ANDE 2013.03.31 10-Q
Table of Contents

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

Table of Contents

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


2
Table of Contents


Part I. Financial Information


Item 1. Financial Statements


The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
March 31,
2013
 
December 31,
2012
 
March 31,
2012
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
58,284

 
$
138,218

 
$
31,874

Restricted cash
635

 
398

 
18,785

Accounts receivable, net
197,842

 
208,877

 
204,400

Inventories (Note 2)
753,378

 
776,677

 
787,646

Commodity derivative assets – current
158,079

 
103,105

 
33,845

Deferred income taxes
15,482

 
15,862

 
23,062

Other current assets
63,350

 
54,016

 
62,577

Total current assets
1,247,050

 
1,297,153

 
1,162,189

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent
813

 
1,906

 
1,189

Other assets, net
104,535

 
105,129

 
68,311

Equity method investments
190,377

 
190,908

 
190,460

 
295,725

 
297,943

 
259,960

Railcar assets leased to others, net (Note 3)
244,706

 
228,330

 
215,023

Property, plant and equipment, net (Note 3)
364,307

 
358,878

 
187,584

Total assets
$
2,151,788

 
$
2,182,304

 
$
1,824,756


3
Table of Contents

The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
March 31,
2013
 
December 31,
2012
 
March 31,
2012
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Borrowings under short-term line of credit
$
292,100

 
$
24,219

 
$
365,000

Accounts payable for grain
183,997

 
582,653

 
115,236

Other accounts payable
182,013

 
165,201

 
173,254

Customer prepayments and deferred revenue
160,191

 
105,410

 
115,109

Commodity derivative liabilities – current
50,157

 
33,277

 
34,113

Accrued expenses and other current liabilities
52,519

 
66,902

 
45,994

Current maturities of long-term debt (Note 10)
43,052

 
15,145

 
30,342

Total current liabilities
964,029

 
992,807

 
879,048

Other long-term liabilities
16,898

 
18,406

 
44,950

Commodity derivative liabilities – noncurrent
3,220

 
1,134

 
2,352

Employee benefit plan obligations
52,927

 
53,131

 
53,080

Long-term debt, less current maturities (Note 10)
412,700

 
427,243

 
220,417

Deferred income taxes
77,694

 
78,138

 
68,051

Total liabilities
1,527,468

 
1,570,859

 
1,267,898

Commitments and contingencies (Note 11)

 

 

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

 
96

 
96

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

 
—

 
—

Additional paid-in-capital
181,845

 
181,627

 
179,783

Treasury shares at cost (476, 554 and 570 shares at 3/31/13, 12/31/12 and 3/31/12, respectively)
(11,418
)
 
(12,559
)
 
(12,700
)
Accumulated other comprehensive loss
(43,277
)
 
(45,379
)
 
(42,625
)
Retained earnings
480,156

 
470,628

 
418,136

Total shareholders’ equity of The Andersons, Inc.
607,402

 
594,413

 
542,690

Noncontrolling interests
16,918

 
17,032

 
14,168

Total equity
624,320

 
611,445

 
556,858

Total liabilities and equity
$
2,151,788

 
$
2,182,304

 
$
1,824,756

See Notes to Condensed Consolidated Financial Statements


4
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
 
 
Three Months Ended
March 31,
 
2013
 
2012
Sales and merchandising revenues
$
1,271,970

 
$
1,137,133

Cost of sales and merchandising revenues
1,192,697

 
1,051,263

Gross profit
79,273

 
85,870

Operating, administrative and general expenses
62,008

 
60,100

Interest expense
6,404

 
5,330

Other income:
 
 
 
Equity in earnings of affiliates
7,804

 
4,283

Other income, net
2,726

 
3,246

Income before income taxes
21,391

 
27,969

Income tax provision
9,079

 
10,241

Net income
12,312

 
17,728

Net loss attributable to the noncontrolling interests
(266
)
 
(679
)
Net income attributable to The Andersons, Inc.
$
12,578

 
$
18,407

Per common share:
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
0.67

 
$
0.99

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
0.67

 
$
0.98

Dividends paid
$
0.1600

 
$
0.1500

See Notes to Condensed Consolidated Financial Statements


5
Table of Contents

The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)(In thousands)
 
 
Three Months Ended
March 31,
 
2013
 
2012
Net income
$
12,312

 
$
17,728

Other comprehensive income, net of tax:
 
 
 
