ANDE 2014.06.30 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, 2014
 
¨
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 28.4 million common shares outstanding, no par value, at July 31, 2014.


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,
2014
 
December 31,
2013
 
June 30,
2013
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
47,190

 
$
309,085

 
$
75,920

Restricted cash
895

 
408

 
872

Accounts receivable, net
189,646

 
173,930

 
216,432

Inventories (Note 2)
432,996

 
614,923

 
444,523

Commodity derivative assets – current
162,427

 
71,319

 
121,789

Deferred income taxes
7,443

 
4,931

 
2,797

Other current assets
24,596

 
47,188

 
44,936

Total current assets
865,193

 
1,221,784

 
907,269

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent
312

 
246

 
87

Goodwill
58,554

 
58,554

 
54,387

Other assets, net
58,431

 
59,456

 
49,394

Pension asset
13,023

 
14,328

 

Equity method investments
264,381

 
291,109

 
195,241

 
394,701

 
423,693

 
299,109

Railcar assets leased to others, net (Note 3)
242,147

 
240,621

 
242,887

Property, plant and equipment, net (Note 3)
390,587

 
387,458

 
371,716

Total assets
$
1,892,628

 
$
2,273,556

 
$
1,820,981


3

Table of Contents

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
June 30,
2014
 
December 31,
2013
 
June 30,
2013
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Borrowings under short-term line of credit
$
27,000

 
$

 
$
50,000

Accounts payable for grain
164,230

 
592,183

 
178,017

Other accounts payable
143,535

 
154,599

 
183,971

Customer prepayments and deferred revenue
21,670

 
59,304

 
25,621

Commodity derivative liabilities – current
86,134

 
63,954

 
58,183

Accrued expenses and other current liabilities
81,260

 
70,295

 
57,456

Current maturities of long-term debt (Note 10)
89,387

 
51,998

 
45,096

Total current liabilities
613,216

 
992,333

 
598,344

Other long-term liabilities
15,032

 
15,386

 
15,634

Commodity derivative liabilities – noncurrent
7,444

 
6,644

 
5,863

Employee benefit plan obligations
39,178

 
39,477

 
50,754

Long-term debt, less current maturities (Note 10)
300,220

 
375,213

 
409,020

Deferred income taxes
126,258

 
120,082

 
87,486

Total liabilities
1,101,348

 
1,549,135

 
1,167,101

Commitments and contingencies (Note 11)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (42,000 shares authorized; 28,797 shares issued)
96

 
96

 
96

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

 

 

Additional paid-in-capital
189,098

 
184,380

 
182,455

Treasury shares, at cost (378, 607 and 689 shares at 6/30/14, 12/31/13 and 6/30/13, respectively)
(8,801
)
 
(10,222
)
 
(11,448
)
Accumulated other comprehensive loss
(27,023
)
 
(21,181
)
 
(42,025
)
Retained earnings
609,024

 
548,401

 
506,691

Total shareholders’ equity of The Andersons, Inc.
762,394

 
701,474

 
635,769

Noncontrolling interests
28,886

 
22,947

 
18,111

Total equity
791,280

 
724,421

 
653,880

Total liabilities and equity
$
1,892,628

 
$
2,273,556

 
$
1,820,981

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,
 
2014
 
2013
 
2014
 
2013
Sales and merchandising revenues
$
1,312,082

 
$
1,566,964

 
$
2,315,376

 
$
2,838,934

Cost of sales and merchandising revenues
1,190,587

 
1,463,735

 
2,117,106

 
2,656,432

Gross profit
121,495

 
103,229

 
198,270

 
182,502

Operating, administrative and general expenses
76,275

 
61,464

 
147,260

 
123,472

Interest expense
6,146

 
4,855

 
12,148

 
11,259

Other income:
 
 
 
 
 
 
 
