Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
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¨ | 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)
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OHIO | | 34-1562374 |
(State of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1947 Briarfield Boulevard, 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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | Accelerated Filer | ¨ |
Non-accelerated filer | ¨
| Smaller reporting company | ¨ |
Emerging growth company | ¨
| | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
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 28, 2017.
THE ANDERSONS, INC.
INDEX
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| Page No. |
PART I. FINANCIAL INFORMATION | |
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PART II. OTHER INFORMATION | |
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Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands) |
| | | | | | | | | | | |
| June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 18,934 |
| | $ | 62,630 |
| | $ | 31,383 |
|
Restricted cash | 1,033 |
| | 471 |
| | 987 |
|
Accounts receivable, net | 186,331 |
| | 194,698 |
| | 212,588 |
|
Inventories (Note 2) | 463,205 |
| | 682,747 |
| | 486,236 |
|
Commodity derivative assets – current (Note 5) | 11,619 |
| | 45,447 |
| | 115,924 |
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Other current assets | 59,873 |
| | 72,133 |
| | 48,754 |
|
Assets held for sale (Note 16) | 10,028 |
| | — |
| | — |
|
Total current assets | 751,023 |
| | 1,058,126 |
| | 895,872 |
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Other assets: | | | | | |
Commodity derivative assets – noncurrent (Note 5) | 1,191 |
| | 100 |
| | 1,934 |
|
Goodwill (Note 17) | 23,105 |
| | 63,934 |
| | 63,934 |
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Other intangible assets, net | 113,492 |
| | 106,100 |
| | 113,245 |
|
Other assets, net | 8,686 |
| | 10,411 |
| | 6,549 |
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Equity method investments | 215,794 |
| | 216,931 |
| | 238,478 |
|
| 362,268 |
| | 397,476 |
| | 424,140 |
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Rail Group assets leased to others, net (Note 3) | 375,092 |
| | 327,195 |
| | 340,136 |
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Property, plant and equipment, net (Note 3) | 423,042 |
| | 450,052 |
| | 447,267 |
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Total assets | $ | 1,911,425 |
| | $ | 2,232,849 |
| | $ | 2,107,415 |
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The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) |
| | | | | | | | | | | |
| June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Liabilities and equity | | | | | |
Current liabilities: | | | | | |
Short-term debt (Note 4) | $ | 124,000 |
| | $ | 29,000 |
| | $ | 179,404 |
|
Trade and other payables | 267,194 |
| | 581,826 |
| | 302,413 |
|
Customer prepayments and deferred revenue | 15,113 |
| | 48,590 |
| | 18,252 |
|
Commodity derivative liabilities – current (Note 5) | 18,104 |
| | 23,167 |
| | 43,183 |
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Accrued expenses and other current liabilities | 69,256 |
| | 69,648 |
| | 71,169 |
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Current maturities of long-term debt (Note 4) | 62,482 |
| | 47,545 |
| | 53,720 |
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Total current liabilities | 556,149 |
| | 799,776 |
| | 668,141 |
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Other long-term liabilities | 34,441 |
| | 27,833 |
| | 30,430 |
|
Commodity derivative liabilities – noncurrent (Note 5) | 334 |
| | 339 |
| | 2,182 |
|
Employee benefit plan obligations | 36,837 |
| | 35,026 |
| | 44,902 |
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Long-term debt, less current maturities (Note 4) | 354,066 |
| | 397,065 |
| | 398,746 |
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Deferred income taxes | 181,806 |
| | 182,113 |
| | 179,911 |
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Total liabilities | 1,163,633 |
| | 1,442,152 |
| | 1,324,312 |
|
Commitments and contingencies (Note 13) |
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Shareholders’ equity: | | | | | |
Common shares, without par value (63,000 shares authorized; 29,430 shares issued at 6/30/2017, 12/31/16 and 6/30/2016) | 96 |
| | 96 |
| | 96 |
|
Preferred shares, without par value (1,000 shares authorized; none issued) | — |
| | — |
| | — |
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Additional paid-in-capital | 222,261 |
| | 222,910 |
| | 219,489 |
|
