Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All material intercompany accounts and transactions are eliminated in consolidation. Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
At inception of joint venture transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company consolidates investments in VIEs when the Company is determined to be the primary beneficiary. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.
The Company evaluates its interests in VIE’s on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.
On October 1, 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC (“TAAE”), The Andersons Clymers Ethanol LLC (“TACE”), The Andersons Marathon Ethanol LLC (“TAME”) and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC (“TADE”), into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company evaluated its interest in TAMH and determined that TAMH is a VIE and that the Company is the primary beneficiary of TAMH due to the fact that the Company had both the power to direct the activities that most significantly impact TAMH and the obligation to absorb losses or the right to receive benefits from TAMH. Therefore, the Company consolidated TAMH in its financial statements.
On March 2, 2018, the Company invested in ELEMENT. The Company owns 51% of ELEMENT and ICM, Inc. owns the remaining 49% interest. As part of the Company’s investment into ELEMENT, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the initial construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The Company evaluated its interest in ELEMENT and determined that ELEMENT is a VIE and that the Company is the primary beneficiary of ELEMENT due to the fact that the Company had both the power to direct the activities that most significantly impact ELEMENT and the obligation to absorb losses or the right to receive benefits from ELEMENT. Therefore, the Company consolidates ELEMENT.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and short-term investments with an initial maturity of three months or less. The carrying values of these assets approximate their fair values.
The Company had restricted cash of $8.7 million as of December 31, 2019. The restricted cash balance is a result of an ongoing royalty claim assumed in the TAMH merger and, accordingly, is now in the Consolidated Financial Statements of the Company.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and may bear interest if past due. The allowance for doubtful accounts is the best estimate of the current expected credit losses in existing accounts receivable. The allowance for doubtful accounts is reviewed quarterly. The allowance is based both on specific identification of potentially uncollectible accounts and the application of a consistent policy, based on historical experience, to estimate the allowance necessary for the remaining accounts receivable. For those customers that are thought to be at higher risk, the Company makes assumptions as to collectability based on past history and facts about the current situation. Account balances are charged off against the allowance when it becomes more certain that the receivable will not be recovered. The Company manages its exposure to counterparty credit risk through credit analysis and approvals, credit limits and monitoring procedures.
Commodity Derivatives and Inventories
The Company's operating results can be affected by changes to commodity prices. The 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 mitigate the price risk associated with those contracts and inventory). To reduce the exposure to market price risk on commodities owned and forward commodity and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. The forward purchase and sale contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
The Company accounts for its commodity derivatives at fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, fair value is adjusted for differences in local markets and non-performance risk. While the Company considers certain of its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues in the Consolidated Statements of Operations. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 5 and 11 to the Consolidated Financial Statements.
Grain and other agricultural inventories, which are commodities and may be acquired under provisionally priced contracts, are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
All other inventories are stated at the lower of cost or net realizable value. Cost is determined by the average cost method. Additional information about inventories is presented in Note 2 to the Consolidated Financial Statements.
Derivatives - Master Netting Arrangements
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a futures, options or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a futures, option or an over-the-counter contract moves in a direction that is adverse to the Company's position, an additional margin deposit, called a maintenance margin, is required. The Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Consolidated Balance Sheets. Additional information about the Company's master netting arrangements is presented in Note 5 to the Consolidated Financial Statements.
Derivatives - Interest Rate and Foreign Currency Contracts
The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. The Company has long-term interest rate swaps recorded in other assets or other long-term liabilities that expire from 2021 to 2025 and have been designated as cash flow hedges; accordingly, changes in the fair value of the instruments are recognized in other comprehensive income. The Company has other interest rate contracts recorded in other assets that are not designated as hedges. While the Company considers all of its derivative positions to be effective economic hedges of specified risks, these interest rate contracts for which hedge accounting is not applied are recorded on the Consolidated Balance Sheets in either other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature), and changes in fair value are recognized in current earnings as interest expense. Upon termination of a derivative instrument or a change in the hedged item, any remaining fair value recorded on the balance sheet is recorded as interest expense consistent with the cash flows associated with the underlying hedged item. Information regarding the nature and terms of the Company's interest rate derivatives is presented in Note 5 to the Consolidated Financial Statements.
Marketing Agreement
The Company has a marketing agreement that covers certain of its grain facilities, some of which are leased from Cargill. Under the five-year amended and restated agreement (renewed in June 2018 and ending May 2023), any grain the Company sells to Cargill is at market price. Income earned from operating the facilities (including buying, storing and selling grain and providing grain marketing services to its producer customers) over a specified threshold is shared equally with Cargill. Measurement of this threshold is made on a cumulative basis and cash is paid to Cargill on an annual basis. The Company recognizes its pro rata share of this profit-sharing arrangement as a reduction of revenue in our Consolidated Statements of Operations every month and accrues for any payment owed to Cargill. The impact of the profit-sharing arrangement to the Company's revenues were de minimis, $0.2 million and $3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Rail Group Assets Leased to Others
The Company's Rail Group purchases, leases, markets and manages railcars and barges for third parties and for internal use. Rail Group assets to which the Company holds title are shown on the balance sheet in one of two categories - other current assets (for those that are available for sale) or Rail Group assets leased to others. Rail Group assets leased to others, both on short and long-term leases, are classified as long-term assets and are depreciated over their estimated useful lives.
Railcars have statutory lives of either 40 or 50 years, measured from the date built. Barges have estimated lives of 30 to 40 years, measured from the date built. At the time of purchase, the remaining life is used in determining useful lives which are depreciated on a straight-line basis. Repairs and maintenance costs are charged to expense as incurred. Additional information regarding Rail Group assets leased to others is presented in Note 3 to the Consolidated Financial Statements.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Repairs and maintenance costs are charged to expense as incurred, while betterments that extend useful lives are capitalized. Depreciation is provided over the estimated useful lives of the individual assets, by the straight-line method. Estimated useful lives are generally as follows: land improvements - 16 years; leasehold improvements - the shorter of the lease term or the estimated useful life of the improvement, ranging from 3 to 20 years; buildings and storage facilities - 10 to 40 years; and machinery and equipment - 3 to 20 years. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts, with any gain or loss realized upon sale or disposal credited or charged to operations.
Additional information regarding the Company's property, plant and equipment is presented in Note 3 to the Consolidated Financial Statements.
Deferred Debt Issue Costs
Costs associated with the issuance of debt are deferred and recorded net with debt. These costs are amortized, as a component of interest expense, over the earlier of the stated term of the debt or the period from the issue date through the first early payoff date without penalty, or the expected payoff date if the loan does not contain a prepayment penalty. Deferred costs associated with the borrowing arrangement with a syndication of banks are amortized over the term of the agreement.
Goodwill and Intangible Assets
Goodwill is subject to annual impairment tests or more often when events or circumstances indicate that the carrying amount of goodwill may be impaired. A goodwill impairment loss is recognized to the extent the carrying amount of goodwill exceeds the business enterprise value. Additional information about the Company's goodwill and other intangible assets is presented in Note 19 to the Consolidated Financial Statements.
Acquired intangible assets are recorded at cost, less accumulated amortization, if not indefinite lived. In addition, we capitalize the salaries and payroll-related costs of employees and consultants who devote time to the development of internal-use software projects. If a project constitutes an enhancement to previously-developed software, we assess whether the enhancement is significant and creates additional functionality to the software, thus qualifying the work incurred for capitalization. Once a project is complete, we estimate the useful life of the internal-use software. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period.
Amortization of intangible assets is provided over their estimated useful lives (generally 1 to 10 years) on the straight-line method.
Impairment of Long-lived Assets and Equity Method Investments
Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the assets to the undiscounted future net cash flows the Company expects to generate with the assets. If such assets are considered to be impaired, the Company recognizes an impairment loss for the amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company reviews its equity method investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other-than-temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.
Provisionally Priced Commodity Contracts
Accounts payable includes certain amounts related to commodity purchases for which, even though the Company has taken ownership and possession of the commodity the final purchase price has not been fully established. If the futures and basis components are unpriced, it is referred to as a delayed price payable. If the futures component has not been established, but the basis has been set, it is referred to as a basis payable. The unpriced portion of these payables will be exposed to changes in the fair value of the underlying commodity based on quoted prices on commodity exchanges (or basis levels). Those payables that are fully priced are not considered derivative instruments.
The Company also enters into contracts with customers for risk management purposes that allow the customers to effectively unprice the futures component of their inventory for a period of time, subjecting the commodities 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. See Note 11 for additional discussion on these instruments.
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, adjusted for revisions to performance expectations. Additional information about the Company's stock compensation plans is presented in Note 17 to the Consolidated Financial Statements.
Deferred Compensation Liability
Included in accrued expenses are $6.7 million and $7.5 million at December 31, 2019 and 2018, respectively, of deferred compensation for certain employees who, due to Internal Revenue Service guidelines, may not take full advantage of the Company's qualified defined contribution plan. Assets funding this plan are recorded at fair value in other current assets with changes in the fair value recorded in earnings as a component of other income, net. Changes in the fair value of the deferred compensation liability are reflected in earnings as a component of operating, administrative, and general expenses.
Revenue Recognition
The Company’s revenue consists of sales from commodity contracts that are accounted for under ASC 815, Derivatives and Hedging (ASC 815), rental revenues from leases that are accounted for under ASC 842, Leases, and sales of other products and services that are accounted for under ASC 606, Revenue from Contracts with Customers (ASC 606).
Revenue from commodity contracts (ASC 815)
Revenue from commodity contracts primarily relates to forward sales of commodities in the Company’s Trade and Ethanol segments, such as corn, soybeans, wheat, oats, ethanol, and corn oil, which are accounted for as derivatives at fair value under ASC 815. These forward sales meet the definition of a derivative under ASC 815 as they have an underlying (e.g. the price of corn), a notional amount (e.g. metric tons), no initial net investment and can be net settled since the commodity is readily convertible to cash. The Company does not apply the normal purchase and normal sale exception available under ASC 815 to these contracts.
Revenue from commodity contracts is recognized in Sales and merchandising revenues for the contractually stated amount when the contracts are settled. Settlement of the commodity contracts generally occurs upon shipment or delivery of the product, when title and risks and rewards of ownership transfers to the customer. Prior to settlement, these forward sales contracts are recognized at fair value with the unrealized gains or losses recorded within Cost of sales and merchandising revenues. Additional information about the fair value of the Company's commodity derivatives is presented in Notes 5 and 11 to the Consolidated Financial Statements.
There are certain transactions that allow for pricing to occur after title of the goods has passed to the customer. In these cases, the Company continues to report the goods in inventory until it recognizes the sales revenue once the price has been determined. Direct ship commodity sales (where the Company never takes physical possession of the commodity) are recognized based on the terms of the contract.
Certain of the Company's operations provide for customer billings, deposits or prepayments for product that is stored at the Company's facilities. The sales and gross profit related to these transactions are not recognized until the product is shipped in accordance with the previously stated revenue recognition policy and these amounts are classified as a current liability titled “Customer prepayments and deferred revenue”.
Revenue from leases (ASC 842)
The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, flat cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. While most of these assets are owned by the Company, it also leases assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leases. The Company's Rail Group leases these assets to customers under operating leases, which includes managing the assets for third parties. In exchange for conveying the right to use these railcars to the lessee, the Company receives a fixed monthly rental payment, which is typically expressed on a “per car” basis in the lease agreement. Revenue from these arrangements is recognized on a straight-line basis over the term of the lease.
Certain of the Company's leases include monthly lease fees that are contingent upon some measure of usage (“per diem” leases). This monthly usage is tracked, billed and collected by third-party service providers and funds are generally remitted to the Company along with usage data three months after they are earned. The Company records lease revenue for these per diem arrangements based on recent historical usage patterns and records a true-up adjustment when the actual data is received. Such true-up adjustments were not significant for any period presented.
Revenue related to railcar or other asset servicing and maintenance contracts is recognized over the term of the lease or service contract.
Revenue from contracts with customers (ASC 606)
Revenue from contracts with customers accounted for under ASC 606 is primarily generated in the Plant Nutrient segment through the sale of agricultural and related plant nutrients, corncob-based products, pelleted lime and gypsum products. The Company recognizes revenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a customer, generally when legal title and risks and rewards of ownership transfer to the customer.
Additional information regarding our revenue recognition policy under ASC 606 is presented in Note 7 to the Consolidated Financial Statements.
Rail Lease Accounting
The Company recognizes a right of use asset and a corresponding lease liability equal to the present value of the remaining minimum lease payments related to both its operating and finance rail leases. Additional information about leasing activities is presented in Note 14 to the Consolidated Financial Statements.
Income Taxes
Income tax expense for each period includes current tax expense plus deferred expense, which is related to the change in deferred income tax assets and liabilities. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using enacted tax rates and laws governing periods in which the differences are expected to reverse. The Company evaluates the realizability of deferred tax assets and provides a valuation allowance for amounts that management does not believe are more likely than not to be recoverable, as applicable.
The annual effective tax rate is determined by income tax expense from continuing operations as a percentage of pretax book income. Differences in the effective tax rate and the statutory tax rate may be due to permanent items, tax credits, foreign tax rates and state tax rates in jurisdictions in which the Company operates, or changes in valuation allowances.
The Company records reserves for uncertain tax positions when, despite the belief that tax return positions are fully supportable, it is anticipated that certain tax return positions are likely to be challenged and that the Company may not prevail. These reserves are adjusted for changing facts and circumstances, such as the progress of a tax audit or the lapse of statutes of limitations.
Additional information about the Company’s income taxes is presented in Note 8 to the Consolidated Financial Statements.
Employee Benefit Plans
The Company provides full-time employees hired before January 1, 2003 with postretirement health care benefits. In order to measure the expense and funded status of these employee benefit plans, management makes several estimates and assumptions, including employee turnover rates, anticipated mortality rates and anticipated future healthcare cost trends. These estimates and assumptions are based on the Company's historical experience combined with management's knowledge and understanding of current facts and circumstances. The selection of the discount rate is based on an index given projected plan payouts. Additional information about the Company's employee benefit plans is presented in Note 6 to the Consolidated Financial Statements.
