Edgar Filing: Andersons, Inc.

Document

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.

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THE ANDERSONS, INC.

INDEX



	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets – June 30, 2016, December 31, 2015 and June 30, 2015	3
Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2016 and 2015	5
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and six months ended June 30, 2016 and 2015	6
Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2016 and 2015	7
Condensed Consolidated Statements of Equity – Six months ended June 30, 2016 and 2015	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures about Market Risk	41
Item 4. Controls and Procedures	41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6. Exhibits	43

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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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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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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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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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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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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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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, 2016, December 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.

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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, 2016, December 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	)

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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

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	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

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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	$	—

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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,
(in thousands)	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,
(in thousands)	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.

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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

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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).

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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,
(in thousands, except per common share data)	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.

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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		)