Treasury shares, at cost (1,080, 1,201 and 1,190 shares at 6/30/2017, 12/31/16 and 6/30/2016, respectively) | (40,945 | ) | | (45,383 | ) | | (44,970 | ) |
Accumulated other comprehensive loss | (11,993 | ) | | (12,468 | ) | | (17,094 | ) |
Retained earnings | 570,406 |
| | 609,206 |
| | 606,177 |
|
Total shareholders’ equity of The Andersons, Inc. | 739,825 |
| | 774,361 |
| | 763,698 |
|
Noncontrolling interests | 7,967 |
| | 16,336 |
| | 19,405 |
|
Total equity | 747,792 |
| | 790,697 |
| | 783,103 |
|
Total liabilities and equity | $ | 1,911,425 |
| | $ | 2,232,849 |
| | $ | 2,107,415 |
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See Notes to Condensed Consolidated Financial Statements
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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Sales and merchandising revenues | $ | 993,662 |
| | $ | 1,064,244 |
| | $ | 1,845,678 |
| | $ | 1,952,123 |
|
Cost of sales and merchandising revenues | 905,828 |
| | 967,202 |
| | 1,681,386 |
| | 1,787,326 |
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Gross profit | 87,834 |
| | 97,042 |
| | 164,292 |
| | 164,797 |
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Operating, administrative and general expenses | 69,928 |
| | 75,405 |
| | 151,875 |
| | 155,286 |
|
Goodwill impairment | 42,000 |
| | — |
| | 42,000 |
| | — |
|
Interest expense | 5,988 |
| | 6,554 |
| | 12,088 |
| | 13,605 |
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Other income (loss): | | | | | | | |
Equity in earnings (losses) of affiliates, net | 6,385 |
| | 2,344 |
| | 4,507 |
| | (4,633 | ) |
Other income, net | 4,632 |
| | 5,682 |
| | 12,529 |
| | 8,928 |
|
Income (loss) before income taxes | (19,065 | ) | | 23,109 |
| | (24,635 | ) | | 201 |
|
Income tax provision (benefit) | 7,652 |
| | 7,668 |
| | 5,117 |
| | 382 |
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Net income (loss) | (26,717 | ) | | 15,441 |
| | (29,752 | ) | | (181 | ) |
Net income (loss) attributable to the noncontrolling interests | (64 | ) | | 1,018 |
| | (10 | ) | | 92 |
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Net income (loss) attributable to The Andersons, Inc. | $ | (26,653 | ) | | $ | 14,423 |
| | $ | (29,742 | ) | | $ | (273 | ) |
Per common share: | | | | | | | |
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.94 | ) | | $ | 0.51 |
| | $ | (1.05 | ) | | $ | (0.01 | ) |
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.94 | ) | | $ | 0.51 |
| | $ | (1.05 | ) | | $ | (0.01 | ) |
Dividends declared | $ | 0.160 |
| | $ | 0.155 |
| | $ | 0.320 |
| | $ | 0.310 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
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| Three months ended June 30, | | Six months ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | (26,717 | ) | | $ | 15,441 |
| | $ | (29,752 | ) | | $ | (181 | ) |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in fair value of debt securities (net of income tax of $0, $0, $0 and $74) | — |
| | — |
| | — |
| | (126 | ) |
Change in unrecognized actuarial loss and prior service cost (net of income tax of $(628), $653, $(635) and $663 - Note 8) | (988 | ) | | 1,121 |
| | (998 | ) | | 1,294 |
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Foreign currency translation adjustments (net of income tax of $0, $0, $0 and $0) | 959 |
| | 52 |
| | 1,473 |
| | 2,557 |
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Cash flow hedge activity (net of income tax of $0, $36, $0, and $72) | — |
| | 60 |
| | — |
| | 120 |
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Other comprehensive income (loss) | (29 | ) | | 1,233 |
| | 475 |
| | 3,845 |
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Comprehensive income (loss) | (26,746 | ) | | 16,674 |
| | (29,277 | ) | | 3,664 |
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Comprehensive income (loss) attributable to the noncontrolling interests | (64 | ) | | 1,018 |
| | (10 | ) | | 92 |
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Comprehensive income (loss) attributable to The Andersons, Inc. | $ | (26,682 | ) | | $ | 15,656 |
| | $ | (29,267 | ) | | $ | 3,572 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
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| Six months ended June 30, |
| 2017 | | 2016 |
Operating Activities | | | |
Net income (loss) | $ | (29,752 | ) | | $ | (181 | ) |
Adjustments to reconcile net income (loss) to cash used in operating activities: | | | |
Depreciation and amortization | 42,878 |
| | 41,379 |
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Bad debt expense | 839 |
| | 491 |
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Equity in (earnings) losses of affiliates, net of dividends | (3,793 | ) | | 7,181 |
|
