ANDE 2013.06.30 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-20557
 
 
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter
 
 
OHIO
 
34-1562374
(State of incorporation
or organization)
 
(I.R.S. Employer
Identification No.)
480 W. Dussel Drive, Maumee, Ohio
 
43537
(Address of principal executive offices)
 
(Zip Code)
(419) 893-5050
(Telephone Number)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
Accelerated Filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The registrant had approximately 18.7 million common shares outstanding, no par value, at July 31, 2013.


Table of Contents

THE ANDERSONS, INC.
INDEX
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
PART II. OTHER INFORMATION
 


2

Table of Contents


Part I. Financial Information


Item 1. Financial Statements


The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
75,920

 
$
138,218

 
$
23,930

Restricted cash
872

 
398

 
5,644

Accounts receivable, net
216,432

 
208,877

 
205,046

Inventories (Note 2)
444,523

 
776,677

 
597,091

Commodity derivative assets – current
121,789

 
103,105

 
122,010

Deferred income taxes
2,797

 
15,862

 
18,784

Other current assets
44,936

 
54,016

 
38,535

Total current assets
907,269

 
1,297,153

 
1,011,040

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent
87

 
1,906

 
4,844

Goodwill
54,387

 
51,418

 
19,226

Other assets, net
49,394

 
53,711

 
50,814

Equity method investments
195,241

 
190,908

 
189,610

 
299,109

 
297,943

 
264,494

Railcar assets leased to others, net (Note 3)
242,887

 
228,330

 
252,965

Property, plant and equipment, net (Note 3)
371,716

 
358,878

 
266,275

Total assets
$
1,820,981

 
$
2,182,304

 
$
1,794,774


3

Table of Contents

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Borrowings under short-term line of credit
$
50,000

 
$
24,219

 
$
309,608

Accounts payable for grain
178,017

 
582,653

 
129,979

Other accounts payable
183,971

 
165,201

 
148,497

Customer prepayments and deferred revenue
25,621

 
105,410

 
55,912

Commodity derivative liabilities – current
58,183

 
33,277

 
29,764

Accrued expenses and other current liabilities
57,456

 
66,902

 
51,283

Current maturities of long-term debt (Note 10)
45,096

 
15,145

 
29,647

Total current liabilities
598,344

 
992,807

 
754,690

Other long-term liabilities
15,634

 
18,406

 
11,546

Commodity derivative liabilities – noncurrent
5,863

 
1,134

 
454

Employee benefit plan obligations
50,754

 
53,131

 
50,437

Long-term debt, less current maturities (Note 10)
409,020

 
427,243

 
317,648

Deferred income taxes
87,486

 
78,138

 
70,806

Total liabilities
1,167,101

 
1,570,859

 
1,205,581

Commitments and contingencies (Note 11)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (42,000 shares authorized; 19,198 shares issued)
96

 
96

 
96

Preferred shares, without par value (1,000 shares authorized; none issued)

 

 

Additional paid-in-capital
182,455

 
181,627

 
180,535

Treasury shares at cost (469, 554 and 557 shares at 6/30/13, 12/31/12 and 6/30/12, respectively)
(11,448
)
 
(12,559
)
 
(12,519
)
Accumulated other comprehensive loss
(42,025
)
 
(45,379
)
 
(42,998
)
Retained earnings
506,691

 
470,628

 
444,539

Total shareholders’ equity of The Andersons, Inc.
635,769

 
594,413

 
569,653

Noncontrolling interests
18,111

 
17,032

 
19,540

Total equity
653,880

 
611,445

 
589,193

Total liabilities and equity
$
1,820,981

 
$
2,182,304

 
$
1,794,774

See Notes to Condensed Consolidated Financial Statements


4

Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Sales and merchandising revenues
$
1,566,964

 
$
1,315,834

 
$
2,838,934

 
$
2,452,967

Cost of sales and merchandising revenues
1,463,735

 
1,213,184

 
2,656,432

 
2,264,447

Gross profit
103,229

 
102,650

 
182,502

 
188,520

Operating, administrative and general expenses
61,464

 
59,210

 
123,472

 
119,310

Interest expense
4,855

 
5,380

 
11,259

 
10,710

Other income:
 
 
 
 
 
 
 
