Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. An unaudited Condensed Consolidated Balance Sheet as of September 30, 2018 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2018 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, 2018 (the “2018 Form 10-K”).
The Company had restricted cash of $9.0 million as of September 30, 2019. This restricted cash balance was related to posting collateral for the release of a mortgage on one of the Company's ethanol assets to be contributed into The Andersons Marathon Holdings LLC. The restricted cash is scheduled to be released from escrow in the fourth quarter after the successful completion of the merger and related credit facility. The Company had no restricted cash balances as of December 31, 2018 or September 30, 2018.
New Accounting Standards
Leasing
In February 2016, the 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-lease contract 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 does not plan to do so.
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.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The FASB issued subsequent amendments to the initial guidance in November 2018, April 2019 and May 2019 with ASU 2018-19, ASU 2019-04 and ASU 2019-05, respectively. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. We have evaluated the impact of this new standard on our consolidated financial statements noting it is not expected to be material. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, but the Company does not plan to do so.
2. Inventories
Major classes of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
Grain and other agricultural products
|
$
|
560,626
|
|
|
$
|
527,471
|
|
|
$
|
324,232
|
|
Frac sand and propane
|
14,592
|
|
|
—
|
|
|
—
|
|
Ethanol and co-products
|
26,218
|
|
|
11,918
|
|
|
15,419
|
|
Plant nutrients and cob products
|
133,839
|
|
|
145,693
|
|
|
145,363
|
|
Railcar repair parts
|
5,811
|
|
|
5,722
|
|
|
5,317
|
|
Total Inventories
|
$
|
741,086
|
|
|
$
|
690,804
|
|
|
$
|
490,331
|
|
Inventories on the Condensed Consolidated Balance Sheets at September 30, 2019, do not include 2.7 million bushels of grain held in storage for others. Grain inventories held in storage for others were de minimis as of December 31, 2018 and September 30, 2018. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
Land
|
$
|
39,393
|
|
|
$
|
29,739
|
|
|
$
|
29,545
|
|
Land improvements and leasehold improvements
|
95,720
|
|
|
68,826
|
|
|
68,859
|
|
Buildings and storage facilities
|
354,625
|
|
|
284,998
|
|
|
282,826
|
|
Machinery and equipment
|
608,831
|
|
|
393,640
|
|
|
380,109
|
|
Construction in progress
|
54,163
|
|
|
102,394
|
|
|
65,539
|
|
|
1,152,732
|
|
|
879,597
|
|
|
826,878
|
|
Less: accumulated depreciation
|
449,336
|
|
|
402,886
|
|
|
392,373
|
|
Property, plant and equipment, net
|
$
|
703,396
|
|
|
$
|
476,711
|
|
|
$
|
434,505
|
|
Depreciation expense on property, plant and equipment was $51.0 million and $34.7 million for the nine months ended September 30, 2019 and 2018, respectively. Additionally, depreciation expense on property, plant and equipment was $18.3 million and $11.5 million for the three months ended September 30, 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. In June 2018, the Company recorded charges totaling $1.6 million for impairment of property, plant and equipment in the Trade segment related to assets that were reclassified as assets held for sale at June 30, 2018 and were sold in the third quarter of 2018.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
Rail Group assets leased to others
|
$
|
699,972
|
|
|
$
|
640,349
|
|
|
$
|
576,622
|
|
Less: accumulated depreciation
|
134,226
|
|
|
118,564
|
|
|
111,846
|
|
Rail Group assets, net
|
$
|
565,746
|
|
|
$
|
521,785
|
|
|
$
|
464,776
|
|
Depreciation expense on Rail Group assets leased to others amounted to $21.1 million and $18.4 million for the nine months ended September 30, 2019 and 2018, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to $7.4 million and $6.1 million for the three months ended September 30, 2019 and 2018, respectively.
4. Debt
Short-term and long-term debt at September 30, 2019, December 31, 2018 and September 30, 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
Short-term Debt – Non-Recourse (a)
|
$
|
35,278
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term Debt – Recourse
|
102,971
|
|
|
205,000
|
|
|
132,000
|
|
Total Short-term Debt
|
$
|
138,249
|
|
|
$
|
205,000
|
|
|
$
|
132,000
|
|
|
|
|
|
|
|
Current Maturities of Long-term Debt – Non-Recourse (b)
|
$
|
9,835
|
|
|
$
|
4,842
|
|
|
$
|
3,772
|
|
Current Maturities of Long-term Debt – Recourse (c)
|
39,733
|
|
|
16,747
|
|
|
11,905
|
|
Finance lease liability (d)
|
17,331
|
|
|
—
|
|
|
—
|
|
Total Current Maturities of Long-term Debt
|
$
|
66,899
|
|
|
$
|
21,589
|
|
|
$
|
15,677
|
|
|
|
|
|
|
|
Long-term Debt, Less: Current Maturities – Non-Recourse (b)
|
$
|
242,895
|
|
|
$
|
146,353
|
|
|
$
|
77,114
|
|
Long-term Debt, Less: Current Maturities – Recourse (c)
|
703,297
|
|
|
349,834
|
|
|
360,166
|
|
Finance lease liability (d)
|
21,925
|
|
|
—
|
|
|
—
|
|
Total Long-term Debt, Less: Current Maturities
|
$
|
968,117
|
|
|
$
|
496,187
|
|
|
$
|
437,280
|
|
(a) In conjunction with the Lansing Trade Group ("LTG") acquisition, the Company assumed a revolving line of credit and a term loan with a syndicate of banks, which are non-recourse to the Company. The credit agreement provides the Company with a maximum availability of $181.2 million and had $146.0 million available for borrowing on this line of credit as of September 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 LTG acquisition, the Company also assumed a term loan with a syndicate of banks. The term loan had a balance of $32.9 million at September 30, 2019. Interest rates for the term loans were 4.45% as of September 30, 2019 and 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 a 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. At September 30, 2019, the interest rates for the 5-year and 7-year term loan were 3.77% and 4.02%, respectively. Payments on the term loans will be made on a quarterly basis.
(d) See Note 14, Leases, for additional information. September 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 adoption of ASC 842.