Equity in earnings of affiliates, net
32,213

 
10,010

 
52,714

 
17,814

Other income, net
3,797

 
1,292

 
23,409

 
4,018

Income before income taxes
75,084

 
48,212

 
114,985

 
69,603

Income tax provision
25,714

 
17,480

 
39,586

 
26,559

Net income
49,370

 
30,732

 
75,399

 
43,044

Net income attributable to the noncontrolling interests
5,069

 
1,193

 
8,390

 
927

Net income attributable to The Andersons, Inc.
$
44,301

 
$
29,539

 
$
67,009

 
$
42,117

Per common share:
 
 
 
 
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
1.56

 
$
1.05

 
$
2.36

 
$
1.50

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
1.56

 
$
1.05

 
$
2.36

 
$
1.49

Dividends paid
$
0.1100

 
$
0.1067

 
$
0.2200

 
$
0.2133

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,
 
2014
 
2013
 
2014
 
2013
Net income
$
49,370

 
$
30,732

 
$
75,399

 
$
43,044

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
(Decrease) increase in estimated fair value of investment in debt securities (net of income tax of ($1,350), $0, ($3,308) and $187)
(2,230
)
 

 
(5,462
)
 
303

Change in unrecognized actuarial loss and prior service cost (net of income tax of ($422), $693, ($309) and $925 - Note 14)
(698
)
 
1,144

 
(511
)
 
2,913

Cash flow hedge activity (net of income tax of $38, $65, $80 and $161)
62

 
108

 
131

 
138

Other comprehensive (loss) income
(2,866
)
 
1,252

 
(5,842
)
 
3,354

Comprehensive income
46,504

 
31,984

 
69,557

 
46,398

Comprehensive income attributable to the noncontrolling interests
5,069

 
1,193

 
8,390

 
927

Comprehensive income attributable to The Andersons, Inc.
$
41,435

 
$
30,791

 
$
61,167

 
$
45,471

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,
 
2014
 
2013
Operating Activities
 
 
 
Net income
$
75,399

 
$
43,044

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
28,434

 
28,184

Bad debt expense
310

 
610

Cash distributions in excess of (less than) income of unconsolidated affiliates
13,214

 
(4,333
)
Gain on sale of investments in affiliates
(17,055
)
 

Gains on sales of railcars and related leases
(13,284
)
 
(14,616
)
Excess tax benefit from share-based payment arrangement
(1,645
)
 
(278
)
Deferred income taxes
7,202

 
22,525

Stock-based compensation expense
6,053

 
1,435

Other
(2,368
)
 
714

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(17,130
)
 
(7,517
)
Inventories
181,927

 
331,596

Commodity derivatives
(68,196
)
 
12,770

Other assets
22,400

 
7,017

Accounts payable for grain
(427,953
)
 
(404,636
)
Other accounts payable and accrued expenses
(46,893
)
 
(76,184
)
Net cash used in operating activities
(259,585
)
 
(59,669
)
Investing Activities
 
 
 
Acquisition of businesses, net of cash acquired

 
(3,345
)
Purchases of railcars
(30,403
)
 
(56,899
)
Proceeds from sale of railcars
29,195

 
53,243

Purchases of property, plant and equipment
(20,633
)
 
(18,549
)
Proceeds from sale of property, plant and equipment
283

 
137

Proceeds from sale of investments in affiliates
31,457

 

Other
(138
)
 

Change in restricted cash
(488
)
 
(474
)
Net cash provided by (used in) investing activities
9,273

 
(25,887
)
Financing Activities
 
 
 
Net change in short-term borrowings
27,000

 
25,781

Proceeds from issuance of long-term debt
6,712

 
36,391

Payments of long-term debt
(39,006
)
 
(34,708
)
Proceeds from sale of treasury shares to employees and directors
1,474

 
1,547

Payments of debt issuance costs
(3,175
)
 
(46
)
Dividends paid
(6,233
)
 
(5,985
)
Excess tax benefit from share-based payment arrangement
1,645

 
278

Net cash provided by (used in) financing activities
(11,583
)
 
