | |
Total reclassifications for the period | | $ | (171 | ) | | Net of tax | | $ | 11,460 |
| | Net of tax |
| | | | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) | | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | | Three months ended June 30, 2018 | | Six months ended June 30, 2018 | | Three months ended March 31, 2020 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | | | | | |
Amortization of prior-service cost | | $ | (228 | ) | | (b) | | $ | (456 | ) | | (b) | | $ | (228 | ) | | (b) |
| | (228 | ) | | Total before tax | | (456 | ) | | Total before tax | | (228 | ) | | Total before tax |
| | 60 |
| | Income tax provision | | 120 |
| | Income tax provision | | 57 |
| | Income tax provision (benefit) |
| | $ | (168 | ) | | Net of tax | | $ | (336 | ) | | Net of tax | | $ | (171 | ) | | Net of tax |
| | | | | | | | |
Cash Flow Hedges | | | | |
Interest payments | | | $ | 969 |
| | Interest expense |
| | | 969 |
| | Total before tax |
| | | (242 | ) | | Income tax provision |
| | | $ | 727 |
| | Net of tax |
| | | | |
Total reclassifications for the period | | $ | (168 | ) | | Net of tax | | $ | (336 | ) | | Net of tax | | $ | 556 |
| | Net of tax |
(a) Amounts in parentheses indicate credits to profit/lossloss.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).cost.
|
| | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | | Three months ended March 31, 2019 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | |
Amortization of prior-service cost | | $ | (228 | ) | | (b) |
| | (228 | ) | | Total before tax |
| | 57 |
| | Income tax provision (benefit) |
| | $ | (171 | ) | | Net of tax |
| | | | |
Cash Flow Hedges | | | | |
Interest payments | | $ | 182 |
| | Interest expense |
| | 182 |
| | Total before tax |
| | (46 | ) | | Income tax provision |
| | $ | 136 |
| | Net of tax |
| | | | |
Foreign Currency Translation Adjustment | | | | |
Realized loss on pre-existing investment | | $ | 11,666 |
| | Other income, net |
| | 11,666 |
| | Total before tax |
| | — |
| | Income tax provision |
| | $ | 11,666 |
| | Net of tax |
| | | | |
Total reclassifications for the period | | $ | 11,631 |
| | Net of tax |
(a) Amounts in parentheses indicate credits to profit/loss.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost.
10.9. Earnings Per Share
The Company’s non-vested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest. Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings.
| | (in thousands, except per common share data) | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net income attributable to The Andersons, Inc. | $ | 29,888 |
| | $ | 21,529 |
| | $ | 15,895 |
| | $ | 19,829 |
| |
Less: Distributed and undistributed earnings allocated to nonvested restricted stock | — |
| | — |
| | — |
| | — |
| |
Earnings available to common shareholders | $ | 29,888 |
| | $ | 21,529 |
| | $ | 15,895 |
| | $ | 19,829 |
| |
Net loss attributable to The Andersons, Inc. | | $ | (37,662 | ) | | $ | (13,993 | ) |
Earnings per share – basic: | | | | | | | | | | |
Weighted average shares outstanding – basic | 32,521 |
| | 28,261 |
| | 32,511 |
| | 28,249 |
| 32,821 |
| | 32,501 |
|
Earnings per common share – basic | $ | 0.92 |
| | $ | 0.76 |
| | $ | 0.49 |
| | $ | 0.70 |
| $ | (1.15 | ) | | $ | (0.43 | ) |
Earnings per share – diluted: | | | | | | | | | | |
Weighted average shares outstanding – basic | 32,521 |
| | 28,261 |
| | 32,511 |
| | 28,249 |
| 32,821 |
| | 32,501 |
|
Effect of dilutive awards | 212 |
| | 128 |
| | 560 |
| | 187 |
| — |
| | — |
|
Weighted average shares outstanding – diluted | 32,733 |
| | 28,389 |
| | 33,071 |
| | 28,436 |
| 32,821 |
| | 32,501 |
|
Earnings per common share – diluted | $ | 0.91 |
| | $ | 0.76 |
| | $ | 0.48 |
| | $ | 0.70 |
| $ | (1.15 | ) | | $ | (0.43 | ) |
All outstanding share awards were 33 thousand and 61 thousand antidilutive for the three and six months ended June 30,March 31, 2020 and March 31, 2019 respectively. There were 28 thousand and 25 thousand antidilutive stock-based awards outstanding foras the three and six months ended June 30, 2018, respectively.
Company incurred a net loss in both periods.
11.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2019March 31, 2020, December 31, 20182019 and June 30, 2018March 31, 2019:
| | (in thousands) | June 30, 2019 | March 31, 2020 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | $ | 103,350 |
| | $ | 62,473 |
| | $ | — |
| | $ | 165,823 |
| $ | 43,832 |
| | $ | 15,343 |
| | $ | — |
| | $ | 59,175 |
|
Provisionally priced contracts (b) | (1,064 | ) | | (38,215 | ) | | — |
| | (39,279 | ) | (94,834 | ) | | (51,061 | ) | | — |
| | (145,895 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 8,404 |
| | 8,404 |
| — |
| | — |
| | 8,654 |
| | 8,654 |
|
Other assets and liabilities (d) | 5,284 |
| | (10,750 | ) | | — |
| | (5,466 | ) | 5,373 |
| | (32,614 | ) | | — |
| | (27,241 | ) |
Total | $ | 107,570 |
| | $ | 13,508 |
| | $ | 8,404 |
| | $ | 129,482 |
| $ | (45,629 | ) | | $ | (68,332 | ) | | $ | 8,654 |
| | $ | (105,307 | ) |
|
| | | | | | | | | | | | | | | |
(in thousands) | December 31, 2019 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | $ | 45,682 |
| | $ | 15,683 |
| | $ | — |
| | $ | 61,365 |
|
Provisionally priced contracts (b) | (118,414 | ) | | (68,237 | ) | | — |
| | (186,651 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 8,404 |
| | 8,404 |
|
Other assets and liabilities (d) | 9,469 |
| | (13,507 | ) | | — |
| | (4,038 | ) |
Total | $ | (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) | June 30, 2018 | March 31, 2019 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | $ | 15,356 |
| | $ | (48,451 | ) | | $ | — |
| | $ | (33,095 | ) | $ | 60,331 |
| | $ | 31,259 |
| | $ | — |
| | $ | 91,590 |
|
Provisionally priced contracts (b) | (37,787 | ) | | (24,511 | ) | | — |
| | (62,298 | ) | (48,430 | ) | | (49,393 | ) | | — |
| | (97,823 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 7,488 |
| | 7,488 |
| — |
| | — |
| | 7,404 |
| | 7,404 |
|
Other assets and liabilities (d) | 4,136 |
| | (37 | ) | | — |
| | 4,099 |
| 5,772 |
| | (4,494 | ) | | — |
| | 1,278 |
|
Total | $ | (18,295 | ) | | $ | (72,999 | ) | | $ | 7,488 |
| | $ | (83,806 | ) | $ | 17,673 |
| | $ | (22,628 | ) | | $ | 7,404 |
| | $ | 2,449 |
|
| |
(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”assets, net” on the Company’s Condensed Consolidated Balance Sheets.Sheets related to certain available for sale securities. |
| |
(d) | Included in other assets and liabilities are assets held in rabbi trustsby 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 various 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 agribusiness 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 grain, but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or we have delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted exchange 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 exchange prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.
The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
| | | | Convertible Preferred Securities | | Convertible Preferred Securities |
(in thousands) | | 2019 | | 2018 | | 2020 | | 2019 |
Assets (liabilities) at January 1, | | $ | 7,154 |
| | $ | 7,388 |
| | $ | 8,404 |
| | $ | 7,154 |
|
Additional Investments | | 250 |
| | — |
| | 250 |
| | 250 |
|
Assets (liabilities) at March 31, | | $ | 7,404 |
| | $ | 7,388 |
| | $ | 8,654 |
| | $ | 7,404 |
|
Additional investments | | 1,000 |
| | 100 |
| |
Asset (liabilities) at June 30, |
| $ | 8,404 |
|
| $ | 7,488 |
| |
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018:March 31, 2019:
| | | Quantitative Information about Level 3 Fair Value Measurements | Quantitative Information about Recurring Level 3 Fair Value Measurements |
(in thousands) | Fair Value as of June 30, 2019 | | Valuation Method | | Unobservable Input | | Weighted Average | Fair Value as of March 31, 2020 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 8,404 |
| | Implied based on market prices | | N/A | | N/A | $ | 8,654 |
| | Implied based on market prices | | N/A | | N/A |
Real Property (b) | 2,719 |
| | Market Approach | | N/A | | N/A | |
| | (in thousands) | Fair Value as of December 31, 2018 | | Valuation Method | | Unobservable Input | | Weighted Average | Fair Value as of December 31, 2019 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 7,154 |
| | Implied based on market prices | | N/A | | N/A | $ | 8,404 |
| | Implied based on market prices | | N/A | | N/A |
| | (in thousands) | Fair Value as of June 30, 2018 | | Valuation Method | | Unobservable Input | | Weighted Average | Fair Value as of March 31, 2019 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 7,488 |
| | Implied based on market prices | | N/A | | N/A | $ | 7,404 |
| | Implied based on market prices | | N/A | | N/A |
Real property (b) | 1,300 |
| | Sale agreement | | N/A | | N/A | |
Rail car assets (c) | 4,063 |
| | National scrap index less cost to sell | | 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 Non-recurring Level 3 Fair Value Measurements |
(in thousands) | Fair Value as of December 31, 2019 | | 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.
(b) The Company recognized impairment charges on certain Trade assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets waswere determined using prior transactions in the local market and a pendingrecent sale of graincomparable Trade group assets held by the Company.
(c)The Company recognizedrecorded an other-than-temporary impairment chargescharge on rail assets during 2018 and measured fair value using Level 3 inputs on a nonrecurring basis.an existing equity method investment. The fair value of the assetsinvestment was determined based onusing a national scrap index less cost to sell.discounted cash flow analysis.
There were no non-recurring fair value measurements as of March 31, 2020 and March 31, 2019.
Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.
| | (in thousands) | June 30, 2019 |
| December 31, 2018 | | June 30, 2018 | March 31, 2020 |
| December 31, 2019 | | March 31, 2019 |
Fair value of long-term debt, including current maturities | $ | 1,078,185 |
| | $ | 517,998 |
| | $ | 444,821 |
| $ | 1,113,042 |
| | $ | 1,096,010 |
| | $ | 1,043,503 |
|
Fair value in excess of carrying value (a) | 4,495 |
| | 5,813 |
| | (8,063 | ) | 36,461 |
| | 8,257 |
| | 2,318 |
|
(a) Carrying value used for this purpose excludes unamortized debt issuance costs.