Advertising
Advertising costs are expensed as incurred. Advertising expense of $2.5 million, $1.9 million and $2.5 million in 2019, 2018, and 2017, respectively, is included in operating, administrative and general expenses.
Recently Adopted Accounting Pronouncements
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.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. The Company adopted this standard in the current year which did not have a material impact on its financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Effective
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. The guidance is effective for fiscal years beginning after December 15, 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 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:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Grain and other agricultural products
|
$
|
907,482
|
|
|
$
|
527,471
|
|
Frac sand and propane
|
15,438
|
|
|
—
|
|
Ethanol and co-products
|
95,432
|
|
|
11,918
|
|
Plant nutrients and cob products
|
146,164
|
|
|
145,693
|
|
Railcar repair parts
|
6,020
|
|
|
5,722
|
|
|
$
|
1,170,536
|
|
|
$
|
690,804
|
|
Inventories on the Consolidated Balance Sheets at December 31, 2019 do not include 6.4 million bushels of grain held in storage for others. Grain and other agricultural product inventories held in storage for others was de minimis as of December 31, 2018. The Company does not have title to the inventory and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
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|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Land
|
$
|
40,442
|
|
|
$
|
29,739
|
|
Land improvements and leasehold improvements
|
103,148
|
|
|
68,826
|
|
Buildings and storage facilities
|
373,961
|
|
|
284,998
|
|
Machinery and equipment
|
835,156
|
|
|
393,640
|
|
Construction in progress
|
59,993
|
|
|
102,394
|
|
|
1,412,700
|
|
|
879,597
|
|
Less: accumulated depreciation
|
474,282
|
|
|
402,886
|
|
|
$
|
938,418
|
|
|
$
|
476,711
|
|
Capitalized interest totaled $2.2 million and $1.7 million for the years ended December 31, 2019 and 2018, respectively.
Depreciation expense on property, plant and equipment amounted to $82.3 million, $46.5 million and $48.3 million for the years ended 2019, 2018 and 2017, respectively.
In December 2019, the Company recorded charges of $32.3 million for impairment of property, plant and equipment in the Trade segment related to its frac sand assets. The Company also recorded a $3.7 million impairment of property, plant, and equipment in the Trade segment related to its Tennessee grain assets, of which $3.1 million was recorded in the second quarter.
In June 2018, the Company recorded charges totaling $1.6 million for impairment of property, plant and equipment in the Trade segment related to assets that were reclassified as assets held for sale at June 30, 2018 and were sold in the third quarter.
In December 2017, the Company recorded charges totaling $10.9 million for impairment of property, plant and equipment in the Trade segment, of which $5.6 million relates to assets that were deemed held and used and $5.3 million related to assets that had been reclassified as held for sale at December 31, 2017. These assets were then sold during 2018.
Rail Group Assets
The components of the Rail Group assets leased to others are as follows:
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|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Rail Group assets leased to others
|
$
|
723,004
|
|
|
$
|
640,349
|
|
Less: accumulated depreciation
|
138,706
|
|
|
118,564
|
|
|
$
|
584,298
|
|
|
$
|
521,785
|
|
Depreciation expense on Rail Group assets leased to others amounted to $28.5 million, $24.7 million and $20.0 million for the years ended 2019, 2018 and 2017, respectively.
In June 2018, the Company recorded charges of $4.7 million for impairment of Rail Group assets leased to others that had been reclassified as assets held for sale at June 30, 2018. These assets were sold during the second half of 2018.
4. Debt
The Company’s short-term and long-term debt at December 31, 2019 and 2018 consisted of the following:
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|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Short-term Debt – Non-Recourse
|
$
|
54,029
|
|
|
$
|
—
|
|
Short-term Debt – Recourse
|
93,002
|
|
|
205,000
|
|
Total Short-term Debt
|
147,031
|
|
|
205,000
|
|
|
|
|
|
Current Maturities of Long-term Debt – Non-Recourse
|
9,250
|
|
|
4,842
|
|
Current Maturities of Long-term Debt – Recourse
|
36,013
|
|
|
16,747
|
|
Finance lease liability
|
17,636
|
|
|
—
|
|
Total Current Maturities of Long-term Debt
|
62,899
|
|
|
21,589
|
|
|
|
|
|
|
|
Long-term Debt, Less: Current Maturities – Non-Recourse
|
329,891
|
|
|
146,353
|
|
Long-term Debt, Less: Current Maturities – Recourse
|
664,856
|
|
|
349,834
|
|
Finance lease liability
|
21,501
|
|
|
—
|
|
Total Long-term Debt, Less: Current Maturities
|
$
|
1,016,248
|
|
|
$
|
496,187
|
|
On January 2, 2019, in conjunction with the LTG acquisition, the Company assumed a revolving line of credit and a term loan with a syndicate of banks, which are non-recourse to the Company. The credit agreement provides the Company with a maximum availability of $184.8 million and had $130.8 million available for borrowing on this line of credit as of December 31, 2019. Any borrowings under the line of credit bear interest at variable rates, which are based on LIBOR or Bankers’ Acceptances plus an applicable spread. The maturity date for the revolving line of credit is June 26, 2023. The term note assumed in conjunction with the LTG acquisition was non-recourse to the Company with a syndicate of banks and had a balance of $15.5 million at December 31, 2019. The interest rate for the term loan was 4.51% as of December 31, 2019 and is based on LIBOR plus an applicable spread. Payments on the term loans are made on a quarterly basis.
On January 11, 2019, the Company entered into a 5-year recourse term loan in the amount of $250 million and a 7-year recourse term loan of $250 million. A portion of the term loans were used to pay down debt assumed in the LTG acquisition. Interest rates are based on LIBOR plus an applicable spread. At December 31, 2019, the interest rates for the 5-year and 7-year term loan were 3.13% and 3.38%, respectively. Payments on the term loans are made on a quarterly basis.
On October 1, 2019, in conjunction with the TAMH Merger Agreement, TAMH, a consolidated subsidiary of the Company, entered into a non-recourse Credit Agreement that included a $70 million term note and a $130 million revolving credit facility. Borrowings under the Credit Agreement bear interest at variable interest rates, which are based on LIBOR plus an applicable spread. Payments on the term loan will be made on a quarterly basis. As of December 31, 2019, no amounts were drawn on either the term loan or revolving credit facility.
Effective November 14, 2019, the Company entered into a 15-year loan agreement in the amount of $105 million, of which $73 million of the proceeds were used to extinguish existing long-term debt. The remainder of the proceeds were used to pay down a portion of outstanding line of credit borrowings. The agreement was secured by first mortgages on certain real and personal property held by the Company. Borrowings under the agreement bear a fixed interest rate of 4.50% and payments of principal and interest will be made on a quarterly basis.
The Company was in compliance with all financial covenants at and during the years ended December 31, 2019 and 2018.
At December 31, 2019, the Company had short-term lines of credit capacity totaling $1,507.8 million, of which $1,281.4 million was unused. The weighted average interest rates on short-term borrowings outstanding at December 31, 2019 and 2018, were 3.24% and 3.32%, respectively.
Long-Term Debt
Recourse Long-Term Debt
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands, except percentages)
|
2019
|
|
2018
|
Note payable, variable rate (3.38% at December 31, 2019), payable in increasing amounts plus interest, due 2026
|
$
|
237,500
|
|
|
$
|
—
|
|
Note payable, variable rate (3.13% at December 31, 2019), payable in increasing amounts plus interest, due 2024
|
157,500
|
|
|
—
|
|
Note payable, 4.50%, payable at maturity, due 2034 (a)
|
105,000
|
|
|
—
|
|
Note payable, 4.07%, payable at maturity, due 2021
|
26,000
|
|
|
26,000
|
|
Note payable, 4.85%, payable at maturity, due 2026
|
25,000
|
|
|
25,000
|
|
Note payable, 4.55%, payable at maturity, due 2023
|
24,000
|
|
|
24,000
|
|
Note payable, 3.33%, payable in increasing amounts plus interest, due 2025 (a)
|
23,780
|
|
|
24,888
|
|
Note payable, 3.29%, payable in increasing amounts plus interest, due 2022 (a)
|
17,497
|
|
|
18,918
|
|
Note payable, 4.50%, payable at maturity, due 2030
|
16,000
|
|
|
16,000
|
|
Note payable, 5.00%, payable at maturity, due 2040
|
14,000
|
|
|
14,000
|
|
Note payable, variable rate (3.43% at December 31, 2019), payable quarterly, due 2024 (a)
|
12,250
|
|
|
13,250
|
|
Line of credit, variable rate, paid 2019
|
—
|
|
|
50,000
|
|
Note payable, 4.92%, payable in increasing amounts, plus interest, paid 2019 (a)
|
—
|
|
|
16,227
|
|
Note payable, 4.23%, payable in increasing amounts plus interest, paid 2019 (a)
|
—
|
|
|
9,948
|
|
Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a)
|
—
|
|
|
44,330
|
|
Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a)
|
—
|
|
|
16,452
|
|
Note payable, variable rate, payable in increasing amounts plus interest, paid 2019 (a)
|
—
|
|
|
8,417
|
|
Note payable, 4.76%, payable in increasing amounts plus interest, paid 2019 (a)
|
—
|
|
|
8,288
|
|
|
|
|
|
Industrial development revenue bonds:
|
|
|
|
Variable rate (3.41% at December 31, 2019), payable at maturity, due 2036
|
21,000
|
|
|
21,000
|
|
Variable rate (3.44% at December 31, 2019), payable at maturity, due 2025 (a)
|
3,100
|
|
|
3,100
|
|
Variable rate, paid 2019 (a)
|
—
|
|
|
4,650
|
|
Debenture bonds, 2.65% to 5.00%, payable in increasing amounts plus interest, due 2020 through 2031
|
26,075
|
|
|
27,323
|
|
Finance lease obligations, due serially to 2030 (a)
|
38,482
|
|
|
—
|
|
|
747,184
|
|
|
371,791
|
|
Less: current maturities
|
53,353
|
|
|
16,747
|
|
Less: unamortized prepaid debt issuance costs
|
7,833
|
|
|
5,210
|
|
|
$
|
685,998
|
|
|
$
|
349,834
|
|
(a) Debt is collateralized by first mortgages on certain facilities and related equipment or other assets with a book value $435.8 million.
The aggregate annual maturities of recourse, long-term debt are as follows: 2020 -- $53.4 million; 2021 -- $66.6 million; 2022 -- $49.9 million; 2023 -- $58.6 million; 2024 -- $135.4 million; and $383.3 million thereafter.
Non-Recourse Long-Term Debt
The Company's non-recourse long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Line of credit, 3.76%, payable at maturity, due 2021
|
$
|
180,000
|
|
|
$
|
118,000
|
|
Note Payable, variable rate (4.92% at December 31, 2019), payable at maturity, due 2026
|
66,094
|
|
|
—
|
|
Industrial revenue bond, variable rate (3.44% at December 31, 2019), payable at maturity, due 2032 (a)
|
49,500
|
|
|
—
|
|
Note payable, variable rate (4.51% at December 31, 2019), payable in increasing amounts plus interest, due 2023
|
15,465
|
|
|
—
|
|
Non-recourse financing obligations, 3.60% to 4.94%, payable at maturity, due 2020 through 2026
|
28,855
|
|
|
34,019
|
|
Finance lease obligations, due serially to 2023
|
655
|
|
|
—
|
|
|
340,569
|
|
|
152,019
|
|
Less: current maturities
|
9,545
|
|
|
4,842
|
|
Less: unamortized prepaid debt issuance costs
|
774
|
|
|
824
|
|
|
$
|
330,250
|
|
|
$
|
146,353
|
|
The aggregate annual maturities of non-recourse, long-term debt are as follows: 2020 - $9.5 million; 2021 -- $188.1 million; 2022 -- $22.0 million; 2023 -- $19.0 million; 2024 -- $12.1 million; and $89.9 million thereafter.
5. Derivatives
Commodity Contracts
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. 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 Consolidated Balance Sheets.
The following table presents at December 31, 2019 and 2018, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
(in thousands)
|
Net Derivative Asset Position
|
|
Net Derivative Liability Position
|
|
Net Derivative Asset Position
|
|
Net Derivative Liability Position
|
Collateral paid
|
$
|
56,005
|
|
|
$
|
—
|
|
|
$
|
14,944
|
|
|
$
|
—
|
|
Fair value of derivatives
|
(10,323
|
)
|
|
—
|
|
|
22,285
|
|
|
—
|
|
Balance at end of period
|
$
|
45,682
|
|
|
$
|
—
|
|
|
$
|
37,229
|
|
|
$
|
—
|
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
92,429
|
|
|
$
|
1,045
|
|
|
$
|
7,439
|
|
|
$
|
18
|
|
|
$
|
100,931
|
|
Commodity derivative liabilities
|
(40,571
|
)
|
|
(96
|
)
|
|
(54,381
|
)
|
|
(523
|
)
|
|
(95,571
|
)
|
Cash collateral
|
56,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56,005
|
|
Balance sheet line item totals
|
$
|
107,863
|
|
|
$
|
949
|
|
|
$
|
(46,942
|
)
|
|
$
|
(505
|
)
|
|
$
|
61,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
43,463
|
|
|
$
|
484
|
|
|
$
|
706
|
|
|
$
|
5
|
|
|
$
|
44,658
|
|
Commodity derivative liabilities
|
(6,986
|
)
|
|
(4
|
)
|
|
(33,353
|
)
|
|
(894
|
)
|
|
(41,237
|
)
|
Cash collateral
|
14,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,944
|
|
Balance sheet line item totals
|
$
|
51,421
|
|
|
$
|
480
|
|
|
$
|
(32,647
|
)
|
|
$
|
(889
|
)
|
|
$
|
18,365
|
|
The net pre-tax gains on commodity derivatives not designated as hedging instruments included in the Company’s Consolidated Statements of Operations and the line items in which they are located for the years ended December 31, 2019, 2018, and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Gains (Losses) on commodity derivatives included in Cost of sales and merchandising revenues
|
$
|
1,939
|
|
|
$
|
4,236
|
|
|
$
|
5,417
|
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
552,359
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
34,912
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
100,996
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
24,700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
116,448
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
14,568
|
|
|
—
|
|
Other
|
11,363
|
|
|
4,000
|
|
|
305
|
|
|
2,263
|
|
Subtotal
|
724,330
|
|
|
120,448
|
|
|
14,873
|
|
|
2,263
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
221,740
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
39,145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
68,171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
2,090
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
175,353
|
|
|
—
|
|
|
—
|
|
Propane
|
—
|
|
|
5,166
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
15
|
|
|
—
|
|
|
232
|
|
Subtotal
|
331,146
|
|
|
180,534
|
|
|
—
|
|
|
232
|
|
Total
|
1,055,476
|
|
|
300,982
|
|
|
14,873
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
250,408
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
22,463
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
14,017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
26,230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
244,863
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
2,920
|
|
|
—
|
|
Other
|
494
|
|
|
2,000
|
|
|
—
|
|
|
66
|
|
Subtotal
|
313,612
|
|
|
246,863
|
|
|
2,920
|
|
|
66
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
130,585
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
26,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
33,760
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
1,475
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
77,112
|
|
|
—
|
|
|
—
|
|
Subtotal
|
192,805
|
|
|
77,112
|
|
|
—
|
|
|
—
|
|
Total
|
506,417
|
|
|
323,975
|
|
|
2,920
|
|
|
66
|
|
Interest Rate and Other Derivatives
The Company periodically enters into interest rate contracts to manage interest rate risk on borrowing or financing activities. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in other current assets or liabilities (if short-term in nature) or in other assets or other long-term liabilities (if non-current in nature) and changes in fair value are recognized currently in earnings as a component of interest expense. The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks.
