Document
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, 2016
 
¨
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 28.2 million common shares outstanding, no par value, at August 4, 2016.


Table of Contents

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


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Table of Contents


Part I. Financial Information


Item 1. Financial Statements

The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
31,383

 
$
63,750

 
$
40,773

Restricted cash
987

 
451

 
941

Accounts receivable, net
212,588

 
170,912

 
238,601

Inventories (Note 2)
486,236

 
747,399

 
508,408

Commodity derivative assets – current (Note 5)
115,924

 
49,826

 
39,860

Deferred income taxes

 
6,772

 
6,069

Other current assets
48,754

 
90,412

 
44,765

Total current assets
895,872

 
1,129,522

 
879,417

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent (Note 5)
1,934

 
412

 
2,990

Goodwill
63,934

 
63,934

 
117,859

Other intangible assets, net
113,245

 
120,240

 
126,443

Other assets, net
6,549

 
9,515

 
33,370

Equity method investments
238,478

 
242,107

 
224,380

 
424,140

 
436,208

 
505,042

Rail Group assets leased to others, net (Note 3)
340,136

 
338,111

 
330,832

Property, plant and equipment, net (Note 3)
447,267

 
455,260

 
437,074

Total assets
$
2,107,415

 
$
2,359,101

 
$
2,152,365


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Table of Contents

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt (Note 4)
$
179,404

 
$
16,990

 
$
141,250

Trade and other payables
302,413

 
668,788

 
358,190

Customer prepayments and deferred revenue
18,252

 
66,762

 
25,927

Commodity derivative liabilities – current (Note 5)
43,183

 
37,387

 
42,622

Accrued expenses and other current liabilities
71,169

 
70,324

 
72,034

Current maturities of long-term debt (Note 4)
53,720

 
27,786

 
27,188

Total current liabilities
668,141

 
888,037

 
667,211

Other long-term liabilities
30,430

 
18,176

 
14,934

Commodity derivative liabilities – noncurrent (Note 5)
2,182

 
1,063

 
2,177

Employee benefit plan obligations
44,902

 
45,805

 
57,686

Long-term debt, less current maturities (Note 4)
398,746

 
436,208

 
417,279

Deferred income taxes
179,911

 
186,073

 
171,163

Total liabilities
1,324,312

 
1,575,362

 
1,330,450

Commitments and contingencies (Note 13)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (63,000 shares authorized; 29,430, 29,353 and 29,430 shares issued at 6/30/16, 12/31/15 and 6/30/15, respectively)
96

 
96

 
96

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

 

 

Additional paid-in-capital
219,489

 
222,848

 
223,802

Treasury shares, at cost (1,190, 1,397 and 1,014 shares at 6/30/16, 12/31/15 and 6/30/15, respectively)
(44,970
)
 
(52,902
)
 
(38,880
)
Accumulated other comprehensive loss
(17,094
)
 
(20,939
)
 
(55,159
)
Retained earnings
606,177

 
615,151

 
671,655

Total shareholders’ equity of The Andersons, Inc.
763,698

 
764,254

 
801,514

Noncontrolling interests
19,405

 
19,485

 
20,401

Total equity
783,103

 
783,739

 
821,915

Total liabilities and equity
$
2,107,415

 
$
2,359,101

 
$
2,152,365

See Notes to Condensed Consolidated Financial Statements


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Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Sales and merchandising revenues
$
1,064,244

 
$
1,187,704

 
$
1,952,123

 
$
2,105,929

Cost of sales and merchandising revenues
967,202

 
1,079,531

 
1,787,326

 
1,914,445

Gross profit
97,042

 
108,173

 
164,797

 
191,484

Operating, administrative and general expenses
75,405

 
83,743

 
155,286

 
162,346

Interest expense
6,554

 
4,025

 
13,605

 
10,063

Other income (loss):
 
 
 
 
 
 
 
Equity in earnings (loss) of affiliates, net
2,344

 
16,190

 
(4,633
)
 