The total borrowing capacity of the Company's lines of credit at September 30, 2019 was $1,628.7 million of which the Company had a total of $1,207.7 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company is in compliance with all financial covenants as of September 30, 2019.
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 September 30, 2019, December 31, 2018 and September 30, 2018, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
(in thousands)
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
Collateral paid (received)
|
$
|
23,997
|
|
|
$
|
—
|
|
|
$
|
14,944
|
|
|
$
|
—
|
|
|
$
|
14,942
|
|
|
$
|
—
|
|
Fair value of derivatives
|
10,199
|
|
|
—
|
|
|
22,285
|
|
|
—
|
|
|
36,653
|
|
|
—
|
|
Balance at end of period
|
$
|
34,196
|
|
|
$
|
—
|
|
|
$
|
37,229
|
|
|
$
|
—
|
|
|
$
|
51,595
|
|
|
$
|
—
|
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
122,462
|
|
|
$
|
1,951
|
|
|
$
|
5,715
|
|
|
$
|
67
|
|
|
$
|
130,195
|
|
Commodity derivative liabilities
|
(29,566
|
)
|
|
(8
|
)
|
|
(69,704
|
)
|
|
(2,027
|
)
|
|
(101,305
|
)
|
Cash collateral paid (received)
|
27,614
|
|
|
—
|
|
|
(3,617
|
)
|
|
—
|
|
|
23,997
|
|
Balance sheet line item totals
|
$
|
120,510
|
|
|
$
|
1,943
|
|
|
$
|
(67,606
|
)
|
|
$
|
(1,960
|
)
|
|
$
|
52,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
43,463
|
|
|
$
|
484
|
|
|
$
|
706
|
|
|
$
|
5
|
|
|
$
|
44,658
|
|
Commodity derivative liabilities
|
(6,986
|
)
|
|
(4
|
)
|
|
(33,353
|
)
|
|
(894
|
)
|
|
(41,237
|
)
|
Cash collateral (received)
|
14,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,944
|
|
Balance sheet line item totals
|
$
|
51,421
|
|
|
$
|
480
|
|
|
$
|
(32,647
|
)
|
|
$
|
(889
|
)
|
|
$
|
18,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
69,957
|
|
|
$
|
767
|
|
|
$
|
731
|
|
|
$
|
38
|
|
|
$
|
71,493
|
|
Commodity derivative liabilities
|
(8,038
|
)
|
|
(1
|
)
|
|
(92,134
|
)
|
|
(2,586
|
)
|
|
(102,759
|
)
|
Cash collateral (received)
|
14,942
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,942
|
|
Balance sheet line item totals
|
$
|
76,861
|
|
|
$
|
766
|
|
|
$
|
(91,403
|
)
|
|
$
|
(2,548
|
)
|
|
$
|
(16,324
|
)
|
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 nine months ended September 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues
|
$
|
(27,586
|
)
|
|
$
|
(51,059
|
)
|
|
$
|
25,469
|
|
|
$
|
(30,451
|
)
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2019, December 31, 2018 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
653,757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
46,895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
90,598
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
36,365
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
256,815
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
5,022
|
|
|
—
|
|
Other
|
15,196
|
|
|
6,150
|
|
|
363
|
|
|
3,178
|
|
Subtotal
|
842,811
|
|
|
262,965
|
|
|
5,385
|
|
|
3,178
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
280,890
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
58,980
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
75,345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
145,769
|
|
|
—
|
|
|
—
|
|
Propane
|
—
|
|
|
12,516
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
3
|
|
|
—
|
|
|
289
|
|
Subtotal
|
415,950
|
|
|
158,288
|
|
|
—
|
|
|
289
|
|
Total
|
1,258,761
|
|
|
421,253
|
|
|
5,385
|
|
|
3,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
250,408
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
22,463
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
14,017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
26,230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
244,863
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
2,920
|
|
|
—
|
|
Other
|
494
|
|
|
2,000
|
|
|
—
|
|
|
66
|
|
Subtotal
|
313,612
|
|
|
246,863
|
|
|
2,920
|
|
|
66
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
130,585
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
26,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
33,760
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
1,475
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
77,112
|
|
|
—
|
|
|
—
|
|
Subtotal
|
192,805
|
|
|
77,112
|
|
|
—
|
|
|
—
|
|
Total
|
506,417
|
|
|
323,975
|
|
|
2,920
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
277,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
45,755
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
7,948
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
31,155
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
230,813
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
2,560
|
|
|
—
|
|
Other
|
—
|
|
|
1,000
|
|
|
|
|
|
115
|
|
Subtotal
|
362,632
|
|
|
231,813
|
|
|
2,560
|
|
|
115
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
123,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
31,855
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
44,130
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
1,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
92,274
|
|
|
—
|
|
|
—
|
|
Subtotal
|
200,240
|
|
|
92,274
|
|
|
—
|
|
|
—
|
|
Total
|
562,872
|
|
|
324,087
|
|
|
2,560
|
|
|
115
|
|
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 September 30, 2019, December 31, 2018 and September 30, 2018, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities)
|
$
|
(1,261
|
)
|
|
$
|
(353
|
)
|
|
$
|
193
|
|
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)
|
$
|
115
|
|
|
$
|
(1,122
|
)
|
|
$
|
(737
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts included in Other current assets (Accrued expenses and other current liabilities)
|
$
|
(2,981
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities)
|
$
|
(13,649
|
)
|
|
$
|
(168
|
)
|
|
$
|
227
|
|
The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
Interest rate derivative gains (losses) included in Interest income (expense)