23,258

Decrease in cash and cash equivalents
(261,895
)
 
(62,298
)
Cash and cash equivalents at beginning of period
309,085

 
138,218

Cash and cash equivalents at end of period
$
47,190

 
$
75,920


7

Table of Contents

 
Six months ended
June 30,
 
2014
 
2013
Supplemental disclosure of cash flow information
 
 
 
Capital project costs incurred but not yet paid
$
4,930

 
$
3,839

Purchase of capitalized software through seller-financing
$
1,944

 
$
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, 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

Proceeds received from minority investor
 
 
 
 
 
 
 
 
 
 
152

 
152

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,099 (128 shares)
 
 
773

 
1,111

 
 
 
 
 
 
 
1,884

Dividends declared ($0.2133 per common share)
 
 
 
 
 
 
 
 
(5,999
)
 
 
 
(5,999
)
Performance share unit dividend equilavents
 
 
55

 
 
 
 
 
(55
)
 
 
 

Balance at June 30, 2013
$
96

 
$
182,455

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

 
$
18,111

 
$
653,880

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
96

 
$
184,380

 
$
(10,222
)
 
$
(21,181
)
 
$
548,401

 
$
22,947

 
$
724,421

Net income
 
 
 
 
 
 
 
 
67,009

 
8,390

 
75,399

Other comprehensive loss
 
 
 
 
 
 
(5,842
)
 
 
 
 
 
(5,842
)
Cash distributions to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(2,451
)
 
(2,451
)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,522 (215 shares)
 
 
4,642

 
1,421

 
 
 
 
 
 
 
6,063

Payment of cash in lieu for stock split (187 shares)
 
 
(58
)
 
 
 
 
 
 
 
 
 
(58
)
Dividends declared ($0.2200 per common share)
 
 
 
 
 
 
 
 
(6,252
)
 
 
 
(6,252
)
Performance share unit dividend equivalents
 
 
134

 
 
 
 
 
(134
)
 
 
 

Balance at June 30, 2014
$
96

 
$
189,098

 
$
(8,801
)
 
$
(27,023
)
 
$
609,024

 
$
28,886

 
$
791,280

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 Condensed 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, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014.
The Condensed Consolidated Balance Sheet data at December 31, 2013 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, 2013 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, 2013 (the “2013 Form 10-K”).
New Accounting Standard
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards No. 2014-09, Revenue From Contracts With Customers. The core principle of the new revenue model is that an entity recognizes revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently assessing the impact this standard will have on its Consolidated Financial Statements and disclosures.

2. Inventories
Major classes of inventories are as follows:

(in thousands)
June 30,
2014
 
December 31,
2013
 
June 30,
2013
Grain
$
290,595

 
$
432,893

 
$
303,018

Ethanol and by-products
16,798

 
14,453

 
17,966

Agricultural fertilizer and supplies
64,971

 
100,593

 
71,226

Lawn and garden fertilizer and corncob products
30,151

 
39,960

 
23,434

Retail merchandise
25,180

 
22,505

 
25,389

Railcar repair parts
5,107

 
4,312

 
3,293

Other
194

 
207

 
197

 
$
432,996

 
$
614,923

 
$
444,523


Inventories on the Condensed Consolidated Balance Sheets at June 30, 2014, December 31, 2013 and June 30, 2013 do not include 3.7 million, 13.3 million and 2.5 million bushels of grain, respectively, held in storage for others. 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 does not anticipate material losses on any deficiencies.




10

Table of Contents

3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
 
(in thousands)
June 30,
2014
 
December 31,
2013
 
June 30,
2013
Land
$
22,055

 
$
21,801

 
$
22,637

Land improvements and leasehold improvements
68,003

 
67,153

 
65,625

Buildings and storage facilities
234,745

 
231,976

 
224,281

Machinery and equipment
314,427

 
308,215

 
295,723

Software
55,710

 
13,351

 
13,469

Construction in progress
18,362

 
48,135

 
44,146

 
713,302

 
690,631

 
665,881

Less: accumulated depreciation and amortization
322,715

 
303,173

 
294,165

 
$
390,587

 
$
387,458

 
$
371,716

Depreciation expense on property, plant and equipment amounted to $20.4 million, $37.5 million and $18.5 million for the year-to-date periods ended June 30, 2014December 31, 2013, and June 30, 2013, respectively.