19,450

Other income (loss), net
5,682

 
13,772

 
8,928

 
16,880

Income (loss) before income taxes
23,109

 
50,367

 
201

 
55,405

Income tax provision (benefit)
7,668

 
17,969

 
382

 
19,061

Net income (loss)
15,441

 
32,398

 
(181
)
 
36,344

Net income (loss) attributable to the noncontrolling interests
1,018

 
1,306

 
92

 
1,155

Net income (loss) attributable to The Andersons, Inc.
$
14,423

 
$
31,092

 
$
(273
)
 
$
35,189

Per common share:
 
 
 
 
 
 
 
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders
$
0.51

 
$
1.09

 
$
(0.01
)
 
$
1.23

Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders
$
0.51

 
$
1.09

 
$
(0.01
)
 
$
1.23

Dividends declared
$
0.155

 
$
0.14

 
$
0.31

 
$
0.28

See Notes to Condensed Consolidated Financial Statements


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Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
15,441

 
$
32,398

 
$
(181
)
 
$
36,344

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Recognition of gain on sale of debt securities (net of income tax of $0, $0, $74 and $0)

 

 
(126
)
 

Change in unrecognized actuarial loss and prior service cost (net of income tax of $653, $1,289, $663 and $1,525 - Note 8)
1,121

 
2,128

 
1,294

 
2,518

Foreign currency translation adjustments (net of income tax of $0, $0, $0 and $(613))
52

 
779

 
2,557

 
(3,204
)
Cash flow hedge activity (net of income tax of $36, $39, $72 and $74)
60

 
64

 
120

 
122

Other comprehensive income (loss)
1,233

 
2,971

 
3,845

 
(564
)
Comprehensive income (loss)
16,674

 
35,369

 
3,664

 
35,780

Comprehensive income (loss) attributable to the noncontrolling interests
1,018

 
1,306

 
92

 
1,155

Comprehensive income (loss) attributable to The Andersons, Inc.
$
15,656

 
$
34,063

 
$
3,572

 
$
34,625

See Notes to Condensed Consolidated Financial Statements


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Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
 
Six months ended June 30,
 
2016
 
2015
Operating Activities
 
 
 
Net income (loss)
$
(181
)
 
$
36,344

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
41,379

 
36,596

Bad debt expense
491

 
484

Equity in losses (earnings) of affiliates, net of dividends
7,181

 
(1,980
)
Gain on sale of investments
(685
)
 

Gains on sales of Rail Group assets and related leases
(4,725
)
 
(9,213
)
Excess tax benefit from share-based payment arrangement

 
(1,299
)
Deferred income taxes
(1,601
)
 
10,736

Stock-based compensation expense
3,696

 
1,988

Other
234

 
833

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(43,650
)
 
(42,209
)
Inventories
224,368

 
312,341

Commodity derivatives
(60,443
)
 
27,835

Other assets
35,612

 
17,173

Trade and other payables
(396,037
)
 
(449,027
)
Net cash provided by (used in) operating activities
(194,361
)
 
(59,398
)
Investing Activities
 
 
 
Acquisition of business, net of cash acquired

 
(124,328
)
Purchases of Rail Group assets
(27,504
)
 
(53,756
)
Proceeds from sale of Rail Group assets
10,397

 
26,355

Purchases of property, plant and equipment
(34,443
)
 
(28,214
)
Proceeds from sale of property, plant and equipment
173

 
453

Proceeds from sale of investments
15,013

 
1,866

Proceeds from sale of facilities
54,330

 

Purchase of Investments
(2,523
)
 

Change in restricted cash
(538
)
 
(513
)
Net cash provided by (used in) investing activities
14,905

 
(178,137
)
Financing Activities
 
 
 
Net change in short-term borrowings
164,000

 
138,000

Proceeds from issuance of long-term debt
77,564

 
151,608

Payments of long-term debt
(85,177
)
 
(82,014
)
Purchase of treasury stock

 
(34,160
)
Distributions to noncontrolling interest owner

 
(1,700
)
Proceeds from sale of treasury shares to employees and directors
1,282

 
426

Payments of debt issuance costs
(309
)
 
(271
)
Dividends paid
(8,679
)
 
(8,044
)
Excess tax benefit from share-based payment arrangement

 
1,299

Other
(1,592
)
 