Increase in estimated fair value of investment in debt securities (net of income tax of $187)
303

 
—

Change in unrecognized actuarial loss and prior service cost (net of income tax of $232 and $240 - Note 13)
1,769

 
401

Cash flow hedge activity (net of income tax of $96 and $38)
30

 
64

Other comprehensive income
2,102

 
465

Comprehensive income
14,414

 
18,193

Comprehensive loss attributable to the noncontrolling interests
(266
)
 
(679
)
Comprehensive income attributable to The Andersons, Inc.
$
14,680

 
$
18,872

See Notes to Condensed Consolidated Financial Statements


6
Table of Contents

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


 
Three Months Ended
March 31,
 
2013
 
2012
Operating Activities
 
 
 
Net income
$
12,312

 
$
17,728

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
14,801

 
10,495

Bad debt expense
269

 
634

Cash distributions in excess of income of unconsolidated affiliates
531

 
8,602

Gains on sales of railcars and related leases
(9,699
)
 
(6,294
)
Deferred income taxes
805

 
(2,857
)
Stock based compensation expense
768

 
1,791

Other
47

 
150

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
11,815

 
(35,215
)
Inventories
23,299

 
(25,093
)
Commodity derivatives
(34,915
)
 
70,277

Other assets
(9,534
)
 
141

Accounts payable for grain
(398,656
)
 
(276,669
)
Other accounts payable and accrued expenses
52,174

 
49,303

Net cash used in operating activities
(335,983
)
 
(187,007
)
Investing Activities
 
 
 
Purchase of investments
—

 
(19,996
)
Acquisition of businesses, net of cash acquired
(3,345
)
 
(15,286
)
Purchases of railcars
(44,241
)
 
(33,414
)
Proceeds from sale of railcars
36,144

 
10,206

Purchases of property, plant and equipment
(6,194
)
 
(15,014
)
Proceeds from sale of property, plant and equipment
68

 
508

Change in restricted cash
(237
)
 
(134
)
Net cash used in investing activities
(17,805
)
 
(73,130
)
Financing Activities
 
 
 
Net change in short-term borrowings
267,881

 
293,500

Proceeds from issuance of long-term debt
25,254

 
6,935

Payments of long-term debt
(17,888
)
 
(27,269
)
Proceeds from sale of treasury shares to employees and directors
1,587

 
1,244

Payments of debt issuance costs
(46
)
 
(9
)
Dividends paid
(2,989
)
 
(2,780
)
Proceeds from other financing activities
55

 
—

Net cash provided by financing activities
273,854

 
271,621

Decrease in cash and cash equivalents
(79,934
)
 
11,484

Cash and cash equivalents at beginning of period
138,218

 
20,390

Cash and cash equivalents at end of period
$
58,284

 
$
31,874


7
Table of Contents

 
Three months ended
 March 31,
 
2012
 
2011
Supplemental disclosure of cash flow information
 
 
 
Acquisition of capitalized software under accounts payable
$
4,372

 
$
—

Purchase of a productive asset through seller-financing
$
4,294

 
$
—


See Notes to Condensed Consolidated Financial Statements

8
Table of Contents

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

 
$
179,463

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

 
$
14,847

 
$
538,842

Net income
 
 
 
 
 
 
 
 
18,407

 
(679
)
 
17,728

Other comprehensive income
 
 
 
 
 
 
465

 
 
 
 
 
465

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $419 (127 shares)
 
 
320

 
2,297

 
 
 
 
 
 
 
2,617

Dividends declared ($0.15 per common share)
 
 
 
 
 
 
 
 
(2,794
)
 
 
 
(2,794
)
Balance at March 31, 2012
$
96

 
$
179,783

 
$
(12,700
)
 
$
(42,625
)
 
$
418,136

 
$
14,168

 
$
556,858

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
96

 
$
181,627

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

 
$
17,032

 
$
611,445

Net income
 
 
 
 
 
 
 
 
12,578

 
(266
)
 
12,312

Other comprehensive income
 
 
 
 
 
 
2,102

 
 
 
 
 
2,102

Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
152

 
152

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,052 (79 shares)
 
 
163

 
1,141

 
 
 
 
 
 
 
1,304

Dividends declared ($0.16 per common share)
 
 
 
 
 
 
 
 
(2,995
)
 
 
 
(2,995
)
Performance share unit dividend equivalents
 
 
55

 
 
 
 
 
(55
)
 
 
 
