Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”), its majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as non-controlling interest. All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. An unaudited Condensed Consolidated Balance Sheet as of March 31, 2019 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2019 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
Recently Adopted Accounting Guidance
Measurement of Credit Losses on Financial Instruments
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. Effective January 1, 2020, we adopted ASU 2016-13 using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. The impact of adopting this new standard on the Condensed Consolidated Financial Statements was not material.
Cloud Computing Software
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and 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. The adoption of this standard effective January 1, 2020 on the consolidated financial statements is not material.
Reference Rate Reform (Topic 848)
In March 2020, the FASB concluded its reference rate reform project and issued ASU 2020-04, Reference Rate Reform (Topic 848). London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. The Company has elected to adopt ASU 2020-04 immediately for all optional expedients provided for contract modification accounting as permissible under the standard. The impact of executing the standard should the need arise will be disclosed, however, at this time there has been no impact to our consolidated financial statements.
Recent Accounting Guidance Issued Not Yet Effective
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The provisions of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The impact of this update on our consolidated financial statements is currently being assessed. At this time the Company does not plan to early adopt the standard.
2. Inventories
Major classes of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Grain and other agricultural products
|
$
|
750,281
|
|
|
$
|
907,482
|
|
|
$
|
812,361
|
|
Frac sand and propane
|
5,723
|
|
|
15,438
|
|
|
8,172
|
|
Ethanol and co-products
|
87,706
|
|
|
95,432
|
|
|
16,302
|
|
Plant nutrients and cob products
|
178,028
|
|
|
146,164
|
|
|
183,886
|
|
Railcar repair parts
|
6,338
|
|
|
6,020
|
|
|
5,744
|
|
Total Inventories
|
$
|
1,028,076
|
|
|
$
|
1,170,536
|
|
|
$
|
1,026,465
|
|
Inventories on the Condensed Consolidated Balance Sheets do not include 3.9 million, 6.4 million and 1.9 million bushels of grain held in storage for others as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
In the first quarter of 2020, the Company recorded a $10.6 million lower of cost or net realizable value charge related to lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Land
|
$
|
40,336
|
|
|
$
|
40,442
|
|
|
$
|
39,552
|
|
Land improvements and leasehold improvements
|
95,327
|
|
|
103,148
|
|
|
82,681
|
|
Buildings and storage facilities
|
381,258
|
|
|
373,961
|
|
|
337,631
|
|
Machinery and equipment
|
861,812
|
|
|
835,156
|
|
|
481,454
|
|
Construction in progress
|
41,824
|
|
|
59,993
|
|
|
151,895
|
|
|
1,420,557
|
|
|
1,412,700
|
|
|
1,093,213
|
|
Less: accumulated depreciation
|
498,972
|
|
|
474,282
|
|
|
421,408
|
|
Property, plant and equipment, net
|
$
|
921,585
|
|
|
$
|
938,418
|
|
|
$
|
671,805
|
|
Depreciation expense on property, plant and equipment was $31.0 million and $17.9 million for the three months ended March 31, 2020 and 2019, respectively.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Rail Group assets leased to others
|
$
|
740,809
|
|
|
$
|
723,004
|
|
|
$
|
660,747
|
|
Less: accumulated depreciation
|
143,740
|
|
|
138,706
|
|
|
123,118
|
|
Rail Group assets, net
|
$
|
597,069
|
|
|
$
|
584,298
|
|
|
$
|
537,629
|
|
Depreciation expense on Rail Group assets leased to others amounted to $7.7 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively.