In December 2013, the Company recorded charges totaling $4.4 million for asset impairment, primarily due to the write down of asset values in Retail. The Company wrote down the value of these assets to the extent their carrying amounts exceeded fair value. The Company classified the significant assumptions used to determine the fair value of the impaired assets, which were not material, as Level 3 in the fair value hierarchy. 
Railcar assets leased to others
The components of Railcar assets leased to others are as follows:
 
(in thousands)
June 30,
2014
 
December 31,
2013
 
June 30,
2013
Railcar assets leased to others
$
323,881

 
$
317,750

 
$
321,269

Less: accumulated depreciation
81,734

 
77,129

 
78,382

 
$
242,147

 
$
240,621

 
$
242,887

Depreciation expense on railcar assets leased to others amounted to $6.9 million, $14.7 million and $7.4 million for the year-to-date periods ended June 30, 2014December 31, 2013 and June 30, 2013, respectively.

4. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain 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 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 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 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 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

11

Table of Contents

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 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 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 following table presents at June 30, 2014December 31, 2013 and June 30, 2013, 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, 2014
 
December 31, 2013
 
June 30, 2013
(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
$
61,992

 
$

 
$
15,480

 
$

 
$
33,364

 
$

Fair value of derivatives
52,731

 

 
31,055

 

 
46,329

 

Balance at end of period
$
114,723

 
$

 
$
46,535

 
$

 
$
79,693

 
$


The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
 
June 30, 2014
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
113,205

 
$
323

 
$
3,143

 
$
260

 
$
116,931

Commodity derivative liabilities
(12,770
)
 
(11
)
 
(89,277
)
 
(7,704
)
 
(109,762
)
Cash collateral
61,992

 

 

 

 
61,992

Balance sheet line item totals
$
162,427

 
$
312

 
$
(86,134
)
 
$
(7,444
)
 
$
69,161


 
December 31, 2013
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
69,289

 
$
246

 
$
1,286

 
$
49

 
$
70,870

Commodity derivative liabilities
(13,450
)
 

 
(65,240
)
 
(6,693
)
 
(85,383
)
Cash collateral
15,480

 

 

 

 
15,480

Balance sheet line item totals
$
71,319

 
$
246

 
$
(63,954
)
 
$
(6,644
)
 
$
967


12

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


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, 2014 and 2013 are as follows:
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Gains on commodity derivatives included in sales and merchandising revenues
$
73,517

 
$
31,068

 
$
19,831

 
$
67,436

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2014, December 31, 2013 and June 30, 2013:
 
 
June 30, 2014
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
244,716

 

 

 

Soybeans
42,565

 

 

 

Wheat
10,787

 

 

 

Oats
30,470

 

 

 

Ethanol

 
246,812

 

 

Corn oil

 

 
25,371

 

Other
22

 

 

 
102

Subtotal
328,560

 
246,812

 
25,371

 
102

Exchange traded:
 
 
 
 
 
 
 
Corn
142,580

 

 

 

Soybeans
27,855

 

 

 

Wheat
36,740

 

 

 

Oats
7,980

 

 

 

Ethanol

 
110,586

 

 

Other

 

 

 
5

Subtotal
215,155

 
110,586

 

 
5

Total
543,715

 
357,398

 
25,371

 
107



13

Table of Contents

 
December 31, 2013
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
185,978

 

 

 

Soybeans
18,047

 

 

 

Wheat
11,485

 

 

 

Oats
27,939

 

 

 

Ethanol

 
179,212

 

 