|
$
|
(36
|
)
|
|
$
|
521
|
|
|
$
|
(972
|
)
|
|
$
|
1,662
|
|
Foreign currency derivative gains (losses) included in Other income, net
|
$
|
(615
|
)
|
|
$
|
372
|
|
|
$
|
(684
|
)
|
|
$
|
(1,163
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
Interest rate derivative gains (losses) included in Other Comprehensive Income (Loss)
|
$
|
(3,798
|
)
|
|
$
|
159
|
|
|
$
|
(16,547
|
)
|
|
$
|
226
|
|
Interest rate derivatives gains (losses) included in Interest income (expense)
|
$
|
(224
|
)
|
|
$
|
54
|
|
|
$
|
(243
|
)
|
|
$
|
126
|
|
Outstanding interest rate derivatives, as of September 30, 2019, 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%
|
* 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 nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
(in thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Interest cost
|
$
|
29
|
|
|
$
|
33
|
|
|
$
|
87
|
|
|
$
|
98
|
|
Recognized net actuarial loss
|
58
|
|
|
61
|
|
|
174
|
|
|
183
|
|
Benefit cost
|
$
|
87
|
|
|
$
|
94
|
|
|
$
|
261
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
(in thousands)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
68
|
|
|
$
|
81
|
|
|
$
|
206
|
|
|
$
|
243
|
|
Interest cost
|
214
|
|
|
188
|
|
|
641
|
|
|
565
|
|
Amortization of prior service cost
|
(228
|
)
|
|
(227
|
)
|
|
(684
|
)
|
|
(683
|
)
|
Benefit cost
|
$
|
54
|
|
|
$
|
42
|
|
|
$
|
163
|
|
|
$
|
125
|
|
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 September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues under ASC 606
|
$
|
273,945
|
|
|
$
|
156,394
|
|
|
$
|
1,083,383
|
|
|
$
|
706,927
|
|
Revenues under ASC 842
|
26,418
|
|
|
25,853
|
|
|
87,122
|
|
|
78,110
|
|
Revenues under ASC 815
|
1,682,392
|
|
|
503,332
|
|
|
5,114,083
|
|
|
1,447,683
|
|
Total Revenues
|
$
|
1,982,755
|
|
|
$
|
685,579
|
|
|
$
|
6,284,588
|
|
|
$
|
2,232,720
|
|
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 nine months ended September 30, 2019 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
9,840
|
|
|
$
|
—
|
|
|
$
|
35,182
|
|
|
$
|
—
|
|
|
$
|
45,022
|
|
Primary nutrients
|
4,610
|
|
|
—
|
|
|
66,733
|
|
|
—
|
|
|
71,343
|
|
Services
|
2,507
|
|
|
3,187
|
|
|
1,275
|
|
|
9,719
|
|
|
16,688
|
|
Products and co-products
|
48,158
|
|
|
34,655
|
|
|
—
|
|
|
—
|
|
|
82,813
|
|
Frac sand and propane
|
47,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,188
|
|
Other
|
2,159
|
|
|
163
|
|
|
6,256
|
|
|
2,313
|
|
|
10,891
|
|
Total
|
$
|
114,462
|
|
|
$
|
38,005
|
|
|
$
|
109,446
|
|
|
$
|
12,032
|
|
|
$
|
273,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,856
|
|
|
$
|
—
|
|
|
$
|
36,856
|
|
Primary nutrients
|
—
|
|
|
—
|
|
|
60,460
|
|
|
—
|
|
|
60,460
|
|
Service
|
2,232
|
|
|
3,533
|
|
|
877
|
|
|
8,925
|
|
|
15,567
|
|
Co-products
|
—
|
|
|
29,282
|
|
|
—
|
|
|
—
|
|
|
29,282
|
|
Other
|
245
|
|
|
—
|
|
|
5,996
|
|
|
7,988
|
|
|
14,229
|
|
Total
|
$
|
2,477
|
|
|
$
|
32,815
|
|
|
$
|
104,189
|
|
|
$
|
16,913
|
|
|
$
|
156,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
45,648
|
|
|
$
|
—
|
|
|
$
|
191,247
|
|
|
$
|
—
|
|
|
$
|
236,895
|
|
Primary nutrients
|
27,401
|
|
|
—
|
|
|
294,729
|
|
|
—
|
|
|
322,130
|
|
Service
|
11,077
|
|
|
10,170
|
|
|
3,133
|
|
|
28,944
|
|
|
53,324
|
|
Products and Co-products
|
166,859
|
|
|
88,170
|
|
|
—
|
|
|
—
|
|
|
255,029
|
|
Frac sand and propane
|
184,418
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
184,418
|
|
Other
|
5,860
|
|
|
198
|
|
|
19,439
|
|
|
6,090
|
|
|
31,587
|
|
Total
|
$
|
441,263
|
|
|
$
|
98,538
|
|
|
$
|
508,548
|
|
|
$
|
35,034
|
|
|
$
|
1,083,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
206,215
|
|
|
$
|
—
|
|
|
$
|
206,215
|
|
Primary nutrients
|
—
|
|
|
—
|
|
|
313,967
|
|
|
—
|
|
|
313,967
|
|
Service
|
8,386
|
|
|
10,483
|
|
|
3,498
|
|
|
26,350
|
|
|
48,717
|
|
Co-products
|
—
|
|
|
88,390
|
|
|
—
|
|
|
—
|
|
|
88,390
|
|
Other
|
747
|
|
|
—
|
|
|
19,231
|
|
|
29,660
|
|
|
49,638
|
|
Total
|
$
|
9,133
|
|
|
$
|
98,873
|
|
|
$
|
542,911
|
|
|
$
|
56,010
|
|
|
$
|
706,927
|
|
Approximately 5% and 10% of revenues accounted for under ASC 606 during each of the three months ended September 30, 2019 and 2018, are recorded over time which primarily relates to service revenues noted above. Additionally, during the nine months ended September 30, 2019 and 2018, approximately 5% and 7% of revenues were accounted for under ASC 606, respectively.
Contract balances
The opening and closing balances of the Company’s contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
Balance at January 1,
|
$
|
28,858
|
|
|
$
|
25,520
|
|
Balance at March 31,
|
146,824
|
|
|
67,715
|
|
Balance at June 30,
|
48,225
|
|
|
10,047
|
|
Balance at September 30,
|
34,306
|
|
|
29,836
|
|
Exclusive of acquisition related impacts, the residual 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 contract liabilities have two main drivers, including Trade prepayments by counter parties and 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 third 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. 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 September 30, 2019, the Company recorded an income tax benefit of $7.2 million at an effective income tax rate of 55.1%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impact of state income taxes, nondeductible compensation, partially offset by benefits from income taxes on foreign earnings and federal tax credits. The increase in effective tax rate for the three months ended September 30, 2019 as compared to the same period last year was primarily attributed to the impacts of the current period loss before taxes and additional tax benefits from federal tax credits and permanent provision to return items. For the three months ended September 30, 2018, the Company recorded an income tax benefit of $1.8 million at an effective income tax rate of 48.5%.