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
12.11. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
| | | | | | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
The Andersons Albion Ethanol LLC | $ | 50,760 |
| | $ | 50,382 |
| | $ | 47,474 |
|
The Andersons Clymers Ethanol LLC | 25,260 |
| | 24,242 |
| | 21,214 |
|
The Andersons Marathon Ethanol LLC | 16,294 |
| | 14,841 |
| | 14,344 |
|
Lansing Trade Group, LLC (a) | — |
| | 101,715 |
| | 97,476 |
|
Thompsons Limited (a) | — |
| | 48,987 |
| | 49,251 |
|
Providence Grain Group Inc. | 17,161 |
| | — |
| | — |
|
Other | 11,454 |
| | 2,159 |
| | 2,400 |
|
Total | $ | 120,929 |
| | $ | 242,326 |
| | $ | 232,159 |
|
(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction results in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
The following table summarizes income (loss) earned from the Company’s equity method investments by entity:
|
| | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | % Ownership at June 30, 2019 | | 2019 | | 2018 | | 2019 | | 2018 |
The Andersons Albion Ethanol LLC | 55% | | $ | 120 |
| | $ | 1,329 |
| | $ | 379 |
| | $ | 2,450 |
|
The Andersons Clymers Ethanol LLC | 39% | | 694 |
| | 1,236 |
| | 1,276 |
| | 1,745 |
|
The Andersons Marathon Ethanol LLC | 33% | | 644 |
| | 1,728 |
| | 1,453 |
| | 1,684 |
|
Lansing Trade Group, LLC (a) | 100% (a) | | — |
| | 3,591 |
| | — |
| | 6,175 |
|
Thompsons Limited (a) | 100% (a) | | — |
| | 1,980 |
| | — |
| | 1,311 |
|
Providence Grain Group Inc. | 39% | | (1,719 | ) | | — |
| | (1,844 | ) | | — |
|
Other | 5% - 51% | | 104 |
| | (61 | ) | | 98 |
| | 11 |
|
Total | | | $ | (157 | ) | | $ | 9,803 |
| | $ | 1,362 |
| | $ | 13,376 |
|
(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the company purchased the remaining equity of LTG. The transaction results in the consolidation of Thompsons Limited and related entities, which LTG and the Company had equally owned.
The Company received $0.3 million from unconsolidated affiliates for the six months ended June 30, 2019 and received $2.1 million for the six months ended June 30, 2018.
In the second quarter of 2019, the Company did not have significant equity investees. In the second quarter of 2018, Lansing Trade Group qualified as significant equity investee of the Company under the income test. In January of 2019, the Company acquired the remaining equity of LTG and is now reflected in the consolidated results of the Company.
Related Party TransactionsParties
In the ordinary course of business and on an arms-length basis, the Company will mainly enter into related party transactions with eachthe minority shareholders of the Company's ethanol operations and several equity method investments described above,that the Company holds, along with other related parties.
On March 2, 2018, the Company invested in ELEMENT, LLC. The Company owns 51% of ELEMENT, LLC and ICM, Inc. owns the remaining 49% interest. ELEMENT, LLC is constructing a 70 million-gallon-per-year bio-refinery. As part of the Company’s investment into ELEMENT, LLC, 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 results of operations for ELEMENT, LLC have been included in the Company's consolidated results of operations beginning on March 2, 2018 and are a component of the Ethanol segment. The plant is expected to be operational in the third quarter of 2019.
The following table sets forth the related party transactions entered into for the time periods presented:
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Sales revenues | $ | 57,854 |
| | $ | 107,686 |
| | $ | 119,022 |
| | $ | 196,580 |
| $ | 54,694 |
| | $ | 61,168 |
|
Service fee revenues (a) | 4,052 |
| | 5,191 |
| | 8,163 |
| | 10,308 |
| — |
| | 4,112 |
|
Purchases of product and capital assets | 176,442 |
| | 197,444 |
| | 345,671 |
| | 378,968 |
| 15,577 |
| | 169,229 |
|
Lease income (b) | 1,645 |
| | 1,624 |
| | 3,309 |
| | 3,206 |
| 147 |
| | 1,014 |
|
Labor and benefits reimbursement (c) | 3,602 |
| | 3,601 |
| | 7,460 |
| | 7,168 |
| — |
| | 3,857 |
|
| |
(a) | Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (DDG) marketing fees, and other commissions. These revenues are now eliminated in consolidation as a result of the TAMH merger. |
| |
(b) | Lease income includes certain railcars leased to related parties and the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities from the prior period and are now eliminated in consolidation as well as certain railcars toa result of the various ethanol LLCs.TAMH merger. |
| |
(c) | ThePrior to the TAMH merger the Company providesprovided all operationaloperations labor to the unconsolidated ethanol LLCs. LLCs and charged them an amount equal to the Company's costs of the related services for the prior periods. |
|
| | | | | | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
Accounts receivable (d) | $ | 19,515 |
| | $ | 17,829 |
| | $ | 27,030 |
|
Accounts payable (e) | 24,700 |
| | 28,432 |
| | 39,620 |
|
|
| | | | | | | | | | | |
(in thousands) | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Accounts receivable (d) | $ | 6,586 |
| | $ | 10,603 |
| | $ | 20,134 |
|
Accounts payable (e) | 6,364 |
| | 12,303 |
| | 24,644 |
|
| |
(d) | Accounts receivable represents amounts due from related parties for salesthe sale of corn, leasing revenueethanol and service fees.other various items. |
| |
(e) | Accounts payable represents amounts due to related parties for purchases of ethanol equipment and other various items. |
For the three months ended June 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $154.2 million and $172.3 million, respectively. For the six months ended June 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $298.2 million and $318.5 million, respectively.
The Company may enter into derivative contracts with certain of its related parties, including the unconsolidated ethanol LLCs, for the purchase and sale of grain or ethanol, for price risk mitigation purposes and on similar terms as the purchase and sale of derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties as of June 30, 2019, December 31, 2018 and June 30, 2018 was $0.2 million, $1.9 million and $8.1 million, respectively. The fair value of derivative contract liabilities with related parties as of June 30, 2019, December 31, 2018 and June 30, 2018 was $2.1 million, $6.3 million and $3.9 million, respectively.
13.12. Segment Information
The Company’s operations include four4 reportable business segments that are distinguished primarily on the basis of products and services offered. The Trade business includes graincommodity merchandising and 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 is continuing to evaluate 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. This presentation is still preliminary as the reporting structure may further evolve this year. 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.facilities. The Ethanol business produces ethanol through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and provides risk management, origination and management services to ethanol production facilities. These facilities are organized as limited liability companies, two are consolidated and three are investments accounted for under the equity method. The Company performs a combination of these services under various contracts for these investments.co-products. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, 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 Other category includes other corporate level costs not attributable to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to
normal, unaffiliated customer sales. The Company does not have any customers who represent 10 percent or more of total revenue. | | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Revenues from external customers | | | | | | | | | | |
Trade | $ | 1,766,305 |
| | $ | 365,920 |
| | $ | 3,364,326 |
| | $ | 642,772 |
| $ | 1,378,040 |
| | $ | 1,537,686 |
|
Ethanol | 245,143 |
| | 200,938 |
| | 453,974 |
| | 373,776 |
| 313,039 |
| | 269,166 |
|
Plant Nutrient | 270,577 |
| | 303,106 |
| | 399,102 |
| | 438,723 |
| 124,913 |
| | 128,525 |
|
Rail | 43,016 |
| | 41,438 |
| | 84,431 |
| | 91,870 |
| 37,113 |
| | 41,415 |
|
Total | $ | 2,325,041 |
| | $ | 911,402 |
| | $ | 4,301,833 |
| | $ | 1,547,141 |
| $ | 1,853,105 |
| | $ | 1,976,792 |
|
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Inter-segment sales | | | | | | | | | | |
Trade | $ | 631 |
| | $ | 462 |
| | $ | 812 |
| | $ | 993 |
| $ | 609 |
| | $ | 181 |
|
Plant Nutrient | 1,274 |
| | — |
| | 1,294 |
| | — |
| 887 |
| | 20 |
|
Rail | 771 |
| | 338 |
| | 2,046 |
| | 671 |
| 1,605 |
| | 1,275 |
|
Total | $ | 2,676 |
| | $ | 800 |
| | $ | 4,152 |
| | $ | 1,664 |
| $ | 3,101 |
| | $ | 1,476 |
|
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Income (loss) before income taxes, net of noncontrolling interest | | | | | | | | | | |
Trade | $ | 23,731 |
| | $ | 9,877 |
| | $ | 6,268 |
| | $ | 9,847 |
| $ | (9,983 | ) | | $ | (17,903 | ) |
Ethanol | 2,649 |
| | 6,125 |
| | 5,221 |
| | 7,964 |
| (23,976 | ) | | 3,011 |
|
Plant Nutrient | 15,903 |
| | 15,124 |
| | 11,974 |
| | 16,215 |
| (1,192 | ) | | (3,929 | ) |
Rail | 3,180 |
| | 944 |
| | 7,492 |
| | 4,913 |
| 1,007 |
| | 4,312 |
|
Other | (4,578 | ) | | (2,799 | ) | | (9,505 | ) | | (11,678 | ) | (4,982 | ) | | (4,926 | ) |
Income (loss) before income taxes, net of noncontrolling interest | 40,885 |
| | 29,271 |
| | 21,450 |
| | 27,261 |
| (39,126 | ) | | (19,435 | ) |
Noncontrolling interests | (477 | ) | | (116 | ) | | (632 | ) | | (398 | ) | (13,449 | ) | | (155 | ) |
Income (loss) before income taxes | $ | 40,408 |
| | $ | 29,155 |
| | $ | 20,818 |
| | $ | 26,863 |
| $ | (52,575 | ) | | $ | (19,590 | ) |
| | (in thousands) | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Identifiable assets | | | | | | | | | | |
Trade | $ | 2,057,305 |
| | $ | 978,974 |
| | $ | 820,016 |
| $ | 1,878,812 |
| | $ | 2,012,060 |
| | $ | 2,116,254 |
|
Ethanol | 361,522 |
| | 295,971 |
| | 248,560 |
| 653,928 |
| | 690,548 |
| | 333,060 |
|
Plant Nutrient | 381,924 |
| | 403,780 |
| | 356,166 |
| 434,512 |
| | 383,781 |
| | 455,529 |
|
Rail | 657,617 |
| | 590,407 |
| | 535,087 |
| 658,271 |
| | 693,931 |
| | 642,596 |
|
Other | 113,491 |
| | 122,871 |
| | 157,959 |
| 127,168 |
| | 120,421 |
| | 112,813 |
|
Total | $ | 3,571,859 |
| | $ | 2,392,003 |
| | $ | 2,117,788 |
| $ | 3,752,691 |
| | $ | 3,900,741 |
| | $ | 3,660,252 |
|
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 Condensed Consolidated Balance Sheet related to leases:
|
| | | | | | |
(in thousands) | | Condensed Consolidated Balance Sheet Classification | | June 30, 2019 |
Assets | | | | |
|
Operating lease assets | | Right of use assets, net | | $ | 74,073 |
|
Finance lease assets | | Property, plant and equipment, net | | 24,099 |
|
Finance lease assets | | Rail Group assets leased to others, net | | 2,047 |
|
Total leased assets | | | | $ | 100,219 |
|
| | | | |
Liabilities | | | | |
|
Current operating leases | | Accrued expenses and other current liabilities | | 25,672 |
|
Non-current operating leases | | Long-term lease liabilities | | 48,401 |
|
Total operating lease liabilities | | | | $ | 74,073 |
|
| | | | |
Current finance leases | | Current maturities of long-term debt | | 16,990 |
|
Non-current finance leases | | Long-term debt | | 21,940 |
|
Total finance lease liabilities | | | | $ | 38,930 |
|
Total lease liabilities | | | | $ | 113,003 |
|
The components of lease cost recognized within the Company's Condensed Consolidated Statement of Operations were as follows:
|
| | | | | | |
(in thousands) | | Condensed Consolidated Statement of Operations Classification | | June 30, 2019 |
Lease cost: | | | | |
Operating lease cost | | Cost of sales and merchandising revenues | | $ | 13,120 |
|
Operating lease cost | | Operating, administrative and general expenses | | 6,834 |
|
Finance lease cost | | | |
|
|
Amortization of right-of-use assets | | Operating, administrative and general expenses | | 1,912 |
|
Interest expense on lease liabilities | | Interest expense | | 543 |
|
Other lease cost (1) | | Operating, administrative and general expenses | | 199 |
|
Other lease cost (1) | | Interest expense | | 24 |
|
Total lease cost | | | | $ | 22,632 |
|
| |
(1) | 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 table below summarizes the weighted average remaining lease terms as of June 30, 2019.