At December 31, 2019 and 2018, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Derivatives not designated as hedging instruments
|
|
|
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities)
|
$
|
(1,007
|
)
|
|
$
|
(353
|
)
|
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)
|
2,742
|
|
|
(1,122
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
Interest rate contracts included in Other current assets (Accrued expenses and other current liabilities)
|
(3,118
|
)
|
|
—
|
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities)
|
$
|
(9,382
|
)
|
|
$
|
(168
|
)
|
The recording of derivatives gains and losses and the financial statement line item in which they are located are as follows:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
Derivatives not designated as hedging instruments
|
|
|
|
Interest rate derivative gains (losses) included in Interest income (expense)
|
$
|
(718
|
)
|
|
$
|
1,115
|
|
Foreign currency derivative gains (losses) included in Other income, net
|
(437
|
)
|
|
(1,548
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
Interest rate derivative gains (losses) included in Other comprehensive income
|
(12,398
|
)
|
|
(168
|
)
|
Interest rate derivative gains (losses) included in Interest income (expense)
|
$
|
(761
|
)
|
|
$
|
158
|
|
The following table presents the open interest rate contracts at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Hedging Instrument
|
|
Year Entered
|
|
Year of Maturity
|
|
Initial Notional Amount
(in millions)
|
|
Hedged Item
|
|
Interest Rate
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
2014
|
|
2023
|
|
$
|
23.0
|
|
|
Interest rate component of debt - not accounted for as a hedge
|
|
1.9%
|
Collar
|
|
2016
|
|
2021
|
|
$
|
40.0
|
|
|
Interest rate component of debt - not accounted for as a hedge
|
|
3.5% to 4.8%
|
Swap
|
*
|
2017
|
|
2022
|
|
$
|
20.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
1.8%
|
Swap
|
*
|
2018
|
|
2023
|
|
$
|
10.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.6%
|
Swap
|
*
|
2018
|
|
2025
|
|
$
|
20.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.7%
|
Swap
|
|
2018
|
|
2021
|
|
$
|
40.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.6%
|
Swap
|
|
2019
|
|
2021
|
|
$
|
25.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2021
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
100.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
* Acquired on 1/1/2019 in conjunction with the acquisition of LTG.
6. Employee Benefit Plans
The Company provides certain full-time employees with pension benefits under defined benefit and defined contribution plans. The measurement date for all plans is December 31. The Company's expense for its defined contribution plans amounted to $8.8 million in 2019, $7.2 million in 2018 and $7.3 million in 2017. The Company also provides health insurance benefits to certain employees and retirees.
The Company has an unfunded noncontributory defined benefit pension plan. The plan provides defined benefits based on years of service and average monthly compensation using a career average formula. Pension benefits were frozen at July 1, 2010.
The Company also has postretirement health care benefit plans covering substantially all of its full-time employees hired prior to January 1, 2003. These plans are generally contributory and include a cap on the Company's share of the related costs.
Obligation and Funded Status
Following are the details of the obligation and funded status of the pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Pension Benefits
|
|
Postretirement Benefits
|
Change in benefit obligation
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Benefit obligation at beginning of year
|
$
|
4,362
|
|
|
$
|
5,832
|
|
|
$
|
20,638
|
|
|
$
|
22,602
|
|
Service cost
|
—
|
|
|
—
|
|
|
365
|
|
|
319
|
|
Interest cost
|
116
|
|
|
130
|
|
|
854
|
|
|
752
|
|
Actuarial (gains) losses
|
44
|
|
|
(282
|
)
|
|
4,687
|
|
|
(1,623
|
)
|
Participant contributions
|
—
|
|
|
—
|
|
|
297
|
|
|
145
|
|
Retiree drug subsidy received
|
—
|
|
|
—
|
|
|
—
|
|
|
125
|
|
Benefits paid
|
(1,434
|
)
|
|
(1,318
|
)
|
|
(1,969
|
)
|
|
(1,682
|
)
|
Benefit obligation at end of year
|
$
|
3,088
|
|
|
$
|
4,362
|
|
|
$
|
24,872
|
|
|
$
|
20,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Pension Benefits
|
|
Postretirement Benefits
|
Change in plan assets
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Fair value of plan assets at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual gains on plan assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Company contributions
|
1,434
|
|
|
1,318
|
|
|
1,672
|
|
|
1,537
|
|
Participant contributions
|
—
|
|
|
—
|
|
|
297
|
|
|
145
|
|
Benefits paid
|
(1,434
|
)
|
|
(1,318
|
)
|
|
(1,969
|
)
|
|
(1,682
|
)
|
Fair value of plan assets at end of year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Under funded status of plans at end of year
|
$
|
(3,088
|
)
|
|
$
|
(4,362
|
)
|
|
$
|
(24,872
|
)
|
|
$
|
(20,638
|
)
|
Amounts recognized in the Consolidated Balance Sheets at December 31, 2019 and 2018 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Accrued expenses
|
$
|
1,309
|
|
|
$
|
1,516
|
|
|
$
|
1,292
|
|
|
$
|
1,162
|
|
Employee benefit plan obligations
|
1,779
|
|
|
2,846
|
|
|
23,580
|
|
|
19,476
|
|
Net amount recognized
|
$
|
3,088
|
|
|
$
|
4,362
|
|
|
$
|
24,872
|
|
|
$
|
20,638
|
|
Following are the details of the pre-tax amounts recognized in accumulated other comprehensive loss at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in thousands)
|
Unamortized Actuarial Net Losses
|
|
Unamortized Prior Service Costs
|
|
Unamortized Actuarial Net Losses
|
|
Unamortized Prior Service Costs
|
Balance at beginning of year
|
$
|
3,222
|
|
|
$
|
—
|
|
|
$
|
(9,129
|
)
|
|
$
|
1,365
|
|
Amounts arising during the period
|
44
|
|
|
—
|
|
|
4,687
|
|
|
—
|
|
Amounts recognized as a component of net periodic benefit cost
|
(232
|
)
|
|
—
|
|
|
—
|
|
|
911
|
|
Balance at end of year
|
$
|
3,034
|
|
|
$
|
—
|
|
|
$
|
(4,442
|
)
|
|
$
|
2,276
|
|
Amounts applicable to the Company's defined benefit plans with accumulated benefit obligations in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Projected benefit obligation
|
$
|
3,088
|
|
|
$
|
4,362
|
|
Accumulated benefit obligation
|
$
|
3,088
|
|
|
$
|
4,362
|
|
The combined benefits expected to be paid for all Company defined benefit plans over the next ten years are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Expected Pension Benefit Payout
|
|
Expected Postretirement Benefit Payout
|
2020
|
$
|
1,309
|
|
|
$
|
1,292
|
|
2021
|
1,006
|
|
|
1,341
|
|
2022
|
250
|
|
|
1,356
|
|
2023
|
208
|
|
|
1,364
|
|
2024
|
208
|
|
|
1,360
|
|
2025-2029
|
211
|
|
|
6,867
|
|
Following are components of the net periodic benefit cost for each year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
December 31,
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
365
|
|
|
$
|
319
|
|
|
$
|
391
|
|
Interest cost
|
116
|
|
|
130
|
|
|
155
|
|
|
854
|
|
|
752
|
|
|
985
|
|
Expected return on plan assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(911
|
)
|
|
(910
|
)
|
|
(455
|
)
|
Recognized net actuarial loss
|
232
|
|
|
243
|
|
|
252
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefit cost (income)
|
$
|
348
|
|
|
$
|
373
|
|
|
$
|
407
|
|
|
$
|
308
|
|
|
$
|
161
|
|
|
$
|
921
|
|
Following are weighted average assumptions of pension and postretirement benefits for each year:
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
2019
|
|
2018
|
|
2017
|
Used to Determine Benefit Obligations at Measurement Date
|
|
|
|
|
|
Discount rate (a)
|
3.0
|
%
|
|
4.1
|
%
|
|
3.4
|
%
|
Used to Determine Net Periodic Benefit Cost for Years ended December 31
|
|
|
|
|
|
Discount rate (b)
|
4.1
|
%
|
|
3.4
|
%
|
|
3.7
|
%
|
Expected long-term return on plan assets
|
—
|
|
|
—
|
|
|
—
|
|
Rate of compensation increases
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(a)
|
The calculated rate for the unfunded employee retirement plan was 2.00%, 3.20% and 2.50% in 2019, 2018, and 2017, respectively. Since it was terminated in 2015, the defined benefit pension plan did not have a discount rate during the three-year period presented above.
|
|
|
(b)
|
The calculated rate for the unfunded employee retirement plan was 3.20%, 2.50% and 2.40% in 2019, 2018, and 2017, respectively. Since it was terminated in 2015, the defined benefit pension plan did not have a discount rate during the three-year period presented above.
|
|
|
|
|
|
|
|
Assumed Health Care Cost Trend Rates at Beginning of Year
|
|
|
|
|
2019
|
|
2018
|
Health care cost trend rate assumed for next year
|
3.0
|
%
|
|
3.0
|
%
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (a)
|
N/A
|
|
|
N/A
|
|
Year that the rate reaches the ultimate trend rate (a)
|
N/A
|
|
|
N/A
|
|
|
|
(a)
|
In 2017, the Company's remaining uncapped participants were converted to a Medicare Exchange Health Reimbursement Arrangement, which put a 2% cap on the Company's share of the related costs.
|
7. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Revenues under ASC 606
|
|
$
|
1,391,848
|
|
|
$
|
898,885
|
|
Revenues under ASC 842
|
|
118,411
|
|
|
105,631
|
|
Revenues under ASC 815
|
|
6,659,932
|
|
|
2,040,866
|
|
Total Revenues
|
|
$
|
8,170,191
|
|
|
$
|
3,045,382
|
|
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
46,065
|
|
|
$
|
—
|
|
|
$
|
239,051
|
|
|
$
|
—
|
|
|
$
|
285,116
|
|
Primary nutrients
|
33,612
|
|
|
—
|
|
|
377,648
|
|
|
—
|
|
|
411,260
|
|
Service
|
13,108
|
|
|
8,775
|
|
|
4,202
|
|
|
36,926
|
|
|
63,011
|
|
Products and Co-products
|
217,297
|
|
|
131,178
|
|
|
—
|
|
|
—
|
|
|
348,475
|
|
Frac sand and propane
|
238,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
238,100
|
|
Other
|
8,634
|
|
|
860
|
|
|
25,829
|
|
|
10,563
|
|
|
45,886
|
|
Total
|
$
|
556,816
|
|
|
$
|
140,813
|
|
|
$
|
646,730
|
|
|
$
|
47,489
|
|
|
$
|
1,391,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
260,821
|
|
|
$
|
—
|
|
|
$
|
260,821
|
|
Primary nutrients
|
—
|
|
|
—
|
|
|
399,566
|
|
|
—
|
|
|
399,566
|
|
Service
|
11,347
|
|
|
14,105
|
|
|
4,411
|
|
|
35,179
|
|
|
65,042
|
|
Products and Co-products
|
—
|
|
|
114,489
|
|
|
—
|
|
|
—
|
|
|
114,489
|
|
Other
|
1,035
|
|
|
—
|
|
|
25,738
|
|
|
32,194
|
|
|
58,967
|
|
Total
|
$
|
12,382
|
|
|
$
|
128,594
|
|
|
$
|
690,536
|
|
|
$
|
67,373
|
|
|
$
|
898,885
|
|
For the years ended December 31, 2019 and 2018, approximately 4% and 7% of revenues, respectively, are accounted for under ASC 606 are recorded over time which primarily relates to service revenues noted above.
Specialty and primary nutrients
The Company sells several different types of specialty nutrient products, including: low-salt liquid starter fertilizers, micro-nutrients and other specialty lawn products. These products can be sold through the wholesale distribution channels as well as directly to end users at the farm center locations. Similarly, the Company sells several different types of primary nutrient products, including nitrogen, phosphorus and potassium. These products may be purchased and re-sold as is or sold as finished goods resulting from a blending and manufacturing process. The contracts associated with specialty and primary nutrients generally have just a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer. Payment terms generally range from 0 - 30 days.
Service
Service revenues primarily relate to the railcar repair business. The Company owns several railcar repair shops which repair railcars through specific contracts with customers or by operating as an agent for a particular railroad to repair cars that are on its rail line per Association of American Railroads (“AAR”) standards. These contracts contain a single performance obligation which is to complete the requested and/or required repairs on the railcars. As the customer simultaneously receives and consumes the benefit of the repair work we perform, revenue for these contracts is recognized over time. The Company uses an input-based measure of progress using costs incurred to total expected costs as that is the measure that most faithfully depicts our progress towards satisfying our performance obligation. Upon completion of the work, the invoice is sent to the customer, with payment terms that generally range from 0 - 30 days.