4. Debt
Short-term and long-term debt at March 31, 2020, December 31, 2019 and March 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Short-term Debt – Non-Recourse
|
$
|
83,791
|
|
|
$
|
54,029
|
|
|
$
|
97,304
|
|
Short-term Debt – Recourse
|
308,659
|
|
|
93,002
|
|
|
337,000
|
|
Total Short-term Debt
|
$
|
392,450
|
|
|
$
|
147,031
|
|
|
$
|
434,304
|
|
|
|
|
|
|
|
Current Maturities of Long-term Debt – Non-Recourse
|
$
|
5,212
|
|
|
$
|
9,545
|
|
|
$
|
7,793
|
|
Current Maturities of Long-term Debt – Recourse
|
75,546
|
|
|
53,354
|
|
|
47,367
|
|
Total Current Maturities of Long-term Debt
|
$
|
80,758
|
|
|
$
|
62,899
|
|
|
$
|
55,160
|
|
|
|
|
|
|
|
Long-term Debt, Less: Current Maturities – Non-Recourse
|
$
|
329,462
|
|
|
$
|
330,251
|
|
|
$
|
177,955
|
|
Long-term Debt, Less: Current Maturities – Recourse
|
658,064
|
|
|
685,997
|
|
|
804,070
|
|
Total Long-term Debt, Less: Current Maturities
|
$
|
987,526
|
|
|
$
|
1,016,248
|
|
|
$
|
982,025
|
|
The total borrowing capacity of the Company's lines of credit at March 31, 2020 was $1,684.0 million of which the Company had a total of $1,006.4 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company is in compliance with all financial covenants as of March 31, 2020.
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated commodity exchanges. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
Most of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company primarily accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at March 31, 2020, December 31, 2019 and March 31, 2019, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
(in thousands)
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
|
Net
derivative
asset
position
|
|
Net
derivative
liability
position
|
Cash collateral paid
|
$
|
22,855
|
|
|
$
|
—
|
|
|
$
|
56,005
|
|
|
$
|
—
|
|
|
$
|
21,751
|
|
|
$
|
—
|
|
Fair value of derivatives
|
20,977
|
|
|
—
|
|
|
(10,323
|
)
|
|
—
|
|
|
38,580
|
|
|
—
|
|
Balance at end of period
|
$
|
43,832
|
|
|
$
|
—
|
|
|
$
|
45,682
|
|
|
$
|
—
|
|
|
$
|
60,331
|
|
|
$
|
—
|
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
164,700
|
|
|
$
|
3,240
|
|
|
$
|
9,648
|
|
|
$
|
142
|
|
|
$
|
177,730
|
|
Commodity derivative liabilities
|
(38,485
|
)
|
|
(119
|
)
|
|
(100,139
|
)
|
|
(2,667
|
)
|
|
(141,410
|
)
|
Cash collateral paid
|
22,855
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,855
|
|
Balance sheet line item totals
|
$
|
149,070
|
|
|
$
|
3,121
|
|
|
$
|
(90,491
|
)
|
|
$
|
(2,525
|
)
|
|
$
|
59,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 paid
|
56,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56,005
|
|
Balance sheet line item totals
|
$
|
107,863
|
|
|
$
|
949
|
|
|
$
|
(46,942
|
)
|
|
$
|
(505
|
)
|
|
$
|
61,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(in thousands)
|
Commodity Derivative Assets - Current
|
|
Commodity Derivative Assets - Noncurrent
|
|
Commodity Derivative Liabilities - Current
|
|
Commodity Derivative Liabilities - Noncurrent
|
|
Total
|
Commodity derivative assets
|
$
|
142,262
|
|
|
$
|
3,781
|
|
|
$
|
665
|
|
|
$
|
93
|
|
|
$
|
146,801
|
|
Commodity derivative liabilities
|
(5,736
|
)
|
|
(24
|
)
|
|
(67,288
|
)
|
|
(3,914
|
)
|
|
(76,962
|
)
|
Cash collateral paid
|
21,751
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,751
|
|
Balance sheet line item totals
|
$
|
158,277
|
|
|
$
|
3,757
|
|
|
$
|
(66,623
|
)
|
|
$
|
(3,821
|
)
|
|
$
|
91,590
|
|
The net pretax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line item in which they are located for the three and three months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Gains on commodity derivatives included in cost of sales and merchandising revenues
|
$
|
30,960
|
|
|
$
|
66,419
|
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at March 31, 2020, December 31, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
555,782
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
33,950
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
92,374
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
56,582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
103,252
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
6,275
|
|
|
—
|
|
Other
|
18,734
|
|
|
1,500
|
|
|
296
|
|
|
2,010
|
|
Subtotal
|
757,422
|
|
|
104,752
|
|
|
6,571
|
|
|
2,010
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
165,295
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
37,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
59,135