Corn oil

 

 
25,911

 

Other
81

 

 

 
89

Subtotal
243,530

 
179,212

 
25,911

 
89

Exchange traded:
 
 
 
 
 
 
 
Corn
124,420

 

 

 

Soybeans
11,030

 

 

 

Wheat
23,980

 

 

 

Oats
6,820

 

 

 

Ethanol

 
21,630

 

 

Subtotal
166,250

 
21,630

 

 

Total
409,780

 
200,842

 
25,911

 
89


 
June 30, 2013
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









14

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,
2014
 
2013
 
2014
 
2013
Net income attributable to The Andersons, Inc.
$
44,301

 
$
29,539

 
$
67,009

 
$
42,117

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
254

 
101

 
346

 
155

Earnings available to common shareholders
$
44,047

 
$
29,438

 
$
66,663

 
$
41,962

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,251

 
27,995

 
28,203

 
27,953

Earnings per common share – basic
$
1.56

 
$
1.05

 
$
2.36

 
$
1.50

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,251

 
27,995

 
28,203

 
27,953

Effect of dilutive awards
30

 
175

 
49

 
163

Weighted average shares outstanding – diluted
28,281

 
28,170

 
28,252

 
28,116

Earnings per common share – diluted
$
1.56

 
$
1.05

 
$
2.36

 
$
1.49

There were no antidilutive stock-based awards outstanding at June 30, 2014 or 2013.

6. Employee Benefit Plans
The following are components of the net periodic benefit cost for the pension and postretirement benefit plans maintained by the Company for the three and six months ended June 30, 2014 and 2013:
 
 
Pension Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2014
 
2013
 
2014
 
2013
Service cost
$
47

 
$

 
$
90

 
$

Interest cost
1,225

 
1,048

 
2,387

 
2,114

Expected return on plan assets
(1,903
)
 
(1,747
)
 
(3,808
)
 
(3,503
)
Recognized net actuarial loss
260

 
373

 
467

 
765

Benefit income
$
(371
)
 
$
(326
)
 
$
(864
)
 
$
(624
)
 
 
Postretirement Benefits
(in thousands)
Three months ended
June 30,
 
Six months ended
June 30,
2014
 
2013
 
2014
 
2013
Service cost
$
156

 
$
197

 
$
343

 
$
421

Interest cost
362

 
338

 
755

 
683

Amortization of prior service cost
(136
)
 
(136
)
 
(272
)
 
(272
)
Recognized net actuarial loss
178

 
377

 
407

 
737

Benefit cost
$
560

 
$
776

 
$
1,233

 
$
1,569





15

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 investments in Lansing Trade Group, LLC (“LTG”) and the Thompsons Limited joint ventures. 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 also has 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.

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2014
 
2013
 
2014
 
2013
(in thousands)
 
 
 
 
 
 
 
Revenues from external customers
 
 
 
 
 
 
 
Grain
$
656,004

 
$
891,350

 
$
1,239,163

 
$
1,727,845

Ethanol
226,388

 
222,240

 
415,208

 
421,549

Plant Nutrient
311,895

 
330,339

 
419,525

 
442,241

Rail
33,409

 
38,601

 
85,711

 
84,965

Turf & Specialty
42,913

 
43,144

 
86,638

 
90,331

Retail
41,473

 
41,290

 
69,131

 
72,003

Total
$
1,312,082

 
$
1,566,964

 
$
2,315,376

 
$
2,838,934

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Inter-segment sales
 
 
 
 
 
 
 
Grain
$
3,362

 
$
1

 
$
3,362

 
$
333

Plant Nutrient
2,161

 
4,015

 
9,528

 
11,712

Rail
109

 
105

 
218

 
209

Turf & Specialty
835

 
841

 
1,642

 
1,840

Total
$
6,467

 
$
4,962

 
$
14,750

 
$
14,094

 

16

Table of Contents

 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Interest expense (income)
 
 
 
 
 
 
 