Products and Co-products
In addition to the ethanol sales contracts that are considered derivative instruments, the Ethanol Group sells several other co-products that remain subject to ASC 606, including E-85, DDGs, syrups and renewable identification numbers (“RINs”). RINs are credits for compliance with the Environmental Protection Agency's Renewable Fuel Standard program and are created by renewable fuel producers. Contracts for these co-products generally have a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer which follows shipping terms on the contract. Payment terms generally range from 5 - 15 days.
Frac Sand and Propane
Our sand products and propane products are primarily sold to United States customers in the energy industry. We recognize revenue at a point in time when obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped for direct sales to customers or when the product is picked up by a customer either at our plant location or transload location. Our contracts contain one performance obligation which is the delivery to the customer at a point in time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. We recognize the cost for shipping as an expense in cost of sales when control over the product has transferred to the customer. Payment terms generally range from 0 - 30 days.
The Company recorded revenues under ASC 842 consisting of $105.1 million of operating lease revenue, $8.0 million of sales-type lease revenue and $5.3 million of variable lease revenue for the year ended December 31, 2019.
Contract balances
The opening and closing balances of the Company’s contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
2019
|
|
2018
|
Balance at January 1
|
$
|
28,858
|
|
|
$
|
25,520
|
|
Balance at December 31
|
28,467
|
|
|
28,858
|
|
The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. Contract liabilities relate to the Plant Nutrient business for payments received in advance of fulfilling our performance obligations under our customer contracts. Contract liabilities are built up at year-end and through the first quarter as a result of payments in advance of fulfilling our performance obligations under our customer contracts in preparation for the spring planting season. The contract liabilities are then relieved as obligations are met through the year and begin to build in preparation for a new season as we approach year-end.
8. Income Taxes
Income tax provision (benefit) applicable to continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
1,079
|
|
|
$
|
(549
|
)
|
|
$
|
(1,668
|
)
|
State and local
|
1,215
|
|
|
323
|
|
|
643
|
|
Foreign
|
4,361
|
|
|
1,138
|
|
|
1,125
|
|
|
6,655
|
|
|
912
|
|
|
100
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
4,409
|
|
|
10,073
|
|
|
(61,655
|
)
|
State and local
|
1,925
|
|
|
578
|
|
|
(2,107
|
)
|
Foreign
|
62
|
|
|
367
|
|
|
528
|
|
|
6,396
|
|
|
11,018
|
|
|
(63,234
|
)
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
Federal
|
5,488
|
|
|
9,525
|
|
|
(63,323
|
)
|
State and local
|
3,140
|
|
|
901
|
|
|
(1,464
|
)
|
Foreign
|
4,423
|
|
|
1,505
|
|
|
1,653
|
|
|
$
|
13,051
|
|
|
$
|
11,931
|
|
|
$
|
(63,134
|
)
|
Income (loss) before income taxes from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
U.S.
|
$
|
18,982
|
|
|
$
|
46,678
|
|
|
$
|
(25,645
|
)
|
Foreign
|
9,129
|
|
|
6,478
|
|
|
5,120
|
|
|
$
|
28,111
|
|
|
$
|
53,156
|
|
|
$
|
(20,525
|
)
|
A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Statutory U.S. federal tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
Increase (decrease) in rate resulting from:
|
|
|
|
|
|
Acquisition related permanent item
|
24.0
|
|
|
—
|
|
|
—
|
|
Federal income tax credits
|
(23.2
|
)
|
|
(3.4
|
)
|
|
—
|
|
State and local income taxes, net of related federal taxes
|
7.3
|
|
|
3.4
|
|
|
(4.2
|
)
|
Equity method investments
|
5.7
|
|
|
1.1
|
|
|
(0.4
|
)
|
Nondeductible compensation
|
4.6
|
|
|
1.5
|
|
|
(2.5
|
)
|
Impact of unrecognized tax benefits
|
3.9
|
|
|
(0.1
|
)
|
|
3.0
|
|
Effect of noncontrolling interest
|
2.4
|
|
|
0.1
|
|
|
0.2
|
|
Change in federal and state tax rates
|
2.1
|
|
|
(2.1
|
)
|
|
374.8
|
|
Income taxes on foreign earnings
|
(0.6
|
)
|
|
(1.5
|
)
|
|
(2.2
|
)
|
Tax effect of GILTI
|
0.4
|
|
|
1.4
|
|
|
—
|
|
Other, net
|
(1.2
|
)
|
|
0.5
|
|
|
4.4
|
|
Impacts related to the 2017 Tax Act
|
—
|
|
|
0.6
|
|
|
(7.1
|
)
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
(93.5
|
)
|
Tax associated with accrued and unpaid dividends
|
—
|
|
|
—
|
|
|
0.1
|
|
Effective tax rate
|
46.4
|
%
|
|
22.5
|
%
|
|
307.6
|
%
|
Net income taxes of $2.0 million were paid in 2019, net income tax refunds of $5.4 million were received in 2018, and net income taxes of $2.1 million were paid in 2017.
Significant components of the Company's deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Deferred tax liabilities:
|
|
|
|
Property, plant and equipment and Rail Group assets leased to others
|
$
|
(149,317
|
)
|
|
$
|
(169,558
|
)
|
Identifiable intangibles
|
(13,736
|
)
|
|
—
|
|
Investments
|
(41,354
|
)
|
|
(24,732
|
)
|
Other
|
(10,228
|
)
|
|
(7,999
|
)
|
|
(214,635
|
)
|
|
(202,289
|
)
|
Deferred tax assets:
|
|
|
|
Employee benefits
|
20,583
|
|
|
13,161
|
|
Accounts and notes receivable
|
3,577
|
|
|
2,069
|
|
Inventory
|
2,437
|
|
|
7,595
|
|
Federal income tax credits
|
12,005
|
|
|
13,075
|
|
Identifiable intangibles
|
—
|
|
|
1,213
|
|
Net operating loss carryforwards
|
5,259
|
|
|
12,766
|
|
Deferred interest (a)
|
2,385
|
|
|
6,476
|
|
Lease liability
|
11,072
|
|
|
8,473
|
|
Other
|
12,093
|
|
|
8,839
|
|
Total deferred tax assets
|
69,411
|
|
|
73,667
|
|
less: Valuation allowance
|
931
|
|
|
1,185
|
|
|
68,480
|
|
|
72,482
|
|
Net deferred tax liabilities
|
$
|
(146,155
|
)
|
|
$
|
(129,807
|
)
|
(a) The deferred interest tax asset represents disallowed interest deductions under IRC Section 163(j) (Limitation on Deduction for interest on Certain Indebtedness) for the current year. The disallowed interest is able to be carried forward indefinitely and utilized in future years pursuant to IRC Section 163(j)).
On December 31, 2019, the Company had $11.0 million, $64.7 million and $1.0 million of U.S. Federal, state and non-U.S. net operating loss carryforwards that begin to expire in 2034, 2020 and 2035, respectively. The Company also has $11.4 million of general business credits that expire after 2036 and $0.4 million of foreign tax credits that begin to expire after 2027.
Additionally, the company has elected to treat Global Intangible Low Tax Income (“GILTI”), as a period cost and, therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future years. As of December 31, 2019, this resulted in a net financial statement expense of $0.1 million for the year.
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If it is more-likely-than-not that the deferred tax asset will be realized, no valuation allowance is recorded. Management's judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the net deferred tax assets. The valuation allowance would need to be adjusted in the event future taxable income is materially different than amounts estimated. Significant judgments, estimates and factors considered by management in its determination of the probability of the realization of deferred tax assets include:
•Historical operating results
•Expectations of future earnings
•Tax planning strategies; and
•The extended period of time over which retirement, medical, and pension liabilities will be paid.
Our unrecognized tax benefits represent tax positions for which reserves have been established. At the end of 2019, 2018 and 2017, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of theses unrecognized tax benefits is as follows:
|
|
|
|
|
(in thousands)
|
|
Balance at January 1, 2017
|
$
|
1,452
|
|
Additions based on tax positions related to the current year
|
—
|
|
Additions based on tax positions related to prior years
|
—
|
|
Reductions based on tax positions related to prior years
|
(92
|
)
|
Reductions as a result of a lapse in statute of limitations
|
(573
|
)
|
Balance at December 31, 2017
|
787
|
|
|
|
Additions based on tax positions related to the current year
|
—
|
|
Reductions based on tax positions related to prior years
|
—
|
|
Reductions as a result of a lapse in statute of limitations
|
(169
|
)
|
Balance at December 31, 2018
|
618
|
|
|
|
Additions based on tax positions related to the current year
|
1,766
|
|
Additions based on tax positions related to prior years
|
20,649
|
|
Reductions based on tax positions related to prior years
|
(155
|
)
|
Reductions as a result of a lapse in statute of limitations
|
(463
|
)
|
Balance at December 31, 2019
|
$
|
22,415
|
|
As of December 31, 2019, 2018 and 2017, the total amount of unrecognized tax benefits was $22.4 million, $0.6 million and $0.8 million, respectively, of which in 2019 the unrecognized tax benefits were primarily associated with R&D Credits.
The Company’s practice is to recognize interest and penalties on uncertain tax positions in the provision for income taxes in the Consolidated Statement of Operations. At December 31, 2019 and 2018, the company recorded reserves of $2.1 million and $0.3 million, respectively, of interest and penalties on uncertain tax positions in the Consolidated Balance Sheet.
The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities in the U.S., multiple foreign, state and local jurisdictions. The Company’s Mexican federal income tax return for tax year 2015 is currently under audit. One of the company’s subsidiary partnership returns is under audit by the IRS for 2015. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations could change the Company’s unrecognized tax benefits during the next twelve months. It is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefit in the next twelve months.
In addition to the audits listed above, the company has open tax years primarily from 2013 to 2018 with various taxing jurisdictions, including the U.S., Canada, Mexico and the U.K. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The Company has recorded a tax benefit only for those positions that meet the more-likely-than-not standard.
9. Accumulated Other Comprehensive Income (Loss)
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the years ended December 31, 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
For the Year Ended December 31, 2019
|
|
(in thousands)
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustments
|
|
Investment in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
|
$
|
(126
|
)
|
|
$
|
(11,550
|
)
|
|
$
|
258
|
|
|
$
|
5,031
|
|
|
$
|
(6,387
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
(10,224
|
)
|
|
949
|
|
|
—
|
|
|
(3,459
|
)
|
|
(12,734
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
907
|
|
|
11,666
|
|
|
—
|
|
|
(683
|
)
|
|
11,890
|
|
Net current-period other comprehensive income (loss)
|
|
(9,317
|
)
|
|
12,615
|
|
|
—
|
|
|
(4,142
|
)
|
|
(844
|
)
|
Ending balance
|
|
$
|
(9,443
|
)
|
|
$
|
1,065
|
|
|
$
|
258
|
|
|
$
|
889
|
|
|
$
|
(7,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
For the Year Ended December 31, 2018
|
|
(in thousands)
|
|
Losses on Cash Flow Hedges
|
|
Foreign Currency Translation Adjustments
|
|
Investments in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
|
$
|
—
|
|
|
$
|
(7,716
|
)
|
|
$
|
344
|
|
|
$
|
4,672
|
|
|
$
|
(2,700
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
(284
|
)
|
|
(3,834
|
)
|
|
(86
|
)
|
|
1,031
|
|
|
(3,173
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
158
|
|
|
—
|
|
|
—
|
|
|
(672
|
)
|
|
(514
|
)
|
Net current-period other comprehensive income (loss)
|
|
(126
|
)
|
|
(3,834
|
)
|
|
(86
|
)
|
|
359
|
|
|
(3,687
|
)
|
Ending balance
|
|
$
|
(126
|
)
|
|
$
|
(11,550
|
)
|
|
$
|
258
|
|
|
$
|
5,031
|
|
|
$
|
(6,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
|
For the Year Ended December 31, 2017
|
|
(in thousands)
|
|
Foreign Currency Translation Adjustments
|
|
Investments in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
|
$
|
(11,002
|
)
|
|
$
|
—
|
|
|
$
|
(1,466
|
)
|
|
$
|
(12,468
|
)
|
|
Other comprehensive income before reclassifications
|
|
3,286
|
|
|
344
|
|
|
6,485
|
|
|
10,115
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
(347
|
)
|
|
(347
|
)
|
Net current-period other comprehensive income
|
|
3,286
|
|
|
344
|
|
|
6,138
|
|
|
9,768
|
|
Ending balance
|
|
$
|
(7,716
|
)
|
|
$
|
344
|
|
|
$
|
4,672
|
|
|
$
|
(2,700
|
)
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The Following tables show the reclassification adjustments from accumulated other comprehensive income to net income for the years ended December 31, 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (a)
|
(in thousands)
|
|
For the Year Ended December 31, 2019
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(911
|
)
|
|
(b)
|
|
|
(911
|
)
|
|
Total before taxes
|
|
|
228
|
|
|
Income tax benefit
|
|
|
$
|
(683
|
)
|
|
Net of tax
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest payments
|
|
$
|
1,210
|
|
|
Interest Expense
|
|
|
1,210
|
|
|
Total before taxes
|
|
|
(303
|
)
|
|
Income tax expense
|
|
|
$
|
907
|
|
|
Net of tax
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
$
|
11,666
|
|
|
Other income, net
|
|
|
11,666
|
|
|
Total before taxes
|
|
|
—
|
|
|
Income tax expense
|
|
|
$
|
11,666
|
|
|
Net of tax
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
11,890
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (a)
|
(in thousands)
|
|
For the Year Ended December 31, 2018
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(910
|
)
|
|
(b)
|
|
|
(910
|
)
|
|
Total before taxes
|
|
|
238
|
|
|
Income tax benefit
|
|
|
$
|
(672
|
)
|
|
Net of tax
|
Cash Flow Hedges
|
|
|
|
|
Interest payments
|
|
$
|
214
|
|
|
Interest expense
|
|
|
214
|
|
|
Total before taxes
|
|
|
(56
|
)
|
|
Income tax expense
|
|
|
$
|
158
|
|
|
Net of tax
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(514
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (a)
|
(in thousands)
|
|
For the Year Ended December 31, 2017
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(455
|
)
|
|
(b)
|
|
|
(455
|
)
|
|
Total before taxes
|
|
|
108
|
|
|
Income tax benefit
|
|
|
$
|
(347
|
)
|
|
Net of tax
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(347
|
)
|
|
Net of tax
|
(a) Amounts in parentheses indicate debits to profit/loss
(b) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (see Note 7. Employee Benefit Plans footnote for additional details)
10. Earnings Per Share
The Company’s non-vested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest. Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Subsequent to the 2015 awards, the unvested share-based payment awards no longer included non-forfeitable rights to dividends. As the final awards with the non-forfeitable rights fully vested in 2017 the two-class method is no longer used by the Company.