|
| |
Weighted Average Remaining Lease Term | |
Operating leases | 4.3 years |
Finance leases | 7.1 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 table below summarizes the weighted average discount rate used to measure the Company's lease liabilities as of June 30, 2019.
|
| | |
Weighted Average Discount Rate | |
|
Operating leases | 4.16 | % |
Finance leases | 3.74 | % |
Supplemental Cash Flow Information Related to Leases
|
| | | | | |
(in thousands) | | | June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
|
Operating cash flows from operating leases | | | $ | 21,345 |
|
Operating cash flows from finance leases | | | $ | 304 |
|
Financing cash flows from finance leases | | | $ | 775 |
|
Right-of-use assets obtained in exchange for lease obligations: | | | |
|
Operating leases | | | $ | 3,992 |
|
Finance leases | | | $ | 15,920 |
|
Maturity Analysis of Leases Liabilities
|
| | | | | | | | | | | |
| As of June 30, 2019 |
(in thousands) | Operating Leases | | Finance Leases | | Total |
2019 (excluding the six months ended June 30, 2019) | $ | 15,849 |
| | $ | 3,672 |
| | $ | 19,521 |
|
2020 | 22,069 |
| | 15,288 |
| | 37,357 |
|
2021 | 15,898 |
| | 2,162 |
| | 18,060 |
|
2022 | 10,550 |
| | 2,169 |
| | 12,719 |
|
2023 | 6,193 |
| | 2,170 |
| | 8,363 |
|
Thereafter | 10,613 |
| | 18,331 |
| | 28,944 |
|
Total lease payments | $ | 81,172 |
| | $ | 43,792 |
| | $ | 124,964 |
|
Less interest | 7,099 |
| | 4,862 |
| | 11,961 |
|
Total | $ | 74,073 |
| | $ | 38,930 |
| | $ | 113,003 |
|
15.13. Commitments and Contingencies
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time or may result in continued reserves to account for the potential of such post-verdict actions.
The Company recorded a $5.0 million reserve relating to an outstanding non-regulatory litigation claim, based upon preliminary settlement negotiations in the first quarter of 2019. The claim is in response to penalties and fines paid to regulatory entities by LTGa previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity.
The estimated losses for all other outstanding claims that are considered reasonably possible are not material.
Commitments
The Company continues its construction of a new bio-refinery facility, which is expected to be completed in 2019. Portions of the project are covered by design and build contracts, with approximately $13 million of the remaining obligation not yet incurred, of which $0.9 million has been prepaid, as of June 30, 2019.
16.14. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
| | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | 2020 | | 2019 |
Supplemental disclosure of cash flow information | | | | | | |
Interest paid | $ | 30,287 |
| | $ | 16,982 |
| $ | 16,180 |
| | $ | 16,711 |
|
Noncash investing and financing activity | | | | | | |
Dividends declared not yet paid | | 5,748 |
| | 5,527 |
|
Capital projects incurred but not yet paid | | 8,459 |
| | 15,974 |
|
Equity issued in conjunction with acquisition | 127,841 |
| | — |
| — |
| | 123,146 |
|
Removal of pre-existing equity method investment | (159,459 | ) | | — |
| — |
| | (159,459 | ) |
Purchase price holdback/ other accrued liabilities | 31,885 |
| | — |
| — |
| | 31,518 |
|
Dividends declared not yet paid | 5,530 |
| | 4,663 |
| |
Debt resulting from accounting standard adoption | — |
| | 36,953 |
| |
Railcar assets and liabilities resulting from accounting standard adoption | — |
| | 25,643 |
| |
Capital projects incurred but not yet paid | 15,317 |
| | 10,744 |
| |
17.
15. Business Acquisition
Effective JanuaryOn October 1, 2019, The Andersons entered into an agreement with Marathon to merge TAAE, TACE, TAME and the Company completed its acquisitionCompany's wholly-owned subsidiary, The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC. As a result of the remaining 67.5%merger, The Andersons and Marathon now own 50.1% and 49.9% of the equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities as they were jointly owned by the Company and LTG in equal portions.
TAMH, respectively. Total consideration paidtransferred by the Company to complete the acquisition of LTGTAMH was $328.9$182.9 million. The Company paid $169.2 million in cash, which includes preliminary working capital adjustmentscompany transferred non-cash consideration of $31.9$7.3 million and issued 4.4 million unregistered shares valued at $127.8 million based upon the stock priceits equity values of the Company.previously mentioned LLCs.
The purchase price allocation is preliminary, pending, completionfinalization of the full valuation report and a final working capital adjustment to be agreed upon between the Company and the sellers.deferred income taxes adjustments. A summarized preliminary purchase price allocation is as follows:
|
| | | |
(in thousands) | |
Cash consideration paid | $ | 169,218 |
|
Equity consideration | 127,841 |
|
Purchase price holdback/ other accrued liabilities | 31,885 |
|
Total purchase price consideration | $ | 328,944 |
|
|
| | | |
(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 JanuaryOctober 1, 2019, is as follows:
| | (in thousands) | | |
Cash and cash equivalents | $ | 21,525 |
| $ | 47,042 |
|
Accounts receivable | 320,467 |
| 12,175 |
|
Inventories | 456,963 |
| 31,765 |
|
Commodity derivative assets - current | 82,595 |
| |
Other current assets | 27,474 |
| 2,638 |
|
Commodity derivative assets - noncurrent | 13,576 |
| |
Goodwill | 129,848 |
| 2,726 |
|
Other intangible assets | 106,600 |
| |
Right of use asset | 37,894 |
| 5,200 |
|
Equity method investments | 28,728 |
| |
Other assets, net | 5,582 |
| 861 |
|
Property, plant and equipment, net | 171,820 |
| 321,380 |
|
| $ | 1,403,072 |
| 423,787 |
|
| | |
Short-term debt | 218,901 |
| |
Trade and other payables | 303,321 |
| 13,461 |
|
Commodity derivative liabilities - current | 29,024 |
| |
Customer prepayments and deferred revenue | 99,530 |
| |
Accrued expense and other current liabilities | 64,512 |
| 3,011 |
|
Other long-term liabilities, including commodity derivative liabilities - noncurrent | 3,175 |
| |
Other long-term liabilities | | 209 |
|
Long-term lease liabilities | 21,193 |
| 2,230 |
|
Long-term debt, including current maturities | 161,688 |
| 47,886 |
|
Deferred income taxes | 14,403 |
| |
| $ | 915,747 |
| 66,797 |
|
Fair value of acquired assets and assumed liabilities | $ | 487,325 |
| |
Marathon Noncontrolling Interest | | 174,135 |
|
Net Assets Acquired | | $ | 182,855 |
|
| | |
Removal of preexisting ownership interest, including associated cumulative translation adjustment | (159,459 | ) | |
Pretax loss on derecognition of preexisting ownership interest | 1,078 |
| |
Total purchase price consideration | $ | 328,944 |
| |
| | |
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 as a resultis primarily attributable to expected synergies and the assembled workforce of the LTG acquisition is $129.9 million and is allocated to the Trade Group segment. A portionTAMH. None of the goodwill is expected to be deductible for income tax purposes.
The goodwill recognized is primarily attributable to the addition of an assembled workforce and complementary assets with greater scale that significantly expands the Company's reachfair value in the agricultural marketplace. Due to refinements in the valuation and finalization of certain replacement equity award during the second quarter, goodwill increased approximately $7.5 million and other intangible assets decreased $9.6 million as well as various working capital adjustments. The Company also finalized the determinationopening balance sheet of the preacquisition49.9% noncontrolling interest in TAMH was estimated to be $174.1 million. The fair value of its preexisitng ownership interests, which resulted in a revisionwas estimated based on 49.9% of the previously recorded pretax loss by $2.4 million.
Detailstotal equity value of TAMH based on the intangible assets acquired are as follows:
|
| | | | | |
(in thousands) | | Estimated useful life | |
Customer relationships | $ | 86,300 |
| 10 years | |
Noncompete agreements | 20,300 |
| 3 years | |
| $ | 106,600 |
| 8 years | * |
*weighted average number of years
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 LTGTAMH acquisition as if it had occurred at January 1, 2018.2019.
| | | Three months ended June 30, | | Six months ended June 30, | Three months ended March 31, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net sales | $ | 2,359,077 |
| | $ | 2,333,598 |
| | $ | 4,335,869 |
| | $ | 4,261,910 |
| $ | 1,853,105 |
| | $ | 2,031,510 |
|
Net income | 29,985 |
| | 42,506 |
| | 19,232 |
| | 32,110 |
| (51,111 | ) | | (15,228 | ) |
Pro forma net lossincome 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 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 related to the TAMH merger.