(1,540
)
Net cash provided by (used in) financing activities
147,089

 
163,604

Decrease in cash and cash equivalents
(32,367
)
 
(73,931
)
Cash and cash equivalents at beginning of period
63,750

 
114,704

Cash and cash equivalents at end of period
$
31,383

 
$
40,773


See Notes to Condensed Consolidated Financial Statements

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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, 2014
$
96

 
$
222,789

 
$
(9,743
)
 
$
(54,595
)
 
$
644,556

 
$
20,946

 
$
824,049

Net income
 
 
 
 
 
 
 
 
35,189

 
1,155

 
36,344

Other comprehensive loss
 
 
 
 
 
 
(564
)
 
 
 
 
 
(564
)
Cash distributions to noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(1,700
)
 
(1,700
)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $819 (163 shares)
 
 
(3,428
)
 
5,023

 
 
 
 
 
 
 
1,595

Purchase of Treasury Shares (786 shares)
 
 


 
(34,160
)
 
 
 
 
 
 
 
(34,160
)
Dividends declared ($0.28 per common share)
 
 
 
 
 
 
 
 
(7,952
)
 
 
 
(7,952
)
Shares Issued for acquisitions (77 shares)
 
 
4,303

 
 
 
 
 
 
 
 
 
4,303

Performance share unit dividend equivalents
 
 
138

 
 
 
 
 
(138
)
 
 
 

Balance at June 30, 2015
$
96

 
$
223,802

 
$
(38,880
)
 
$
(55,159
)
 
$
671,655

 
$
20,401

 
$
821,915

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
96

 
$
222,848

 
$
(52,902
)
 
$
(20,939
)
 
$
615,151

 
$
19,485

 
$
783,739

Net loss
 
 
 
 
 
 
 
 
(273
)
 
92

 
(181
)
Other comprehensive income
 
 
 
 
 
 
3,845

 
 
 
 
 
3,845

Other change in noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(172
)
 
(172
)
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $424 (207 shares)
 
 
(3,379
)
 
7,932

 
 
 
 
 
 
 
4,553

Dividends declared ($0.155 per common share)
 
 
 
 
 
 
 
 
(8,681
)
 
 
 
(8,681
)
Restricted share award dividend equivalents
 
 
$
20

 
 
 
 
 
$
(20
)
 
 
 

Balance at June 30, 2016
$
96

 
$
219,489

 
$
(44,970
)
 
$
(17,094
)
 
$
606,177

 
$
19,405

 
$
783,103

See Notes to Condensed Consolidated Financial Statements


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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 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, 2016.
The Condensed Consolidated Balance Sheet data at December 31, 2015 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. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2015 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, 2015 (the “2015 Form 10-K”).
New Accounting Standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-10, Identifying Performance Obligations and Licensing. This standard is intended to clarify guidance under ASC 606 related to the definition of performance obligations and materiality considerations as well as revenue recognition questions around the licensing of intellectual property. The standard is effective for annual and interim periods beginning after December 15, 2017. The portions of this standard related to licensing are not applicable but the Company is currently assessing the method of adoption and the impact the remaining provisions in this standard will have on its Consolidated Financial Statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. This standard simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based compensation. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Principal versus Agent Considerations. This standard is intended to clarify the process to determine whether a company should record certain revenue transactions on a gross or a net basis. The standard is effective for annual and interim periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. This standard is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with expanded disclosures around those items. This guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of this standard.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This standard provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted. The Company is currently evaluating the impact of this standard.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes. This standard simplifies the presentation of deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and assets as current and non-current on the Consolidated Balance Sheets.  Instead, companies

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In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. This standard requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard.


In May 2014, the FASB issued Accounting Standards Update 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, 2017. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.


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2. Inventories
Major classes of inventories are as follows:
(in thousands)
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Grain
$
348,757

 
$
534,548

 
$
327,480

Ethanol and by-products
15,298

 
8,576

 
12,802

Plant nutrients and cob products
91,227

 
172,815

 
136,472

Retail merchandise
25,161

 
24,510

 
25,415

Railcar repair parts
5,793

 
6,894

 
6,050

Other

 
56

 
189

 
$
486,236

 
$
747,399

 
$
508,408


Inventories on the Condensed Consolidated Balance Sheets at June 30, 2016, December 31, 2015 and June 30, 2015 do not include 4.0 million, 3.4 million and 1.2 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 has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.