The computation of basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per common share data)
|
Year ended December 31,
|
2019
|
|
2018
|
|
2017
|
Net income attributable to The Andersons, Inc.
|
$
|
18,307
|
|
|
$
|
41,484
|
|
|
$
|
42,511
|
|
Less: Distributed and undistributed earnings allocated to non-vested restricted stock
|
—
|
|
|
—
|
|
|
1
|
|
Earnings available to common shareholders
|
$
|
18,307
|
|
|
$
|
41,484
|
|
|
$
|
42,510
|
|
Earnings per share – basic:
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
32,570
|
|
|
28,258
|
|
|
28,126
|
|
Earnings (losses) per common share – basic
|
$
|
0.56
|
|
|
$
|
1.47
|
|
|
$
|
1.51
|
|
Earnings per share – diluted:
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
32,570
|
|
|
28,258
|
|
|
28,126
|
|
Effect of dilutive awards
|
526
|
|
|
194
|
|
|
170
|
|
Weighted average shares outstanding – diluted
|
33,096
|
|
|
28,452
|
|
|
28,296
|
|
Earnings per common share – diluted
|
$
|
0.55
|
|
|
$
|
1.46
|
|
|
$
|
1.50
|
|
There were 88 thousand, 13 thousand and 22 thousand antidilutive share-based awards outstanding at December 31, 2019, December 31, 2018 and December 31, 2017, respectively.
11. Fair Value Measurements
Generally accepted accounting principles define fair value as an exit price and also establish a framework for measuring fair value. An exit price represents the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is used, which prioritizes the inputs used in measuring fair value as follows:
|
|
•
|
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
•
|
Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
|
|
|
•
|
Level 3 inputs: Unobservable inputs (e.g., a reporting entity's own data).
|
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
)
|
|
|
(a)
|
Includes associated cash posted/received as collateral
|
|
|
(b)
|
Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
|
|
|
(c)
|
Recorded in “Other noncurrent assets” on the Company’s Consolidated Balance Sheets related to certain available for sale securities.
|
|
|
(d)
|
Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1) and interest rate derivatives (Level 2).
|
Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices quoted on 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 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 a commodity, but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or we have delivered provisionally priced commodity and a subsequent payable or receivable is set up for any future changes in the commodity 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 in the form of convertible debt and preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s recurring fair value measurements using Level 3 inputs is as follows:
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Securities
|
(in thousands)
|
2019
|
|
2018
|
Assets (liabilities) at January 1,
|
$
|
7,154
|
|
|
$
|
7,388
|
|
New investments
|
1,250
|
|
|
1,086
|
|
Sales proceeds
|
—
|
|
|
(6,400
|
)
|
Realized gains (losses) included in earnings
|
—
|
|
|
3,900
|
|
Unrealized gains (losses) included in other comprehensive income
|
—
|
|
|
1,180
|
|
Assets (liabilities) at December 31,
|
$
|
8,404
|
|
|
$
|
7,154
|
|
The following tables summarize information about the Company's Level 3 fair value measurements as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Recurring Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of 12/31/19
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
8,404
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of 12/31/18
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
7,154
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
(a) The Company considers observable price changes and other additional market data available in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Non-Recurring Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of 12/31/19
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Frac sand assets (a)
|
$
|
16,546
|
|
|
Third party appraisal
|
|
Various
|
|
N/A
|
Real property (b)
|
608
|
|
|
Market approach
|
|
Various
|
|
N/A
|
Equity method investment (c)
|
12,424
|
|
|
Discounted cash flow analysis
|
|
Various
|
|
N/A
|
(a) The Company recognized impairment charges on long lived related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.
(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 were determined using prior transactions in the local market and a recent sale of comparable Trade group assets held by the Company.
(c) The Company recorded an other-than-temporary impairment charge on an existing equity method investment. The fair value of the investment was determined using a discounted cash flow analysis.
Fair Value of Debt Instruments
Certain long-term notes payable and the Company’s debenture bonds bear fixed rates of interest and terms of up to 15 years. Based upon the Company’s credit standing and current interest rates offered by the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities, the Company estimates the fair values of its fixed rate long-term debt instruments outstanding at December 31, 2019 and 2018, as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Hierarchy Level
|
2019
|
|
|
|
|
|
Fixed rate long-term notes payable
|
$
|
300,446
|
|
|
$
|
307,904
|
|
|
Level 2
|
Debenture bonds
|
26,075
|
|
|
25,852
|
|
|
Level 2
|
|
$
|
326,521
|
|
|
$
|
333,756
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
Fixed rate long-term notes payable
|
$
|
261,618
|
|
|
$
|
256,447
|
|
|
Level 2
|
Debenture bonds
|
27,324
|
|
|
26,154
|
|
|
Level 2
|
|
$
|
288,942
|
|
|
$
|
282,601
|
|
|
|
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
12. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is generally presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received or other-than-temporary impairments recognized. The amount of equity method investments has decreased substantially from the prior year as two acquisitions in 2019 resulted in the consolidation of the former significant equity method investments. In January 2019, the Company purchased the remaining equity of LTG and Thompsons Limited and in October 2019, the Company merged its existing equity method ethanol investments to create the consolidated entity of TAMH.
Prior to the acquisition in January of 2019, the Company was a minority investor in LTG. Prior to the acquisition in the current year, the Company accounted for this investment under the equity method. The Company sold and purchased both grain and ethanol with LTG in the ordinary course of business on terms similar to sales and purchases with unrelated customers. On July 31, 2013, the Company, along with LTG established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in a related U.S. operating company. Each Company owned 50% of the investment. Thompsons Limited was a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, which operated 12 locations across Ontario and Minnesota. The Company did not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures were made by their Board of Directors and the Company did not have a majority of the board seats. Due to these factors, the Company did not have control over these joint ventures and therefore accounted for these investments under the equity method of accounting, as of December 31, 2018. As a result of the LTG acquisition in January 2019, both LTG and Thompsons Limited became consolidated entities of the Company. See Note 18 for additional information on the acquisition.
In October of 2019, the Company entered into an agreement with Marathon Petroleum Corporation to merge The Andersons Albion Ethanol LLC (TAAE), The Andersons Clymers Ethanol LLC (TACE), The Andersons Marathon Ethanol LLC (TAME) and the Company's wholly-owned The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC ("TAMH"). The Company now owns 50.1% equity in TAMH, and the transaction resulted in the consolidation of TAMH’s results in the Company's financial statements. See note 18 for additional information on the merger. The background information below related to the former ethanol LLCs applies through September 30, 2019, prior to consolidation.
In 2005, the Company became an investor in TAAE. TAAE was a producer of ethanol and its co-products DDG and corn oil at its 110 million gallon-per-year ethanol production facility in Albion, Michigan. The Company operated the facility under a management contract and provided corn origination, ethanol, corn oil and DDG marketing and risk management services. The Company was separately compensated for all such services except corn oil marketing. The Company also leased its Albion, Michigan grain facility to TAAE. While the Company held 55% of the outstanding units of TAAE, a super-majority vote was required for all major operating decisions of TAAE based on the terms of the Operating Agreement. The Company concluded that the super-majority vote requirement gave the minority shareholders substantive participating rights and therefore consolidation for book purposes was not appropriate. The Company accounted for its investment in TAAE under the equity method of accounting through September 30, 2019.
In 2006, the Company became a minority investor in TACE. TACE was also a producer of ethanol and its co-products DDG and corn oil at a 110 million gallon-per-year ethanol production facility in Clymers, Indiana. The Company operated the facility under a management contract and provided corn origination, ethanol, corn oil and DDG marketing and risk management services for which it was separately compensated. The Company also leased its Clymers, Indiana grain facility to TACE. The Company accounted for its investment in TACE under the equity method of accounting through September 30, 2019.
In 2006, the Company became a minority investor in TAME. TAME was also a producer of ethanol and its co-products DDG and corn oil at a 110 million gallon-per-year ethanol production facility in Greenville, Ohio. In January 2007, the Company transferred its 50% share in TAME to The Andersons Ethanol Investment LLC, a consolidated subsidiary of the Company, of which a third party owned 34% of the shares. The Company operated the facility under a management contract and provided corn origination, ethanol, corn oil and DDG marketing and risk management services for which it was separately compensated. In 2009, TAEI invested an additional $1.1 million in TAME, retaining a 50% ownership interest. On January 1, 2017, TAEI was merged with and into TAME. The Company had owned (66%) of TAEI. Pursuant to the merger, the Company’s ownership units in TAEI were canceled and converted into ownership units in TAME. As a result, the Company owned 33% of the outstanding ownership units of TAME. The Company accounted for its investment in TAME under the equity method of accounting through September 30, 2019.
The Company had marketing agreements with TAAE, TACE, and TAME under which the Company purchased and marketed the ethanol produced to external customers. As compensation for these marketing services, the Company earned a fee on each gallon of ethanol sold. The Company entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchased most, if not all, of the ethanol produced by the LLCs at the same price it resold the ethanol to external customers. The Company acted as the principal in these ethanol sales transactions to external parties as the Company had ultimate responsibility of performance to the external parties. Substantially all of these purchases and subsequent sales were executed through forward contracts on matching terms and, outside of the fee the Company earned for each gallon sold, the Company did not recognize any gross profit on the sales transactions. For the nine months ended September 30, 2019 and years ended December 31, 2018 and 2017, revenues recognized for the sales of ethanol and co-products purchased from related parties were $456.7 million, $625.2 million and $590.9 million, respectively.
In addition to the ethanol marketing agreements, the Company held corn origination agreements, under which the Company originated all of the corn used in production for each unconsolidated ethanol LLC. For this service, the Company received a unit-based fee. Similar to the ethanol sales described above, the Company acted as an agent in these transactions, and accordingly, these transactions were recorded on a net basis. For the year ended December 31, 2017, revenues recognized for the sale of corn under these agreements were $498.8 million. As part of the corn origination agreements, the Company also marketed the DDG produced by the entities. For this service the Company received a unit-based fee. The Company did not purchase any of the DDG from the ethanol entities; however, as part of the agreement, the Company guaranteed payment by the buyer for DDG sales. At December 31, 2019, the three unconsolidated ethanol entities had no outstanding receivables balance for DDG and a balance of $7.0 million as of December 31, 2018, of which $0.1 million was more than thirty days past due. As the Company had not experienced historical losses and the DDG receivable balances greater than thirty days past due was immaterial, the Company concluded that the fair value of this guarantee was inconsequential.
The following table presents 2019 information for aggregate summarized financial information of TAAE, TACE and TAME through September 30, 2019 along with the Company's equity method investments in Providence Grain Group Inc., Quadra Commodities S.A. and other various investments. In the prior years, the table represents the aggregated summarized financial information of LTG, TAAE, TACE, TAME, Thompsons Limited, and other various investments as they qualified as significant equity method investees in the aggregate. No individual equity investments qualified as significant for the years ended December 31, 2019, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Sales
|
$
|
1,930,289
|
|
|
$
|
6,111,036
|
|
|
$
|
6,080,795
|
|
Gross profit
|
39,253
|
|
|
257,594
|
|
|
217,629
|
|
Income from continuing operations
|
1,895
|
|
|
71,608
|
|
|
50,937
|
|
Net income
|
940
|
|
|
68,876
|
|
|
42,970
|
|
|
|
|
|
|
|
Current assets
|
255,052
|
|
|
1,111,826
|
|
|
1,045,124
|
|
Non-current assets
|
80,823
|
|
|
526,169
|
|
|
538,671
|
|
Current liabilities
|
196,163
|
|
|
792,184
|
|
|
802,161
|
|
Non-current liabilities
|
31,509
|
|
|
281,103
|
|
|
309,649
|
|
The following table presents the Company’s investment balance in each of its equity method investees by entity:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
The Andersons Albion Ethanol LLC (a)
|
$
|
—
|
|
|
$
|
50,382
|
|
The Andersons Clymers Ethanol LLC (a)
|
—
|
|
|
24,242
|
|
The Andersons Marathon Ethanol LLC (a)
|
—
|
|
|
14,841
|
|
Lansing Trade Group, LLC (b)
|
—
|
|
|
101,715
|
|
Thompsons Limited (b)
|
—
|
|
|
48,987
|
|
Providence Grain Group Inc. (c)
|
12,424
|
|
|
—
|
|
Quadra Commodities S.A. (c)
|
5,574
|
|
|
—
|
|
Other
|
5,859
|
|
|
2,159
|
|
Total
|
$
|
23,857
|
|
|
$
|
242,326
|
|
(a) The Company previously owned approximately 55%, 39%, 33% in The Andersons Albion LLC, The Andersons Clymers Ethanol LLC and The Andersons Marathon Ethanol LLC, respectively. Effective October 1, 2019, the Company contributed its interests in these three entities into TAMH. The transaction resulted in the consolidation of these entities into the Company's Consolidated Financial Statements.
(b) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
(c) The Company acquired the equity method investments in Providence Grain Group Inc. and Quadra Commodities S.A. through the consolidation of LTG.