Pro forma financial information is not necessarily indicative of LTG’s and Thompsons’ revenue and earnings included in the Company’s consolidated statementCompany's actual results of operations forif the period ended June 30, 2019acquisition 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 not practicable to determine given the level of integration of LTG and Thompsons into the Company’s operations effective January 1, 2019.achievable.
18.16. Goodwill
During the quarter the Company completed a reorganization of its organization and internal structure whereby the Company reorganized its operations between the Trade and Ethanol segments to enhance operating decisions and assessing performance. On January 1, 2020, the Company moved its Distillers Dried Grains ("DDG") business from the Trade to Ethanol segment. The reorganization resulted in the reassignment of goodwill to the affected reporting units using a relative fair value approach. As a result of the reassignment and allocation, the Company performed an interim review of the carrying value of goodwill at the Trade and Ethanol segments for possible impairment on both a pre and post-reorganization basis. No impairment of goodwill was indicated at the pre-reorganization reporting units.
The changes in the carrying amount of goodwill by reportable segment for the sixthree months ended June 30, 2019March 31, 2020 are as follows:
|
| | | | | | | | | | | | | | | |
(in thousands) | Trade | | Plant Nutrient | | Rail | | Total |
Balance as of January 1, 2019 | $ | 1,171 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 6,024 |
|
Acquisitions | 129,848 |
| | — |
| | — |
| | 129,848 |
|
Balance as of June 30, 2019 | $ | 131,019 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 135,872 |
|
|
| | | | | | | | | | | | | | | | | | | |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total |
Balance as of January 1, 2020 | $ | 127,781 |
| | $ | 2,726 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 135,360 |
|
Reorganization (a) | (5,714 | ) | | 5,714 |
| | — |
| | — |
| | — |
|
Balance as of March 31, 2020 | $ | 122,067 |
| | $ | 8,440 |
| | $ | 686 |
| | $ | 4,167 |
| | $ | 135,360 |
|
Acquisitions represent(a) Reorganization related to move of the LTG acquisition's preliminary goodwill allocation.DDG business line from the Trade to Ethanol segment.
Due to the severe decline in ethanol prices, largely impacted by COVID-19 during the period, management determined that a triggering event occurred within the Ethanol segment. Accordingly, an interim impairment test was performed over the Ethanol group's goodwill as well as its other intangible and long-lived assets. Based on the results of the impairment test, the Ethanol segment did not record an impairment charge. 19. Exit Costs
When performing our test for impairment, we measured each reporting unit's fair value using a combination of income and Assets Held for Salemarket approaches.
The Company classified $9.8 millionincome approach calculates the fair value of Property, plant and equipment as Assets held for salethe reporting unit based on a discounted cash flow analysis, incorporating the Condensed Consolidated Balance Sheet at June 30, 2018. This includes $4.2 millionweighted average cost of Retail store assets, $4.1 millioncapital of Rail Group assets, and $1.3 million of former Grain Group assets relating to Como, Tennessee operations, and $0.2 million relating to administrative offices at an outlying locationa hypothetical third-party buyer. Significant estimates in the Plant Nutrient Group.income approach include the following: discount rate, expected financial outlook and profitability of the reporting unit's business (all Level 3 inputs in the fair value hierarchy). Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.
The market approach uses the "Guideline Company" method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums. The blended approach assigns an equal weighting to each approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.
20. Subsequent Events
Subsequent to the endThe results of the second quarter,goodwill impairment test within the Company reached an agreementEthanol group supported the calculated fair value exceeding the carrying values by greater than 20%. However, as the fair value is highly sensitive to sellchanges in assumptions, including interest rates and outlook for future volume and margins, general trends in the agronomy assetsbusiness and/or macro-economic factors could cause the estimated fair value of Thompsons Limited, a wholly owned subsidiary in Ontario, Canada,the reporting unit to Sylvite Holdings Inc. of Burlington, Ontario. The sale is expected to close in September 2019. The Andersons will continue to own and operate Thompsons’ grain storage and food processing facilities in Ontario.
fall below its carrying value.
Item 2. 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 others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20182019 (“20182019 Form 10-K”). 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.
Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 20182019 Form 10-K, have not materially changed through the secondfirst quarter of 2019, other than as a result of adopting the new lease accounting standard. See additional information regarding these policies in the Notes to the Condensed Consolidated Financial statements herein in Notes 1 and 14.2020.
Executive Overview
Our operations are organized, managed and classified into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail. Each of these segments is generally based on the nature of products and services offered. In January, 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 Company is continuing to evaluate its segment reporting structure as a result of the acquisition. The presentation here includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group. The acquired ethanol trading business is included within the Ethanol Group. As a result of the LTG acquisition, 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 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 between periods may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes in gross profit.
The Company has ethanol production, merchandising and goodwill assets within the Ethanol segment. Due to an adverse change within the industry, the Company determined that a triggering event had occurred during the quarter for the asset group to be assessed for impairment. The asset group was determined to not be impaired in the first quarter, however, continuing adverse market conditions or alternative management decisions surrounding the future of these operations may result in future impairment considerations.
Further, we havethe Company has considered the potential impact that the book value of the Company’s total shareholders’ equity exceeded the Company’s market capitalization value at various points during the quarter for impairment indicators. While weManagement ultimately concluded that, while the book value in excess ofCompany's shareholders equity exceeded the market capitalization for the period, an impairment triggering event had not occurred. The Company continues to believe that the share price is not an accurate reflection of its current value. While the adverse conditions are currently present and pervasive in the agriculture space during this time, the long-term outlook remains positive and we believe that the market’s impact on the Company’s equity value does not actually reflect the impact of these external factors on the Company. Further, due to internal reorganizations within the Plant Nutrient, Ethanol and Trade segments, certain portions of goodwill have been subject to a short-term anomaly andquantitative goodwill assessment during the period which resulted in no impairment charges. As a result of these tests, the Company concluded that no impairment triggering event has occurred,existed as of March 31, 2020.
Recent Developments
For the assessment performed for goodwill may be influenced by these market conditions and affectfirst quarter of 2020, the calculated fair valueglobal emergence of the reporting unitnovel strain of COVID-19 had a significant impact to the global economy, including several industries in which The Andersons operates. The government-induced stay-at-home orders reduced demand for gasoline, ethanol and corn, primarily impacting the Ethanol and Trade Groups. As previously announced the Company has idled its ethanol plants for extended maintenance shutdowns in an effort to maintain the Company's ethanol plants, protect employees and conserve cash. The future impacts of the COVID-19 pandemic on the Company’s business are highly uncertain at the annual October 1 assessment date. A goodwill impairment charge might result if recent weaknessesthis time.
The Company is a critical infrastructure industry as that term has been defined by The United States Department of Homeland Security, Cybersecurity and Infrastructure Agency, in our business units proveits March 19, 2020 Memorandum. As COVID-19 continues to be long-term in nature and affect our forecast for future years. Total goodwill acrossspread, the Company is $135.9 million.currently conducting business as usual to the greatest extent possible in the current circumstances. The Company is taking a variety of measures to ensure the availability of its services throughout our network, promote the safety and security of our employees, and support the communities in which we operate. Certain modifications the Company has made in response to the COVID-19 pandemic include: implementing a period of working at home for all non-essential support staff; restricting employee business travel; strengthening clean workplace practices; reinforcing socially responsible sick leave recommendations; limiting visitor and third-party access to Company facilities; launching internal COVID-19 resources for employees; creating a pandemic response team comprised of employees and members of senior management; encouraging telephonic and video conference-based meetings along with other hygiene and social distancing practices recommended by health authorities including Health Canada, the U.S. Centers for Disease Control and Prevention, and the World Health Organization; and supplementing employment insurance payments and maintaining health benefit coverage of employees through the pandemic. The Company is responding to this crisis through measures designed to protect our workforce and preventing disruptions to the Company's operations within the North American agricultural supply chain. The Andersons service is deemed essential as part of the agricultural industry.
As previously announced, the Company’s annual meeting of shareholders, held on May 8, 2020, will be conducted via a virtual-only format by live webcast online for the first time. We have observed many other companies, taking precautionary and preemptive actions to address the COVID-19 pandemic, and companies may take further actions that alter their normal business operations. We will continue to actively monitor the situation and may take further actions that could materially alter our business operations as may be required or recommended by federal, provincial, state or local authorities, or that we determine are in the best interests of our employees, customers, shareholders, partners, suppliers, and other stakeholders.
Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part II, Item 1A. Risk Factors.
Trade Group
The Trade Group’s results in the secondfirst quarter reflect improved market conditions from stronglower income as the Group recorded a significant loss on its corn and wheatposition during the quarter as basis appreciation and capitalizing on better merchandising opportunitiesdepreciated due to increased market volatility.the sharp reduction in ethanol demand along with significant addition to credit reserves for customers in the ethanol market. The food and specialty ingredients businesses enjoyed a strong quarter, more than doubling last year's first quarter results partially offsetting the loss from corn basis depreciation and credit reserves.
Agricultural inventories on hand at June 30, 2019March 31, 2020 were 96.1128.8 million bushels, of which 1.33.9 million bushels were stored for others. These amounts compare to 80.9136.8 million bushels on hand at June 30, 2018,March 31, 2019, of which 0.11.9 million bushels were stored for
others. Total Trade storage capacity, including temporary pile storage, was approximately 216205 million bushels at June 30, 2019March 31, 2020 compared to 145218 million bushels at June 30, 2018. This increase in capacity was a result of the LTG acquisition.March 31, 2019.
The Trade Group will seek to capitalizegroup expects continued pressure on continued market volatility, but expects headwindsthe profitability of its Eastern assets until the 2020 corn crop is harvested. However, the group believes an expected large corn crop in the second half of the2020 should help create increased space income beginning later this year from the unpredictability of the crop production in the Eastern Corn Belt due to the extreme weather during the first half of the year.and into 2021.
Ethanol Group
The Ethanol Group's secondfirst quarter results remained profitable despite an extremely weak margin environment. The constructionwere significantly impacted by the COVID-19 pandemic as the lack of demand created a surplus of supply of both oil and ethanol driving margins negative during the Ethanol Group's new bio-refinery facility continues and the project is on target to be operational in the third quarter of 2019.quarter. The Ethanol Group expects the marginthese headwinds to continue intoas long as the second halflack of the year due to rising corn basis levels.demand from COVID-19 continues.