Grain
$
2,705

 
$
2,474

 
$
5,480

 
$
6,323

Ethanol
76

 
280

 
176

 
606

Plant Nutrient
960

 
797

 
1,731

 
1,715

Rail
1,904

 
1,429

 
3,560

 
2,942

Turf & Specialty
422

 
346

 
840

 
748

Retail
164

 
152

 
334

 
367

Other
(85
)
 
(623
)
 
27

 
(1,442
)
Total
$
6,146

 
$
4,855

 
$
12,148

 
$
11,259


 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Equity in earnings of affiliates, net
 
 
 
 
 
 
 
Grain
$
8,467

 
$
5,027

 
$
10,351

 
$
12,937

Ethanol
23,746

 
4,983

 
42,363

 
4,877

Total
$
32,213

 
$
10,010

 
$
52,714

 
$
17,814

 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Other income (expense), net
 
 
 
 
 
 
 
Grain (a)
$
975

 
$
(349
)
 
$
19,321

 
$
222

Ethanol
356

 
199

 
130

 
430

Plant Nutrient
391

 
164

 
576

 
139

Rail
787

 
702

 
1,497

 
1,648

Turf & Specialty
467

 
175

 
774

 
450

Retail
190

 
100

 
302

 
214

Other
631

 
301

 
809

 
915

Total
$
3,797

 
$
1,292

 
$
23,409

 
$
4,018

 (a) Increase is related to gain on LTG partial share redemption. See Note 8. Related Party Transactions for details of the LTG gain in the first quarter of 2014.
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Income (loss) before income taxes
 
 
 
 
 
 
 
Grain
$
10,355

 
$
2,053

 
$
21,661

 
$
10,352

Ethanol
33,904

 
10,601

 
53,728

 
13,080

Plant Nutrient
25,004

 
23,240

 
23,593

 
22,678

Rail
6,684

 
9,680

 
21,729

 
24,254

Turf & Specialty
1,998

 
2,195

 
3,373

 
6,196

Retail
1,637

 
1,539

 
(698
)
 
(1,630
)
Other
(9,567
)
 
(2,289
)
 
(16,791
)
 
(6,254
)
Noncontrolling interests
5,069

 
1,193

 
8,390

 
927

Total
$
75,084

 
$
48,212

 
$
114,985

 
$
69,603



17

Table of Contents

(in thousands)
June 30, 2014
 
December 31, 2013
 
June 30, 2013
Identifiable assets
 
 
 
 
 
Grain
$
823,957

 
$
921,914

 
$
794,913

Ethanol
255,077

 
229,797

 
207,977

Plant Nutrient
235,241

 
268,238

 
240,192

Rail
312,354

 
312,654

 
298,525

Turf & Specialty
85,696

 
89,939

 
73,343

Retail
46,319

 
44,910

 
50,313

Other
133,984

 
406,104

 
155,718

Total
$
1,892,628

 
$
2,273,556

 
$
1,820,981


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.
On January 22, 2014, the Company entered into an agreement with LTG for a partial redemption of the Company's investment in LTG for $60 million. The redemption reduced the Company's interest in LTG from approximately 47.5 percent to approximately 39.2 percent on a fully diluted basis. A portion of the proceeds ($28.5 million) was considered a distribution of earnings and reduced the Company's cost basis in LTG. The difference between the remaining proceeds of $31.5 million and the new cost basis of the shares sold, net of deal costs, resulted in a book gain of $17.1 million ($10.7 million after tax). This gain was recorded in Other income, net for the six months ended June 30, 2014.
In July 2013, the Company, along with Lansing Trade Group, LLC established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in the related U.S. operating company, for a purchase price of $152 million, which included an adjustment for excess working capital. The purchase price included $48 million cash paid by the Company, $40 million cash paid by LTG, and $64 million of external debt at Thompsons Limited. As part of the purchase LTG also contributed a Canadian branch of its business to Thompsons Limited. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota. The Company does not hold a majority of the outstanding shares of the Thompsons Limited joint ventures. All major operating decisions of these joint ventures are made by their Board of Directors, and the Company does not have a majority of the board seats. Due to these factors, the Company does not have control over these joint ventures and accounts for these investments under the equity method of accounting.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
(in thousands)
June 30, 2014
 