Gains on sale of facilities and investments in affiliates | (4,701 | ) | | (685 | ) |
Gains on sale of Rail Group assets and related leases | (4,984 | ) | | (4,725 | ) |
Deferred income taxes | (628 | ) | | (1,601 | ) |
Stock-based compensation expense | 2,935 |
| | 3,696 |
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Goodwill impairment expense | 42,000 |
| | — |
|
Other | (2,339 | ) | | 234 |
|
Changes in operating assets and liabilities: | | | |
Accounts receivable | 13,086 |
| | (43,650 | ) |
Inventories | 213,064 |
| | 224,368 |
|
Commodity derivatives | 27,670 |
| | (60,443 | ) |
Other assets | 10,629 |
| | 35,612 |
|
Payables and other accrued expenses | (352,133 | ) | | (396,037 | ) |
Net cash provided by (used in) operating activities | (45,229 | ) | | (194,361 | ) |
Investing Activities | | | |
Acquisition of business, net of cash acquired | (3,507 | ) | | — |
|
Purchases of Rail Group assets | (66,506 | ) | | (27,504 | ) |
Proceeds from sale of Rail Group assets | 9,390 |
| | 10,397 |
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Purchases of property, plant and equipment and capitalized software | (15,976 | ) | | (34,443 | ) |
Proceeds from sale of property, plant and equipment | 646 |
| | 173 |
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Proceeds from returns of investments in affiliates | — |
| | 15,013 |
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Proceeds from sale of facilities and investments | 13,788 |
| | 54,330 |
|
Purchase of investments | (2,429 | ) | | (2,523 | ) |
Other | 437 |
| | (538 | ) |
Net cash provided by (used in) investing activities | (64,157 | ) | | 14,905 |
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Financing Activities | | | |
Net change in short-term borrowings | 93,941 |
| | 164,000 |
|
Proceeds from issuance of long-term debt | 15,175 |
| | 77,564 |
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Proceeds from long-term financing arrangement | 10,396 |
| | — |
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Payments of long-term debt | (42,849 | ) | | (85,177 | ) |
Proceeds from sale of treasury shares to employees and directors | 473 |
| | 1,282 |
|
Payments of debt issuance costs | (2,024 | ) | | (309 | ) |
Dividends paid | (8,984 | ) | | (8,679 | ) |
Other | (438 | ) | | (1,592 | ) |
Net cash provided by (used in) financing activities | 65,690 |
| | 147,089 |
|
Decrease in cash and cash equivalents | (43,696 | ) | | (32,367 | ) |
Cash and cash equivalents at beginning of period | 62,630 |
| | 63,750 |
|
Cash and cash equivalents at end of period | $ | 18,934 |
| | $ | 31,383 |
|
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
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| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2015 | $ | 96 |
| | $ | 222,848 |
| | $ | (52,902 | ) | | $ | (20,939 | ) | | $ | 615,151 |
| | $ | 19,485 |
| | $ | 783,739 |
|
Net income (loss) | | | | | | | | | (273 | ) | | 92 |
| | (181 | ) |
Other comprehensive income (loss) | | | | | | | 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 ($0.31 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 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2016 | $ | 96 |
| | $ | 222,910 |
| | $ | (45,383 | ) | | $ | (12,468 | ) | | $ | 609,206 |
| | $ | 16,336 |
| | $ | 790,697 |
|
Net income (loss) | | | | | | | | | (29,742 | ) | | (10 | ) | | (29,752 | ) |
Other comprehensive income (loss) | | | | | | | 475 |
| | | | | | 475 |
|
Other change in noncontrolling interest | | | | | | | | | | | (8,359 | ) | | (8,359 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $(323) (122 shares) | | | (654 | ) | | 4,386 |
| | | | | | | | 3,732 |
|
Dividends declared ($0.32 per common share) | | | | | | | | | (9,001 | ) | | | | (9,001 | ) |
Restricted share award dividend equivalents | | | 5 |
| | 52 |
| | | | (57 | ) | | | | — |
|
Balance at June 30, 2017 | $ | 96 |
| | $ | 222,261 |
| | $ | (40,945 | ) | | $ | (11,993 | ) | | $ | 570,406 |
| | $ | 7,967 |
| | $ | 747,792 |
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See Notes to Condensed Consolidated Financial Statements
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, 2017. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2016 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2016 was derived from the audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue From Contracts With Customers. The FASB issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10 ASU 2016-12 and ASU 2016-20, respectively. 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. These standards are effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company plans on using the modified retrospective method of adoption and does not plan to early adopt.