Ethanol and related co-products volumes for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 were as follows:
| | | | | | | | | | | Three months ended March 31, |
(in thousands) | Three months ended June 30, | | Six months ended June 30, | 2020 | | 2019 |
| 2019 | | 2018 | | 2019 | | 2018 | |
Ethanol (gallons shipped) | 130,297 |
| | 117,061 |
| | 261,325 |
| | 220,136 |
| 147,345 |
| | 131,028 |
|
E-85 (gallons shipped) | 13,959 |
| | 16,577 |
| | 22,892 |
| | 31,479 |
| 9,093 |
| | 8,932 |
|
Corn Oil (pounds shipped) | 4,821 |
| | 5,567 |
| | 9,754 |
| | 10,374 |
| 29,294 |
| | 4,932 |
|
DDG (tons shipped) * | 36 |
| | 42 |
| | 73 |
| | 81 |
| 536 |
| | 36 |
|
* DDG tons shipped converts wet tons to a dry ton equivalent amount
The above table shows only shipped volumes reflectedthat flow through the Consolidated Financial Statements of the Company. As the Company merged its former unconsolidated LLCs into the consolidated TAMH entity in the Company's revenues.fourth quarter of 2019, these consolidated volumes are now included in the 2020 amounts above. Total ethanol, DDG, and corn oil and DDG production by the unconsolidated LLCs for the first quarter of 2019 is higher.actually higher than disclosed above. However, the portion of thatthis volume that iswas sold from the unconsolidated LLCs directly to itstheir customers for the first quarter of 2019 is excluded here. The increase in ethanol gallons shipped is a result of the LTG acquisition.
Plant Nutrient Group
The Plant Nutrient Group's secondfirst quarter results reflect improved primarywere an improvement from the prior period, primarily as a result of the Engineered Granules business, which was driven by lower of cost of sales for its cob-based products. The Ag Supply Chain and specialty nutrient margins and depressedSpecialty Liquids businesses were comparable to the prior year. While volumes were up, due to unprecedented wet weatherproduct mix, overall margin per ton was lower overall for the full quarter, but improved planting began in much of its core footprint. The Group is optimistic margins will remain strong for the second half of the year despite the lawn business expecting to continue to face headwinds.March.
Storage capacity at our wholesale nutrient and farm center facilities, including leased storage, was approximately 487486 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at June 30,March 31, 2020 and March 31, 2019, comparedrespectively.
As of January 1, 2020, the group reorganized into three divisions: Ag Supply Chain, which includes wholesale distribution centers and retail farm centers; Specialty Liquids, which includes manufactured liquid products intended for agricultural and industrial uses; and Engineered Granules, which includes granular products for turf and agricultural uses, contract manufacturing and cob products. Prior period amounts below were recast to approximately 484 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at June 30, 2018.reflect this change.
Tons of product sold for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 were as follows:
|
| | | | | | | | | | | |
(in thousands) | Three months ended June 30, | | Six months ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Primary nutrients | 589 |
| | 657 |
| | 767 |
| | 859 |
|
Specialty nutrients | 207 |
| | 247 |
| | 372 |
| | 433 |
|
Other | 13 |
| | 13 |
| | 29 |
| | 29 |
|
Total tons | 809 |
| | 917 |
| | 1,168 |
| | 1,321 |
|
|
| | | | | |
| Three months ended March 31, |
(in thousands) | 2020 | | 2019 |
Ag Supply Chain | 211 |
| | 170 |
|
Specialty Liquids | 73 |
| | 59 |
|
Engineered Granules | 121 |
| | 130 |
|
Total tons | 405 |
| | 359 |
|
In the table above, Ag Supply Chain represents facilities principally engaged in the wholesale distribution and retail sale and application of primary agricultural nutrients is comprised ofsuch as bulk nitrogen, phosphorus, and potassium from our wholesalepotassium. Specialty Liquid locations produce and farm center businesses. Specialty nutrients encompassessell a variety of low-salt liquid starter fertilizers, micronutrients for wholesaleagricultural use, and farm center businesses,specialty products for use in various industrial processes. Engineered Granules facilities primarily manufacture granulated dry products for use in specialty turf and agricultural applications and a variety of corncob-based products
The group's near-term outlook is positive, as well asweather has been favorable for planting and a large corn crop is anticipated. However, a significant decrease in corn prices may cause some planting to shift from corn to beans and may lessen growers' and other customers' ability to buy the lawn business. Other tons include those from the cob business.group's products.
Rail Group
The Rail Group results improveddeclined mainly due to strongerfewer car sales than the prior year. Leasing income slightly decreased from the prior year as the group faced headwinds in the sand and ethanol markets as well as lower lease renewal rates. Average utilization rates decreased from more95.7 percent in the first quarter of 2019 to 89.0 percent in the first quarter of 2020 as the group had fewer cars on lease from the sand and an impairment charge in the prior year. These increases were partially offset by a decrease in income from car sales and other services. Average utilization rates increased from 89.5 percent in the second quarter of 2018 to 94.6 percent in the second quarter of 2019. A portion of this
increase, however, is attributable to the railcar scrap program which occurred in the second quarter of 2018. Additionally, the Company focused on putting idle cars in service and growing the fleet with strategic purchases.ethanol market headwinds. Rail Group assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2019March 31, 2020 were 23,96624,416 compared to 23,05923,550 at June 30, 2018.March 31, 2019.
The leasing business continues to perform well with more carsgroup expects continued pressure on leaseutilization and higher average lease rates, as the COVID pandemic has driven railcar loadings 20 percent lower year over year. Lease rates and utilization rates haveyear for several weeks running. This condition will also likely hit their peak but should remain steady.decrease demand for contract railcar repairs.
Other
Our “Other” activities include corporate income 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, and other elimination and consolidation adjustments.
Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 13,12, Segment Information.
Comparison of the three months ended June 30, 2019March 31, 2020 with the three months ended June 30, 2018:March 31, 2019 including a reconciliation of GAAP to non-GAAP measures:
| | | Three months ended June 30, 2019 | Three months ended March 31, 2020 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 1,766,305 |
| | $ | 245,143 |
| | $ | 270,577 |
| | $ | 43,016 |
| | $ | — |
| | $ | 2,325,041 |
| $ | 1,378,040 |
| | $ | 313,039 |
| | $ | 124,913 |
| | $ | 37,113 |
| | $ | — |
| | $ | 1,853,105 |
|
Cost of sales and merchandising revenues | 1,663,459 |
| | 240,831 |
| | 231,779 |
| | 28,244 |
| | — |
| | 2,164,313 |
| 1,315,574 |
| | 342,438 |
| | 104,549 |
| | 27,414 |
| | — |
| | 1,789,975 |
|
Gross profit | 102,846 |
| | 4,312 |
| | 38,798 |
| | 14,772 |
| | — |
| | 160,728 |
| 62,466 |
| | (29,399 | ) | | 20,364 |
| | 9,699 |
| | — |
| | 63,130 |
|
Operating, administrative and general expenses | 67,995 |
| | 4,697 |
| | 21,079 |
| | 7,740 |
| | 5,407 |
| | 106,918 |
| 68,155 |
| | 6,115 |
| | 19,741 |
| | 5,259 |
| | 5,790 |
| | 105,060 |
|
Asset impairment | 3,081 |
| | — |
| | — |
| | — |
| | — |
| | 3,081 |
| |
Interest expense (income) | 10,243 |
| | (906 | ) | | 2,386 |
| | 4,181 |
| | (177 | ) | | 15,727 |
| |
Interest expense (income), net | | 7,188 |
| | 2,357 |
| | 1,785 |
| | 4,483 |
| | (226 | ) | | 15,587 |
|
Equity in earnings (losses) of affiliates, net | (1,614 | ) | | 1,457 |
| | — |
| | — |
| | — |
| | (157 | ) | 129 |
| | — |
| | — |
| | — |
| | — |
| | 129 |
|
Other income (expense), net | 3,818 |
| | 194 |
| | 570 |
| | 329 |
| | 652 |
| | 5,563 |
| 2,765 |
| | 446 |
| | (30 | ) | | 1,050 |
| | 582 |
| | 4,813 |
|
Income (loss) before income taxes | 23,731 |
| | 2,172 |
| | 15,903 |
| | 3,180 |
| | (4,578 | ) | | 40,408 |
| (9,983 | ) | | (37,425 | ) | | (1,192 | ) | | 1,007 |
| | (4,982 | ) | | (52,575 | ) |
Income (loss) attributable to the noncontrolling interests | — |
| | (477 | ) | | — |
| | — |
| | — |
| | (477 | ) | |
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | $ | 23,731 |
| | $ | 2,649 |
| | $ | 15,903 |
| | $ | 3,180 |
| | $ | (4,578 | ) | | $ | 40,885 |
| |
Income (loss) before income taxes attributable to the noncontrolling interests | | — |
| | (13,449 | ) | | — |
| | — |
| | — |
| | (13,449 | ) |
Non-GAAP Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | | $ | (9,983 | ) | | $ | (23,976 | ) | | $ | (1,192 | ) | | $ | 1,007 |
| | $ | (4,982 | ) | | $ | (39,126 | ) |
| | | Three months ended June 30, 2018 | Three months ended March 31, 2019 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 365,100 |
| | $ | 201,758 |
| | $ | 303,106 |
| | $ | 41,438 |
| | $ | — |
| | $ | 911,402 |
| $ | 1,537,686 |
| | $ | 269,166 |
| | $ | 128,525 |
| | $ | 41,415 |
| | $ | — |
| | $ | 1,976,792 |
|
Cost of sales and merchandising revenues | 331,213 |
| | 195,896 |
| | 265,939 |
| | 27,880 |
| | — |
| | 820,928 |
| 1,470,289 |
| | 263,766 |
| | 107,591 |
| | 25,482 |
| | — |
| | 1,867,128 |
|
Gross profit | 33,887 |
| | 5,862 |
| | 37,167 |
| | 13,558 |
| | — |
| | 90,474 |
| 67,397 |
| | 5,400 |
| | 20,934 |
| | 15,933 |
| | — |
| | 109,664 |
|
Operating, administrative and general expenses | 26,444 |
| | 2,770 |
| | 21,024 |
| | 5,863 |
| | 3,752 |
| | 59,853 |
| 71,375 |
| | 4,990 |
| | 23,169 |
| | 8,151 |
| | 5,664 |
| | 113,349 |
|
Asset impairment | 1,564 |
| | — |
| | — |
| | 4,708 |
| | — |
| | 6,272 |
| |
Interest expense (income) | 3,930 |
| | (270 | ) | | 1,641 |
| | 2,718 |
| | (194 | ) | | 7,825 |
| |
Interest expense (income), net | | 10,804 |
| | (712 | ) | | 2,261 |
| | 3,679 |
| | (122 | ) | | 15,910 |
|
Equity in earnings (losses) of affiliates, net | 5,510 |
| | 4,293 |
| | — |
| | — |
| | — |
| | 9,803 |
| (131 | ) | | 1,650 |
| | — |
| | — |
| | — |
| | 1,519 |
|
Other income (expense), net | 1,248 |
| | (476 | ) | | 622 |
| | 675 |
| | 759 |
| | 2,828 |
| (2,990 | ) | | 84 |
| | 567 |
| | 209 |
| | 616 |
| | (1,514 | ) |
Income (loss) before income taxes | 8,707 |
| | 7,179 |
| | 15,124 |
| | 944 |
| | (2,799 | ) | | 29,155 |
| (17,903 | ) | | 2,856 |
| | (3,929 | ) | | 4,312 |
| | (4,926 | ) | | (19,590 | ) |
Income (loss) attributable to the noncontrolling interests | — |
| | (116 | ) | | — |
| | — |
| | — |
| | (116 | ) | |
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | $ | 8,707 |
| | $ | 7,295 |
| | $ | 15,124 |
| | $ | 944 |
| | $ | (2,799 | ) | | $ | 29,271 |
| |
Income (loss) before income taxes attributable to the noncontrolling interests | | — |
| | (155 | ) | | — |
| | — |
| | — |
| | (155 | ) |
Non-GAAP Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | | $ | (17,903 | ) | | $ | 3,011 |
| | $ | (3,929 | ) | | $ | 4,312 |
| | $ | (4,926 | ) | | $ | (19,435 | ) |
Trade Group
Operating results for the Trade Group increased by $15.0$7.9 million compared to the results of the same period last year.year, however prior year results included $11.6 million of transaction-related expenses. Sales and merchandising revenues increaseddecreased by $1,401.2$159.6 million and cost of sales and merchandising revenues increased $1,332.2decreased $154.7 million for favorablean unfavorable net gross profit impact of $69.0$4.9 million. Substantially allThis decrease was primarily driven by the depreciation of corn basis and the gross profit increase was a direct result of acquiring LTG and Thompsons, however,decreased oil demand creating headwinds in the Company also realized significant basis appreciation on its corn and wheat positions.Company's frac sand operations.