Equity in earnings of affiliates
10,010

 
5,096

 
17,814

 
9,379

Other income, net
1,292

 
2,671

 
4,018

 
5,917

Income before income taxes
48,212

 
45,827

 
69,603

 
73,796

Income tax provision
17,480

 
17,356

 
26,559

 
27,597

Net income
30,732

 
28,471

 
43,044

 
46,199

Net income (loss) attributable to the noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Net income attributable to The Andersons, Inc.
$
29,539

 
$
29,199

 
$
42,117

 
$
47,606

Per common share:
 
 
 
 
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
1.58

 
$
1.57

 
$
2.25

 
$
2.56

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
1.57

 
$
1.56

 
$
2.24

 
$
2.54

Dividends paid
$
0.1600

 
$
0.1500

 
$
0.3200

 
$
0.3000

See Notes to Condensed Consolidated Financial Statements


5

Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)(In thousands)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
30,732

 
$
28,471

 
$
43,044

 
$
46,199

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Increase (decrease) in estimated fair value of investment in debt securities (net of income tax of $0, $1,126, ($187) and $1,126)

 
(1,884
)
 
303

 
(1,884
)
Change in unrecognized actuarial loss and prior service cost (net of income tax of $693, $895, $925 and $1,135 - Note 1)
1,144

 
1,497

 
2,913

 
1,898

Cash flow hedge activity (net of income tax of $65, $8, $161 and $47)
108

 
14

 
138

 
78

Other comprehensive income (loss)
1,252

 
(373
)
 
3,354

 
92

Comprehensive income
31,984

 
28,098

 
46,398

 
46,291

Comprehensive income (loss) attributable to the noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Comprehensive income attributable to The Andersons, Inc.
$
30,791

 
$
28,826

 
$
45,471

 
$
47,698

See Notes to Condensed Consolidated Financial Statements


6

Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)


 
Six Months Ended
June 30,
 
2013
 
2012
Operating Activities
 
 
 
Net income
$
43,044

 
$
46,199

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
28,184

 
22,500

Bad debt expense
610

 
493

Cash distributions (less than) in excess of income of unconsolidated affiliates
(4,333
)
 
9,451

Gains and amortization of deferred gains on sales of railcars and related leases
(14,616
)
 
(8,674
)
Excess tax benefit from share-based payment arrangement
(278
)
 
(35
)
Deferred income taxes
22,525

 
4,399

Stock based compensation expense
1,435

 
2,875

Other
714

 
62

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(7,517
)
 
(36,277
)
Inventories
331,596

 
176,766

Commodity derivatives
12,770

 
(27,790
)
Other assets
7,017

 
1,624

Accounts payable for grain
(404,636
)
 
(261,925
)
Other accounts payable and accrued expenses
(76,184
)
 
(63,758
)
Net cash used in operating activities
(59,669
)
 
(134,090
)
Investing Activities
 
 
 
Purchase of investments

 
(19,996
)
Proceeds from redemption of investment

 
19,998

Acquisition of businesses, net of cash acquired
(3,345
)
 
(93,112
)
Purchases of railcars
(56,899
)
 
(77,028
)
Proceeds from sale of railcars
53,243

 
16,057

Purchases of property, plant and equipment
(18,549
)
 
(38,171
)
Proceeds from sale of property, plant and equipment
137

 
725

Proceeds from minority investor

 
6,100

Change in restricted cash
(474
)
 
13,007

Net cash used in investing activities
(25,887
)
 
(172,420
)
Financing Activities
 
 
 
Net change in short-term borrowings
25,781

 
238,108

Proceeds from issuance of long-term debt
36,391

 
106,878

Payments of long-term debt
(34,708
)
 
(30,675
)
Proceeds from sale of treasury shares to employees and directors
1,547

 
1,350

Payments of debt issuance costs
(46
)
 
(72
)
Dividends paid
(5,985
)
 
(5,574
)
Excess tax benefit from share-based payment arrangement
278

 
35

Net cash provided by financing activities
23,258

 
310,050

Increase (decrease) in cash and cash equivalents
(62,298
)
 
3,540

Cash and cash equivalents at beginning of period
138,218

 
20,390

Cash and cash equivalents at end of period
$
75,920

 
$
23,930


7

Table of Contents

 
Six Months Ended
 June 30,
 
2013
 
2012
Supplemental disclosure of cash flow information
 
 
 