While we are still continuing to evaluate the potential future impact of these standards on our financial statements, we believe the following items may be impacted upon adoption:
- Methodology for recognizing certain fee-based arrangements within our Grain and Ethanol segments;
- Determination of whether we are the principal or agent for certain revenue streams within several of our segments;
- Methodology for recognizing gains on certain sale transactions within our Rail segment.
Our evaluation of these standards, which includes reviewing representative samples of customer contracts, considers the amount and timing of revenues recognized, financial statement presentation, and required disclosures.
Leasing
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 supersedes the current accounting for leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within. Early adoption is permitted, however the Company does not plan to early adopt. Entities are required to use a modified retrospective approach when transitioning to ASU 2016-02 for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements.
The Company expects this standard to have the effect of bringing substantially all of the off balance-sheet rail assets currently in nonrecourse financing deals noted in Item 2 of Form 10-Q onto the balance sheet along with a corresponding liability for the
associated obligations. Additionally, we have other arrangements currently classified as operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet. The magnitude of these items is substantially less than the rail assets that will be recorded on the balance sheet. We expect any impact to the statement of operations to be minimal post adoption.
Other applicable standards
In May 2017, the FASB issued Accounting Standards Update No. 2017-09 Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This standard states that if the vesting conditions, fair value, and classification of the awards are the same immediately before and after the modification an entity would not apply modification accounting. The ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted, however the Company has not chosen to do so at this time. The Company does not expect the impact from adoption of this standard to be material.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07 Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that the service cost component be reported in the same line item as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit costs should be presented in the income statement separately from the service cost component and outside of income from operations if that subtotal is presented. The ASU is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact this standard will have on its Consolidated Financial Statements and disclosures.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The ASU is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted, and the Company elected to implement this standard in the current quarter.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how companies present and classify certain cash receipts and payments in the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017. At adoption, the Company will elect to continue classifying distributions from equity method investments using the cumulative earnings approach which is consistent with current practice.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. The Company has not historically incurred significant credit losses and does not currently anticipate circumstances that would lead to a CECL approach differing from the Company's existing allowance estimates in a material way. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, however the Company does not plan to do so.
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 does not expect the impact from adoption of this standard to be material to currently held financial assets and liabilities.
2. Inventories
Major classes of inventories are as follows:
|
| | | | | | | | | | | |
(in thousands) | June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Grain | $ | 373,863 |
| | $ | 495,139 |
| | $ | 348,757 |
|
Ethanol and co-products | 14,041 |
| | 10,887 |
| | 15,298 |
|
Plant nutrients and cob products | 69,365 |
| | 150,259 |
| | 91,227 |
|
Retail merchandise | 906 |
| | 20,678 |
| | 25,161 |
|
Railcar repair parts | 5,030 |
| | 5,784 |
| | 5,793 |
|
| $ | 463,205 |
| | $ | 682,747 |
| | $ | 486,236 |
|
Inventories on the Condensed Consolidated Balance Sheets at June 30, 2017, December 31, 2016 and June 30, 2016 do not include 0.8 million, 0.9 million and 4.0 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, net are as follows:
|
| | | | | | | | | | | |
(in thousands) | June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Land | $ | 23,566 |
| | $ | 30,672 |
| | $ | 28,472 |
|
Land improvements and leasehold improvements | 71,236 |
| | 79,631 |
| | 77,849 |
|
Buildings and storage facilities | 298,077 |
| | 322,856 |
| | 290,528 |
|
Machinery and equipment | 382,321 |
| | 392,418 |
| | 374,107 |
|
Construction in progress | 7,372 |
| | 12,784 |
| | 51,672 |
|
| 782,572 |
| | 838,361 |
| | 822,628 |
|
Less: accumulated depreciation | 359,530 |
| | 388,309 |
| | 375,361 |
|
| $ | 423,042 |
| | $ | 450,052 |
| | $ | 447,267 |
|
Depreciation expense on property, plant and equipment was $24.1 million and $23.8 million for the six months ended June 30, 2017 and 2016, respectively. Additionally, depreciation expense on property, plant and equipment was $12.0 million and $11.6 million for the three months ended June 30, 2017 and 2016, respectively.