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
1,490
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
44,440
|
|
|
—
|
|
|
—
|
|
Propane
|
—
|
|
|
11,760
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
11,970
|
|
|
—
|
|
|
213
|
|
Subtotal
|
263,795
|
|
|
68,170
|
|
|
—
|
|
|
213
|
|
Total
|
1,021,217
|
|
|
172,922
|
|
|
6,571
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
Commodity (in thousands)
|
Number of Bushels
|
|
Number of Gallons
|
|
Number of Pounds
|
|
Number of Tons
|
Non-exchange traded:
|
|
|
|
|
|
|
|
Corn
|
624,612
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
42,859
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
118,909
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
26,361
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
233,420
|
|
|
—
|
|
|
—
|
|
Corn oil
|
—
|
|
|
—
|
|
|
6,733
|
|
|
—
|
|
Other
|
5,574
|
|
|
2,032
|
|
|
6
|
|
|
2,508
|
|
Subtotal
|
818,315
|
|
|
235,452
|
|
|
6,739
|
|
|
2,508
|
|
Exchange traded:
|
|
|
|
|
|
|
|
Corn
|
197,210
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Soybeans
|
47,860
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wheat
|
103,955
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oats
|
770
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ethanol
|
—
|
|
|
110,758
|
|
|
—
|
|
|
—
|
|
Gasoline
|
—
|
|
|
12,936
|
|
|
—
|
|
|
—
|
|
Propane
|
—
|
|
|
14,784
|
|
|
—
|
|
|
—
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
205
|
|
Subtotal
|
349,797
|
|
|
138,478
|
|
|
—
|
|
|
205
|
|
Total
|
1,168,112
|
|
|
373,930
|
|
|
6,739
|
|
|
2,713
|
|
Interest Rate and Other Derivatives
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The gains or losses on the derivatives are recorded in Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
At March 31, 2020, December 31, 2019 and March 31, 2019, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts included in Other long-term liabilities
|
$
|
(1,913
|
)
|
|
$
|
(1,007
|
)
|
|
$
|
(4,494
|
)
|
Foreign currency contracts included in Other current assets (Accrued expenses and other current liabilities)
|
$
|
440
|
|
|
$
|
2,742
|
|
|
$
|
(344
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts included in Accrued expenses and other current liabilities
|
$
|
(8,081
|
)
|
|
$
|
(3,118
|
)
|
|
$
|
—
|
|
Interest rate contracts included in Other long-term assets (Other long-term liabilities)
|
$
|
(22,620
|
)
|
|
$
|
(9,382
|
)
|
|
$
|
(4,552
|
)
|
The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Derivatives not designated as hedging instruments
|
|
|
|
Interest rate derivative gains (losses) included in Interest income (expense), net
|
$
|
(784
|
)
|
|
$
|
(990
|
)
|
Foreign currency derivative gains (losses) included in Other income (loss), net
|
$
|
—
|
|
|
$
|
(1,467
|
)
|
Derivatives designated as hedging instruments
|
|
|
|
Interest rate derivative gains (losses) included in Other Comprehensive Income (Loss)
|
$
|
(18,182
|
)
|
|
$
|
(4,991
|
)
|
Interest rate derivatives gains (losses) included in Interest income (expense), net
|
$
|
(1,290
|
)
|
|
$
|
165
|
|
Outstanding interest rate derivatives, as of March 31, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Hedging Instrument
|
|
Year Entered
|
|
Year of Maturity
|
|
Initial Notional Amount
(in millions)
|
|
Description
|
|
Interest Rate
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
2014
|
|
2023
|
|
$
|
23.0
|
|
|
Interest rate component of debt - not accounted for as a hedge
|
|
1.9%
|
Collar
|
|
2016
|
|
2021
|
|
$
|
40.0
|
|
|
Interest rate component of debt - not accounted for as a hedge
|
|
3.5% to 4.8%
|
Swap
|
|
2017
|
|
2022
|
|
$
|
20.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
1.8%
|
Swap
|
|
2018
|
|
2023
|
|
$
|
10.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.6%
|
Swap
|
|
2018
|
|
2025
|
|
$
|
20.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.7%
|
Swap
|
|
2018
|
|
2021
|
|
$
|
40.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.6%
|
Swap
|
|
2019
|
|
2021
|
|
$
|
25.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2021
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
100.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2019
|
|
2025
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
2.5%
|
Swap
|
|
2020
|
|
2023
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
0.8%
|
Swap
|
|
2020
|
|
2023
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
0.7%
|
Swap
|
|
2020
|
|
2030
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