Capitalized software costs incurred but not yet paid
$
3,839

 
$

Purchase of capitalized software through seller-financing
$
9,393

 
$


See Notes to Condensed Consolidated Financial Statements

8

Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
 
Common
Shares
 
Additional
Paid-in
Capital
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2011
$
96

 
$
179,463

 
$
(14,997
)
 
$
(43,090
)
 
$
402,523

 
$
14,847

 
$
538,842

Net income (loss)
 
 
 
 
 
 
 
 
47,606

 
(1,407
)
 
46,199

Other comprehensive income
 
 
 
 
 
 
92

 
 
 
 
 
92

Proceeds received from minority investor
 
 
 
 
 
 
 
 
 
 
6,100

 
6,100

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $675 (140 shares)
 
 
1,072

 
2,478

 
 
 
 
 
 
 
3,550

Dividends declared ($0.30 per common share)
 
 
 
 
 
 
 
 
(5,590
)
 
 
 
(5,590
)
Balance at June 30, 2012
$
96

 
$
180,535

 
$
(12,519
)
 
$
(42,998
)
 
$
444,539

 
$
19,540

 
$
589,193

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
96

 
$
181,627

 
$
(12,559
)
 
$
(45,379
)
 
$
470,628

 
$
17,032

 
$
611,445

Net income
 
 
 
 
 
 
 
 
42,117

 
927

 
43,044

Other comprehensive income
 
 
 
 
 
 
3,354

 
 
 
 
 
3,354

Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
152

 
152

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,099 (85 shares)
 
 
773

 
1,111

 
 
 
 
 
 
 
1,884

Dividends declared ($0.32 per common share)
 
 
 
 
 
 
 
 
(5,999
)
 
 
 
(5,999
)
Performance share unit dividend equivalents
 
 
55

 
 
 
 
 
(55
)
 
 
 

Balance at June 30, 2013
$
96

 
$
182,455

 
$
(11,448
)
 
$
(42,025
)
 
$
506,691

 
$
18,111

 
$
653,880

See Notes to Condensed Consolidated Financial Statements


9

Table of Contents

The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation and Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All significant 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 recurring items, considered necessary for a fair statement of the results of operations for the periods indicated, have been made. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.
The year-end Condensed Consolidated Balance Sheet data at December 31, 2012 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A Condensed Consolidated Balance Sheet as of June 30, 2012 has been included as the Company operates in several seasonal industries.
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, 2012 (the “2012 Form 10-K”).
Reclassifications Out of Other Comprehensive Income
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, information about reclassification adjustments from accumulated other comprehensive income to net income in the current periods are presented below.
Changes in Accumulated Other Comprehensive Loss by Component (a)
 
 
 
For the Three Months Ended June 30, 2013
 
For the Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(872
)
 
$
2,872

 
$
(45,277
)
 
$
(43,277
)
 
$
(902
)
 
$
2,569

 
$
(47,046
)
 
$
(45,379
)
 
Other comprehensive income before reclassifications
 
108

 

 
1,229

 
1,337

 
138

 
303

 
3,083

 
3,524

 
Amounts reclassified from accumulated other comprehensive income
 

 

 
(85
)
 
(85
)
 

 

 
(170
)
 
(170
)
Net current-period other comprehensive income
 
108

 

 
1,144

 
1,252

 
138

 
303

 
2,913

 
3,354

Ending balance
 
$
(764
)
 
$
2,872

 
$
(44,133
)
 
$
(42,025
)
 
$
(764
)
 
$
2,872

 
$
(44,133
)
 
$
(42,025
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10

Table of Contents

Reclassifications Out of Accumulated Other Comprehensive Income (a)
 
 
For the Three Months Ended June 30, 2013
 
For the Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
$
(272
)
 
(b)
 
 
(136
)
 
Total before tax
 
(272
)
 
Total before tax
 
 
51

 
Tax expense
 
102

 
Tax expense
 
 
$
(85
)
 
Net of tax
 
$
(170
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(85
)
 
Net of tax
 
$
(170
)
 
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 pension cost (see Note 6. Employee Benefit Plans footnote for additional details).