The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% ownership at
December 31, 2019
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
The Andersons Albion Ethanol LLC (a)
|
N/A
|
|
$
|
(1,292
|
)
|
|
$
|
5,531
|
|
|
$
|
6,052
|
|
The Andersons Clymers Ethanol LLC (a)
|
N/A
|
|
(151
|
)
|
|
4,846
|
|
|
4,591
|
|
The Andersons Marathon Ethanol LLC (a)
|
N/A
|
|
920
|
|
|
3,832
|
|
|
1,571
|
|
Lansing Trade Group, LLC (b)
|
N/A
|
|
—
|
|
|
10,413
|
|
|
4,038
|
|
Thompsons Limited (b)
|
N/A
|
|
—
|
|
|
2,568
|
|
|
696
|
|
Providence Grain Group Inc. (c)(d)
|
37.8%
|
|
(7,411
|
)
|
|
—
|
|
|
—
|
|
Quadra Commodities S.A. (c)
|
17.7%
|
|
910
|
|
|
—
|
|
|
—
|
|
Other
|
5% - 52%
|
|
(335
|
)
|
|
(49
|
)
|
|
(225
|
)
|
Total
|
|
|
$
|
(7,359
|
)
|
|
$
|
27,141
|
|
|
$
|
16,723
|
|
(a) The Company previously owned approximately 55%, 39%, 33% in The Andersons Albion LLC, The Andersons Clymers Ethanol LLC and The Andersons Marathon Ethanol LLC, respectively. Effective October 1, 2019, the Company contributed its interests in these three entities into TAMH. The transaction resulted in the consolidation of these entities into the Company's Consolidated Financial Statements.
(b) The Company previously owned approximately 32.5% of LTG. Effective January 1, 2019, the Company purchased the remaining equity of LTG. The transaction resulted in the consolidation of Thompsons Limited of Ontario, Canada and related entities, which LTG and the Company had equally owned.
(c) The Company acquired the equity method investments in Providence Grain Group Inc. and Quadra Commodities S.A. through the consolidation of LTG.
(d) The Company recorded an other-than-temporary impairment charge of $5.0 million in the equity method investment in Providence Grain Group which is recorded in equity earnings (losses) in affiliates.
Total distributions received from unconsolidated affiliates were $0.4 million for the year ended December 31, 2019.
Related Party Transactions
In the ordinary course of business and on an arms-length basis, the Company will enter into related party transactions with each of the investments described above, along with other related parties.
On March 2, 2018, the Company invested in ELEMENT. The Company owns 51% of ELEMENT and ICM, Inc. owns the remaining 49% interest. ELEMENT, LLC constructed a 70 million-gallon-per-year bio-refinery. As part of the Company’s investment into ELEMENT, the Company and ICM, Inc. entered into a number of agreements with the entity. Most notably, ICM, Inc. will operate the facility under a management contract and manage the construction of the facility, while the Company will provide corn origination, ethanol marketing, and risk management services. The results of operations for ELEMENT have been included in the Company's consolidated results and are a component of the Ethanol segment. The construction of the plant was substantially completed, and operations commenced in August of 2019. As of December 31, 2019, approximately $3.9 million of remaining obligation is not yet incurred under a design build contract.
The following table sets forth the related party transactions entered into for the time periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Sales revenues
|
$
|
246,540
|
|
|
$
|
358,856
|
|
|
$
|
893,950
|
|
Service fee revenues (a)
|
12,181
|
|
|
20,843
|
|
|
24,357
|
|
Purchases of product
|
569,619
|
|
|
741,736
|
|
|
615,739
|
|
Lease income (b)
|
3,516
|
|
|
6,523
|
|
|
6,175
|
|
Labor and benefits reimbursement (c)
|
10,973
|
|
|
13,487
|
|
|
13,894
|
|
|
|
(a)
|
Service fee revenues included management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions for the prior periods and through September 30, 2019.
|
|
|
(b)
|
Lease income included the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the unconsolidated ethanol LLCs and IANR for the prior periods and through September 30, 2019.
|
|
|
(c)
|
The Company provided all operational labor to the unconsolidated ethanol LLCs and charged them an amount equal to the Company’s costs of the related services for the prior periods and through September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2019
|
|
2018
|
Accounts receivable (d)
|
$
|
10,603
|
|
|
$
|
17,829
|
|
Accounts payable (e)
|
12,303
|
|
|
28,432
|
|
|
|
(d)
|
Accounts receivable represents amounts due from related parties for sales of ethanol and other various items.
|
|
|
(e)
|
Accounts payable represents amounts due to related parties for purchases of equipment and other various items.
|
From time to time, the Company enters into derivative contracts with certain of its related parties, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contracts with related parties in a gross asset position as of December 31, 2019 and 2018 was $0.3 million and $1.9 million, respectively. The fair value of derivative contracts with related parties in a gross liability position were de minimis as of December 31, 2019 and $6.3 million as of December 31, 2018.
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 commodity 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. Historically, these facilities were organized as limited liability companies, two were consolidated and three were investments accounted for under the equity method. On October 1, 2019, the Company and Marathon Petroleum Corporation merged the three existing equity method investments and the wholly owned subsidiary, The Andersons Denison Ethanol LLC into TAMH. As a result of this merger, the results of the legacy LLCs accounted for under the equity method are now consolidated entities in the Company's Consolidated Financial Statements. The Plant Nutrient business manufactures and distributes agricultural inputs, primary nutrients and specialty fertilizers, to dealers and farmers, along with turf care and corncob-based products. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Retail business operated large retail stores, a distribution center, and a lawn and garden equipment sales and service facility. In January 2017, the Company announced its decision to close all retail operations. The Retail Group has closed all stores, completed its liquidation efforts, and sold its properties. Included in “Other” are the corporate level costs not attributed to an operating segment and the 2017 Retail business.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. The Company does not have any customers who represent 10 percent, or more, of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Revenues from external customers
|
|
|
|
|
|
Trade
|
$
|
6,387,744
|
|
|
$
|
1,433,660
|
|
|
$
|
2,103,222
|
|
Ethanol
|
968,779
|
|
|
747,009
|
|
|
711,305
|
|
Plant Nutrient
|
646,730
|
|
|
690,536
|
|
|
651,824
|
|
Rail
|
166,938
|
|
|
174,177
|
|
|
172,123
|
|
Other
|
—
|
|
|
—
|
|
|
47,871
|
|
Total
|
$
|
8,170,191
|
|
|
$
|
3,045,382
|
|
|
$
|
3,686,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Inter-segment sales
|
|
|
|
|
|
Trade
|
$
|
2,658
|
|
|
$
|
2,746
|
|
|
$
|
761
|
|
Plant Nutrient
|
1,166
|
|
|
—
|
|
|
241
|
|
Rail
|
5,245
|
|
|
1,205
|
|
|
1,213
|
|
Total
|
$
|
9,069
|
|
|
$
|
3,951
|
|
|
$
|
2,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Interest expense (income)
|
|
|
|
|
|
Trade
|
$
|
35,202
|
|
|
$
|
11,845
|
|
|
$
|
8,320
|
|
Ethanol
|
584
|
|
|
(1,890
|
)
|
|
(67
|
)
|
Plant Nutrient
|
7,954
|
|
|
6,499
|
|
|
6,420
|
|
Rail
|
16,486
|
|
|
11,377
|
|
|
7,023
|
|
Other
|
(535
|
)
|
|
17
|
|
|
(129
|
)
|
Total
|
$
|
59,691
|
|
|
$
|
27,848
|
|
|
$
|
21,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Equity in earnings of affiliates
|
|
|
|
|
|
Trade
|
$
|
(6,835
|
)
|
|
$
|
12,932
|
|
|
$
|
4,509
|
|
Ethanol
|
(524
|
)
|
|
14,209
|
|
|
12,214
|
|
Total
|
$
|
(7,359
|
)
|
|
$
|
27,141
|
|
|
$
|
16,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Other income, net
|
|
|
|
|
|
Trade
|
$
|
11,142
|
|
|
$
|
843
|
|
|
$
|
1,590
|
|
Ethanol
|
913
|
|
|
2,766
|
|
|
2,122
|
|
Plant Nutrient
|
4,903
|
|
|
2,495
|
|
|
5,092
|
|
Rail
|
1,583
|
|
|
3,516
|
|
|
2,632
|
|
Other
|
1,568
|
|
|
6,382
|
|
|
11,071
|
|
Total
|
$
|
20,109
|
|
|
$
|
16,002
|
|
|
$
|
22,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Income (loss) before income taxes, net of noncontrolling interest
|
|
|
|
|
|
Trade
|
$
|
(14,780
|
)
|
|
$
|
21,715
|
|
|
$
|
8,197
|
|
Ethanol
|
48,359
|
|
|
27,076
|
|
|
23,525
|
|
Plant Nutrient
|
9,159
|
|
|
12,030
|
|
|
(45,121
|
)
|
Rail
|
15,090
|
|
|
17,379
|
|
|
24,798
|
|
Other
|
(26,470
|
)
|
|
(24,785
|
)
|
|
(32,022
|
)
|
Income (loss) before income taxes, net of noncontrolling interest
|
31,358
|
|
|
53,415
|
|
|
(20,623
|
)
|
Noncontrolling interests
|
(3,247
|
)
|
|
(259
|
)
|
|
98
|
|
Income (loss) before income taxes
|
$
|
28,111
|
|
|
$
|
53,156
|
|
|
$
|
(20,525
|
)
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
Identifiable assets
|
|
|
|
Trade
|
$
|
2,012,060
|
|
|
$
|
978,974
|
|
Ethanol
|
690,548
|
|
|
295,971
|
|
Plant Nutrient
|
383,781
|
|
|
403,780
|
|
Rail
|
693,931
|
|
|
590,407
|
|
Other
|
120,421
|
|
|
122,871
|
|
Total
|
$
|
3,900,741
|
|
|
$
|
2,392,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Capital expenditures
|
|
|
|
|
|
Trade
|
$
|
31,173
|
|
|
$
|
17,203
|
|
|
$
|
10,899
|
|
Ethanol
|
104,023
|
|
|
101,320
|
|
|
3,690
|
|
Plant Nutrient
|
20,413
|
|
|
15,723
|
|
|
10,735
|
|
Rail
|
1,827
|
|
|
5,295
|
|
|
3,478
|
|
Other
|
3,548
|
|
|
3,038
|
|
|
5,800
|
|
Total
|
$
|
160,984
|
|
|
$
|
142,579
|
|
|
$
|
34,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Depreciation and amortization
|
|
|
|
|
|
Trade
|
$
|
50,973
|
|
|
$
|
16,062
|
|
|
$
|
18,757
|
|
Ethanol
|
23,727
|
|
|
6,136
|
|
|
5,970
|
|
Plant Nutrient
|
25,985
|
|
|
26,871
|
|
|
26,628
|
|
Rail
|
34,122
|
|
|
29,164
|
|
|
23,081
|
|
Other
|
11,359
|
|
|
12,064
|
|
|
11,976
|
|
Total
|
$
|
146,166
|
|
|
$
|
90,297
|
|
|
$
|
86,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Revenues from external customers by geographic region
|
|
|
|
|
|
United States
|
$
|
6,350,643
|
|
|
$
|
2,832,007
|
|
|
$
|
3,506,053
|
|
Canada
|
666,289
|
|
|
136,439
|
|
|
148,974
|
|
Mexico
|
294,644
|
|
|
34
|
|
|
—
|
|
Other
|
858,615
|
|
|
76,902
|
|
|
31,318
|
|
Total
|
$
|
8,170,191
|
|
|
$
|
3,045,382
|
|
|
$
|
3,686,345
|
|
The net book value of Trade property, plant and equipment in Canada as of December 31, 2019 was $41.2 million and de minimis for the year ended December 31, 2018. The net book value of the leased railcars in Canada as of December 31, 2019 and 2018 was $22.7 million and $23.2 million, respectively.
14. Leases
The Company leases certain grain handling and storage facilities, ethanol storage terminals, warehouse space, railcars, locomotives, barges, office space, machinery and equipment, vehicles and information technology equipment under operating leases. Lease expense for these leases is recognized within the Consolidated Statements of Operations on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The following table summarizes the amounts recognized in the Company's Consolidated Balance Sheet related to leases:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Consolidated Balance Sheet Classification
|
|
December 31, 2019
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Right of use assets, net
|
|
$
|
76,401
|
|
Finance lease assets
|
|
Property, plant and equipment, net
|
|
23,723
|
|
Finance lease assets
|
|
Rail Group assets leased to others, net
|
|
17,465
|
|
Total leased assets
|
|
|
|
117,589
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current operating leases
|
|
Accrued expenses and other current liabilities
|
|
25,700
|
|
Non-current operating leases
|
|
Long-term lease liabilities
|
|
51,091
|
|
Total operating lease liabilities
|
|
|
|
76,791
|
|
|
|
|
|
|
Current finance leases
|
|
Current maturities of long-term debt
|
|
17,636
|
|
Non-current finance leases
|
|
Long-term debt
|
|
21,501
|
|
Total finance lease liabilities
|
|
|
|
39,137
|
|
Total lease liabilities
|
|
|
|
$
|
115,928
|
|
The components of lease cost recognized within the Company's Consolidated Statement of Operations were as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Statement of Operations Classification
|
|
For the Year Ended December 31, 2019
|
Lease cost:
|
|
|
|
|
Operating lease cost
|
|
Cost of sales and merchandising revenues
|
|
$
|
26,230
|
|
Operating lease cost
|
|
Operating, administrative and general expenses
|
|
13,711
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
|
Cost of sales and merchandising revenues
|
|
357
|
|
Amortization of right-of-use assets
|
|
Operating, administrative and general expenses
|
|
1,119
|
|
Interest expense on lease liabilities
|
|
Interest expense
|
|
1,023
|
|
Other lease cost (a)
|
|
Cost of sales and merchandising revenues
|
|
822
|
|
Other lease cost (a)
|
|
Operating, administrative and general expenses
|
|
322
|
|
Total lease cost
|
|
|
|
$
|
43,584
|
|
(a) Other lease cost includes short-term lease costs and variable lease costs.