0.0% to 0.8%
|
Swap
|
|
2020
|
|
2030
|
|
$
|
50.0
|
|
|
Interest rate component of debt - accounted for as a hedge
|
|
0.0% to 0.8%
|
6. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Revenues under ASC 606
|
$
|
347,502
|
|
|
$
|
315,172
|
|
Revenues under ASC 842
|
25,551
|
|
|
28,868
|
|
Revenues under ASC 815
|
1,480,052
|
|
|
1,632,752
|
|
Total Revenues
|
$
|
1,853,105
|
|
|
$
|
1,976,792
|
|
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line for the three months ended March 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,231
|
|
|
$
|
—
|
|
|
$
|
73,231
|
|
Primary nutrients
|
—
|
|
|
—
|
|
|
45,690
|
|
|
—
|
|
|
45,690
|
|
Services
|
1,686
|
|
|
—
|
|
|
182
|
|
|
8,736
|
|
|
10,604
|
|
Ethanol products and co-products
|
53,165
|
|
|
101,698
|
|
|
—
|
|
|
—
|
|
|
154,863
|
|
Frac sand and propane
|
49,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,875
|
|
Other
|
3,989
|
|
|
616
|
|
|
5,810
|
|
|
2,824
|
|
|
13,239
|
|
Total
|
$
|
108,715
|
|
|
$
|
102,314
|
|
|
$
|
124,913
|
|
|
$
|
11,560
|
|
|
$
|
347,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Specialty nutrients
|
$
|
3,938
|
|
|
$
|
—
|
|
|
$
|
68,400
|
|
|
$
|
—
|
|
|
$
|
72,338
|
|
Primary nutrients
|
427
|
|
|
—
|
|
|
53,089
|
|
|
—
|
|
|
53,516
|
|
Service
|
825
|
|
|
3,436
|
|
|
162
|
|
|
9,947
|
|
|
14,370
|
|
Ethanol products and co-products
|
62,758
|
|
|
21,472
|
|
|
—
|
|
|
—
|
|
|
84,230
|
|
Frac sand and propane
|
80,463
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80,463
|
|
Other
|
1,157
|
|
|
—
|
|
|
6,874
|
|
|
2,224
|
|
|
10,255
|
|
Total
|
$
|
149,568
|
|
|
$
|
24,908
|
|
|
$
|
128,525
|
|
|
$
|
12,171
|
|
|
$
|
315,172
|
|
Approximately 3% and 5% of revenues accounted for under ASC 606 during the three months ended March 31, 2020 and 2019, respectively, and are recorded over time which primarily relates to service revenues noted above.
Contract balances
The balances of the Company’s contract liabilities were $65.8 million and $28.5 million as of March 31, 2020 and December 31, 2019, respectively. The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The main driver of the contract liabilities balance is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. The primary and specialty business records contract liabilities for payments received in advance of fulfilling our performance obligations under our customer contracts. Further, due to seasonality of this business, contract liabilities were built up in the first quarter of the year.
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the three months ended March 31, 2020, the Company recorded an income tax benefit of $1.5 million at an effective income tax rate of 2.8%. The annual effective tax rate differs from the statutory U.S. Federal tax rate as the tax benefit from consolidated pre-tax losses is completely offset by the portion of losses owned by non-controlling interests that do not provide for a tax benefit. The decrease in effective tax rate for the three months ended March 31, 2020 as compared to the same period last year was primarily attributed to the tax expense generated from the current period loss before taxes at the estimated annual effective tax rate, offset by tax benefits from anticipated net operating loss carrybacks as result of the Coronavirus Aid, Relief, and. Economic Security Act ("CARES") Act. For the three months ended March 31, 2019, the Company recorded an income tax benefit of $5.4 million at an effective income tax rate of 27.8%.
The 2020 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the company’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $25.4 million as of March 31, 2020, and $0.6 million for the period ended March 31, 2019. The unrecognized tax benefits of $25.4 million include $21.7 million recorded as a reduction of the deferred tax asset and refundable credits associated with the R&D Credits.
On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the Coronavirus (“COVID-19”) pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. The Company has analyzed the impact of the CARES Act to determine the estimated impact on 2019 filing positions that could be carried back to prior tax years, and recorded a financial statement benefit of $6.6 million. On April 17, 2020, the Internal Revenue Service issued Revenue Procedure 2020-25, allowing for companies to revoke an election out of bonus depreciation. The Company is currently evaluating the impact of this additional guidance.