For the nine months ended September 30, 2019, the Company recorded an income tax benefit of $1.7 million at an effective income tax rate of 21.4%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impact of state income taxes, nondeductible compensation, and benefits from income taxes on foreign earnings and federal tax credits. The decrease in effective tax rate for the nine months ended September 30, 2019 as compared to the same period last year was primarily attributed to lower pretax book income as compared to the prior year, and the impact of discrete net tax benefits from provision to return items and federal tax credits. For the nine months ended September 30, 2018, the Company recorded an income tax expense of $5.7 million at an effective income tax rate of 24.4%.
During the three months ended September 30, 2019, the company recognized a tax benefit of $3.9 million for federal Research & Development Credits (“R&D Credits”) related to tax years 2015 to 2018 as well as an estimated year-to-date tax benefit for federal R&D Credits for the 2019 tax year. Unrecognized tax benefits of $17.7 million include $17.2 million recorded as a reduction of the deferred tax asset and refundable credits associated with the R&D Credits.
The 2019 effective tax rate can 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 company’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $17.7 million as of September 30, 2019, and $0.6 million for the period ended September 30, 2018.
9. 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 nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
Three months ended September 30, 2019
|
|
Nine months ended September 30, 2019
|
(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
|
$
|
(9,700
|
)
|
|
$
|
(976
|
)
|
|
$
|
258
|
|
|
$
|
4,177
|
|
|
$
|
(6,241
|
)
|
|
$
|
(126
|
)
|
|
$
|
(11,550
|
)
|
|
$
|
258
|
|
|
$
|
5,031
|
|
|
$
|
(6,387
|
)
|
|
Other comprehensive loss before reclassifications
|
(3,049
|
)
|
|
1,600
|
|
|
—
|
|
|
44
|
|
|
$
|
(1,405
|
)
|
|
(12,759
|
)
|
|
508
|
|
|
—
|
|
|
(468
|
)
|
|
(12,719
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss) (b)
|
197
|
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
|
$
|
26
|
|
|
333
|
|
|
11,666
|
|
|
—
|
|
|
(513
|
)
|
|
11,486
|
|
Net current-period other comprehensive income (loss)
|
(2,852
|
)
|
|
1,600
|
|
|
—
|
|
|
(127
|
)
|
|
(1,379
|
)
|
|
(12,426
|
)
|
|
12,174
|
|
|
—
|
|
|
(981
|
)
|
|
(1,233
|
)
|
Ending balance
|
$
|
(12,552
|
)
|
|
$
|
624
|
|
|
$
|
258
|
|
|
$
|
4,050
|
|
|
$
|
(7,620
|
)
|
|
$
|
(12,552
|
)
|
|
$
|
624
|
|
|
$
|
258
|
|
|
$
|
4,050
|
|
|
$
|
(7,620
|
)
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
Three months ended September 30, 2018
|
|
Nine months ended September 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
|
$
|
51
|
|
|
$
|
(9,989
|
)
|
|
$
|
257
|
|
|
$
|
4,334
|
|
|
$
|
(5,347
|
)
|
|
$
|
—
|
|
|
$
|
(7,716
|
)
|
|
$
|
344
|
|
|
$
|
4,672
|
|
|
$
|
(2,700
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
65
|
|
|
993
|
|
|
—
|
|
|
39
|
|
|
1,097
|
|
|
44
|
|
|
(1,280
|
)
|
|
(87
|
)
|
|
37
|
|
|
(1,286
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
54
|
|
|
—
|
|
|
—
|
|
|
(168
|
)
|
|
(114
|
)
|
|
126
|
|
|
—
|
|
|
—
|
|
|
(504
|
)
|
|
(378
|
)
|
Net current-period other comprehensive income (loss)
|
119
|
|
|
993
|
|
|
—
|
|
|
(129
|
)
|
|
983
|
|
|
170
|
|
|
(1,280
|
)
|
|
(87
|
)
|
|
(467
|
)
|
|
(1,664
|
)
|
Ending balance
|
$
|
170
|
|
|
$
|
(8,996
|
)
|
|
$
|
257
|
|
|
$
|
4,205
|
|
|
$
|
(4,364
|
)
|
|
$
|
170
|
|
|
$
|
(8,996
|
)
|
|
$
|
257
|
|
|
$
|
4,205
|
|
|
$
|
(4,364
|
)
|
(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 September 30, 2019
|
|
Nine months ended September 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)
|
|
$
|
(684
|
)
|
|
(b)
|
|
|
(228
|
)
|
|
Total before tax
|
|
(684
|
)
|
|
Total before tax
|
|
|
57
|
|
|
Income tax provision
|
|
171
|
|
|
Income tax provision
|
|
|
$
|
(171
|
)
|
|
Net of tax
|
|
$
|
(513
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
263
|
|
|
Interest expense
|
|
$
|
445
|
|
|
Interest expense
|
|
|
263
|
|
|
Total before tax
|
|
445
|
|
|
Total before tax
|
|
|
(66
|
)
|
|
Income tax provision
|
|
(112
|
)
|
|
Income tax provision
|
|
|
$
|
197
|
|
|
Net of tax
|
|
$
|
333
|
|
|
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
|
|
$
|
26
|
|
|
Net of tax
|
|
$
|
11,486
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
|
Three months ended September 30, 2018
|
|
Nine months ended September 30, 2018
|
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)
|
|
$
|
(684
|
)
|
|
(b)
|
|
|
(228
|
)
|
|
Total before tax
|
|
(684
|
)
|
|
Total before tax
|
|
|
60
|
|
|
Income tax provision
|
|
180
|
|
|
Income tax provision
|
|
|
$
|
(168
|
)
|
|
Net of tax
|
|
$
|
(504
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
73
|
|
|
Interest expense
|
|
$
|
171
|
|
|
Interest expense
|
|
|
73
|
|
|
Total before tax
|
|
171
|
|
|
Total before tax
|
|
|
(19
|
)
|
|
Income tax provision
|
|
(45
|
)
|
|
Income tax provision
|
|
|
$
|
54
|
|
|
Net of tax
|
|
$
|
126
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(114
|
)
|
|
Net of tax
|
|
$
|
(378
|
)
|
|
Net of tax
|
(a) Amounts in parentheses indicate credits to profit/loss.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).
10. Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per common share data)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income (loss) attributable to The Andersons, Inc.
|
$
|
(4,237
|
)
|
|
$
|
(2,098
|
)
|
|
$
|
11,658
|
|
|
$
|
17,732
|
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
32,626
|
|
|
28,263
|
|
|
32,550
|
|
|
28,254
|
|
Earnings per common share – basic
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.36
|
|
|
$
|
0.63
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
32,626
|
|
|
28,263
|
|
|
32,550
|
|
|
28,254
|
|
Effect of dilutive awards
|
—
|
|
|
—
|
|
|
484
|
|
|
233
|
|
Weighted average shares outstanding – diluted
|
32,626
|
|
|
28,263
|
|
|
33,034
|
|
|
28,487
|
|
Earnings per common share – diluted
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.35
|
|
|
$
|
0.62
|
|
All outstanding share awards were antidilutive for the three months ended September 30, 2019 and September 30, 2018 as the Company incurred a net loss in both periods. There were 60 thousand outstanding share awards that were antidilutive for the nine months ended September 30, 2019. There were no antidilutive stock-based awards outstanding for the nine months ended September 30, 2018.
11. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2019, December 31, 2018 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
34,196
|
|
|
$
|
18,691
|
|
|
$
|
—
|
|
|
$
|
52,887
|
|
Provisionally priced contracts (b)
|
(79,757
|
)
|
|
(23,535
|
)
|
|
—
|
|
|
(103,292
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
8,404
|
|
|
8,404
|
|
Other assets and liabilities (d)
|
5,603
|
|
|
(17,891
|
)
|
|
—
|
|
|
(12,288
|
)
|
Total
|
$
|
(39,958
|
)
|
|
$
|
(22,735
|
)
|
|
$
|
8,404
|
|
|
$
|
(54,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
September 30, 2018
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
51,595
|
|
|
$
|
(67,919
|
)
|
|
$
|
—
|
|
|
$
|
(16,324
|
)
|
Provisionally priced contracts (b)
|
(55,697
|
)
|
|
(23,136
|
)
|
|
—
|
|
|
(78,833
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
7,154
|
|
|
7,154
|
|
Other assets and liabilities (d)
|
5,988
|
|
|
193
|
|
|
—
|
|
|
6,181
|
|
Total
|
$
|
1,886
|
|
|
$
|
(90,862
|
)
|
|
$
|
7,154
|
|
|
$
|
(81,822
|
)
|
|
|
(a)
|
Includes associated cash posted/received as collateral.
|
|
|
(b)
|
Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2).
|
|
|
(c)
|
Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets.
|
|
|
(d)
|
Included in other assets and liabilities are assets held in rabbi trusts 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
|
(in thousands)
|
|
2019
|
|
2018
|
Assets (liabilities) at January 1,
|
|
$
|
7,154
|
|
|
$
|
7,388
|
|
Additional Investments
|
|
250
|
|
|
—
|
|
Assets (liabilities) at March 31,
|
|
$
|
7,404
|
|
|
$
|
7,388
|
|
Additional investments
|
|
1,000
|
|
|
100
|
|
Asset (liabilities) at June 30,
|
|
$
|
8,404
|
|
|
$
|
7,488
|
|
Gains (losses) included in earnings
|
|
—
|
|
|
5,080
|
|
Additional Investments
|
|
—
|
|
|
986
|
|
Sale proceeds
|
|
—
|
|
|
(6,400
|
)
|
Asset (liability) at September 30,
|
|
$
|
8,404
|
|
|
$
|
7,154
|
|
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of September 30, 2019, December 31, 2018 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of September 30, 2019
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
8,404
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of December 31, 2018
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
7,154
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of September 30, 2018
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
7,154
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
(a) The Company considers observable price changes and other additional market data available to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
Fair value of long-term debt, including current maturities
|
$
|
1,046,063
|
|
|
$
|
517,998
|
|
|
$
|
445,342
|
|
Fair value in excess of carrying value (a)
|
11,047
|
|
|
5,813
|
|
|
11,629
|
|
(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. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
The Andersons Albion Ethanol LLC
|
$
|
48,863
|
|
|
$
|
50,382
|
|
|
$
|
49,882
|
|
The Andersons Clymers Ethanol LLC
|
23,752
|
|
|
24,242
|
|
|
22,589
|
|
The Andersons Marathon Ethanol LLC
|
15,762
|
|
|
14,841
|
|
|
15,373
|
|
Lansing Trade Group, LLC (a)
|
—
|
|
|
101,715
|
|
|
99,904
|
|
Thompsons Limited (a)
|
—
|
|
|
48,987
|
|
|
50,280
|
|
Providence Grain Group Inc.
|
17,195
|
|
|
—
|
|
|
—
|
|
Other
|
11,776
|
|
|
2,159
|
|
|
2,322
|
|
Total
|
$
|
117,348
|
|
|
$
|
242,326
|
|
|
$
|
240,350
|
|
(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
The following table summarizes income (loss) earned from the Company’s equity method investments by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
% Ownership at September 30, 2019
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
The Andersons Albion Ethanol LLC
|
55%
|
|
$
|
(1,671
|
)
|
|
$
|
2,408
|
|
|
$
|
(1,292
|
)
|
|
$
|
4,858
|
|
The Andersons Clymers Ethanol LLC
|
39%
|
|
(1,427
|
)
|
|
1,376
|
|
|
(152
|
)
|
|
3,121
|
|
The Andersons Marathon Ethanol LLC
|
33%
|
|
(532
|
)
|
|
1,029
|
|
|
920
|
|
|
2,713
|
|
Lansing Trade Group, LLC (a)
|
100% (a)
|
|
—
|
|
|
2,428
|
|
|
—
|
|
|
8,603
|
|
Thompsons Limited (a)
|
100% (a)
|
|
—
|
|
|
35
|
|
|
—
|
|
|
1,345
|
|
Providence Grain Group Inc.
|
39%
|
|
(454
|
)
|
|
—
|
|
|
(2,297
|
)
|
|
—
|
|
Other
|
5% - 51%
|
|
356
|
|
|
(51
|
)
|
|
454
|
|
|
(39
|
)
|
Total
|
|
|
$
|
(3,728
|
)
|
|
$
|
7,225
|
|
|
$
|
(2,367
|
)
|
|
$
|
20,601
|
|
(a) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited and related entities, which LTG and the Company had equally owned.