—

Balance at March 31, 2013
$
96

 
$
181,845

 
$
(11,418
)
 
$
(43,277
)
 
$
480,156

 
$
16,918

 
$
624,320

See Notes to Condensed Consolidated Financial Statements


9
Table of Contents

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

1. Basis of Presentation and Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All significant intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement of the results of operations for the periods indicated, have been made. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.
The year-end Condensed Consolidated Balance Sheet data at December 31, 2012 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A Condensed Consolidated Balance Sheet as of March 31, 2012 has been included as the Company operates in several seasonal industries.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).
Reclassifications Out of Other Comprehensive Income
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, information about reclassification adjustments from accumulated other comprehensive income to net income during the first quarter of 2013 are presented below.
Changes in Accumulated Other Comprehensive Loss by Component (a)
For the Period Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(902
)
 
$
2,569

 
$
(47,046
)
 
$
(45,379
)
 
Other comprehensive income before reclassifications
 
30

 
303

 
1,854

 
2,187

 
Amounts reclassified from accumulated other comprehensive income
 
—

 
—

 
(85
)
 
(85
)
Net current-period other comprehensive income
 
30

 
303

 
1,769

 
2,102

Ending balance
 
$
(872
)
 
$
2,872

 
$
(45,277
)
 
$
(43,277
)
 
 
 
 
 
 
 
 
 
 
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10
Table of Contents

Reclassifications Out of Accumulated Other Comprehensive Income (a)
For the Period Ended March 31, 2013
 
 
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
 
(136
)
 
Total before tax
 
 
51

 
Tax expense
 
 
$
(85
)
 
Net of tax
 
 
 
 
 
Total reclassifications for the period
 
$
(85
)
 
Net of tax
 
 
 
 
 
(a) Amounts in parentheses indicate debits to profit/loss.
 
 
(b) This accumulated other comprehensive income component is included in the computation of net periodic pension cost (see Note 6. Employee Benefit Plans footnote for additional details).

2. Inventories
Major classes of inventories are as follows:
 
(in thousands)
March 31,
2013
 
December 31,
2012
 
March 31,
2012
Grain
$
507,927

 
$
586,983

 
$
589,039

Ethanol and by-products
25,531

 
22,927

 
4,416

Agricultural fertilizer and supplies
157,882

 
100,175

 
129,186

Lawn and garden fertilizer and corncob products
30,343

 
37,292

 
30,017

Retail merchandise
28,097

 
25,368

 
31,681

Railcar repair parts
3,469

 
3,764

 
2,992

Other
129

 
168

 
315

 
$
753,378

 
$
776,677

 
$
787,646



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

 
$
22,258

 
$
17,171

Land improvements and leasehold improvements
64,972

 
63,013

 
48,587

Buildings and storage facilities
219,500

 
214,919

 
153,666

Machinery and equipment
290,930

 
287,896

 
196,434

Software
13,464

 
12,901

 
10,949

Construction in progress
38,893

 
34,965

 
20,888

 
650,396

 
635,952

 
447,695

Less accumulated depreciation and amortization
286,089

 
277,074

 
260,111

 
$
364,307

 
$
358,878

 
$
187,584

Depreciation expense on property, plant and equipment amounted to $9.3 million, $27.4 million and $5.5 million for the year-to-date periods ended March 31, 2013, December 31, 2012, and March, 2012, respectively.

11
Table of Contents

Railcars
The components of Railcar assets leased to others are as follows:
 
(in thousands)
March 31,
2013
 
December 31,
2012
 
March 31,
2012
Railcar assets leased to others
$
325,633

 
$
310,614

 
$
293,081

Less accumulated depreciation
80,927

 
82,284

 
78,058

 
$
244,706

 
$
228,330

 
$
215,023

Depreciation expense on railcar assets leased to others amounted to $3.7 million, $15.9 million and $3.9 million for the year-to-date periods ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively.

4. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. The exchange traded contracts are primarily transacted via the regulated Chicago Mercantile Exchange. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

All of these contracts are considered derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value, the same method it uses to value its grain inventory. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a futures, options or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Consolidated Balance Sheets. The Company also nets, by counterparty, the derivative asset and liability positions, for non-exchanged traded futures, options and over-the-counter contracts in the Condensed Consolidated Balance Sheets.
The following table presents at March 31, 2013, December 31, 2012 and March 31, 2012, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within short-term commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
 

12
Table of Contents

 
March 31, 2013
 
December 31, 2012
 
March 31, 2012
(in thousands)
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
Collateral paid (received)
$
73,033

 
$
—

 
$
(13,772
)
 
$
—

 
$
—

 
$
7,289

Fair value of derivatives
35,403

 
—

 
61,247

 
—

 
—

 
(19,578
)
Balance at end of period
$
108,436

 
$
—

 
$
47,475

 
$
—

 
$
—

 
$
(12,289
)
Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.7 million, $7.7 million, and $0.2 million as of March 31, 2012, December 31, 2012, and March 31, 2012, respectively. In addition, there were $20.0 million in treasury bills posted as collateral on our derivative contracts as of March 31, 2012.

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
 
March 31, 2013
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
101,833

 
$
834

 
$
3,898

 
$
19

 
$
106,584

Commodity derivative liabilities
(16,787
)
 
(21
)
 
(54,055
)
 
(3,239
)
 
(74,102
)
Cash collateral
73,033

 
—

 
—

 
—

 
73,033

Balance sheet line item totals
$
158,079

 
$
813

 
$
(50,157
)
 
$
(3,220
)
 
$
105,515


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

 
$
2,059

 
$
5,233

 
$
130

 
$
144,541

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

 
—

 
—

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

 
$
1,906

 
$
(33,277
)
 
$
(1,134
)
 
$
70,600


 
March 31, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
40,857

 
$
1,443

 
$
28,101

 
$
205

 
$
70,606

Commodity derivative liabilities
(7,012
)
 
(254
)
 
(69,503
)
 
(2,557
)
 
(79,326
)
Cash collateral
—

 
—

 
7,289

 
—

 
7,289

Balance sheet line item totals
$
33,845

 
$
1,189

 
$
(34,113
)
 
$
(2,352
)
 
$
(1,431
)







13
Table of Contents

The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the quarter ended March 31, 2013 and 2012 are as follows:
 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Gains (losses) on commodity derivatives included in sales and merchandising revenues
$
36,368

 
$
(3,657
)
At March 31, 2013, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):
 
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
236,725

 
—

 
—

 
—

Soybeans
14,639

 
—

 
—

 
—

Wheat
22,818

 
—

 
—

 
—

Oats
8,562

 
—

 
—

 
—

Ethanol
—

 
150,988

 
—

 
—

Corn oil
—

 
—

 
14,824

 
—

Other
173

 
—

 
—

 
102

Subtotal
282,917

 
150,988

 
14,824

 
102

Exchange traded:
 
 
 
 
 
 
 
Corn
140,030

 
—

 
—

 
—

Soybeans
9,575

 
—

 
—

 
—

Wheat
32,760

 
—

 
—

 
—

Oats
4,540

 
—

 
—

 
—

Ethanol
—

 
32,970

 
—

 
—

Other
—

 
—

 
—

 
—

Subtotal
186,905

 
32,970

 
—

 
—

Total
469,822

 
183,958

 
14,824

 
102



14
Table of Contents

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

(in thousands except per common share data)
Three months ended
March 31,
2013
 
2012
Net income attributable to The Andersons, Inc.
$
12,578

 
$
18,407

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
49

 
46

Earnings available to common shareholders
$
12,529

 
$
18,361

Earnings per share – basic:
 
 
 
Weighted average shares outstanding – basic
18,608

 
18,502

Earnings per common share – basic
$
0.67

 
$
0.99

Earnings per share – diluted:
 
 
 
Weighted average shares outstanding – basic
18,608

 
18,502

Effect of dilutive awards
100

 
151

Weighted average shares outstanding – diluted
18,708

 
18,653

Earnings per common share – diluted
$
0.67

 
$
0.98

There were no antidilutive stock-based awards outstanding at March 31, 2013 or 2012.


6. Employee Benefit Plans
Included as charges against income for the three months ended March 31, 2013 and 2012 are the following amounts for pension and postretirement benefit plans maintained by the Company:
 
 
Pension Benefits
(in thousands)
Three months ended
March 31,
2013
 
2012
Service cost
$
—

 
$
—

Interest cost
1,065

 
1,143

Expected return on plan assets
(1,755
)
 
(1,539
)
Recognized net actuarial loss
392

 
450

Benefit (income) cost
$
(298
)
 
$
54

 
 
Postretirement Benefits
(in thousands)
Three months ended
March 31,
2013
 
2012
Service cost
$
224

 
$
192

Interest cost
346

 
333

Amortization of prior service cost
(136
)
 