8. Accumulated Other Comprehensive Income (Loss)
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
Three months ended March 31, 2020
|
(in thousands)
|
Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
$
|
(9,443
|
)
|
|
$
|
1,065
|
|
|
$
|
258
|
|
|
$
|
889
|
|
|
$
|
(7,231
|
)
|
|
Other comprehensive loss before reclassifications
|
(14,390
|
)
|
|
(6,639
|
)
|
|
—
|
|
|
55
|
|
|
$
|
(20,974
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
727
|
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
|
$
|
556
|
|
Net current-period other comprehensive income (loss)
|
(13,663
|
)
|
|
(6,639
|
)
|
|
—
|
|
|
(116
|
)
|
|
(20,418
|
)
|
Ending balance
|
$
|
(23,106
|
)
|
|
$
|
(5,574
|
)
|
|
$
|
258
|
|
|
$
|
773
|
|
|
$
|
(27,649
|
)
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
|
|
Three months ended March 31, 2019
|
(in thousands)
|
Cash Flow Hedges
|
|
Foreign Currency Translation Adjustment
|
|
Investment in Convertible Preferred Securities
|
|
Defined Benefit Plan Items
|
|
Total
|
Beginning Balance
|
$
|
(126
|
)
|
|
$
|
(11,550
|
)
|
|
$
|
258
|
|
|
$
|
5,031
|
|
|
$
|
(6,387
|
)
|
|
Other comprehensive loss before reclassifications
|
(3,758
|
)
|
|
943
|
|
|
—
|
|
|
45
|
|
|
$
|
(2,770
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss) (b)
|
136
|
|
|
11,666
|
|
|
—
|
|
|
(171
|
)
|
|
$
|
11,631
|
|
Net current-period other comprehensive income (loss)
|
(3,622
|
)
|
|
12,609
|
|
|
—
|
|
|
(126
|
)
|
|
8,861
|
|
Ending balance
|
$
|
(3,748
|
)
|
|
$
|
1,059
|
|
|
$
|
258
|
|
|
$
|
4,905
|
|
|
$
|
2,474
|
|
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
(b) Reflects foreign currency translation adjustments attributable to the consolidation of Thompsons Limited.
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
|
Three months ended March 31, 2020
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(228
|
)
|
|
(b)
|
|
|
(228
|
)
|
|
Total before tax
|
|
|
57
|
|
|
Income tax provision (benefit)
|
|
|
$
|
(171
|
)
|
|
Net of tax
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest payments
|
|
$
|
969
|
|
|
Interest expense
|
|
|
969
|
|
|
Total before tax
|
|
|
(242
|
)
|
|
Income tax provision
|
|
|
$
|
727
|
|
|
Net of tax
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
556
|
|
|
Net of tax
|
(a) Amounts in parentheses indicate credits to profit/loss.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost.
|
|
|
|
|
|
|
|
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
|
(in thousands)
|
|
Three months ended March 31, 2019
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income Is Presented
|
Defined Benefit Plan Items
|
|
|
|
|
Amortization of prior-service cost
|
|
$
|
(228
|
)
|
|
(b)
|
|
|
(228
|
)
|
|
Total before tax
|
|
|
57
|
|
|
Income tax provision (benefit)
|
|
|
$
|
(171
|
)
|
|
Net of tax
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest payments
|
|
$
|
182
|
|
|
Interest expense
|
|
|
182
|
|
|
Total before tax
|
|
|
(46
|
)
|
|
Income tax provision
|
|
|
$
|
136
|
|
|
Net of tax
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
|
|
|
Realized loss on pre-existing investment
|
|
$
|
11,666
|
|
|
Other income, net
|
|
|
11,666
|
|
|
Total before tax
|
|
|
—
|
|
|
Income tax provision
|
|
|
$
|
11,666
|
|
|
Net of tax
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
11,631
|
|
|
Net of tax
|
(a) Amounts in parentheses indicate credits to profit/loss.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost.