In December 2016, the Company recorded charges totaling $6.0 million for impairment of property, plant and equipment in the Retail business. This does not include $0.5 million of impairment charges related to software. 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 fair value of the impaired assets as Level 3 inputs in the fair value hierarchy.
In December 2016, the Company also recorded charges totaling $2.3 million for impairment of property, plant and equipment in the Plant Nutrient segment due to the closing of a cob facility.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
| | | | | | | | | | | |
(in thousands) | June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Rail Group assets leased to others | $ | 482,524 |
| | $ | 431,571 |
| | $ | 442,239 |
|
Less: accumulated depreciation | 107,432 |
| | 104,376 |
| | 102,103 |
|
| $ | 375,092 |
| | $ | 327,195 |
| | $ | 340,136 |
|
Depreciation expense on Rail Group assets leased to others amounted to $9.7 million and $9.3 million for the six months ended June 30, 2017 and 2016, respectively. Additionally, depreciation expense on Rail Group assets leased to others amounted to $5.0 million and $4.7 million for the three months ended June 30, 2017 and 2016, respectively.
4. Debt
On April 13, 2017, the Company amended its line of credit agreement with a syndicate of banks. The amended agreement provides for a credit facility in the amount of $800 million. Total borrowing capacity for the Company under all lines of credit is currently at $820.0 million, including $20.0 million of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At June 30, 2017, the Company had a total of $633.5 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of June 30, 2017.
The Company’s short-term and long-term debt at June 30, 2017, December 31, 2016 and June 30, 2016 consisted of the following: |
| | | | | | | | | | | |
(in thousands) | June 30,
2017 | | December 31,
2016 | | June 30,
2016 |
Short-term Debt – Non-Recourse | $ | — |
| | $ | — |
| | $ | — |
|
Short-term Debt - Recourse | $ | 124,000 |
| | $ | 29,000 |
| | $ | 179,404 |
|
Total Short-term Debt | 124,000 |
| | 29,000 |
| | 179,404 |
|
| | | | | |
Current Maturities of Long-term Debt – Non-Recourse | — |
| | — |
| | — |
|
Current Maturities of Long-term Debt – Recourse | 62,482 |
| | 47,545 |
| | 53,720 |
|
Total Current Maturities of Long-term Debt | 62,482 |
| | 47,545 |
| | 53,720 |
|
| | | | | |
Long-term Debt, Less: Current Maturities – Non-Recourse | — |
| | — |
| | — |
|
Long-term Debt, Less: Current Maturities – Recourse | 354,066 |
| | 397,065 |
| | 398,746 |
|
Total Long-term Debt, Less: Current Maturities | $ | 354,066 |
| | $ | 397,065 |
| | $ | 398,746 |
|
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. These contracts are primarily traded 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.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a futures, 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 futures, 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, 2017, December 31, 2016 and June 30, 2016, 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, 2017 | | December 31, 2016 | | June 30, 2016 |
(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) | $ | 15,452 |
| | $ | — |
| | $ | 28,273 |
| | $ | — |
| | $ | 38,252 |
| | $ | (480 | ) |
Fair value of derivatives | (12,835 | ) | | — |
| | 1,599 |
| | — |
| | 13,491 |
| | 1,480 |
|
Balance at end of period | $ | 2,617 |
| | $ | — |
| | $ | 29,872 |
| | $ | — |
| | $ | 51,743 |
| | $ | 1,000 |
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2017 |
(in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | $ | 26,101 |
| | $ | 1,201 |
| | $ | 4,404 |
| | $ | 2 |
| | $ | 31,708 |
|
Commodity derivative liabilities | (29,934 | ) | | (10 | ) | | (22,508 | ) | | (336 | ) | | (52,788 | ) |
Cash collateral | 15,452 |
| | — |
| | — |
| | — |
| | 15,452 |
|
Balance sheet line item totals | $ | 11,619 |
| | $ | 1,191 |
| | $ | (18,104 | ) | | $ | (334 | ) | | $ | (5,628 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | $ | 36,146 |
| | $ | 140 |
| | $ | 1,447 |
| | $ | 6 |
| | $ | 37,739 |
|