3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
(in thousands)
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Land
$
28,472

 
$
29,928

 
$
29,902

Land improvements and leasehold improvements
77,849

 
77,191

 
75,822

Buildings and storage facilities
290,528

 
303,482

 
296,035

Machinery and equipment
374,107

 
375,028

 
356,759

Construction in progress
51,672

 
32,871

 
21,803

 
822,628

 
818,500

 
780,321

Less: accumulated depreciation
375,361

 
363,240

 
343,247

 
$
447,267

 
$
455,260

 
$
437,074

Depreciation expense on property, plant and equipment was $23.8 million and $22.3 million for the six months ended June 30, 2016 and 2015, respectively. Additionally, Depreciation expense on property, plant and equipment was $11.6 million and $11.4 million for the three months ended June 30, 2016 and 2015, respectively. Capitalized software has been reclassified from property, plant, and equipment, and is now presented as a component of other intangible assets. Prior year balance sheets have been recast to conform with the current period presentation.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
(in thousands)
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Rail Group assets leased to others
$
442,239

 
$
434,051

 
$
422,810

Less: accumulated depreciation
102,103

 
95,940

 
91,978

 
$
340,136

 
$
338,111

 
$
330,832

Depreciation expense on Rail Group assets leased to others amounted to $9.3 million and $8.3 million for the six months ended June 30, 2016 and 2015, respectively. Additionally, Depreciation expense on Rail Group assets leased to others amounted to $4.7 million and $4.3 million for the three months ended June 30, 2016 and 2015, respectively.

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4. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 5 in the Company’s 2015 Form 10-K for a description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $872.5 million, including $22.5 million of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At June 30, 2016, the Company had a total of $630.9 million available for borrowing under its lines of credit. Our borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of June 30, 2016.
The Company’s short-term and long-term debt at June 30, 2016December 31, 2015 and June 30, 2015 consisted of the following:
(in thousands)
June 30,
2016
 
December 31,
2015
 
June 30,
2015
Short-term Debt – Non-Recourse
$

 
$

 
$

Short-term Debt – Recourse
$
179,404

 
16,990

 
141,250

Total Short-term Debt
179,404

 
16,990

 
141,250

 
 
 
 
 
 
Current Maturities of Long-term Debt – Non-Recourse

 

 

Current Maturities of Long-term Debt – Recourse
53,720

 
27,786

 
27,188

Total Current Maturities of Long-term Debt
53,720

 
27,786

 
27,188

 
 
 
 
 
 
Long-term Debt, Less: Current Maturities – Non-Recourse

 

 

Long-term Debt, Less: Current Maturities – Recourse
398,746

 
436,208

 
417,279

Total Long-term Debt, Less: Current Maturities
$
398,746

 
$
436,208

 
$
417,279



5. 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 ("CME"). 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 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. These amounts were previously classified in sales and merchandising revenues but were reclassified starting in the fourth quarter of 2015.


12

Table of Contents

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 June 30, 2016December 31, 2015 and June 30, 2015, 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:
 
June 30, 2016
 
December 31, 2015
 
June 30, 2015
(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)
$
38,252

 
$
(480
)
 
$
3,008

 
$

 
$

 
$
49,007

Fair value of derivatives
13,491

 
1,480

 
25,356

 

 

 
(58,195
)
Balance at end of period
$
51,743

 
$
1,000

 
$
28,364

 
$

 
$

 
$
(9,188
)

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
 
June 30, 2016
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
134,504

 
$
2,095

 
$
5,925

 
$
84

 
$
142,608

Commodity derivative liabilities
(56,832
)
 
(161
)
 
(48,628
)
 
(2,266
)
 
(107,887
)
Cash collateral
38,252

 

 
(480
)
 

 
37,772

Balance sheet line item totals
$
115,924

 
$
1,934

 
$
(43,183
)
 