The Company often has the option to renew lease terms for buildings and other assets. The exercise of a lease renewal option is generally at the sole discretion of the Company. In addition, certain lease agreements may be terminated prior to their original expiration date at the discretion of the Company. Each renewal and termination option is evaluated at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The following table summarizes the weighted average remaining lease terms as of December 31, 2019:
|
|
|
Weighted Average Remaining Lease Term
|
|
Operating leases
|
4.1 years
|
Finance leases
|
6.5 years
|
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for each lease is determined based on its term and the currency in which lease payments are made, adjusted for the impacts of collateral. The following table summarizes the weighted average discount rate used to measure the Company's lease liabilities as of December 31, 2019:
|
|
|
|
Weighted Average Discount Rate
|
|
|
Operating leases
|
3.88
|
%
|
Finance leases
|
3.72
|
%
|
Supplemental Cash Flow Information Related to Leases
|
|
|
|
|
|
|
(in thousands)
|
|
|
For the Year Ended December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
$
|
25,304
|
|
Operating cash flows from finance leases
|
|
|
1,023
|
|
Financing cash flows from finance leases
|
|
|
1,973
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
|
|
29,427
|
|
Finance leases
|
|
|
16,998
|
|
Maturity Analysis of Leases Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in thousands)
|
Operating Leases
|
|
Finance
Leases
|
|
Total
|
2020
|
$
|
28,145
|
|
|
$
|
18,185
|
|
|
$
|
46,330
|
|
2021
|
19,230
|
|
|
2,334
|
|
|
21,564
|
|
2022
|
13,574
|
|
|
2,341
|
|
|
15,915
|
|
2023
|
9,887
|
|
|
2,342
|
|
|
12,229
|
|
2024
|
5,567
|
|
|
2,176
|
|
|
7,743
|
|
Thereafter
|
6,956
|
|
|
16,154
|
|
|
23,110
|
|
Total lease payments
|
83,359
|
|
|
43,532
|
|
|
126,891
|
|
Less: interest
|
6,568
|
|
|
4,395
|
|
|
10,963
|
|
Total
|
$
|
76,791
|
|
|
$
|
39,137
|
|
|
$
|
115,928
|
|
Prior year lease disclosures
The following pertains to previously disclosed information from Note 15, Commitments and contingencies, contained in the Company's 2018 Annual Report on Form 10-K, which incorporates information about leases now in scope of ASC 842, Leases, disclosed above.
Future minimum lease payments by year and in the aggregate under non-cancelable operating leases with initial term of one year or more at December 31, 2018 are as follows:
|
|
|
|
|
(in thousands)
|
Minimum Lease Payments
|
2019
|
$
|
16,978
|
|
2020
|
11,906
|
|
2021
|
9,959
|
|
2022
|
6,438
|
|
2023
|
3,763
|
|
Thereafter
|
8,348
|
|
Total
|
$
|
57,392
|
|
15. Commitments and Contingencies
Litigation activities
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records 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 in its opening balance sheet from the LTG acquisition 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.
Commitments
As of December 2019, the Company carries $1.0 million in industrial revenue bonds with the City of Colwich, Kansas (the "City") that mature in 2029, and leases back facilities owned by the City that the Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease. The lease payment on the facilities is sufficient to pay principal and interest on the bonds. Because the Company owns all of the outstanding bonds, has a legal right to set-off, and intends to set-off the corresponding lease and interest payment, the Company netted the capital lease obligation with the bond asset and, in turn, reflected no amount for the obligation or the corresponding asset on its Consolidated Balance Sheet at December 31, 2019.
16. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the years ended December 31, 2019, 2018, and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Interest paid
|
$
|
59,640
|
|
|
$
|
29,607
|
|
|
$
|
23,958
|
|
Income taxes paid (refunded), net
|
2,008
|
|
|
(5,439
|
)
|
|
2,065
|
|
Noncash investing and financing activity:
|
|
|
|
|
|
Equity issued in conjunction with acquisition
|
127,841
|
|
|
—
|
|
|
—
|
|
Removal of pre-existing equity method investments
|
(284,121
|
)
|
|
—
|
|
|
—
|
|
Purchase price holdback/ other accrued liabilities
|
29,956
|
|
|
—
|
|
|
—
|
|
Non-cash consideration in conjunction with acquisition
|
7,318
|
|
|
—
|
|
|
—
|
|
Dividends declared not yet paid
|
5,720
|
|
|
5,515
|
|
|
4,650
|
|
Capital projects incurred but not yet paid
|
2,781
|
|
|
14,165
|
|
|
6,840
|
|
Debt resulting from accounting standard adoption
|
—
|
|
|
36,953
|
|
|
—
|
|
Railcar assets resulting from accounting standard adoption
|
—
|
|
|
25,643
|
|
|
—
|
|
Debt financing fees incurred but not yet paid
|
—
|
|
|
2,288
|
|
|
—
|
|
Investment merger (decreasing equity method investments and non-controlling interest)
|
—
|
|
|
—
|
|
|
8,360
|
|
17. Stock Compensation Plans
The Company's 2019 Long-Term Incentive Compensation Plan, dated February 22, 2019 and subsequently approved by Shareholders on May 10, 2019 (the "2019 LT Plan"), is authorized to issue up to 2.3 million shares of common stock as options, share appreciation rights, restricted shares and units, performance shares and units and other stock or cash-based awards. This plan replaced the Company's 2014 Long-Term Incentive Compensation Plan (the "2014 LT Plan"). The shares remaining available for issuance under the 2014 LT Plan rolled over into the 2019 LT Plan. Approximately 2.5 million shares remain available for issuance at December 31, 2019.
Stock-based compensation expense for all stock-based compensation awards are based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. Total compensation expense recognized in the Consolidated Statements of Operations for all stock compensation programs was $16.2 million, $6.6 million, and $6.1 million in 2019, 2018 and 2017, respectively. Of the $16.2 million recognized in 2019, approximately $9.4 million was related to awards granted as part of the Lansing Acquisition 2018 Inducement and Retention Award Plan.
Non-Qualified Stock Options ("Options")
The Company granted non-qualified stock options during 2015 under the 2014 LT Plan, upon hiring of a senior executive. The options have a term of seven years and have three-year annual graded vesting. The fair value of the options was estimated at the date of grant under the Black-Scholes option pricing model with the following assumptions. Expected volatility was estimated based on the historical volatility of the Company's common shares over the 5.5 years prior to the grant date. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury Strips available with maturity period consistent with the expected life. Forfeitures are estimated at the date of grant based on historical experience. The weighted average assumptions used in the determination of fair value for stock option awards were as follows:
|
|
|
|
|
2015
|
Risk free interest rate
|
1.80
|
%
|
Dividend yield
|
1.58
|
%
|
Volatility factor of the expected market price of the common shares
|
0.35
|
|
Expected life for the options (in years)
|
5.50
|
|
A reconciliation of the number of Options outstanding and exercisable under the 2014 LT Plan as of December 31, 2019, and changes during the period then ended, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted- Average Exercise
Price
|
|
Weighted- Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
(000's)
|
Options outstanding at January 1, 2019
|
325,000
|
|
|
$
|
35.40
|
|
|
|
|
|
Options granted
|
—
|
|
|
—
|
|
|
|
|
|
Options exercised
|
—
|
|
|
—
|
|
|
|
|
|
Options cancelled / forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
325,000
|
|
|
$
|
35.40
|
|
|
—
|
|
|
$
|
—
|
|
Vested and expected to vest at December 31, 2019
|
325,000
|
|
|
$
|
35.40
|
|
|
—
|
|
|
$
|
—
|
|
Options exercisable at December 31, 2019
|
325,000
|
|
|
$
|
35.40
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
Total intrinsic value of Options exercised
|
$
|
—
|
|
Total fair value of shares vested
|
$
|
—
|
|
Weighted average fair value of Options granted
|
$
|
—
|
|
As of December 31, 2019, there was no unrecognized compensation cost related to Options granted under both the 2014 and the 2019 LT Plan.
Restricted Stock Awards ("RSAs")
Both the 2014 and 2019 LT Plan permit awards of restricted stock. These shares carry voting and dividend equivalent rights upon vesting; however, sale of the shares is restricted prior to vesting. RSAs vest over a period of 3 years, with one-third vesting each January 1 of the following first, second, and third years. Total restricted stock expense is equal to the market value of the Company's common shares on the date of the award and is recognized over the service period on a straight-line basis.
A summary of the status of the Company's non-vested RSAs as of December 31, 2019, and changes during the period then ended, is presented below:
|
|
|
|
|
|
|
|
|
Shares (in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested restricted shares at January 1, 2019
|
218
|
|
|
$
|
34.25
|
|
Granted
|
767
|
|
|
33.87
|
|
Vested
|
(264
|
)
|
|
31.10
|
|
Forfeited
|
(14
|
)
|
|
35.50
|
|
Non-vested restricted shares at December 31, 2019
|
707
|
|
|
$
|
34.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Total fair value of shares vested (000's)
|
$
|
8,225
|
|
|
$
|
4,681
|
|
|
$
|
3,751
|
|
Weighted average fair value of restricted shares granted
|
$
|
33.87
|
|
|
$
|
34.36
|
|
|
$
|
37.13
|
|
As of December 31, 2019, there was $8.2 million of total unrecognized compensation cost related to non-vested RSAs granted under both the 2014 and 2019 LT Plans. That cost is expected to be fully amortized by October 2022.
EPS-Based Performance Share Units (“EPS PSUs”)
Both the 2014 and 2019 LT Plan also allow for the award of EPS PSUs. Each EPS PSU gives the participant the right to receive common shares dependent on the achievement of specified performance results over a 3-year performance period. At the end of the performance period, the number of shares of stock issued will be determined by adjusting the award upward or downward from a target award. Fair value of EPS PSUs issued is based on the market value of the Company's common shares on the date of the award. The related compensation expense is recognized over the performance period when achievement of the award is probable and is adjusted for changes in the number of shares expected to be issued if changes in performance are expected. Currently, the Company is accounting for the awards granted in 2019, 2018 and 2017 at 50%, 18% and 0% of the maximum amount available for issuance, respectively.
EPS PSUs Activity
A summary of the status of the Company's EPS PSUs as of December 31, 2019, and changes during the period then ended, is presented below:
|
|
|
|
|
|
|
|
|
Shares (in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at January 1, 2019
|
247
|
|
|
$
|
33.47
|
|
Granted
|
122
|
|
|
27.23
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
(106
|
)
|
|
28.46
|
|
Non-vested at December 31, 2019
|
263
|
|
|
$
|
32.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Weighted average fair value of PSUs granted
|
$
|
27.23
|
|
|
$
|
35.36
|
|
|
$
|
39.20
|
|
As of December 31, 2019, there was $1.4 million unrecognized compensation cost related to non-vested EPS PSUs granted under the LT Plans. That cost is expected to be fully amortized by December 2021.
TSR-Based Performance Share Units (“TSR PSUs”)
Beginning in 2016, the Company began granting Total Shareholder Return-Based PSUs ("TSR PSUs"). Each TSR PSU gives the participant the right to receive common shares dependent on total shareholder return over a 3-year period. At the end of the period, the number of shares of stock issued will be determined by adjusting the award upward or downward from a target award. Fair value of TSR PSUs was estimated at the date of grant using a Monte Carlo Simulation with the following assumptions: Expected volatility was estimated based on the historical volatility of the Company's common shares over the 2.83 year period prior to the grant date. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury Strips available with maturity period consistent with the expected life. Forfeitures are estimated at the date of grant based on historical experience.
|
|
|
|
2019
|
Risk free interest rate
|
2.53%
|
Dividend yield
|
—%
|
Volatility factor of the expected market price of the common shares
|
37%
|
Expected term (in years)
|
2.84
|
Correlation coefficient
|
0.36
|
TSR PSUs Activity
A summary of the status of the Company's TSR PSUs as of December 31, 2019, and changes during the period then ended, is presented below:
|
|
|
|
|
|
|
|
|
Shares (in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at January 1, 2019
|
247
|
|
|
$
|
38.02
|
|
Granted
|
125
|
|
|
49.20
|
|
Vested
|
(5
|
)
|
|
24.82
|
|
Forfeited
|
(104
|
)
|
|
29.59
|
|
Non-vested at December 31, 2019
|
263
|
|
|
$
|
46.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Weighted average fair value of PSUs granted
|
$
|
49.20
|
|
|
$
|
46.51
|
|
|
$
|
42.53
|
|
As of December 31, 2019, there was approximately $2.6 million unrecognized compensation cost related to non-vested TSR PSUs granted under the 2014 and 2019 LT Plans. That cost is expected to be fully amortized by December 2021.
Employee Share Purchase Plan (the “ESP Plan”)
The Company's 2004 ESP Plan, Restated and Amended January 2019, dated February 22, 2019 and subsequently approved by Shareholders on May 10, 2019, is authorized to issue up to 230 thousand common shares. The ESP Plan allows employees to purchase common shares through payroll withholdings. The Company has approximately 230 thousand common shares remaining available for issuance to and purchase by employees under this plan. The ESP Plan also contains an option component. The purchase price per share under the ESP Plan is the lower of the market price at the beginning or end of the year. The Company records a liability for withholdings not yet applied towards the purchase of common stock. This liability is included in Accrued expenses and other current liabilities on the balance sheet.
The fair value of the option component of the ESP Plan is estimated at the date of grant under the Black-Scholes option pricing model with the following assumptions at the grant date. Expected volatility was estimated based on the historical volatility of the Company's common shares over the past year. The average expected life was based on the contractual term of the plan. The risk-free rate is based on the U.S. Treasury yield curve rate with a one year term. Forfeitures are estimated at the date of grant based on historical experience.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Risk free interest rate
|
1.59
|
%
|
|
2.57
|
%
|
|
1.76
|
%
|
Dividend yield
|
2.27
|
%
|
|
2.23
|
%
|
|
2.06
|
%
|
Volatility factor of the expected market price of the common shares
|
36
|
%
|
|
33
|
%
|
|
28
|
%
|
Expected life for the options (in years)
|
1.0
|
|
|
1.0
|
|
|
1.0
|
|
18. Business Acquisitions
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 transferred by the Company to complete the acquisition of LTG was $328.9 million. The Company paid $171.1 million in cash and $30.0 million of remaining purchase price holdback and other accrued liabilities, and 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 was finalized in the fourth quarter of 2019. A summarized 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 final purchase price allocation at January 1, 2019, is as follows:
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
$
|
21,525
|
|
Accounts receivable
|
320,467
|
|
Inventories
|
456,963
|
|
Commodity derivative assets - current
|
82,595
|
|
Other current assets
|
27,474
|
|
Commodity derivative assets - noncurrent
|
13,576
|
|
Goodwill
|
126,610
|
|
Other intangible assets
|
112,900
|
|
Right of use asset
|
37,894
|
|
Equity method investments
|
28,728
|
|
Other assets, net
|
5,355
|
|
Property, plant and equipment, net
|
171,717
|
|
|
1,405,804
|
|
|
|
Short-term debt
|
218,901
|
|
Trade and other payables
|
303,321
|
|
Commodity derivative liabilities - current
|
29,024
|
|
Customer prepayments and deferred revenue
|
99,530
|
|
Accrued expense and other current liabilities
|
66,109
|
|
Other long-term liabilities, including commodity derivative liabilities - noncurrent
|
3,175
|
|
Long-term lease liabilities
|
21,193
|
|
Long-term debt, including current maturities
|
161,689
|
|
Deferred income taxes
|
15,531
|
|
|
918,473
|
|
Fair value of acquired assets and assumed liabilities
|
487,331
|
|
|
|
Removal of preexisting ownership interest, including associated cumulative translation adjustment
|
(159,459
|
)
|
Pretax loss on derecognition of preexisting ownership interest
|
1,072
|
|
Total purchase price consideration
|
$
|
328,944
|
|
The goodwill recognized as a result of the LTG acquisition is $126.6 million and is allocated to reporting units within the Trade Group segment. The portion of the goodwill that is deductible for tax purposes is $12.5 million. 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. Due to finalization of the purchase price accounting as well as certain working capital adjustments and deferred income taxes during the fourth quarter, Goodwill decreased $3.2 million, Other intangible assets increased $6.3 million, Deferred income tax liabilities increased $1.1 million and Accrued expenses increased $1.6 million.