11

Table of Contents

2. Inventories
Major classes of inventories are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Grain
$
303,018

 
$
586,983

 
$
465,453

Ethanol and by-products
17,966

 
22,927

 
18,516

Agricultural fertilizer and supplies
71,226

 
100,175

 
57,637

Lawn and garden fertilizer and corncob products
23,434

 
37,292

 
21,714

Retail merchandise
25,389

 
25,368

 
30,685

Railcar repair parts
3,293

 
3,764

 
2,777

Other
197

 
168

 
309

 
$
444,523

 
$
776,677

 
$
597,091



3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Land
$
22,637

 
$
22,258

 
$
19,505

Land improvements and leasehold improvements
65,625

 
63,013

 
52,536

Buildings and storage facilities
224,281

 
214,919

 
172,354

Machinery and equipment
295,723

 
287,896

 
243,216

Software
13,469

 
12,901

 
11,204

Construction in progress
44,146

 
34,965

 
33,613

 
665,881

 
635,952

 
532,428

Less accumulated depreciation and amortization
294,165

 
277,074

 
266,153

 
$
371,716

 
$
358,878

 
$
266,275

Depreciation expense on property, plant and equipment amounted to $18.5 million, $27.4 million and $12.0 million for the year-to-date periods ended June 30, 2013, December 31, 2012, and June 30, 2012, respectively.
Railcars
The components of Railcar assets leased to others are as follows:
 
(in thousands)
June 30,
2013
 
December 31,
2012
 
June 30,
2012
Railcar assets leased to others
$
321,269

 
$
310,614

 
$
332,997

Less accumulated depreciation
78,382

 
82,284

 
80,032

 
$
242,887

 
$
228,330

 
$
252,965

Depreciation expense on railcar assets leased to others amounted to $7.4 million, $15.9 million and $7.8 million for the year-to-date periods ended June 30, 2013, December 31, 2012 and June 30, 2012, respectively.

4. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. The exchange traded contracts are primarily

12

Table of Contents

transacted via the regulated Chicago Mercantile Exchange. 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.

All of these contracts are considered 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 accounts for its commodity derivatives at estimated fair value, the same method it uses to value its grain inventory. 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 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 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 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 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 Condensed Consolidated Balance Sheets. The Company also nets, by counterparty, the derivative asset and liability positions, for non-exchanged traded futures, options and over-the-counter contracts in the Condensed Consolidated Balance Sheets.
The following table presents at June 30, 2013, December 31, 2012 and June 30, 2012, 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 short-term commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
 
 
June 30, 2013
 
December 31, 2012
 
June 30, 2012
(in thousands)
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
Collateral paid (received)
$
33,364

 
$

 
$
(13,772
)
 
$

 
$
151,939

 
$

Fair value of derivatives
46,329

 

 
61,247

 

 
(106,629
)
 

Balance at end of period
$
79,693

 
$

 
$
47,475

 
$

 
$
45,310

 
$

Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.3 million, $7.7 million, and $6.1 million as of June 30, 2013, December 31, 2012, and June 30, 2012, respectively.

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:

13

Table of Contents

 
June 30, 2013
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
98,902

 
$
87

 
$
4,133

 
$
62

 
$
103,184

Commodity derivative liabilities
(10,477
)
 

 
(62,316
)
 
(5,925
)
 
(78,718
)
Cash collateral
33,364

 

 

 

 
33,364

Balance sheet line item totals
$
121,789

 
$
87

 
$
(58,183
)
 
$
(5,863
)
 
$
57,830


 
December 31, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
137,119

 
$
2,059

 
$
5,233

 
$
130

 
$
144,541

Commodity derivative liabilities
(20,242
)
 
(153
)
 
(38,510
)
 
(1,264
)
 
(60,169
)
Cash collateral
(13,772
)
 

 

 

 
(13,772
)
Balance sheet line item totals
$
103,105

 
$
1,906

 
$
(33,277
)
 
$
(1,134
)
 
$
70,600


 
June 30, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
89,552

 
$
4,950

 
$
2,943

 
$
9

 
$
97,454

Commodity derivative liabilities
(119,481
)
 
(106
)
 
(32,707
)
 
(463
)
 
(152,757
)
Cash collateral
151,939

 