9. Earnings Per Share
|
|
|
|
|
|
|
|
|
(in thousands, except per common share data)
|
Three months ended March 31,
|
2020
|
|
2019
|
Net loss attributable to The Andersons, Inc.
|
$
|
(37,662
|
)
|
|
$
|
(13,993
|
)
|
Earnings per share – basic:
|
|
|
|
Weighted average shares outstanding – basic
|
32,821
|
|
|
32,501
|
|
Earnings per common share – basic
|
$
|
(1.15
|
)
|
|
$
|
(0.43
|
)
|
Earnings per share – diluted:
|
|
|
|
Weighted average shares outstanding – basic
|
32,821
|
|
|
32,501
|
|
Effect of dilutive awards
|
—
|
|
|
—
|
|
Weighted average shares outstanding – diluted
|
32,821
|
|
|
32,501
|
|
Earnings per common share – diluted
|
$
|
(1.15
|
)
|
|
$
|
(0.43
|
)
|
All outstanding share awards were antidilutive for the three months ended March 31, 2020 and March 31, 2019 as the Company incurred a net loss in both periods.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2020, December 31, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
43,832
|
|
|
$
|
15,343
|
|
|
$
|
—
|
|
|
$
|
59,175
|
|
Provisionally priced contracts (b)
|
(94,834
|
)
|
|
(51,061
|
)
|
|
—
|
|
|
(145,895
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
8,654
|
|
|
8,654
|
|
Other assets and liabilities (d)
|
5,373
|
|
|
(32,614
|
)
|
|
—
|
|
|
(27,241
|
)
|
Total
|
$
|
(45,629
|
)
|
|
$
|
(68,332
|
)
|
|
$
|
8,654
|
|
|
$
|
(105,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2019
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
45,682
|
|
|
$
|
15,683
|
|
|
$
|
—
|
|
|
$
|
61,365
|
|
Provisionally priced contracts (b)
|
(118,414
|
)
|
|
(68,237
|
)
|
|
—
|
|
|
(186,651
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
8,404
|
|
|
8,404
|
|
Other assets and liabilities (d)
|
9,469
|
|
|
(13,507
|
)
|
|
—
|
|
|
(4,038
|
)
|
Total
|
$
|
(63,263
|
)
|
|
$
|
(66,061
|
)
|
|
$
|
8,404
|
|
|
$
|
(120,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2019
|
Assets (liabilities)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity derivatives, net (a)
|
$
|
60,331
|
|
|
$
|
31,259
|
|
|
$
|
—
|
|
|
$
|
91,590
|
|
Provisionally priced contracts (b)
|
(48,430
|
)
|
|
(49,393
|
)
|
|
—
|
|
|
(97,823
|
)
|
Convertible preferred securities (c)
|
—
|
|
|
—
|
|
|
7,404
|
|
|
7,404
|
|
Other assets and liabilities (d)
|
5,772
|
|
|
(4,494
|
)
|
|
—
|
|
|
1,278
|
|
Total
|
$
|
17,673
|
|
|
$
|
(22,628
|
)
|
|
$
|
7,404
|
|
|
$
|
2,449
|
|
|
|
(a)
|
Includes associated cash posted/received as collateral
|
|
|
(b)
|
Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
|
|
|
(c)
|
Recorded in “Other assets, net” 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 grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2 Inventories. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain, but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or we have delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted exchange prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.
The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Securities
|
(in thousands)
|
|
2020
|
|
2019
|
Assets (liabilities) at January 1,
|
|
$
|
8,404
|
|
|
$
|
7,154
|
|
Additional Investments
|
|
250
|
|
|
250
|
|
Assets (liabilities) at March 31,
|
|
$
|
8,654
|
|
|
$
|
7,404
|
|
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of March 31, 2020, December 31, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Recurring Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of March 31, 2020
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
8,654
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of December 31, 2019
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
8,404
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of March 31, 2019
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Convertible preferred securities (a)
|
$
|
7,404
|
|
|
Implied based on market prices
|
|
N/A
|
|
N/A
|
(a) The Company considers observable price changes and other additional market data available to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Non-recurring Level 3 Fair Value Measurements
|
(in thousands)
|
Fair Value as of December 31, 2019
|
|
Valuation Method
|
|
Unobservable Input
|
|
Weighted Average
|
Frac sand assets (a)
|
$
|
16,546
|
|
|
Third party appraisal
|
|
Various
|
|
N/A
|
Real property (b)
|
608
|
|
|
Market approach
|
|
Various
|
|
N/A
|
Equity method investment (c)
|
12,424
|
|
|
Discounted cash flow analysis
|
|
Various
|
|
N/A
|
(a) The Company recognized impairment charges on long lived related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.