Operating, administrative and general expenses increaseddecreased by $41.6$3.2 million. The acquisition ofdecrease from the remaining equityprior year is primarily related to transaction expenses that did not recur in LTG and Thompsons accounted for $39.42020. This decrease was partially offset by approximately $3.4 million of this increase. Included inadditional bad debt reserves for customers that were adversely impacted by the increased expenses are several acquisition related items, such as, $1.3 million of stock-based compensation expense, $0.4 million of incremental depreciation and amortization expenses and $0.4 million of other transaction-related costs.COVID-19 pandemic.
Interest expense increased $6.3decreased $3.6 million due to the increasedCompany paying down debt levels resulting fromand lower group borrowings on the acquisition and rising interest rates.
Equity in earningsCompany's short-term line of affiliates decreased by $7.1credit compared to the prior year. Prior year results also include a $0.6 million write-off of deferred financing fees as LTG and Thompsons are now consolidated entities.part of its new credit facility.
Other income net includes a $2.4increased by $5.8 million adjustment toas there were approximately $2.0 million worth of insurance settlements in the previously recordedcurrent year along with an initial remeasurement loss of $3.5 million loss on the Company's pre-existing investmentsequity method investment in LTG and Thompsons, pursuant tothat didn't recur in the accounting rules that govern step acquisitions, as the Company finalized its valuation of the pre-acquisition fair value of these investments during the quarter as a part of the preliminary purchase price accounting.current year.
Ethanol Group
Operating results for the Ethanol Group declined $4.6$27.0 million from the same period last year. Sales and merchandising revenues increased $43.4$43.9 million and cost of sales and merchandising revenues increased $44.9$78.7 million compared to 20182019 results, were primarily attributable to the LTG acquisition.TAMH merger. Gross profit decreased by $1.6$34.8 million compared to 20182019 results duefrom the fallout of the COVID-19 pandemic leading to an over saturation of the supply of oil and a compressed industrynegative margin environment.environment for the ethanol industry.
Operating, administrative and general expenses increased $1.9$1.1 million primarily due to an increase in labor and benefits, most of which was from the addition of the acquired ethanol trading team.TAMH merger.
Interest expense decreased $0.6increased $3.1 million due to the capitalizationinclusion of interest expense related to the consolidation of TAMH and due to ELEMENT's ability to capitalize interest related to the construction of the ELEMENT plant.facility in the prior year.
Equity in earnings of affiliates decreased $1.7 million as a result of the former unconsolidated ethanol LLCs being merged into the consolidated entity of TAMH.
Plant Nutrient Group
Operating results for the Plant Nutrient Group increased by $0.8$2.7 million compared to the same period in the prior year. Sales and merchandising revenues decreased $32.5 million. This was driven by a significant decrease in primary$3.6 million and specialty ton
volumes. These decreases are due to unfavorable weather conditions when compared to the prior year. Costcost of sales and merchandising revenues decreased by $34.2$3.0 million resulting in decreased gross profit of $0.6. This was driven by weaker margins in Ag Supply Chain sales when compared to the favorable positions the Company had in the same period of the prior year.
Operating, administrative and general expenses decreased $3.4 million due to the decrease in sales volumes, improved cost containment, operational efficiency and product mix. While volumes decreased, margins improved frommore efficient production compared to the prior year and led to an increased gross profit of $1.6 million.year.
Interest expense increased $0.7decreased $0.5 million from carrying higher levels of inventories duelower interest rates compared to the wet weather that delayed and reduced planting.prior year.
Rail Group
Operating results increased $2.2declined $3.3 million from the same period last year while sales and merchandising revenues increased $1.6decreased $4.3 million. This increasedecrease was mainly driven by a $2.1$3.7 million increasedecrease in leasing revenues from moreas a result of lower cars on lease. This increase was partially offsetlease and lower average lease rates from decreased car sale revenues of $0.5 million as the Company sold more cars in the second quarter of 2018.prior year. Cost of sales and merchandising increased $0.4$1.9 million compared to the prior year due to higher storage costs on more idle cars and higher maintenance and depreciation expense.expenses from the larger fleet from the prior year. As a result, gross profit increased $1.2decreased $6.2 million compared to lastthe period year.
Operating, administrative and general expenses increased $1.9decreased $2.9 million driven by increasedmore efficient labor costs related to opening and closingwithin the repair shops and increased labor and workers’ compensation expenses. The prior period results also include an impairment charge on idle fleet assetsbusiness.
Interest expense increased $1.5$0.8 million due to higher debt balances and rising interest rates.
Other
Operating, administrative and general expenses increased $1.7 million due to favorable benefit costs in the prior year.balances.
Income Taxes
For the three months ended June 30, 2019,March 31, 2020, the Company recorded an income tax expensebenefit of $11.0$1.5 million at an effective rate of 27.2%2.8%. In 2018,For the three months ended March 31, 2019, the Company recorded an income tax expensebenefit of $7.7$5.4 million at an effective tax rate of 26.6%27.8%. The increasedecrease in effective tax rate for the three months ended June 30, 2019March 31, 2020 as compared to the same period last year was primarily attributed to the impacts of nondeductible compensation and noncontrolling interest, partially offset by benefits from income taxes on foreign earnings.
Comparison of the six months ended June 30, 2019 with the six months ended June 30, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2019 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 3,364,326 |
| | $ | 453,974 |
| | $ | 399,102 |
| | $ | 84,431 |
| | $ | — |
| | $ | 4,301,833 |
|
Cost of sales and merchandising revenues | 3,192,491 |
| | 445,854 |
| | 339,370 |
| | 53,726 |
| | — |
| | 4,031,441 |
|
Gross profit | 171,835 |
| | 8,120 |
| | 59,732 |
| | 30,705 |
| | — |
| | 270,392 |
|
Operating, administrative and general expenses | 140,411 |
| | 8,646 |
| | 44,248 |
| | 15,891 |
| | 11,071 |
| | 220,267 |
|
Asset impairment | 3,081 |
| | — |
| | — |
| | — |
| | — |
| | 3,081 |
|
Interest expense (income) | 21,158 |
| | (1,730 | ) | | 4,647 |
| | 7,860 |
| | (298 | ) | | 31,637 |
|
Equity in earnings (losses) of affiliates, net | (1,745 | ) | | 3,107 |
| | — |
| | — |
| | — |
| | 1,362 |
|
Other income (expense), net | 828 |
| | 278 |
| | 1,137 |
| | 538 |
| | 1,268 |
| | 4,049 |
|
Income (loss) before income taxes | 6,268 |
| | 4,589 |
| | 11,974 |
| | 7,492 |
| | (9,505 | ) | | 20,818 |
|
Income (loss) attributable to the noncontrolling interests | — |
| | (632 | ) | | — |
| | — |
| | — |
| | (632 | ) |
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | $ | 6,268 |
| | $ | 5,221 |
| | $ | 11,974 |
| | $ | 7,492 |
| | $ | (9,505 | ) | | $ | 21,450 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 641,126 |
| | $ | 375,422 |
| | $ | 438,723 |
| | $ | 91,870 |
| | $ | — |
| | $ | 1,547,141 |
|
Cost of sales and merchandising revenues | 582,015 |
| | 365,868 |
| | 379,319 |
| | 65,760 |
| | — |
| | 1,392,962 |
|
Gross profit | 59,111 |
| | 9,554 |
| | 59,404 |
| | 26,110 |
| | — |
| | 154,179 |
|
Operating, administrative and general expenses | 52,265 |
| | 5,932 |
| | 41,381 |
| | 12,094 |
| | 12,438 |
| | 124,110 |
|
Asset impairment | 1,564 |
| | — |
| | — |
| | 4,708 |
| | — |
| | 6,272 |
|
Interest expense (income) | 6,892 |
| | (314 | ) | | 3,082 |
| | 5,086 |
| | 78 |
| | 14,824 |
|
Equity in earnings (losses) of affiliates, net | 7,497 |
| | 5,879 |
| | — |
| | — |
| | — |
| | 13,376 |
|
Other income (expense), net | 1,573 |
| | 138 |
| | 1,274 |
| | 691 |
| | 838 |
| | 4,514 |
|
Income (loss) before income taxes | 7,460 |
| | 9,953 |
| | 16,215 |
| | 4,913 |
| | (11,678 | ) | | 26,863 |
|
Income (loss) attributable to the noncontrolling interests | — |
| | (398 | ) | | — |
| | — |
| | — |
| | (398 | ) |
Income (loss) before income taxes, net of noncontrolling interests attributable to The Andersons, Inc. | $ | 7,460 |
| | $ | 10,351 |
| | $ | 16,215 |
| | $ | 4,913 |
| | $ | (11,678 | ) | | $ | 27,261 |
|
Trade Group
Operating results for the Trade Group decreased by $1.2 million compared to the results of the same period last year. Sales and merchandising revenues increased $2,723.2 million and cost of sales and merchandising revenues increased $2,610.5 million for an increase in net gross profit of $112.7 million. The gross profit increase was a direct result of acquiring LTG and Thompsons.