(136
)
Recognized net actuarial loss
359

 
327

Benefit cost
$
793

 
$
716




15
Table of Contents

7. Segment Information
The Company’s operations include six reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investment in Lansing Trade Group, LLC (“LTG”). The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies, one of which is consolidated and three of which are investments accounted for under the equity method, and various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers. Turf & Specialty operations include the production and distribution of turf care and corncob-based products. The Retail business operates large retail stores, a specialty food market, a distribution center and a lawn and garden equipment sales and service facility. Included in “Other” are the corporate level amounts not attributable to an operating segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales.
During the first quarter, approximately $28 million of assets specific to the agronomy business that was included in the purchase of certain assets of Green Plains Grain Company, LLC in the fourth quarter of 2012 were reclassified from the Grain segment to the Plant Nutrient segment. Corresponding items of segment information have been reclassified to conform to current year presentation.
 
 
Three months ended
March 31,
 
2013
 
2012
(in thousands)
 
 
 
Revenues from external customers
 
 
 
Grain
$
836,495

 
$
699,861

Ethanol
199,309

 
150,670

Plant Nutrient
111,902

 
175,360

Rail
46,364

 
35,859

Turf & Specialty
47,187

 
45,127

Retail
30,713

 
30,256

Total
$
1,271,970

 
$
1,137,133

 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Inter-segment sales
 
 
 
Grain
$
332

 
$
1

Plant Nutrient
7,697

 
3,083

Rail
104

 
203

Turf & Specialty
999

 
976

Total
$
9,132

 
$
4,263

 

16
Table of Contents

 
Three months ended
March 31,
(in thousands)
2013
 
2012
Interest expense (income)
 
 
 
Grain
$
3,849

 
$
3,252

Ethanol
326

 
24

Plant Nutrient
918

 
710

Rail
1,513

 
1,178

Turf & Specialty
402

 
356

Retail
215

 
196

Other
(819
)
 
(386
)
Total
$
6,404

 
$
5,330


 
Three months ended
March 31,
(in thousands)
2013
 
2012
Equity in earnings (loss) of affiliates
 
 
 
Grain
$
7,910

 
$
5,952

Ethanol
(106
)
 
(1,671
)
Plant Nutrient
—

 
2

Total
$
7,804

 
$
4,283

 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Other income, net
 
 
 
Grain
$
571

 
$
827

Ethanol
231

 
16

Plant Nutrient
(25
)
 
118

Rail
946

 
776

Turf & Specialty
275

 
201

Retail
114

 
124

Other
614

 
1,184

Total
$
2,726

 
$
3,246

 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Income (loss) before income taxes
 
 
 
Grain
$
8,299

 
$
19,435

Ethanol
2,479

 
121

Plant Nutrient
(562
)
 
5,828

Rail
14,574

 
8,018

Turf & Specialty
4,001

 
2,202

Retail
(3,169
)
 
(2,749
)
Other
(3,965
)
 
(4,207
)
Noncontrolling interests
(266
)
 
(679
)
Total
$
21,391

 
$
27,969



17
Table of Contents

(in thousands)
March 31, 2013
 
December 31, 2012
 
March 31, 2012
Identifiable assets
 
 
 
 
 
Grain
$
1,025,350

 
$
1,076,986

 
$
860,082

Ethanol
209,666

 
206,975

 
136,109

Plant Nutrient
323,653

 
257,980

 
308,022

Rail
302,717

 
289,467

 
276,404

Turf & Specialty
97,842

 
82,683

 
88,758

Retail
53,668

 
51,772

 
57,901

Other
138,892

 
216,441

 
97,480

Total
$
2,151,788

 
$
2,182,304

 
$
1,824,756



8. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
 
(in thousands)
March 31, 2013
 
December 31, 2012
 
March 31, 2012
The Andersons Albion Ethanol LLC
$
31,169

 
$
30,227

 
$
31,463

The Andersons Clymers Ethanol LLC
32,900

 
33,119

 
38,880

The Andersons Marathon Ethanol LLC
32,164

 
32,996

 
39,322

Lansing Trade Group, LLC
91,752

 
92,094

 
78,754

Other
2,392

 
2,472

 
2,041

Total
$
190,377

 
$
190,908

 
$
190,460

The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.
The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
 
(in thousands)
% ownership at
March 31, 2013
 
Three months ended
March 31,
 
 
 
2013
 
2012
 
The Andersons Albion Ethanol LLC
50%
 
$
944

 
$
634

 
The Andersons Clymers Ethanol LLC
38%
 
(219
)
 
(358
)
 
The Andersons Marathon Ethanol LLC
50%
 
(832
)
 
(1,947
)
 
Lansing Trade Group, LLC
48% *
 
7,991

 
5,916

 
Other
5%-23%
 
(80
)
 
38

 
Total
 
 
$
7,804

 
$
4,283

 

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

Total distributions received from unconsolidated affiliates were $8.3 million for the first three months of 2013.