(b) The Company recognized impairment charges on certain Trade assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets 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.
There were no non-recurring fair value measurements as of March 31, 2020 and March 31, 2019.
Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Fair value of long-term debt, including current maturities
|
$
|
1,113,042
|
|
|
$
|
1,096,010
|
|
|
$
|
1,043,503
|
|
Fair value in excess of carrying value (a)
|
36,461
|
|
|
8,257
|
|
|
2,318
|
|
(a) Carrying value used for this purpose excludes unamortized debt issuance costs.
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
11. Related Parties
In the ordinary course of business and on an arms-length basis, the Company will mainly enter into related party transactions with the minority shareholders of the Company's ethanol operations and several equity method investments that the Company holds, along with other related parties.
The following table sets forth the related party transactions entered into for the time periods presented:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Sales revenues
|
$
|
54,694
|
|
|
$
|
61,168
|
|
Service fee revenues (a)
|
—
|
|
|
4,112
|
|
Purchases of product and capital assets
|
15,577
|
|
|
169,229
|
|
Lease income (b)
|
147
|
|
|
1,014
|
|
Labor and benefits reimbursement (c)
|
—
|
|
|
3,857
|
|
|
|
(a)
|
Service fee revenues include management fees, corn origination fees, ethanol and distillers dried grains (DDG) marketing fees, and other commissions. These revenues are now eliminated in consolidation as a result of the TAMH merger.
|
|
|
(b)
|
Lease income includes certain railcars leased to related parties and the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities from the prior period and are now eliminated in consolidation as a result of the TAMH merger.
|
|
|
(c)
|
Prior to the TAMH merger the Company provided all operations 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Accounts receivable (d)
|
$
|
6,586
|
|
|
$
|
10,603
|
|
|
$
|
20,134
|
|
Accounts payable (e)
|
6,364
|
|
|
12,303
|
|
|
24,644
|
|
|
|
(d)
|
Accounts receivable represents amounts due from related parties for the sale of ethanol and other various items.
|
|
|
(e)
|
Accounts payable represents amounts due to related parties for purchases of ethanol equipment and other various items.
|
12. 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 and the operation of terminal grain elevator facilities. The Ethanol business produces ethanol through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Other category includes other corporate level costs not attributable to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales. The Company does not have any customers who represent 10 percent or more of total revenue.
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Revenues from external customers
|
|
|
|
Trade
|
$
|
1,378,040
|
|
|
$
|
1,537,686
|
|
Ethanol
|
313,039
|
|
|
269,166
|
|
Plant Nutrient
|
124,913
|
|
|
128,525
|
|
Rail
|
37,113
|
|
|
41,415
|
|
Total
|
$
|
1,853,105
|
|
|
$
|
1,976,792
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Inter-segment sales
|
|
|
|
Trade
|
$
|
609
|
|
|
$
|
181
|
|
Plant Nutrient
|
887
|
|
|
20
|
|
Rail
|
1,605
|
|
|
1,275
|
|
Total
|
$
|
3,101
|
|
|
$
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Income (loss) before income taxes, net of noncontrolling interest
|
|
|
|
Trade
|
$
|
(9,983
|
)
|
|
$
|
(17,903
|
)
|
Ethanol
|
(23,976
|
)
|
|
3,011
|
|
Plant Nutrient
|
(1,192
|
)
|
|
(3,929
|
)
|
Rail
|
1,007
|
|
|
4,312
|
|
Other
|
(4,982
|
)
|
|
(4,926
|
)
|
Income (loss) before income taxes, net of noncontrolling interest
|
(39,126
|
)
|
|
(19,435
|
)
|
Noncontrolling interests
|
(13,449
|
)
|
|
(155
|
)
|
Income (loss) before income taxes
|
$
|
(52,575
|
)
|
|
$
|
(19,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
Identifiable assets
|
|
|
|
|
|
Trade
|
$
|
1,878,812
|
|
|
$
|
2,012,060
|
|
|
$
|
2,116,254
|
|
Ethanol
|
653,928
|
|
|
690,548
|
|
|
333,060
|
|
Plant Nutrient
|
434,512
|
|
|
383,781
|
|
|
455,529
|
|
Rail
|
658,271
|
|
|
693,931
|
|
|
642,596
|
|
Other
|
127,168
|
|
|
120,421
|
|
|
112,813
|
|
Total
|
$
|
3,752,691
|
|
|
$
|
3,900,741
|
|
|
$
|
3,660,252
|
|
13. Commitments and Contingencies
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time or may result in continued reserves to account for the potential of such post-verdict actions.