$
(2,182
)
 
$
72,493

 
December 31, 2015
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
51,647

 
$
412

 
$
371

 
$
2

 
$
52,432

Commodity derivative liabilities
(4,829
)
 

 
(37,758
)
 
(1,065
)
 
(43,652
)
Cash collateral
3,008

 

 

 

 
3,008

Balance sheet line item totals
$
49,826

 
$
412

 
$
(37,387
)
 
$
(1,063
)
 
$
11,788

 
June 30, 2015
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
52,405

 
$
3,072

 
$
3,956

 
$
43

 
$
59,476

Commodity derivative liabilities
(61,552
)
 
(82
)
 
(46,578
)
 
(2,220
)
 
(110,432
)
Cash collateral
49,007

 

 

 

 
49,007

Balance sheet line item totals
$
39,860

 
$
2,990

 
$
(42,622
)
 
$
(2,177
)
 
$
(1,949
)



13

Table of Contents




The gains (losses) included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues
$
34,800

 
$
(41,017
)
 
$
25,941

 
$
2,805

The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2016, December 31, 2015 and June 30, 2015:
 
June 30, 2016
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
242,269

 

 

 

Soybeans
52,599

 

 

 

Wheat
13,100

 

 

 

Oats
30,722

 

 

 

Ethanol

 
130,464

 

 

Corn oil

 

 
13,800

 

Other
17

 

 

 
128

Subtotal
338,707

 
130,464

 
13,800

 
128

Exchange traded:
 
 
 
 
 
 
 
Corn
148,665

 

 

 

Soybeans
46,570

 

 

 

Wheat
22,790

 

 

 

Oats
2,820

 

 

 

Ethanol

 
36,540

 

 

Other

 

 

 

Subtotal
220,845

 
36,540

 

 

Total
559,552

 
167,004

 
13,800

 
128


14

Table of Contents

 
December 31, 2015
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
227,248

 

 

 

Soybeans
13,357

 

 

 

Wheat
13,710

 

 

 

Oats
15,019

 

 

 

Ethanol

 
138,660

 

 

Corn oil

 

 
11,532

 

Other
297

 

 

 
116

Subtotal
269,631

 
138,660

 
11,532

 
116

Exchange traded:
 
 
 
 
 
 
 
Corn
106,260

 

 

 

Soybeans
17,255

 

 

 

Wheat
28,135

 

 

 

Oats
3,480

 

 

 

Ethanol

 
840

 

 

Other

 
840

 

 

Subtotal
155,130

 
1,680

 

 

Total
424,761

 
140,340

 
11,532

 
116

 
June 30, 2015
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
233,812

 

 

 

Soybeans
29,823

 

 

 

Wheat
8,809

 

 

 

Oats
24,180

 

 

 

Ethanol

 
139,789

 

 

Corn oil

 

 
6,394

 

Other
350

 

 

 
118

Subtotal
296,974

 
139,789

 
6,394

 
118

Exchange traded:
 
 
 
 
 
 
 
Corn
139,965

 

 

 

Soybeans
30,945

 

 

 

Wheat
22,585

 

 

 

Oats
4,690

 

 

 

Ethanol

 
25,620

 

 

Other

 

 

 

Subtotal
198,185

 
25,620

 

 

Total
495,159

 
165,409

 
6,394

 
118







15

Table of Contents

At June 30, 2016, December 31, 2015 and June 30, 2015, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:
 
June 30,
 
December 31,
 
June 30,
(in thousands)
2016
 
2015
 
2015
Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts included in other long term liabilities
(5,422
)
 
(3,133
)
 

Total fair value of interest rate derivatives not designated as hedging instruments
$
(5,422
)
 
$
(3,133
)
 
$

Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract included in other short term liabilities

 
(191
)
 

Total fair value of interest rate derivatives designated as hedging instruments
$

 
$
(191
)
 
$

The losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for interest rate derivatives not designated as hedging instruments are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Interest expense
$
(694
)
 
$

 
$
(2,294
)
 