Operating, administrative and general expenses increased $88.1 million. The acquisition of the remaining equity in LTG and Thompsons accounted for $80.4 million of this increase. Included in the increased expenses are several purchase accounting related items, such as, $4.8 million of stock-based compensation expense, $4.8 million of incremental depreciation and amortization expense and $1.2 million of other transaction-related costs.
Interest expense increased $14.3 million primarily due to the acquisition and rising interest rates. The Company also wrote off $0.6 million in deferred financing fees as part of its new credit facility.
Equity in earnings of affiliates decreased by $9.2 million because LTG and Thompsons are now consolidated entities.
Other income, net includes a $1.1 million loss on the pre-acquisition fair value of our LTG and Thompsons investments compared to our previous carrying values. The loss was driven by prior periods' foreign currency translation losses related to Thompsons, previously recorded in Other Comprehensive Income, that were recognized in earnings upon the consolidation of Thompsons.
Ethanol Group
Operating results forour noncontrolling interests within the Ethanol Group decreased $5.1 million from the same period last year. Sales and merchandising revenues increased $78.6 million and cost of sales and merchandising revenues increased $80.0 million compared to 2018 results. The incremental sales and corresponding cost of sales are attributable to the LTG acquisition. Lower average sales prices from an oversupply of ethanol in the market resulted in decreased gross profit of $1.4 million.
Operating, administrative and general expenses increased $2.7 million primarily due to an increase in labor and benefits, most of which was from the addition of the acquired ethanol trading team.
Interest expense decreased $1.4 million due to the capitalization of interest related to the construction of the ELEMENT plant.
Plant Nutrient Group
Operating results for the Plant Nutrient Group decreased $4.2 million compared to the same period in the prior year. Sales and merchandising revenues decreased $39.6 million. This was driven by a significant decrease in primary and specialty ton volumes.group. These decreases are due to unfavorable weather conditions as well as higher volumes in the lawn business that did not recur in the current year. Cost of sales and merchandising revenues decreased by $39.9 million due to the decrease in sales. While primary nutrient volumes decreased, improved margins led to increased gross profit of $0.3 million.
Operating, administrative and general expenses increased $2.9 million primarily due an increase in rent and storage and unfavorable costs from low production volumes due to weak market conditions.
Interest expense increased $1.6 million from carrying higher levels of inventories as a result of the wet weather that delayed and reduced planting.
Rail Group
Operating results for the Rail Group increased $2.6 million from the same period in the prior year. While operating results improved sales and merchandising revenues decreased $7.4 million. This decrease in revenues was driven by a decrease of $14.3 million in car sale revenues as the Company sold more cars in 2018, partiallylosses were offset by an increase of $5.1 million in leasing revenues due to higher utilization rates with more cars on lease and $1.8 million in repair and other revenues. Cost of sales and merchandising revenues decreased $12.0 million compared toNOL carryback tax savings opportunities as provided by the prior year due to lower car sales and improved margins in services.
Operating, administrative and general expenses increased $3.8 million driven by a $1.1 million increase in labor and benefits due to the growth of the repair business and increased costs related to opening and closing repair shops and increased labor and workers’ compensation expenses. The prior period results also include an impairment charge on idle fleet assets. As a result, gross profit increased $4.6 million compared to last year.
Interest expense increased $2.8 million due to rising interest rates and higher debt balances.
Other
Operating, administrative and general expenses decreased $1.4 million due to severance and other IT implementation costs reflected in 2018 which did not recur in 2019.
Income Taxes
For the six months ended June 30, 2019, the Company recorded income tax expense of $5.6 million at an effective rate of 26.7%. In 2018, the Company recorded an income tax expense of $7.4 million at an effective tax rate of 27.7%. The decrease in effective tax rate for the six months ended June 30, 2019 as compared to the same period last year was primarily attributed to income taxes on foreign earnings and discrete activity in the prior period for a statutory merger that did not recur in the current period.CARES act.
Liquidity and Capital Resources
Working Capital
At June 30, 2019March 31, 2020, the Company had working capital of $464.1$436.4 million. The following table presents changes in the components of current assets and current liabilities:
|
| | | | | | | | | | | |
(in thousands) | June 30, 2019 | | June 30, 2018 | | Variance |
Current Assets: | | | | | |
Cash and cash equivalents | $ | 11,087 |
| | $ | 58,611 |
| | $ | (47,524 | ) |
Accounts receivable, net | 712,294 |
| | 218,476 |
| | 493,818 |
|
Inventories | 753,641 |
| | 495,611 |
| | 258,030 |
|
Commodity derivative assets – current | 233,015 |
| | 54,259 |
| | 178,756 |
|
Other current assets | 58,439 |
| | 42,648 |
| | 15,791 |
|
Assets held for sale | 151 |
| | 9,816 |
| | (9,665 | ) |
Total current assets | 1,768,627 |
| | 879,421 |
| | 889,206 |
|
Current Liabilities: | | | | | |
Short-term debt | 426,125 |
| | 185,000 |
| | 241,125 |
|
Trade and other payables | 527,250 |
| | 282,221 |
| | 245,029 |
|
Customer prepayments and deferred revenue | 49,761 |
| | 16,103 |
| | 33,658 |
|
Commodity derivative liabilities – current | 69,369 |
| | 85,160 |
| | (15,791 | ) |
Accrued expenses and other current liabilities | 165,383 |
| | 74,512 |
| | 90,871 |
|
Current maturities of long-term debt | 66,678 |
| | 13,700 |
| | 52,978 |
|
Total current liabilities | 1,304,566 |
| | 656,696 |
| | 647,870 |
|
Working Capital | $ | 464,061 |
| | $ | 222,725 |
| | $ | 241,336 |
|
June 30, 2019 current assets increased $889 million in comparison to June 30, 2018. This increase was related to the Trade Group as the current assets balance for the group increased by $914 million from the prior year due to the LTG acquisition. See also the discussion below on additional sources and uses of cash for an understanding of the decrease in cash from prior year.
Current liabilities increased $648 million compared to the prior year as the Trade Group current liabilities increased by $366 million due to the acquisition of LTG, and Corporate current liabilities increased by $277 million from the increased debt related to the acquisition detailed in Note 4, Debt. |
| | | | | | | | | | | |
(in thousands) | March 31, 2020 | | March 31, 2019 | | Variance |
Current Assets: | | | | | |
Cash, cash equivalents and restricted cash | $ | 19,693 |
| | $ | 29,991 |
| | $ | (10,298 | ) |
Accounts receivable, net | 539,671 |
| | 611,290 |
| | (71,619 | ) |
Inventories | 1,028,076 |
| | 1,026,465 |
| | 1,611 |
|
Commodity derivative assets – current | 149,070 |
| | 158,277 |
| | (9,207 | ) |
Other current assets | 85,372 |
| | 60,586 |
| | 24,786 |
|
Total current assets | $ | 1,821,882 |
| | $ | 1,886,609 |
| | $ | (64,727 | ) |
Current Liabilities: | | | | | |
Short-term debt | 392,450 |
| | 434,304 |
| | (41,854 | ) |
Trade and other payables | 553,416 |
| | 590,258 |
| | (36,842 | ) |
Customer prepayments and deferred revenue | 121,148 |
| | 148,345 |
| | (27,197 | ) |
Commodity derivative liabilities – current | 90,491 |
| | 66,623 |
| | 23,868 |
|
Current maturities of long-term debt | 80,758 |
| | 55,160 |
| | 25,598 |
|
Accrued expenses and other current liabilities | 147,225 |
| | 151,648 |
| | (4,423 | ) |
Total current liabilities | $ | 1,385,488 |
| | $ | 1,446,338 |
| | $ | (60,850 | ) |
Working Capital | $ | 436,394 |
| | $ | 440,271 |
| | $ | (3,877 | ) |
Sources and Uses of Cash
|
| | | | | | | | |
| | Three Months Ended |
(in thousands) | | March 31, 2020 | | March 31, 2019 |
Net cash used in operating activities | | $ | (228,430 | ) | | $ | (122,045 | ) |
Net cash used in investing activities | | (30,416 | ) | | (205,836 | ) |
Net cash provided by financing activities | | 223,577 |
| | 336,050 |
|
Operating Activities
Our operating activities used cash of $84.8$228.4 million and $43.9$122.0 million in the first sixthree months of 20192020 and 2018,2019, respectively. The increase in cash used was primarily due to changesa result of net losses incurred as well as the seasonality in working capital,the use of cash. Cash spend is typically high in the first quarter as discussed above.the Company prepares for the spring planting season.
Investing Activities
Investing activities used cash of $271.4$30.4 million through the first sixthree months of 20192020 compared to cash used of $46.4$205.8 million in the prior year. Cash used forThe decrease from the prior year was a result of the acquisition of business increased $147.7 million due to the LTG acquisition.and decreased capital spending.
In 2019,2020, we expect to spend up to a total of $160approximately $31.0 million for the purchase of railcars and related leases and capitalized modifications of railcars. We also expect these purchases to be funded from sales and dispositions of railcars or non-recourse debt of approximately $135 million during the year.
In addition to the construction of the bio-refinery, totalTotal capital spending for 2019 on property, plant and equipment in our base business excluding rail leasing activity, but inclusive of information technology spending is expected to be approximately $180$87.0 million.
Financing Activities
Financing activities provided cash of $344.4$223.6 million and $114.1$336.1 million for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively. This decrease from the prior year was largely due to an increasea decrease in proceeds fromas new debt was issued in the prior year to finance the LTG acquisition and higher seasonalacquisition. This decrease in long term debt proceeds was partially offset by an increase in short-term borrowing used to finance working capital.