Commodity derivative liabilities | (18,972 | ) | | (40 | ) | | (24,614 | ) | | (345 | ) | | (43,971 | ) |
Cash collateral | 28,273 |
| | — |
| | — |
| | — |
| | 28,273 |
|
Balance sheet line item totals | $ | 45,447 |
| | $ | 100 |
| | $ | (23,167 | ) | | $ | (339 | ) | | $ | 22,041 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 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 |
|
The gains and 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) | 2017 | | 2016 | | 2017 | | 2016 |
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues | $ | (41,873 | ) | | $ | 34,800 |
| | $ | (14,848 | ) | | $ | 25,941 |
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2017, December 31, 2016 and June 30, 2016:
|
| | | | | | | | | | | |
| June 30, 2017 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
Non-exchange traded: | | | | | | | |
Corn | 184,197 |
| | — |
| | — |
| | — |
|
Soybeans | 31,532 |
| | — |
| | — |
| | — |
|
Wheat | 7,340 |
| | — |
| | — |
| | — |
|
Oats | 41,526 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 256,518 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 4,658 |
| | — |
|
Other | 90 |
| | 500 |
| | — |
| | 100 |
|
Subtotal | 264,685 |
| | 257,018 |
| | 4,658 |
| | 100 |
|
Exchange traded: | | | | | | | |
Corn | 94,895 |
| | — |
| | — |
| | — |
|
Soybeans | 27,470 |
| | — |
| | — |
| | — |
|
Wheat | 43,925 |
| | — |
| | — |
| | — |
|
Oats | 2,290 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 3,990 |
| | — |
| | — |
|
Other | — |
| | 840 |
| | — |
| | 60 |
|
Subtotal | 168,580 |
| | 4,830 |
| | — |
| | 60 |
|
Total | 433,265 |
| | 261,848 |
| | 4,658 |
| | 160 |
|
|
| | | | | | | | | | | |
| December 31, 2016 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
Non-exchange traded: | | | | | | | |
Corn | 175,549 |
| | — |
| | — |
| | — |
|
Soybeans | 20,592 |
| | — |
| | — |
| | — |
|
Wheat | 7,177 |
| | — |
| | — |
| | — |
|
Oats | 36,025 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 215,081 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 9,358 |
| | — |
|
Other | 108 |
| | 1,144 |
| | — |
| | 110 |
|
Subtotal | 239,451 |
| | 216,225 |
| | 9,358 |
| | 110 |
|
Exchange traded: | | | | | | | |
Corn | 63,225 |
| | — |
| | — |
| | — |
|
Soybeans | 39,005 |
| | — |
| | — |
| | — |
|
Wheat | 45,360 |
| | — |
| | — |
| | — |
|
Oats | 4,120 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 78,120 |
| | — |
| | — |
|
Subtotal | 151,710 |
| | 78,120 |
| | — |
| | — |
|
Total | 391,161 |
| | 294,345 |
| | 9,358 |
| | 110 |
|
|
| | | | | | | | | | | |
| June 30, 2016 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
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 |
| | — |
| | — |
|
Subtotal | 220,845 |
| | 36,540 |
| | — |
| | — |
|
Total | 559,552 |
| | 167,004 |
| | 13,800 |
| | 128 |
|
At June 30, 2017, December 31, 2016 and June 30, 2016, the Company had recorded the following amounts for the fair value of the Company's interest rate derivatives:
|
| | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 | | June 30, 2016 |
(in thousands) | | |
Derivatives not designated as hedging instruments | | | | | |
Interest rate contracts included in other long-term liabilities | $ | (2,158 | ) | | $ | (2,530 | ) | | $ | (5,422 | ) |
Total fair value of interest rate derivatives not designated as hedging instruments | $ | (2,158 | ) | | $ | (2,530 | ) | | $ | (5,422 | ) |
The gains and 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) | 2017 | | 2016 | | 2017 | | 2016 |
Interest income (expense) | $ | (17 | ) | | $ | (694 | ) | | $ | 372 |
| | $ | (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, 2017, December 31, 2016 and June 30, 2016, the Company had recorded the following amounts for the fair value of the Company's foreign currency derivatives:
|
| | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 | | June 30, 2016 |
(in thousands) | | |
Derivatives not designated as hedging instruments | | | | | |
Foreign currency contracts included in short-term assets (liabilities) | $ | 654 |
| | $ | (112 | ) | | $ | 1,391 |
|
Total fair value of foreign currency contract derivatives not designated as hedging instruments | $ | 654 |
| | $ | (112 | ) | | $ | 1,391 |