Details of the intangible assets acquired are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Estimated useful life
|
|
Customer relationships
|
$
|
92,400
|
|
|
10 years
|
|
Noncompete agreements
|
20,500
|
|
|
3 years
|
|
Total other intangible assets
|
$
|
112,900
|
|
|
8 years
|
*
|
*weighted average number of years
On October 1, 2019, The Andersons entered into an agreement with Marathon to merge TAAE, TACE, TAME and the Company's wholly-owned subsidiary, The Andersons Denison Ethanol LLC into a new legal entity, The Andersons Marathon Holdings LLC. As a result of the merger, The Andersons and Marathon now own 50.1% and 49.9% of the equity in TAMH, respectively. Total consideration transferred by the Company to complete the acquisition of TAMH was $182.9 million. The company transferred non-cash consideration of $7.3 million and its equity values of the previously mentioned LLCs.
The purchase price allocation is preliminary, pending completion of the full valuation report, finalization of deferred income taxes and working capital adjustments. A summarized preliminary purchase price allocation is as follows:
|
|
|
|
|
(in thousands)
|
|
Non-cash consideration
|
$
|
7,318
|
|
Investments contributed at fair value
|
124,662
|
|
Investment contributed at cost
|
50,875
|
|
Total purchase price consideration
|
$
|
182,855
|
|
The preliminary purchase price allocation at October 1, 2019, is as follows:
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
$
|
47,042
|
|
Accounts receivable
|
12,175
|
|
Inventories
|
31,765
|
|
Other current assets
|
2,638
|
|
Goodwill
|
2,726
|
|
Right of use asset
|
5,200
|
|
Other assets, net
|
861
|
|
Property, plant and equipment, net
|
321,380
|
|
|
423,787
|
|
|
|
Trade and other payables
|
13,461
|
|
Accrued expense and other current liabilities
|
3,011
|
|
Other long-term liabilities
|
209
|
|
Long-term lease liabilities
|
2,230
|
|
Long-term debt, including current maturities
|
47,886
|
|
|
66,797
|
|
Marathon Noncontrolling Interest
|
174,135
|
|
Net Assets Acquired
|
$
|
182,855
|
|
|
|
Removal of preexisting ownership interest
|
$
|
(88,426
|
)
|
Pretax gain on derecognition of preexisting ownership interest
|
$
|
36,286
|
|
Asset and liability account balances in the opening balance sheet above include the previously consolidated TADE investment balances at carryover basis.
The $2.7 million of goodwill recognized is primarily attributable to expected synergies and the assembled workforce of TAMH. None of the goodwill is expected to be deductible for income tax purposes.
The fair value in the opening balance sheet of the 49.9% noncontrolling interest in TAMH was estimated to be $174.1 million. The fair value was estimated based on 49.9% of the total equity value of TAMH based on the transaction price for the 50.1% stake in TAMH, considering the consideration transferred noted above.
Pro Forma Financial Information (Unaudited)
The summary pro forma financial information for the periods presented below gives effect to the LTG and TAMH acquisitions as if they had occurred at January 1, 2018.
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
Net sales
|
$
|
8,377,863
|
|
|
$
|
8,588,978
|
|
Net income
|
(24,475
|
)
|
|
77,007
|
|
Pro forma net income was also adjusted to account for the tax effects of the pro forma adjustments noted above using a statutory tax rate of 25%. The amount of LTG’s and Thompsons’ revenue and earnings included in the Company’s consolidated statement of operations for the period ended December 31, 2019 are not practicable to determine given the level of integration of LTG and Thompsons into the Company’s operations effective January 1, 2019. Additionally, the pro forma amounts for net income above have been adjusted to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to Property, plant and equipment had been applied on January 1, 2019 and 2018 related to the TAMH merger. The amounts of revenue and earnings in the Company's consolidated income statement in relation to the TAMH merger, since the acquisition date are $50.7 million of net sales and $5.1 million of net loss at the Company's ownership level.
Pro forma financial information is not necessarily indicative of the Company's actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost savings that the Company believes are achievable.
19. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2019, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Trade
|
|
Plant Nutrient
|
|
Rail
|
|
Ethanol
|
|
Total
|
Balance at January 1, 2017
|
|
$
|
—
|
|
|
$
|
59,767
|
|
|
$
|
4,167
|
|
|
$
|
—
|
|
|
$
|
63,934
|
|
Acquisitions
|
|
1,171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,171
|
|
Impairments
|
|
—
|
|
|
(59,081
|
)
|
|
—
|
|
|
—
|
|
|
(59,081
|
)
|
Balance at December 31, 2017
|
|
1,171
|
|
|
686
|
|
|
4,167
|
|
|
—
|
|
|
6,024
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impairments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2018
|
|
1,171
|
|
|
686
|
|
|
4,167
|
|
|
—
|
|
|
6,024
|
|
Acquisitions
|
|
126,610
|
|
|
—
|
|
|
—
|
|
|
2,726
|
|
|
129,336
|
|
Impairments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2019
|
|
$
|
127,781
|
|
|
$
|
686
|
|
|
$
|
4,167
|
|
|
$
|
2,726
|
|
|
$
|
135,360
|
|
Goodwill for the Trade segment is $127.8 million and net of accumulated impairment losses of $46.4 million as of December 31, 2019. Goodwill for the Plant Nutrient segment is $0.7 million and net of accumulated impairment losses of $68.9 million as of December 31, 2019.
Goodwill is tested for impairment annually as of October 1, or more frequently if impairment indicators arise. The Company uses a one-step quantitative approach that compares the business enterprise value ("BEV") of each reporting unit with its carrying value. The BEV was computed based on both an income approach (discounted cash flows) and a market approach. The income approach uses a reporting unit's estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. The market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics to the reporting unit. Any excess of the carrying value of the goodwill over the BEV will be recorded as an impairment loss. The calculation of the BEV is based on significant unobservable inputs, such as price trends, customer demand, material costs and discount rates, and are classified as Level 3 in the fair value hierarchy. No goodwill impairment charges were incurred in 2019 or 2018 as a result of our annual impairment testing.
During 2017, the Company recorded impairment charges totaling $59.1 million related to the Wholesale reporting unit with the Plant Nutrient segment. As a result, there is no remaining goodwill in the Wholesale reporting unit.
The Company's other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Useful Life
(in years)
|
|
Original Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Intangible asset class
|
|
|
|
|
|
|
|
|
|
Customer list
|
3
|
to
|
10
|
|
$
|
131,832
|
|
|
$
|
33,971
|
|
|
$
|
97,861
|
|
Non-compete agreements
|
1
|
to
|
7
|
|
23,813
|
|
|
12,446
|
|
|
11,367
|
|
Supply agreement
|
10
|
to
|
10
|
|
9,060
|
|
|
6,526
|
|
|
2,534
|
|
Technology
|
10
|
to
|
10
|
|
13,400
|
|
|
6,197
|
|
|
7,203
|
|
Trademarks and patents
|
7
|
to
|
10
|
|
15,810
|
|
|
9,491
|
|
|
6,319
|
|
Lease intangible
|
1
|
to
|
8
|
|
9,744
|
|
|
4,600
|
|
|
5,144
|
|
Software
|
2
|
to
|
10
|
|
90,836
|
|
|
46,010
|
|
|
44,826
|
|
Other
|
3
|
to
|
5
|
|
445
|
|
|
387
|
|
|
58
|
|
|
|
|
|
|
$
|
294,940
|
|
|
$
|
119,628
|
|
|
$
|
175,312
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
Intangible asset class
|
|
|
|
|
|
|
|
|
|
Customer list
|
3
|
to
|
10
|
|
$
|
40,570
|
|
|
$
|
21,706
|
|
|
$
|
18,864
|
|
Non-compete agreement
|
1
|
to
|
7
|
|
3,313
|
|
|
2,753
|
|
|
560
|
|
Supply agreement
|
10
|
to
|
10
|
|
9,060
|
|
|
5,824
|
|
|
3,236
|
|
Technology
|
10
|
to
|
10
|
|
13,400
|
|
|
4,857
|
|
|
8,543
|
|
Trademarks and patents
|
7
|
to
|
10
|
|
17,985
|
|
|
7,682
|
|
|
10,303
|
|
Lease intangible
|
1
|
to
|
8
|
|
11,564
|
|
|
3,602
|
|
|
7,962
|
|
Software
|
2
|
to
|
10
|
|
86,723
|
|
|
37,112
|
|
|
49,611
|
|
Other
|
3
|
to
|
5
|
|
419
|
|
|
360
|
|
|
59
|
|
|
|
|
|
|
$
|
183,034
|
|
|
$
|
83,896
|
|
|
$
|
99,138
|
|
Amortization expense for intangible assets was $35.4 million, $19.1 million and $18.1 million for 2019, 2018 and 2017, respectively. Expected future annual amortization expense for the above assets is as follows: 2020 -- $33.5 million; 2021 -- $32.1 million; 2022 -- $23.3 million; 2023 -- $22.1 million; and 2024 -- $18.8 million.
In December 2019, the Company recorded impairment charges of $2.5 million for intangibles in the Trade segment related to a frac sand non-compete agreement. The Company also recorded a $2.2 million impairment charge for brand related intangibles within the Plant Nutrient segment in the fourth quarter.
20. Sale of Assets
During 2019, the Trade Group sold the agronomy assets of Thompsons Limited, a wholly owned subsidiary, in Ontario, Canada for $25.1 million resulting in a pre-tax gain of $5.7 million recorded in Other income, net. The Plant Nutrient Group sold its farm center assets in Bay City, Michigan for $4.6 million resulting in a pre-tax gain of $2.9 million recorded in Other income, net. The Trade Group sold its assets in Union City, Tennessee for $0.6 million resulting in a pre-tax loss of $0.6 million in Other income, net.
During 2018, the Company sold its grain elevators in Humboldt, Kenton and Dyer, Tennessee for $19.5 million plus working capital during the second quarter of 2018 and its Como location for $1.3 million plus working capital during the third quarter of 2018. The Company sold one of its convertible preferred security investments for $6.4 million and recorded a pre-tax gain of $3.9 million in Other income, net. The Company sold fifty barge vessels for $26.9 million and recorded a pre-tax gain of $2.4 million in Other income, net. The Company sold its final retail property for $4.9 million and recorded a nominal gain.
During 2017, the Company sold three of its retail properties for $14.7 million and recorded a $8.6 million gain in Other income, net. Additionally, the Company recorded a $1.2 million gain in Other income, net for the sales of fixtures. The Company also sold four farm center locations in Florida for $17.4 million and recorded a $4.7 million gain, net of transaction costs in Other income, net.
21. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of the unaudited quarterly results of operations for 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for per common share data)
|
Sales and merchandising revenues
|
|
Gross profit
|
|
Net Income (loss)
|
|
Net income (loss) attributable to
The Andersons, Inc.
|
|
Earnings (losses) per share-basic
|
|
Earnings (losses) per share-diluted
|
Quarter ended 2019
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
$
|
1,976,792
|
|
|
$
|
109,664
|
|
|
$
|
(14,148
|
)
|
|
$
|
(13,993
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.43
|
)
|
June 30
|
2,325,041
|
|
|
160,728
|
|
|
29,411
|
|
|
29,888
|
|
|
0.92
|
|
|
0.91
|
|
September 30
|
1,982,755
|
|
|
109,141
|
|
|
(5,870
|
)
|
|
(4,237
|
)
|
|
(0.13
|
)
|
|
(0.13
|
)
|
December 31
|
1,885,603
|
|
|
138,359
|
|
|
5,667
|
|
|
6,649
|
|
|
0.20
|
|
|
0.20
|
|
Year ended 2019
|
$
|
8,170,191
|
|
|
$
|
517,892
|
|
|
$
|
15,060
|
|
|
$
|
18,307
|
|
|
$
|
0.56
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended 2018
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
$
|
635,739
|
|
|
$
|
63,705
|
|
|
$
|
(1,982
|
)
|
|
$
|
(1,700
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
June 30
|
911,402
|
|
|
90,474
|
|
|
21,413
|
|
|
21,529
|
|
|
0.76
|
|
|
0.76
|
|
September 30
|
685,579
|
|
|
53,864
|
|
|
(1,875
|
)
|
|
(2,098
|
)
|
|
(0.07
|
)
|
|
(0.07
|
)
|
December 31
|
812,662
|
|
|
93,962
|
|
|
23,669
|
|
|
23,753
|
|
|
0.84
|
|
|
0.83
|
|
Year ended 2018
|
$
|
3,045,382
|
|
|
$
|
302,005
|
|
|
$
|
41,225
|
|
|
$
|
41,484
|
|
|
$
|
1.47
|
|
|
$
|
1.46
|
|
Net income (loss) per share is computed independently for each of the quarters presented. As such, the summation of the quarterly amounts may not equal the total net income per share reported for the year.