The Company received $0.4 million from unconsolidated affiliates for the nine months ended September 30, 2019 and received $2.2 million for the nine months ended September 30, 2018.
In the third quarter of 2019, the Company did not have significant equity investees. In the third 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 Transactions
In the ordinary course of business and on an arms-length basis, the Company will enter into related party transactions with each of the investments described above, along with other related parties.
On March 2, 2018, the Company invested in ELEMENT, 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 several 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 construction of the plant was substantially completed, and operations commenced in August of 2019. As of September 30, 2019, approximately $5.2 million of remaining obligation is not yet incurred under a design build contract.
The following table sets forth the related party transactions entered into for the time periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Sales revenues
|
$
|
52,875
|
|
|
$
|
82,394
|
|
|
$
|
171,897
|
|
|
$
|
278,974
|
|
Service fee revenues (a)
|
2,852
|
|
|
5,231
|
|
|
11,015
|
|
|
15,539
|
|
Purchases of product and capital assets
|
174,420
|
|
|
177,583
|
|
|
520,091
|
|
|
556,551
|
|
Lease income (b)
|
1,887
|
|
|
1,623
|
|
|
5,195
|
|
|
4,829
|
|
Labor and benefits reimbursement (c)
|
3,513
|
|
|
3,436
|
|
|
10,973
|
|
|
10,603
|
|
|
|
(a)
|
Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (DDG) marketing fees, and other commissions.
|
|
|
(b)
|
Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs.
|
|
|
(c)
|
The Company provides all operational labor to the unconsolidated ethanol LLCs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
Accounts receivable (d)
|
$
|
23,394
|
|
|
$
|
17,829
|
|
|
$
|
32,584
|
|
Accounts payable (e)
|
21,201
|
|
|
28,432
|
|
|
32,347
|
|
|
|
(d)
|
Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.
|
|
|
(e)
|
Accounts payable represents amounts due to related parties for purchases of ethanol and other various items.
|
For the three months ended September 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $158.5 million and $161.9 million, respectively. For the nine months ended September 30, 2019 and 2018, revenues recognized for the sale of ethanol and co-products that the Company purchased from the unconsolidated ethanol LLCs were $456.7 million and $480.4 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 September 30, 2019, December 31, 2018 and September 30, 2018 were $0.4 million, $1.9 million and $6.8 million, respectively. The fair value of derivative contract liabilities with related parties as of September 30, 2019, December 31, 2018 and September 30, 2018 were $2.6 million, $6.3 million and $7.2 million, respectively.
13. Segment Information
The Company’s operations include four reportable business segments that are distinguished primarily on the basis of products and services offered. The Trade business includes grain merchandising, the operation of terminal grain elevator facilities and, historically, the investments in LTG and Thompsons Limited. In January 2019, the Company acquired the remaining 67.5% of LTG equity that it did not already own. The transaction also resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company jointly owned. The Company has evaluated its segment reporting structure as a result of the acquisition. The presentation includes a majority of the acquired business within the legacy Grain Group which has been renamed, Trade Group. The acquired ethanol trading business of LTG is included within the Ethanol Group. The Company also moved certain commission income and an elevator lease from the legacy Grain Group to the Ethanol Group to better align business segments. Prior year results have been recast to reflect this change. The Ethanol business purchases and sells ethanol, and 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. 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 September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues from external customers
|
|
|
|
|
|
|
|
Trade
|
$
|
1,580,157
|
|
|
$
|
342,610
|
|
|
$
|
4,944,483
|
|
|
$
|
983,737
|
|
Ethanol
|
254,055
|
|
|
195,669
|
|
|
708,029
|
|
|
571,090
|
|
Plant Nutrient
|
109,446
|
|
|
104,188
|
|
|
508,548
|
|
|
542,911
|
|
Rail
|
39,097
|
|
|
43,112
|
|
|
123,528
|
|
|
134,982
|
|
Total
|
$
|
1,982,755
|
|
|
$
|
685,579
|
|
|
$
|
6,284,588
|
|
|
$
|
2,232,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Inter-segment sales
|
|
|
|
|
|
|
|
Trade
|
$
|
242
|
|
|
$
|
442
|
|
|
$
|
1,054
|
|
|
$
|
1,435
|
|
Plant Nutrient
|
892
|
|
|
—
|
|
|
2,186
|
|
|
—
|
|
Rail
|
824
|
|
|
288
|
|
|
2,869
|
|
|
959
|
|
Total
|
$
|
1,958
|
|
|
$
|
730
|
|
|
$
|
6,109
|
|
|
$
|
2,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Income (loss) before income taxes, net of noncontrolling interest
|
|
|
|
|
|
|
|
Trade
|
$
|
(2,001
|
)
|
|
$
|
(9,914
|
)
|
|
$
|
4,268
|
|
|
$
|
(2,453
|
)
|
Ethanol
|
949
|
|
|
10,353
|
|
|
6,169
|
|
|
20,703
|
|
Plant Nutrient
|
(7,440
|
)
|
|
(7,976
|
)
|
|
4,534
|
|
|
8,239
|
|
Rail
|
3,137
|
|
|
5,732
|
|
|
10,629
|
|
|
10,645
|
|
Other
|
(6,094
|
)
|
|
(2,057
|
)
|
|
(15,599
|
)
|
|
(13,734
|
)
|
Income (loss) before income taxes, net of noncontrolling interest
|
(11,449
|
)
|
|
(3,862
|
)
|
|
10,001
|
|
|