The Company recorded a $5.0 million reserve relating to an outstanding non-regulatory litigation claim, based upon preliminary settlement negotiations in the first quarter of 2019. The claim is in response to penalties and fines paid to regulatory entities by a previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity.
The estimated losses for all other outstanding claims that are considered reasonably possible are not material.
14. Supplemental Cash Flow Information
Certain supplemental cash flow information, including noncash investing and financing activities for the three months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest paid
|
$
|
16,180
|
|
|
$
|
16,711
|
|
Noncash investing and financing activity
|
|
|
|
Dividends declared not yet paid
|
5,748
|
|
|
5,527
|
|
Capital projects incurred but not yet paid
|
8,459
|
|
|
15,974
|
|
Equity issued in conjunction with acquisition
|
—
|
|
|
123,146
|
|
Removal of pre-existing equity method investment
|
—
|
|
|
(159,459
|
)
|
Purchase price holdback/ other accrued liabilities
|
—
|
|
|
31,518
|
|
15. Business Acquisition
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, finalization of deferred income taxes 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 TAMH acquisition as if it had occurred at January 1, 2019.
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Net sales
|
$
|
1,853,105
|
|
|
$
|
2,031,510
|
|
Net income
|
(51,111
|
)
|
|
(15,228
|
)
|
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 pro forma amounts for net income above have been adjusted to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to Property, plant and equipment had been applied on January 1, 2019 related to the TAMH merger.
Pro forma financial information is not necessarily indicative of 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.
16. Goodwill
During the quarter the Company completed a reorganization of its organization and internal structure whereby the Company reorganized its operations between the Trade and Ethanol segments to enhance operating decisions and assessing performance. On January 1, 2020, the Company moved its Distillers Dried Grains ("DDG") business from the Trade to Ethanol segment. The reorganization resulted in the reassignment of goodwill to the affected reporting units using a relative fair value approach. As a result of the reassignment and allocation, the Company performed an interim review of the carrying value of goodwill at the Trade and Ethanol segments for possible impairment on both a pre and post-reorganization basis. No impairment of goodwill was indicated at the pre-reorganization reporting units.
The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Trade
|
|
Ethanol
|
|
Plant Nutrient
|
|
Rail
|
|
Total
|
Balance as of January 1, 2020
|
$
|
127,781
|
|
|
$
|
2,726
|
|
|
$
|
686
|
|
|
$
|
4,167
|
|
|
$
|
135,360
|
|
Reorganization (a)
|
(5,714
|
)
|
|
5,714
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of March 31, 2020
|
$
|
122,067
|
|
|
$
|
8,440
|
|
|
$
|
686
|
|
|
$
|
4,167
|
|
|
$
|
135,360
|
|
(a) Reorganization related to move of the DDG business line from the Trade to Ethanol segment.
Due to the severe decline in ethanol prices, largely impacted by COVID-19 during the period, management determined that a triggering event occurred within the Ethanol segment. Accordingly, an interim impairment test was performed over the Ethanol group's goodwill as well as its other intangible and long-lived assets. Based on the results of the impairment test, the Ethanol segment did not record an impairment charge.
When performing our test for impairment, we measured each reporting unit's fair value using a combination of income and market approaches.
The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third-party buyer. Significant estimates in the income approach include the following: discount rate, expected financial outlook and profitability of the reporting unit's business (all Level 3 inputs in the fair value hierarchy). Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.
The market approach uses the "Guideline Company" method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums. The blended approach assigns an equal weighting to each approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.
The results of the goodwill impairment test within the Ethanol group supported the calculated fair value exceeding the carrying values by greater than 20%. However, as the fair value is highly sensitive to changes in assumptions, including interest rates and outlook for future volume and margins, general trends in the business and/or macro-economic factors could cause the estimated fair value of the reporting unit to fall below its carrying value.