 

 

 
151,939

Balance sheet line item totals
$
122,010

 
$
4,844

 
$
(29,764
)
 
$
(454
)
 
$
96,636



The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the three and six months ended June 30, 2013 and 2012 are as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Gains (losses) on commodity derivatives included in sales and merchandising revenues
$
31,068

 
$
(12,900
)
 
$
67,436

 
$
(16,557
)
At June 30, 2013, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):
 

14

Table of Contents

Commodity
Number of bushels
(in thousands)
 
Number of gallons
(in thousands)
 
Number of pounds
(in thousands)
 
Number of tons
(in thousands)
Non-exchange traded:
 
 
 
 
 
 
 
Corn
196,108

 

 

 
2

Soybeans
26,244

 

 

 

Wheat
21,205

 

 

 

Oats
12,139

 

 

 

Ethanol

 
36,814

 

 

Corn oil

 

 
9,726

 

Other
28

 

 

 
98

Subtotal
255,724

 
36,814

 
9,726

 
100

Exchange traded:
 
 
 
 
 
 
 
Corn
105,880

 

 

 

Soybeans
15,610

 

 

 

Wheat
32,050

 

 

 

Oats
4,655

 

 

 

Ethanol

 
12,283

 

 

Other

 

 

 
1

Subtotal
158,195

 
12,283

 

 
1

Total
413,919

 
49,097

 
9,726

 
101



15

Table of Contents

5. Earnings Per Share
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.

(in thousands except per common share data)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Net income attributable to The Andersons, Inc.
$
29,539

 
$
29,199

 
$
42,117

 
$
47,606

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
101

 
146

 
155

 
179

Earnings available to common shareholders
$
29,438

 
$
29,053

 
$
41,962

 
$
47,427

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,663

 
18,541

 
18,636

 
18,522

Earnings per common share – basic
$
1.58

 
$
1.57

 
$
2.25

 
$
2.56

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,663

 
18,541

 
18,636

 
18,522

Effect of dilutive awards
117

 
132

 
108

 
166

Weighted average shares outstanding – diluted
18,780

 
18,673

 
18,744

 
18,688

Earnings per common share – diluted
$
1.57

 
$
1.56

 
$
2.24

 
$
2.54

There were no antidilutive stock-based awards outstanding at June 30, 2013 or 2012.


6. Employee Benefit Plans
Included as charges against income for the three and six months ended June 30, 2013 and 2012 are the following amounts for pension and postretirement benefit plans maintained by the Company:
 
 
Pension Benefits
 
Pension Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Service cost
$

 
$

 
$

 
$

Interest cost
1,048

 
1,105

 
2,114

 
2,248

Expected return on plan assets
(1,747
)
 
(1,534
)
 
(3,503
)
 
(3,073
)
Recognized net actuarial loss
373

 
299

 
765

 
749

Benefit income
$
(326
)
 
$
(130
)
 
$
(624
)
 
$
(76
)
 
 
Postretirement Benefits
 
Postretirement Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2013
 
2012
 
2013
 
2012
Service cost
$
197

 
$
184

 
$
421

 
$
376

Interest cost
338

 
327

 
683

 
660

Amortization of prior service cost
(136
)
 
(136
)
 
(272
)
 
(272
)
Recognized net actuarial loss
377

 
313

 
737

 
640

Benefit cost
$
776

 
$
688

 
$
1,569

 
$
1,404



16

Table of Contents


7. Segment Information
The Company’s operations include six reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investment in Lansing Trade Group, LLC (“LTG”). The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies, one of which is consolidated and three of which are investments accounted for under the equity method, and various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers. Turf & Specialty operations include the production and distribution of turf care and corncob-based products. The Retail business operates large retail stores, a specialty food market, a distribution center and a lawn and garden equipment sales and service facility. Included in “Other” are the corporate level amounts 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.
During the first quarter, approximately $28 million of assets specific to the agronomy business that was included in the purchase of certain assets of Green Plains Grain Company, LLC in the fourth quarter of 2012 were reclassified from the Grain segment to the Plant Nutrient segment. Corresponding items of segment information have been reclassified to conform to current year presentation.
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
(in thousands)
 
 
 
 
 
 
 
Revenues from external customers
 
 
 