December 31, 2013
 
June 30, 2013
The Andersons Albion Ethanol LLC (a)
$
38,187

 
$
40,194

 
$
32,047

The Andersons Clymers Ethanol LLC (a)
47,129

 
44,418

 
34,257

The Andersons Marathon Ethanol LLC (a)
56,320

 
46,811

 
34,818

Lansing Trade Group, LLC (b)
65,730

 
106,028

 
91,573

Thompsons Limited (c)
53,058

 
49,833

 

Other
3,957

 
3,825

 
2,546

Total
$
264,381

 
$
291,109

 
$
195,241

(a) LLCs investment balance considers cash distributions made during the first quarter of 2014
(b) Decrease in LTG investment balance is driven by the sale of a portion of the Company's interest in LTG during the first quarter of 2014
 (c) Thompsons Limited and related U.S. operating company held by joint ventures
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.


18

Table of Contents

The following table summarizes income earned from the Company’s equity method investments by entity:
 
% ownership at
June 30, 2014
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
The Andersons Albion Ethanol LLC
53%
 
$
6,656

 
$
972

 
$
11,599

 
$
1,916

The Andersons Clymers Ethanol LLC
38%
 
6,716

 
1,358

 
12,255

 
1,139

The Andersons Marathon Ethanol LLC
50%
 
10,374

 
2,654

 
18,509

 
1,822

Lansing Trade Group, LLC
40% (a)
 
4,893

 
4,873

 
7,114

 
12,864

Thompsons Limited (b)
50%
 
3,399

 

 
3,086

 

Other
5%-23%
 
175

 
153

 
151

 
73

Total
 
 
$
32,213

 
$
10,010

 
$
52,714

 
$
17,814

 (a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 1.5%
 (b) Thompsons Limited and related U.S. operating company held by joint ventures

Total distributions received from unconsolidated affiliates, excluding proceeds on sale of investments of affiliates, were $0.3 million and $65.9 million for the three and six months ended June 30, 2014.
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, 2014 was $17.0 million. See Footnote 9 for additional discussion on the change in the investment value.
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 $23.4 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $6.4 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.








19

Table of Contents

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:
 
Three months ended
June 30,
 
Six months ended
June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Sales revenues
$
297,108

 
$
359,759

 
$
519,102

 
$
669,464

Service fee revenues (a)
6,203

 
5,814

 
11,841

 
11,615

Purchases of product
169,601

 
183,105

 
324,616

 
345,060

Lease income (b)
1,596

 
1,518

 
3,260

 
3,070

Labor and benefits reimbursement (c)
2,931

 
2,623

 
5,799

 
5,266

Other expenses (d)
238

 
395

 
724

 
753

Accounts receivable at June 30 (e)
27,028

 
24,149

 
 
 
 
Accounts payable at June 30 (f)
21,829

 
27,936

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

For the quarters ended June 30, 2014 and 2013, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $168.1 million and $162.8 million, respectively. For the six months ended June 30, 2014 and 2013, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $312.5 million and $308.6 million, respectively. For the quarters ended June 30, 2014 and 2013, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $158.1 million and $200.2 million, respectively. For the six months ended June 30, 2014 and 2013, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $275.3 million and $405.1 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, 2014December 31, 2013 and June 30, 2013 was $17.4 million, $8.9 million, and $8.6 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended June 30, 2014, December 31, 2013 and June 30, 2013 was $5.5 million, $1.2 million, and $0.6 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, 2014, December 31, 2013 and June 30, 2013:
 
(in thousands)
June 30, 2014
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
13,364

 
$

 
$

 
$
13,364

Restricted cash