23,400
|
|
Noncontrolling interests
|
(1,633
|
)
|
|
223
|
|
|
(2,265
|
)
|
|
(175
|
)
|
Income (loss) before income taxes
|
$
|
(13,082
|
)
|
|
$
|
(3,639
|
)
|
|
$
|
7,736
|
|
|
$
|
23,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
Identifiable assets
|
|
|
|
|
|
Trade
|
$
|
1,712,350
|
|
|
$
|
964,079
|
|
|
$
|
773,923
|
|
Ethanol
|
372,663
|
|
|
310,866
|
|
|
278,796
|
|
Plant Nutrient
|
376,615
|
|
|
403,780
|
|
|
415,314
|
|
Rail
|
679,056
|
|
|
590,407
|
|
|
564,227
|
|
Other
|
143,768
|
|
|
122,871
|
|
|
119,358
|
|
Total
|
$
|
3,284,452
|
|
|
$
|
2,392,003
|
|
|
$
|
2,151,618
|
|
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
|
|
September 30, 2019
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Right of use assets, net
|
|
$
|
70,773
|
|
Finance lease assets
|
|
Property, plant and equipment, net
|
|
24,003
|
|
Finance lease assets
|
|
Rail Group assets leased to others, net
|
|
17,136
|
|
Total leased assets
|
|
|
|
$
|
111,912
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current operating leases
|
|
Accrued expenses and other current liabilities
|
|
24,544
|
|
Non-current operating leases
|
|
Long-term lease liabilities
|
|
47,299
|
|
Total operating lease liabilities
|
|
|
|
$
|
71,843
|
|
|
|
|
|
|
Current finance leases
|
|
Current maturities of long-term debt
|
|
17,331
|
|
Non-current finance leases
|
|
Long-term debt
|
|
21,925
|
|
Total finance lease liabilities
|
|
|
|
$
|
39,256
|
|
Total lease liabilities
|
|
|
|
$
|
111,099
|
|
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
|
|
Three months ended September 30, 2019
|
|
Nine months ended September 30, 2019
|
Lease cost:
|
|
|
|
|
|
|
Operating lease cost
|
|
Cost of sales and merchandising revenues
|
|
$
|
5,761
|
|
|
$
|
18,881
|
|
Operating lease cost
|
|
Operating, administrative and general expenses
|
|
3,417
|
|
|
10,251
|
|
Finance lease cost
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
Operating, administrative and general expenses
|
|
443
|
|
|
1,042
|
|
Interest expense on lease liabilities
|
|
Interest expense
|
|
236
|
|
|
779
|
|
Other lease cost (a)
|
|
Cost of sales and merchandising revenues
|
|
193
|
|
|
731
|
|
Other lease cost (a)
|
|
Operating, administrative and general expenses
|
|
61
|
|
|
201
|
|
Total lease cost
|
|
|
|
$
|
10,111
|
|
|
$
|
31,885
|
|
(a) Other lease cost includes short-term lease costs and variable lease costs.
The Company often has the option to renew lease terms for buildings and other assets. The exercise of a lease renewal option is generally at the sole discretion of the Company. In addition, certain lease agreements may be terminated prior to their original expiration date at the discretion of the Company. Each renewal and termination option is evaluated at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The table below summarizes the weighted average remaining lease terms as of September 30, 2019.
|
|
|
Weighted Average Remaining Lease Term
|
|
Operating leases
|
4.2 years
|
Finance leases
|
6.9 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 September 30, 2019.
|
|
|
|
Weighted Average Discount Rate
|
|
|
Operating leases
|
4.16
|
%
|
Finance leases
|
3.78
|
%
|
Supplemental Cash Flow Information Related to Leases
|
|
|
|
|
|
|
(in thousands)
|
|
|
September 30, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
$
|
24,982
|
|
Operating cash flows from finance leases
|
|
|
405
|
|
Financing cash flows from finance leases
|
|
|
973
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
|
|
6,365
|
|
Finance leases
|
|
|
16,498
|
|
Maturity Analysis of Leases Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
(in thousands)
|
Operating Leases
|
|
Finance
Leases
|
|
Total
|
2019 (excluding the nine months ended September 30, 2019)
|
$
|
8,612
|
|
|
$
|
1,140
|
|
|
$
|
9,752
|
|
2020
|
23,210
|
|
|
17,613
|
|
|
40,823
|
|
2021
|
16,635
|
|
|
2,334
|
|
|
18,969
|
|
2022
|
11,613
|
|
|
2,341
|
|
|
13,954
|
|
2023
|
7,664
|
|
|
2,342
|
|
|
10,006
|
|
Thereafter
|
10,748
|
|
|
18,184
|
|
|
28,932
|
|
Total lease payments
|
$
|
78,482
|
|
|
$
|
43,954
|
|
|
$
|
122,436
|
|
Less: interest
|
6,639
|
|
|
4,698
|
|
|
11,337
|
|
Total
|
$
|
71,843
|
|
|
$
|
39,256
|
|
|
$
|
111,099
|
|
15. 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 LTG 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.
16. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the nine months ended September 30, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest paid
|
$
|
47,164
|
|
|
$
|
23,327
|
|
Noncash investing and financing activity
|
|
|
|
Equity issued in conjunction with acquisition
|
127,841
|
|
|
—
|
|
Removal of pre-existing equity method investment
|
(159,459
|
)
|
|
—
|
|
Purchase price holdback/ other accrued liabilities
|
29,956
|
|
|
—
|
|
Dividends declared not yet paid
|
5,547
|
|
|
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
|
8,245
|
|
|
13,941
|
|
17. Business Acquisition
Effective January 1, 2019, the Company completed its acquisition of the remaining 67.5% 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.
Total consideration paid by the Company to complete the acquisition of LTG was $328.9 million. The Company paid $171.1 million in cash, which includes preliminary working capital adjustments of $30.0 million, and issued 4.4 million unregistered shares valued at $127.8 million based upon the stock price of the Company at the date of the acquisition.