|
The gains and 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) | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency derivative gains included in Other income, net | $ | 669 |
| | $ | (87 | ) | | $ | 767 |
| | $ | 1,391 |
|
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, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Pension Benefits |
(in thousands) | Three months ended June 30, | | Six months ended June 30, |
2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 39 |
| | 48 |
| | 78 |
| | 97 |
|
Recognized net actuarial loss | 63 |
| | 37 |
| | 126 |
| | 73 |
|
Benefit cost | $ | 102 |
| | $ | 85 |
| | $ | 204 |
| | $ | 170 |
|
|
| | | | | | | | | | | | | | | |
| Postretirement Benefits |
(in thousands) | Three months ended June 30, | | Six months ended June 30, |
2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 106 |
| | $ | 167 |
| | $ | 229 |
| | $ | 380 |
|
Interest cost | 282 |
| | 370 |
| | 582 |
| | 775 |
|
Amortization of prior service cost | — |
| | (89 | ) | | — |
| | (177 | ) |
Recognized net actuarial loss | — |
| | 149 |
| | — |
| | 384 |
|
Benefit cost | $ | 388 |
| | $ | 597 |
| | $ | 811 |
| | $ | 1,362 |
|
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, the tax benefit related to railroad track maintenance credit transactions, and to benefits or costs related to various permanent book to tax differences and tax credits.
For the three months ended June 30, 2017, the Company recorded income tax expense of $7.7 million at an effective tax rate of (40.1)%, which varied from the U.S. Federal tax rate of 35% primarily due to the recording of a $42.0 million goodwill impairment charge which did not provide a corresponding tax benefit. For the three months ended June 30, 2016, the Company recorded an income tax expense of $7.7 million at an effective tax rate of 33.2%.
For the six months ended June 30, 2017, the Company recorded income tax expense of $5.1 million at an effective tax rate of (20.8)%, which varied from the U.S. Federal tax rate of 35% primarily due to the recording of the $42.0 million goodwill impairment charge noted above. 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.
During the three months ended June 30, 2017, the company agreed to a state income tax assessment that had been under appeal. The related $0.3 million reserve for unrecognized tax benefits has been reclassified as currently payable state income tax.
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, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | | Three months ended June 30, 2017 | | Six months ended June 30, 2017 |
(in thousands) | | Foreign Currency Translation Adjustment | | Defined Benefit Plan Items | | Total | | Foreign Currency Translation Adjustment | | Defined Benefit Plan Items | | Total |
Beginning Balance | | $ | (10,488 | ) | | $ | (1,476 | ) | | $ | (11,964 | ) | | $ | (11,002 | ) | | $ | (1,466 | ) | | $ | (12,468 | ) |
| Other comprehensive income (loss) before reclassifications | | 959 |
| | (988 | ) | | (29 | ) | | 1,473 |
| | (998 | ) | | 475 |
|
Net current-period other comprehensive income (loss) | | 959 |
| | (988 | ) | | (29 | ) | | 1,473 |
| | (998 | ) | | 475 |
|
Ending balance | | $ | (9,529 | ) | | $ | (2,464 | ) | | $ | (11,993 | ) | | $ | (9,529 | ) | | $ | (2,464 | ) | | $ | (11,993 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | | Three months ended June 30, 2016 | | Six months ended June 30, 2016 |
(in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustment | | 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 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debits
There were no reclassification adjustments from accumulated other comprehensive loss to net income for the three and six months ended June 30, 2017.
The following table shows the reclassification adjustments from accumulated other comprehensive loss to net income for the three and six months ended June 30, 2016:
|
| | | | | | | | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | Three months ended June 30, 2016 | | 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 |
(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).