We are party to borrowing arrangements with a syndicate of banks that provide a total of $1,628.4$1,684.0 million in borrowings. This amount includes $70Of the total capacity, $491.0 million of debt of ELEMENT LLC, $200 million of debt of The Andersons Railcar Leasing Company LLC, that is non-recourse to the Company, and $183.4 million of debt of Thompsons, that is non-recourse to the Company. Of that total, weAs of March 31, 2020, the Company had $1,006.1$1,006.4 million available for borrowing at June 30, 2019. Consistent with $145.4 million of that total being non-recourse to the higher sales volumes as a result of the acquisition borrowings have also increased.Company.
We paid $11.0$5.7 million in dividends in the sixfirst three months of 20192020 compared to $9.3$5.5 million in the prior year. WeThe Company paid $0.175 per common share for the dividends paid in January of 2020 and $0.17 per common share for the dividends paid in January and April of 2019 and $0.165 per common share for the dividends paid in January and April of 2018.2019. On May 10, 2019February 21, 2020 we declared a cash dividend of $0.17$0.175 per common share payable on JulyApril 22, 20192020 to shareholders of record on JulyApril 1, 2019.2020.
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 June 30, 2019.March 31, 2020. 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 borrower 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. However, much of this risk is mitigated by hedging instruments that are in place. 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 could receive a return of cash.
WeWhile the effects of the coronavirus pandemic are expected to have a negative impact on operating cash flows, we believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends in the foreseeable future.service our indebtedness.
Contractual Obligations
Future payments due under contractual obligations at June 30, 2019 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
(in thousands) | 2019 (remaining six months) | | 2020-2021 | | 2022-2023 | �� | After 2023 | | Total |
Long-term debt, recourse | $ | 44,549 |
| | $ | 133,841 |
| | $ | 313,459 |
| | $ | 332,325 |
| | $ | 824,174 |
|
Long-term debt, non-recourse | 4,829 |
| | 130,859 |
| | 9,961 |
| | 6,370 |
| | 152,019 |
|
Interest obligations (a) | 41,022 |
| | 64,013 |
| | 38,650 |
| | 30,989 |
| | 174,674 |
|
Operating leases (b) | 30,678 |
| | 34,749 |
| | 12,294 |
| | 8,688 |
| | 86,409 |
|
Purchase commitments (c) | 2,229,633 |
| | 665,976 |
| | 1,395 |
| | — |
| | 2,897,004 |
|
Other long-term liabilities (d) | 3,317 |
| | 6,711 |
| | 6,804 |
| | 24,695 |
| | 41,527 |
|
Construction commitment (e) | 39,747 |
| | — |
| | — |
| | — |
| | 39,747 |
|
Total contractual cash obligations | $ | 2,393,775 |
| | $ | 1,036,149 |
| | $ | 382,563 |
| | $ | 403,067 |
| | $ | 4,215,554 |
|
(a) Future interest obligations are calculated based on interest rates in effect as of June 30, 2019 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 39% of the operating lease commitments above relate to Rail Group assets that the Company leases from financial intermediaries.
(c) Includes the amounts related to purchase obligations in the Company's operating units, including $2,582 million for the purchase of commodities, including grain from producers and $235 million for the purchase of ethanol from the unconsolidated ethanol LLCs. There are also forward commodities sales contracts, including those for grain and ethanol, 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 2018 Annual Report on Form 10-K for further discussion.
(d) 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 2023 have considered recent payment trends and actuarial assumptions.
(e) In 2018, the Company entered into an agreement to construct a bio-refinery. The company expects to contribute $70 million in 2019 for the construction of this plant.
At June 30, 2019,March 31, 2020, we had standby letters of credit outstanding of $32.9$76.3 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 leasebacks. Rail Group assets we own or lease from a financial intermediary are generally leased to a customer under an operating lease. 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.
The following table describes our Rail Group asset positions at June 30, 2019:
|
| | | | |
Method of Control | Financial Statement | | Units |
Owned - railcars available for sale | On balance sheet – current | | 289 |
|
Owned - railcar assets leased to others | On balance sheet – non-current | | 21,363 |
|
Railcars leased from financial intermediaries | Off balance sheet | | 2,101 |
|
Railcars in non-recourse arrangements | Off balance sheet | | 170 |
|
Total Railcars | | | 23,923 |
|
Locomotive assets leased to others | On balance sheet – non-current | | 24 |
|
Locomotives leased from financial intermediaries | Off balance sheet | | 4 |
|
Total Locomotives | | | 28 |
|
Barge assets leased from financial intermediaries | Off balance sheet | | 15 |
|
Total Barges | | | 15 |
|
In addition, we manage 1,027 railcars for third party customers or owners for which we receive a fee.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2018.2019. There were no material changes in market risk, specifically commodity and interest rate risk during the quarterthree months ended June 30, 2019.March 31, 2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintainsBased on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures that are designedas defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of March 31, 2020 to ensureprovide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Company's Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sSEC rules and forms and that such information is(ii) accumulated and communicated to the Company'sCompany’s management, including its Chief Executive Officerprincipal executive officer and Chief Financial Officer ("Certifying Officers"),principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on the results of this evaluation, management concluded that, as of June 30, 2019, the Company's disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management concluded thatThere were no changes in the Company’s system of internal control over financial reporting was effective as of December 31, 2018. As required by Rule 13a-15(d) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of any
change in the Company’s internal controls over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
The Company acquired the remaining equity of LTG and Thompsons during the first quarter of 2019. In2020, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the integration of LTG and Thompsons, the Company will implement enhancements to its internal control over financial reporting as necessary. Additionally, the Company is undertaking the phased implementation of an ERP software system. The Company believes it is maintaining and monitoring appropriate internal controls during the implementation period and further believes that its internal control environment will be enhanced as a result of this implementation. There have been no other changes in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarterExchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, the majority of our workforce began working remotely in March 2020. These changes to the working environment did not have a material effect on our internal controls over financial reporting.reporting during the most recent quarter.
Part II. Other Information
Item 1. Legal Proceedings
We are currently
The Company is subject to variouslegal proceedings and claims that have not been fully resolved and suits arisingthat have arisen in the ordinary course of business, which include environmental issues, employment claims, contractual disputes,business. Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and defensive counterContingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims. We accrue liabilities where
The outcome of litigation losses are deemed probableis inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and estimable. We believe it is unlikelyoperating results for that the results of our current legal proceedings, even if unfavorable, willreporting period could be materially different from what we currently have accrued. There can be no assurance, however,adversely affected. The Company settled certain matters during the first quarter of 2020 that any claims or suits arising in the future, whether takendid not individually or in the aggregate will not have a material adverse effectimpact on ourthe Company’s financial condition or results of operations.operating results.
Item 1A. Risk Factors
Our operations are subject
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to risksthose described in Part I, Item 1A of the 2019 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and uncertainties that could cause actualoperating results to differvary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2019 Form 10-K with the exception of those discusseddisclosed below.
The COVID-19 pandemic could negatively affect the Company's business and operating results
The future impacts of the global emergence of the novel strain of Coronavirus and the disease it causes on the Company's business or operating and financial results are unpredictable and cannot be identified with certainty at this time. The widespread health crisis has adversely affected the global economy and resulted in this Form 10-Qa widespread economic downturn which could adversely impact demand for our services. Such interruptions could include fluctuations to commodity prices, disruptions or restrictions on the ability to transport freight in the ordinary course, temporary closures of facilities and couldports, or the facilities and ports of our customers, decreased demand for our products, and/or changes to export/import restrictions. The pandemic caused by COVID-19 may impact the seasonal trends that typically characterize our revenues and operating income. There is no assurance that the outbreak will not have a material adverse impact on our financial results. These risks canbusiness or results of operations. Further, our operations could be impacted by factorsnegatively affected if a significant number of our employees are unable to perform their normal duties because of contracting COVID-19 or based on further direction from governments, public health authorities or regulatory agencies. The extent of the impact, if any, will depend on developments beyond our control, including actions taken by governments, financial institutions, monetary policy authorities, and public health authorities to contain and respond to public health concerns and general economic conditions as wella result of the pandemic.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required or recommended by errorsfederal, provincial, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, shareholders and omissionsother stakeholders. We cannot be certain of potential effects any such alterations or modifications may have on our part. The most significant factors known to us that could materially adversely affect our business financial condition or operating and financial results are described in our 2018 Form 10-K (Item 1A).for the fiscal year ending December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
| | | | | | | | | | | |
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
|
April 2019 | 704 |
| | 32.32 |
| | — |
| | — |
|
May 2019 | — |
| | — |
| | — |
| | — |
|
June 2019 | — |
| | — |
| | — |
| | — |
|
Total | 704 |
| | 32.32 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | |
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 |
January 2020 | | 64,420 |
| | $ | 25.28 |
| | — |
| | — |
|
February 2020 | | 2,101 |
| | 22.79 |
| | — |
| | — |
|
March 2020 | | 1,913 |
| | 18.85 |
| | — |
| | — |
|
Total | | 68,434 |
| | $ | 25.02 |
| | — |
| | — |
|
(1) During the three months ended June 30, 2019,March 31, 2020, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2) No shares were purchased as part of publicly announced plans or programs.
Item 4. Mine Safety Disclosure
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 safety 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 employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment. 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 9595.1 of Item 6. Exhibits of this Quarterly Report on Form 10-Q.
Item 6. Exhibits
(a) Exhibits
|
| | |
| | |
No.Exhibit Number | | Description |
| | |
10.110.1* | | |
| | |
10.2* | | |
| | |
10.2 | | |
| | |
31.131.1* | | |
| | |
31.231.2* | | |
| | |
32.132.1** | | |
| | |
9595.1* | | |
| | |
101101** | | Financial Statements fromInline XBRL Document Set for the interim reportcondensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
| | |
104** | | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, of The Andersons, Inc. forincluded in the period ended June 30, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.Exhibit 101 Inline XBRL Document Set. |
| | |
* Filed herewith |
** Furnished herewith |
| | |
Items 3 and 5 are not applicable and have been omitted
Signatures
Pursuant to the requirements 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: AugustMay 8, 20192020 | | By /s/ Patrick E. Bowe |
| | Patrick E. Bowe |
| | Chief Executive Officer (Principal Executive Officer) |
| |
Date: AugustMay 8, 20192020 | | By /s/ Brian A. Valentine |
| | Brian A. Valentine |
| | SeniorExecutive Vice President and Chief Financial Officer (Principal Financial Officer) |
| |
Exhibit Index
The Andersons, Inc.
|
| | |
| | |
No. | | Description |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
95 | | |
| | |
101 | | Financial Statements from the interim report on Form 10-Q of The Andersons, Inc. for the period ended June 30, 2019, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statement of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements. |