The purchase price allocation is preliminary, pending completion of the full valuation report, finalization of deferred income taxes and a final working capital adjustment. A summarized preliminary purchase price allocation is as follows:
|
|
|
|
|
(in thousands)
|
|
Cash consideration paid
|
$
|
171,147
|
|
Equity consideration
|
127,841
|
|
Purchase price holdback/ other accrued liabilities
|
29,956
|
|
Total purchase price consideration
|
$
|
328,944
|
|
The preliminary purchase price allocation at January 1, 2019, is as follows:
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
$
|
21,525
|
|
Accounts receivable
|
320,467
|
|
Inventories
|
456,963
|
|
Commodity derivative assets - current
|
82,595
|
|
Other current assets
|
27,474
|
|
Commodity derivative assets - noncurrent
|
13,576
|
|
Goodwill
|
129,848
|
|
Other intangible assets
|
106,600
|
|
Right of use asset
|
37,894
|
|
Equity method investments
|
28,728
|
|
Other assets, net
|
5,582
|
|
Property, plant and equipment, net
|
171,820
|
|
|
$
|
1,403,072
|
|
|
|
Short-term debt
|
218,901
|
|
Trade and other payables
|
303,321
|
|
Commodity derivative liabilities - current
|
29,024
|
|
Customer prepayments and deferred revenue
|
99,530
|
|
Accrued expense and other current liabilities
|
64,512
|
|
Other long-term liabilities, including commodity derivative liabilities - noncurrent
|
3,175
|
|
Long-term lease liabilities
|
21,193
|
|
Long-term debt, including current maturities
|
161,688
|
|
Deferred income taxes
|
14,403
|
|
|
$
|
915,747
|
|
Fair value of acquired assets and assumed liabilities
|
$
|
487,325
|
|
|
|
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
|
|
|
|
The goodwill recognized as a result of the LTG acquisition is $129.8 million and is allocated to the Trade Group segment. A portion of the goodwill is expected to be deductible for 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 reach in the agricultural marketplace.
Details of the intangible assets acquired are as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
Estimated useful life
|
|
Customer relationships
|
$
|
86,300
|
|
10 years
|
|
Noncompete agreements
|
20,300
|
|
3 years
|
|
Total other intangible assets
|
$
|
106,600
|
|
8 years
|
*
|
*weighted average number of years
Pro Forma Financial Information
The summary pro forma financial information for the periods presented below gives effect to the LTG acquisition as if it had occurred at January 1, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net sales
|
$
|
1,982,755
|
|
|
2,020,746
|
|
|
$
|
6,284,588
|
|
|
6,282,656
|
|
Net income
|
(5,869
|
)
|
|
2,934
|
|
|
13,364
|
|
|
35,004
|
|
Pro forma net income was also adjusted to account for the tax effects of the pro forma adjustments noted above using a statutory tax rate of 25%. The amount of LTG’s and Thompsons’ revenue and earnings included in the Company’s consolidated statement of operations for the period ended September 30, 2019 are not practicable to determine given the level of integration of LTG and Thompsons into the Company’s operations effective January 1, 2019.
18. Goodwill
The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Trade
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Balance as of January 1, 2019
|
$
|
1,171
|
|
|
$
|
686
|
|
|
$
|
4,167
|
|
|
$
|
6,024
|
|
Acquisitions (a)
|
129,848
|
|
|
—
|
|
|
—
|
|
|
129,848
|
|
Balance as of September 30, 2019
|
$
|
131,019
|
|
|
$
|
686
|
|
|
$
|
4,167
|
|
|
$
|
135,872
|
|
(a) Acquisitions represent the LTG acquisition's preliminary goodwill allocation.
Although substantially all of the Company’s goodwill as of September 30, 2019 resulted from the current year acquisition of LTG and is still preliminary, as part of the Company's on-going assessment of goodwill at September 30, 2019, management determined that a triggering event occurred due to the Company's market capitalization being less than the carrying value, resulting from the significant decline in the Company's share price during the quarter. Thus, an interim impairment test was performed over the Company's goodwill as well as its other intangible and long-lived assets. Based on the results of the impairment test, none of the Company's reportable segments recorded an impairment charge.
When performing our test for impairment, we measured each reporting unit's fair value using a combination of income and market approaches.
The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third-party buyer. Significant estimates in the 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.
While two reporting units within the Trade group have fair value exceeding their carrying values by less than 10%, substantially all the goodwill relates to the recent LTG acquisition. Due to similar assumptions used to calculate the fair value for this test and those used in the initial purchase price allocation, the narrow cushions are consistent with expectations. However, as the fair value is highly sensitive to changes in assumptions, including interest rates and outlook for future volume and margins, general trends in the business and/or macro-economic factors could cause the estimated fair value of the reporting units to fall below their carrying values.
19. Exit Costs and Assets Held for Sale
The Company classified $0.6 million of property, plant and equipment as assets held for sale on the Condensed Consolidated Balance Sheet at September 30, 2019. These assets are primarily comprised of plant nutrient assets that were sold subsequent to the end of the third quarter for a nominal gain.
The Company classified $29.5 million of Property, plant and equipment as Assets held for sale on the Condensed Consolidated Balance Sheet at September 30, 2018. This includes $25.1 million of Rail Group assets, which is primarily comprised of barges. Additionally, property, plant and equipment of $4.4 million was classified as held for sale including $4.2 million of Retail store assets and $0.2 million relating to administrative offices at an outlying location in the Plant Nutrient Group.
20. Subsequent Events
On October 1, 2019, the Company entered into a definitive agreement to merge The Andersons Albion Ethanol LLC, The Andersons Clymers Ethanol LLC, The Andersons Marathon Ethanol LLC and the Company's wholly-owned The Andersons Denison Ethanol LLC into a new legal entity named The Andersons Marathon Holdings LLC ("TAMH"). As a result of the merger, The Andersons and Marathon will own 50.1% and 49.9% of TAMH equity, respectively. The transaction will result in the consolidation of TAMH’s results in the Company's financial statements effective October 1, 2019.
Effective October 1, 2019, in conjunction with the merger noted above, TAMH entered into a credit agreement that includes a $70 million term note and a $130 million revolving credit facility. Borrowings under the credit agreement bear interest at variable interest rates, which are based on LIBOR plus an applicable spread. Payments on the term loan will be made on a quarterly basis.
On October 2, 2019, the Company closed on the sale of its farm center assets in Bay City, Michigan. A pretax gain of $2.9 million will be realized in the fourth quarter of 2019.
During the fourth quarter, the Company reached an agreement to sell the agronomy assets of Thompsons Limited, a wholly owned subsidiary in Ontario, Canada, to Sylvite Holdings Inc. of Burlington, Ontario. The sale is expected to close in the fourth quarter. The Andersons will continue to own and operate Thompsons' grain storage and food processing facilities in Ontario.