9. Earnings Per Share
The Company’s non-vested 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. 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.
|
| | | | | | | | | | | | | | | |
(in thousands, except per common share data) | Three months ended June 30, | | Six months ended June 30, |
2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) attributable to The Andersons, Inc. | $ | (26,653 | ) | | $ | 14,423 |
| | $ | (29,742 | ) | | $ | (273 | ) |
Less: Distributed and undistributed earnings allocated to nonvested restricted stock | — |
| | 8 |
| | — |
| | 5 |
|
Earnings (losses) available to common shareholders | $ | (26,653 | ) | | $ | 14,415 |
| | $ | (29,742 | ) | | $ | (278 | ) |
Earnings per share – basic: | | | | | | | |
Weighted average shares outstanding – basic | 28,350 |
| | 28,227 |
| | 28,316 |
| | 28,164 |
|
Earnings (losses) per common share – basic | $ | (0.94 | ) | | $ | 0.51 |
| | $ | (1.05 | ) | | $ | (0.01 | ) |
Earnings per share – diluted: | | | | | | | |
Weighted average shares outstanding – basic | 28,350 |
| | 28,227 |
| | 28,316 |
| | 28,164 |
|
Effect of dilutive awards | — |
| | 86 |
| | — |
| | — |
|
Weighted average shares outstanding – diluted | 28,350 |
| | 28,313 |
| | 28,316 |
| | 28,164 |
|
Earnings (losses) per common share – diluted | $ | (0.94 | ) | | $ | 0.51 |
| | $ | (1.05 | ) | | $ | (0.01 | ) |
All outstanding share awards were antidilutive for the six and three months ended June 30, 2017 and 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.
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, 2017, December 31, 2016 and June 30, 2016:
|
| | | | | | | | | | | | | | | |
(in thousands) | June 30, 2017 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Restricted cash | $ | 1,033 |
| | $ | — |
| | $ | — |
| | $ | 1,033 |
|
Commodity derivatives, net (a) | 2,817 |
| | (8,445 | ) | | — |
| | (5,628 | ) |
Provisionally priced contracts (b) | (87,958 | ) | | (30,779 | ) | | — |
| | (118,737 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 3,294 |
| | 3,294 |
|
Other assets and liabilities (d) | 10,155 |
| | (2,158 | ) | | — |
| | 7,997 |
|
Total | $ | (73,953 | ) | | $ | (41,382 | ) | | $ | 3,294 |
| | $ | (112,041 | ) |
|
| | | | | | | | | | | | | | | |
(in thousands) | December 31, 2016 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Restricted cash | $ | 471 |
| | $ | — |
| | $ | — |
| | $ | 471 |
|
Commodity derivatives, net (a) | 29,872 |
| | (7,831 | ) | | — |
| | 22,041 |
|
Provisionally priced contracts (b) | (105,321 | ) | | (64,876 | ) | | — |
| | (170,197 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 3,294 |
| | 3,294 |
|
Other assets and liabilities (d) | 9,391 |
| | (2,530 | ) | | — |
| | 6,861 |
|
Total | $ | (65,587 | ) | | $ | (75,237 | ) | | $ | 3,294 |
| | $ | (137,530 | ) |
|
| | | | | | | | | | | | | | | |
(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 | ) | | (18,495 | ) | | — |
| | (60,708 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 3,294 |
| | 3,294 |
|
Other assets and liabilities (d) | 6,080 |
| | (5,426 | ) | | — |
| | 654 |
|
Total | $ | 24,844 |
| | $ | 162 |
| | $ | 3,294 |
| | $ | 28,300 |
|
| |
(a) | Includes associated cash posted/received as collateral |
| |
(b) | Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2) |
| |
(c) | Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets |
| |
(d) | Included in other assets and liabilities are deferred compensation assets, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), and interest rate derivatives (Level 2). |
Level 1 commodity derivatives reflect the fair value of the exchange-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because basis for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the
Agribusiness industry, we have concluded that basis is a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a material input to fair value for these commodity contracts.
These fair value disclosures exclude physical grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or the Company has delivered provisionally priced grain and a subsequent payable or receivable is set up for any futures changes in the grain price, quoted CBOT prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted CBOT prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.
The Company’s stake in the Iowa Northern Railway Company ("IANR") was redeemed in the first quarter of 2016. The remaining convertible preferred securities are interests in two early-stage enterprises in the form of debt securities with the possibility of conversion to equity under certain circumstances.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
|
| | | | | | | | | | | | | | | |
| Contingent Consideration | | Convertible Securities |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Asset (liability) at January 1, | $ | — |
| | |