$

The Company also has foreign currency derivatives which are considered effective economic hedges of specified economic risks but which are not designated as accounting hedges. At June 30, 2016, December 31, 2015 and June 30, 2015, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:
 
June 30,
 
December 31,
 
June 30,
(in thousands)
2016
 
2015
 
2015
Derivatives not designated as hedging instruments
 
 
 
 
 
Foreign currency contracts included in short term assets
1,391

 

 

Total fair value of foreign currency contract derivatives not designated as hedging instruments
$
1,391

 
$

 
$

The losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for foreign currency contract derivatives not designated as hedging instruments are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Foreign currency derivative gains (losses) included in Other income, net
$
(87
)
 
$

 
$
1,391

 
$


















16

Table of Contents

6. Employee Benefit Plans

The following are components of the net periodic benefit cost for the pension and post-retirement benefit plans maintained by the Company for the three and six months ended June 30, 2016 and 2015:
 
Pension Benefits
(in thousands)
Three months ended June 30,
 
Six months ended June 30,
2016
 
2015
 
2016
2015
Service cost
$

 
$
63

 
$

$
118

Interest cost
48

 
(1,118
)
 
97

91

Expected return on plan assets

 
1,561

 


Recognized net actuarial loss
37

 
388

 
73

758

Benefit cost
$
85

 
$
894

 
$
170

$
967

 
Post-retirement Benefits
(in thousands)
Three months ended June 30,
 
Six months ended June 30,
2016
 
2015
 
2016
2015
Service cost
$
167

 
$
210

 
$
380

$
450

Interest cost
370

 
386

 
775

792

Amortization of prior service cost
(89
)
 
(136
)
 
(177
)
(272
)
Recognized net actuarial loss
149

 
367

 
384

759

Benefit cost
$
597

 
$
827

 
$
1,362

$
1,729


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 forecast 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. Additionally, the annual effective tax rate differs from the statutory U.S. Federal tax rate of 35% primarily due to the impact of state income taxes and to benefits related to the domestic production activities deduction.

For the three months ended June 30, 2016, the Company recorded income tax expense of $7.7 million at an effective tax rate of 33.2%, which varied from the U.S. Federal tax rate of 35% primarily due to a 1.9% tax benefit related to the domestic production activities deduction and a 1.7% tax benefit attributable to the accounting for the investment in a foreign affiliate. For the three months ended June 30, 2015, the Company recorded income tax expense of $18.0 million at an effective tax rate of 35.7%.

For the six months ended June 30, 2016, the Company recorded income tax expense of $0.4 million at an effective tax rate of 189.6%, which varied from the U.S. Federal tax rate of 35% primarily due to a 174.7% discrete tax charge related to state income taxes. For the six months ended June 30, 2015, the Company recorded income tax expense of $19.1 million at an effective tax rate of 34.4%.

There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2015. During the quarter ended March 31, 2016, the IRS completed its audit of the Company’s 2011 and 2012 consolidated Federal income tax returns. The results of the examination will not have a material effect on the Company’s 2016 effective tax rate.









17

Table of Contents

8. Accumulated Other Comprehensive Loss

The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended June 30, 2016 and 2015:

 
 
 
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
 
 
 
For the three months ended June 30, 2016
 
For the Six months ended June 30, 2016
(in thousands)
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(51
)
 
$
(9,536
)
 
$

 
$
(8,740
)
 
$
(18,327
)
 
$
(111
)
 
$
(12,041
)
 
$
126

 
$
(8,913
)
 
$
(20,939
)
 
Other comprehensive income (loss) before reclassifications
 
60

 
52

 

 
1,177

 
1,289

 
120

 
2,557

 

 
1,406

 
4,083

 
Amounts reclassified from accumulated other comprehensive loss
 

 

 

 
(56
)
 
(56
)
 

 

 
(126
)
 
(112
)
 
(238
)
Net current-period other comprehensive income (loss)
 
60

 
52

 

 
1,121

 
1,233

 
120

 
2,557

 
(126
)
 
1,294

 
3,845

Ending balance
 
$
9

 
$
(9,484
)
 
$

 
$
(7,619
)
 
$
(17,094
)
 
$
9

 
$
(9,484
)
 