18
Table of Contents

The Company does not hold a majority of the outstanding shares of LTG. All major operating decisions of LTG are made by LTG’s Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method.
In the first quarter of 2013, LTG qualified as a significant subsidiary of the Company under the income test. The following table presents the required summarized unaudited financial information of this investment for the three months ended March 31, 2013 and 2012.
(in thousands)
Three months ended
March 31,
2013
 
2012
Sales
$
2,553,145

 
$
1,677,215

Gross profit
44,107

 
34,504

Income before income taxes
17,117

 
13,131

Net income
16,892

 
13,115

Net income attributable to LTG
16,798

 
12,235


Investment in Debt Securities
The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until May 2015. This investment is accounted for as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair value in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of March 31, 2013 was $17.7 million.
Based on the Company’s assessment, IANR is considered a variable interest entity (“VIE”). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.
The Company’s current maximum exposure to loss related to IANR is $21.9 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $4.2 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.
Related Party Transactions
In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:
 

19
Table of Contents

(in thousands)
Three months ended
March 31,
 
2013
 
2012
Sales revenues
$
309,705

 
$
216,812

Service fee revenues (a)
5,801

 
5,479

Purchases of product
161,955

 
148,809

Lease income (b)
1,552

 
1,878

Labor and benefits reimbursement (c)
2,643

 
2,741

Other expenses (d)
358

 
139

Accounts receivable at March 31 (e)
12,550

 
15,288

Accounts payable at March 31 (f)
24,967

 
21,677

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

For the quarters ended March 31, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $145.8 million and $143.0 million, respectively. For the quarters ended March 31, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $204.9 million and $179.1 million, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties for the periods ended March 31, 2013, December 31, 2012 and March 31, 2012 of $5.0 million, $3.2 million, and $2.4 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended March 31, 2013, December 31, 2012 and March 31, 2012 of $0.8 million, $0.3 million, and $0.9 million, respectively.

9. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2013, December 31, 2012 and March 31, 2012:
 
(in thousands)
March 31, 2013
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
49,202

 
$
—

 
$
—

 
$
49,202

Restricted cash
635

 
—

 
—

 
635

Commodity derivatives, net
110,581

 
(5,066
)
 
—

 
105,515

Convertible preferred securities (b)
—

 
—

 
17,710

 
17,710

Other assets and liabilities (a)
8,861

 
(1,784
)
 
—

 
7,077

Total
$
169,279

 
$
(6,850
)
 
$
17,710

 
$
180,139

 

20
Table of Contents

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

 
$
—

 
$
—

 
$
78,674

Restricted cash
398

 
—

 
—

 
398

Commodity derivatives, net
46,966

 
23,634

 
—

 
70,600

Convertible preferred securities (b)
—

 
—

 
17,220

 
17,220

Other assets and liabilities (a)
7,813

 
(2,109
)
 
—

 
5,704

Total
$
133,851

 
$
21,525

 
$
17,220

 
$
172,596

 
(in thousands)
March 31, 2012
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
10,623

 
$
—

 
$
—

 
$
10,623

Restricted cash
18,785

 
—

 
—

 
18,785

Short term investments
19,996

 
—

 
—

 
19,996

Commodity derivatives, net
(12,280
)
 
10,849

 
—

 
(1,431
)
Convertible preferred securities (b)
—

 
—

 
20,360

 
20,360

Other assets and liabilities (a)
7,211

 
(2,085
)
 
—

 
5,126

Total
$
44,335

 
$
8,764

 
$
20,360

 
$
73,459

 
(a)
Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions and deferred compensation assets.
(b)
Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets.