 
 
 
 
Grain
$
891,350

 
$
718,911

 
$
1,727,845

 
$
1,418,772

Ethanol
222,240

 
167,758

 
421,549

 
318,428

Plant Nutrient
330,339

 
308,797

 
442,241

 
484,157

Rail
38,601

 
32,046

 
84,965

 
67,905

Turf & Specialty
43,144

 
43,845

 
90,331

 
88,972

Retail
41,290

 
44,477

 
72,003

 
74,733

Total
$
1,566,964

 
$
1,315,834

 
$
2,838,934

 
$
2,452,967

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Inter-segment sales
 
 
 
 
 
 
 
Grain
$
1

 
$

 
$
333

 
$
1

Plant Nutrient
4,015

 
5,334

 
11,712

 
8,417

Rail
105

 
208

 
209

 
411

Turf & Specialty
841

 
497

 
1,840

 
1,473

Total
$
4,962

 
$
6,039

 
$
14,094

 
$
10,302

 

17

Table of Contents

 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Interest expense (income)
 
 
 
 
 
 
 
Grain
$
2,474

 
$
2,687

 
$
6,323

 
$
5,939

Ethanol
280

 
185

 
606

 
209

Plant Nutrient
797

 
632

 
1,715

 
1,342

Rail
1,429

 
1,156

 
2,942

 
2,334

Turf & Specialty
346

 
312

 
748

 
668

Retail
152

 
157

 
367

 
353

Other
(623
)
 
251

 
(1,442
)
 
(135
)
Total
$
4,855

 
$
5,380

 
$
11,259

 
$
10,710


 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Equity in earnings (loss) of affiliates
 
 
 
 
 
 
 
Grain
$
5,027

 
$
7,505

 
$
12,937

 
$
13,457

Ethanol
4,983

 
(2,410
)
 
4,877

 
(4,081
)
Plant Nutrient

 
1

 

 
3

Total
$
10,010

 
$
5,096

 
$
17,814

 
$
9,379

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Other income (expense), net
 
 
 
 
 
 
 
Grain
$
(349
)
 
$
489

 
$
222

 
$
1,316

Ethanol
199

 
20

 
430

 
36

Plant Nutrient
164

 
1,010

 
139

 
1,128

Rail
702

 
824

 
1,648

 
1,600

Turf & Specialty
175

 
289

 
450

 
490

Retail
100

 
155

 
214

 
279

Other
301

 
(116
)
 
915

 
1,068

Total
$
1,292

 
$
2,671

 
$
4,018

 
$
5,917

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Income (loss) before income taxes
 
 
 
 
 
 
 
Grain
$
2,053

 
$
15,277

 
$
10,352

 
$
34,712

Ethanol
10,601

 
(2,105
)
 
13,080

 
(1,984
)
Plant Nutrient
23,240

 
27,953

 
22,678

 
33,781

Rail
9,680

 
7,199

 
24,254

 
15,217

Turf & Specialty
2,195

 
2,753

 
6,196

 
4,955

Retail
1,539

 
1,428

 
(1,630
)
 
(1,321
)
Other
(2,289
)
 
(5,950
)
 
(6,254
)
 
(10,157
)
Noncontrolling interests
1,193

 
(728
)
 
927

 
(1,407
)
Total
$
48,212

 
$
45,827

 
$
69,603

 
$
73,796



18

Table of Contents

(in thousands)
June 30, 2013
 
December 31, 2012
 
June 30, 2012
Identifiable assets
 
 
 
 
 
Grain
$
794,913

 
$
1,076,986

 
$
844,526

Ethanol
207,977

 
206,975

 
212,094

Plant Nutrient
240,192

 
257,980

 
214,617

Rail
298,525

 
289,467

 
310,651

Turf & Specialty
73,343

 
82,683

 
66,580

Retail
50,313

 
51,772

 
56,986

Other
155,718

 
216,441

 
89,320

Total
$
1,820,981

 
$
2,182,304

 
$
1,794,774



8. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
 
(in thousands)
June 30, 2013
 
December 31, 2012
 
June 30, 2012
The Andersons Albion Ethanol LLC
$
32,047

 
$
30,227

 
$
31,248

The Andersons Clymers Ethanol LLC
34,257

 
33,119

 
38,225

The Andersons Marathon Ethanol LLC
34,818

 
32,996

 
37,782

Lansing Trade Group, LLC
91,573

 
92,094

 
80,052

Other
2,546

 
2,472

 
2,303

Total
$
195,241

 
$
190,908

 
$
189,610

The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.
The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
 