$

 
$
(7,619
)
 
$
(17,094
)
 
 
 
Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
 
 
 
                        For the three months ended June 30, 2015
 
For the six months ended June 30, 2015
(in thousands)
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(306
)
 
$
(8,692
)
 
$
126

 
$
(49,258
)
 
$
(58,130
)
 
$
(364
)
 
$
(4,709
)
 
$
126

 
$
(49,648
)
 
$
(54,595
)
 
Other comprehensive income (loss) before reclassifications
 
64

 
779

 

 
2,213

 
3,056

 
122

 
(3,204
)
 

 
2,688

 
(394
)
 
Amounts reclassified from accumulated other comprehensive loss
 

 

 

 
(85
)
 
(85
)
 

 

 

 
(170
)
 
(170
)
Net current-period other comprehensive income (loss)
 
64

 
779

 

 
2,128

 
2,971

 
122

 
(3,204
)
 

 
2,518

 
(564
)
Ending balance
 
$
(242
)
 
$
(7,913
)
 
$
126

 
$
(47,130
)
 
$
(55,159
)
 
$
(242
)
 
$
(7,913
)
 
$
126

 
$
(47,130
)
 
$
(55,159
)
(a) All amounts are net of tax. Amounts in parentheses indicate debits







18

Table of Contents

The following tables show the reclassification adjustments from accumulated other comprehensive loss to net income (loss) for the three and six months ended June 30, 2016 and 2015:
 
 
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)
For the three months ended June 30, 2016
 
For the Six months ended June 30, 2016
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(89
)
 
(b)
 
$
(177
)
 
(b)
 
 
(89
)
 
Total before tax
 
(177
)
 
Total before tax
 
 
33

 
Income tax provision
 
65

 
Income tax provision
 
 
$
(56
)
 
Net of tax
 
$
(112
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Other items
 
 
 
 
 
 
 
 
    Recognition of gain on sale of investment
 
$

 
 
 
(200
)
 
 
 
 

 
Total before tax
 
(200
)
 
Total before tax
 
 

 
Income tax provision
 
74

 
Income tax provision
 
 
$

 
Net of tax
 
$
(126
)
 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
(56
)
 
Net of tax
 
(238
)
 
Net of tax
 
 
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a)
(in thousands)
For the three months ended June 30, 2015
 
For the six months ended June 30, 2015
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
$
(272
)
 
(b)
 
 
(136
)
 
Total before tax
 
(272
)
 
Total before tax
 
 
51

 
Income tax provision
 
102

 
Income tax provision
 
 
$
(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 credits to profit/loss
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).

19

Table of Contents


9. 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 that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.
(in thousands, except per common share data)
Three months ended June 30,
 
Six months ended June 30,
2016
 
2015
 
2016
 
2015
Net income (loss) attributable to The Andersons, Inc.
$
14,423

 
$
31,092

 
$
(273
)
 
$
35,189

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
8

 
52

 
5

 
66

Earnings (loss) available to common shareholders
$
14,415

 
$
31,040

 
$
(278
)
 
$
35,123

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,227

 
28,375

 
28,164

 
28,558

Earnings (loss) per common share – basic
$
0.51

 
$
1.09

 
$
(0.01
)
 
$
1.23

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
28,227

 
28,375

 
28,164

 
28,558

Effect of dilutive awards
86

 
13

 

 
51

Weighted average shares outstanding – diluted
28,313

 
28,388

 
28,164

 
28,609

Earnings (loss) per common share – diluted
$
0.51

 
$
1.09

 
$
(0.01
)
 
$
1.23

All outstanding share awards were antidilutive for the six months ended June 30, 2016 as the Company experienced a net loss. There were no antidilutive stock-based awards outstanding for the three months ended June 30, 2016 or at June 30, 2015.

20

Table of Contents


10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2016, December 31, 2015 and June 30, 2015:
(in thousands)
June 30, 2016
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
11,578

 
$

 
$

 
$
11,578

Restricted cash
987

 

 

 
987

Commodity derivatives, net (a)
48,412

 
24,083

 

 
72,495

Provisionally priced contracts (b)
(42,213
)