Level 1 commodity derivatives reflect the fair value of the exchanged-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 significant input to fair value for the majority of these commodity contracts.
The Company’s convertible preferred securities are measured at fair value using a combination of the income approach on a quarterly basis and the market approach on an annual basis. Specifically, the income approach incorporates the use of the Discounted Cash Flow method, whereas the Market Approach incorporates the use of the Guideline Public Company method. Application of the Discounted Cash Flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future. The assumptions input into this method are estimated annual cash flows for a specified estimation period, the discount rate, and the terminal value at the end of the estimation period. In the Guideline Public Company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. On an annual basis, a comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.

21
Table of Contents

A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
 
 
2013

2012
(in thousands)
Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net

Interest
rate
derivatives
and
swaptions

Convertible
preferred
securities

Commodity
derivatives,
net
Asset (liability) at December 31,
$
—

 
$
17,220

 
$
—

 
$
(2,178
)
 
$
20,360

 
$
2,467

Unrealized gains (losses) included in other comprehensive income
—

 
490

 
—

 
—

 
—

 
—

Transfers to level 2
—

 
—

 
—

 
2,178

 
—

 
(2,467
)
Asset (liability) at March 31,
$
—

 
$
17,710

 
$
—

 
$
—

 
$
20,360

 
$
—


Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered “Level 2” in the fair value hierarchy.
 
(in thousands)
March 31,
2013

December 31,
2012
Fair value of long-term debt
$
467,080

 
$
459,397

Fair value in excess of carrying value
11,328

 
17,009

The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.


10. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 10 in the Company’s 2012 Form 10-K for a complete description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $878.1 million, including $28.1 million non-recourse debt of The Andersons Denison Ethanol LLC ("TADE"). At March 31, 2013, the Company had a total of $525.8 million available for borrowing under its lines of credit. The Company was in compliance with all financial and non-financial covenants as of March 31, 2013.
The Company’s short-term and long-term debt at March 31, 2013, December 31, 2012 and March 31, 2012 consisted of the following:
 
(in thousands)
March 31,
2013
 
December 31,
2012
 
March 31,
2012
Borrowings under short-term line of credit – nonrecourse
$
8,400

 
$
4,219

 
$
—

Borrowings under short-term line of credit – recourse
283,700

 
20,000

 
365,000

Total borrowings under short-term line of credit
$
292,100

 
$
24,219

 
$
365,000

Current maturities of long -term debt – nonrecourse
$
3,271

 
$
2,496

 
$
160

Current maturities of long-term debt – recourse
39,781

 
12,649

 
30,182

Total current maturities of long-term debt
$
43,052

 
$
15,145

 
$
30,342

Long-term debt, less current maturities – nonrecourse
$
24,141

 
$
20,067

 
$
755

Long-term debt, less current maturities – recourse
388,559

 
407,176

 
219,662

Total long-term debt, less current maturities
$
412,700

 
$
427,243

 
$
220,417



11. Commitments and Contingencies

22
Table of Contents

The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable, and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records a charge to income. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income. Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time, or may result in continued reserves to account for the potential of such post-verdict actions.
The estimated range of loss for all outstanding claims that are considered reasonably possible of occurring is not material. We have received, and are cooperating fully with, a request for information from the United States Environmental Protection Agency (“U.S. EPA”) regarding the history of our grain and fertilizer facility along the Maumee River in Toledo, Ohio. The U.S. EPA is investigating the possible introduction into the Maumee River of hazardous materials potentially leaching from rouge piles deposited along the riverfront by glass manufacturing operations that existed in the area prior to our initial acquisition of the land in 1960. We have on several prior occasions cooperated with local, state and federal regulators to install or improve drainage systems to contain storm water runoff and sewer discharges along our riverfront property to minimize the potential for such leaching. Other area land owners and the successor to the original glass making operations have also been contacted by the U.S. EPA for information. No claim or finding has been asserted thus far.


12. Business Acquisitions

There were no business acquisitions completed in the first quarter of 2013.