(in thousands)
% ownership at
June 30, 2013
 
Three months ended
June 30,
Six months ended
June 30,
 
 
 
2013
 
2012
 
2013
 
2012
The Andersons Albion Ethanol LLC
50%
 
$
972

 
$
(215
)
 
$
1,916

 
$
418

The Andersons Clymers Ethanol LLC
38%
 
1,358

 
(655
)
 
1,139

 
(1,012
)
The Andersons Marathon Ethanol LLC
50%
 
2,654

 
(1,540
)
 
1,822

 
(3,487
)
Lansing Trade Group, LLC
49% *
 
4,873

 
7,244

 
12,864

 
13,160

Other
5%-23%
 
153

 
262

 
73

 
300

Total
 
 
$
10,010

 
$
5,096

 
$
17,814

 
$
9,379


 *    This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%.

Total distributions received from unconsolidated affiliates were $5.1 million and $13.4 million for the three and six months ended June 30, 2013, respectively.

19

Table of Contents

The Company does not hold a majority of the outstanding shares of LTG. All major operating decisions of LTG are made by LTG’s Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method.

Investment in Debt Securities
The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until May 2015. This investment is accounted for as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair value in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of June 30, 2013 was $17.7 million.
Based on the Company’s assessment, IANR is considered a variable interest entity (“VIE”). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.
The Company’s current maximum exposure to loss related to IANR is $22.4 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $4.7 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.
Related Party Transactions
In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:
 
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Sales revenues
$
359,759

 
$
259,264

 
$
669,464

 
$
476,076

Service fee revenues (a)
5,814

 
5,393

 
11,615

 
10,872

Purchases of product
183,105

 
145,569

 
345,060

 
294,419

Lease income (b)
1,518

 
1,855

 
3,070

 
3,733

Labor and benefits reimbursement (c)
2,623

 
3,010

 
5,266

 
5,751

Other expenses (d)
395

 
298

 
753

 
503

Accounts receivable at June 30 (e)
24,149

 
22,111

 
 
 
 
Accounts payable at June 30 (f)
27,936

 
20,478

 
 
 
 
 
(a)
Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.
(b)
Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR.
(c)
The Company provides all operational labor to the unconsolidated ethanol LLCs and charges them an amount equal to the Company’s costs of the related services.
(d)
Other expenses include payments to IANR for repair facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.
(e)
Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.

20

Table of Contents

(f)
Accounts payable represents amounts due to related parties for purchases of ethanol.

For the quarters ended June 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $162.8 million and $151.9 million, respectively. For the six months ended June 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $308.6 million and $294.9 million, respectively. For the quarters ended June 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $200.2 million and $165.3 million, respectively. For the six months ended June 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $405.1 million and $344.4 million, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties for the periods ended June 30, 2013, December 31, 2012 and June 30, 2012 was $8.6 million, $3.2 million, and $1.1 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended June 30, 2013, December 31, 2012 and June 30, 2012 was $0.6 million, $0.3 million, and $1.8 million, respectively.

9. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2013, December 31, 2012 and June 30, 2012:
 
(in thousands)
June 30, 2013
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
32,272

 
$

 
$

 
$
32,272

Restricted cash
872

 

 

 
872

Commodity derivatives, net (c)
79,006

 
(21,176
)
 

 
57,830

Convertible preferred securities (b)

 

 
17,710

 
17,710

Other assets and liabilities (a)
8,837

 
(726
)
 

 
8,111

Total
$
120,987

 
$
(21,902
)
 
$
17,710

 
$
116,795

 
(in thousands)
December 31, 2012
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
78,674

 
$

 
$

 
$
78,674

Restricted cash
398

 

 

 
398

Commodity derivatives, net (c)
46,966

 
23,634

 

 
70,600

Convertible preferred securities (b)

 

 
17,220

 
17,220

Other assets and liabilities (a)
7,813

 
(2,109
)
 

 
5,704

Total
$