Prior Year Business Acquisitions

On December 3, 2012, the Company completed the purchase of a majority of the grain and agronomy assets of Green Plains Grain Company ("GPG"), a subsidiary of Green Plains Renewable Energy, Inc. for a purchase price of $120.2 million, which included a $3.3 million payable to the acquiree that was outstanding as of December 31, 2012 and paid in January 2013. The various facilities located in Iowa and Tennessee have a combined grain storage capacity of more than 32 million bushels and 12,000 tons of nutrient storage.
During the first quarter of 2013, the purchase price allocation for Green Plains Grain Company, which was acquired in the fourth quarter of 2012 was finalized. The measurement period adjustments to the purchase price allocation are the result of additional information obtained since the filing of our Form 10-K for the year ended December 31, 2012. Due to these revision of estimates, (i) property, plant and equipment decreased $135 thousand, (ii) intangible assets decreased $2.6 million due to a change in forecasted cash flows specific to the agronomy assets, (iii) other liabilities and noncontrolling interests increased $235 thousand to reflect the noncontrolling interest in the acquisition and (iv) goodwill increased $3 million as an offset to the above-mentioned changes related to certain entities acquired.
The summarized final purchase price allocation is as follows:


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(in thousands)
 
Accounts receivable
$
19,174

Inventory
121,983

Property, plant and equipment
57,828

Intangible assets
4,600

Goodwill
33,175

Commodity derivatives
4,701

Other assets
1,775

Accounts payable
(91,001
)
Debt assumed
(29,632
)
Other liabilities and noncontrolling interests
(2,371
)
Total purchase price
$
120,232


The goodwill recognized as a result of the GPG acquisition is $33.2 million, for which the full amount is deductible for tax purposes, and is included in the Grain reportable segment. The goodwill relates to the value of a fully functional business consisting of a successful management team and an experienced and talented work force. The Company has goodwill in the amount of $54.4 million as of March 31, 2013 compared to $51.5 million as of December 31, 2012 and $19.2 million as of March 31, 2012.
Details of the intangible assets acquired are as follows:
 
(in thousands)
Fair
Value
 
Useful
Life
Supplier relationships
$
4,600

 
3 to 5 years
Total identifiable intangible assets
$
4,600

 
4 years *
*weighted average number of years

On January 31, 2012, the Company purchased 100% of the stock of New Eezy Gro, Inc. (“NEG”) for a purchase price of $16.8 million. New Eezy Gro is a manufacturer and wholesale marketer of specialty agricultural nutrients and industrial products.

The summarized purchase price allocation is as follows:

(in thousands)
 
Current assets
$
5,106

Intangible assets
9,600

Goodwill
6,681

Property, plant and equipment
3,586

Current liabilities
(3,784
)
Deferred tax liability, net
(4,412
)
Total purchase price
$
16,777


The goodwill recognized as a result of the NEG acquisition is $6.7 million and is included in the Plant Nutrient reportable segment. The goodwill relates to the value of proprietary products and processes as well as an assembled workforce.

Details of the intangible assets acquired are as follows:
(in thousands)
Fair Value

Useful Life
Trademarks
$
1,200

10 years
Customer list
5,500

10 years
Technology
2,100

5 years
Noncompete agreement
800

7 years
Total identifiable intangible assets
$
9,600

9 years *

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*weighted average number of years
On May 1, 2012, the Company and its subsidiary, The Andersons Denison Ethanol LLC ("TADE") completed the purchase of certain assets of an ethanol production facility in Denison, Iowa for a purchase price of $77.4 million. Previously owned by Amaizing Energy Denison LLC and Amaizing Energy Holding Company, LLC, the operations consist of a 55 million gallon capacity ethanol facility with an adjacent 2.7 million bushel grain terminal, with direct access to two Class 1 railroads in Iowa. TADE has been organized to provide investment opportunity for the Company and potential outside investors. The Company owns the grain terminal, manages TADE, and provides grain origination, risk management, and DDG and ethanol marketing services. The Company currently owns a controlling interest of 85% of TADE, and therefore includes TADE's results of operations in its consolidated financial statements. The fair value of the noncontrolling interest in TADE purchased by the minority investor at the acquisition date was $6.1 million.
The summarized purchase price allocation is as follows:
 
(in thousands)
 
Grain elevator
$
14,285

Inventory
10,087

Intangible assets
2,373

Other current assets
962

Property, plant and equipment
49,693

Total purchase price
$
77,400

Details of the intangible assets acquired are as follows:
 
(in thousands)
Fair
Value
 
Useful
Life
Lease intangibles
$
2,123

 
10 months to 5 years
Noncompete agreement
250

 
2 years
Total identifiable intangible assets
$
2,373

 
3 years *
*weighted average number of years

On October 30, 2012, the Company completed the purchase of substantially all of the assets of Mt. Pulaski Products for a purchase price of $10.7 million. The operations consist of several corncob processing facilities in central Illinois.
The purchase price allocation is preliminary, pending completion of the full valuation report; however significant changes are not anticipated. The summarized preliminary purchase price allocation is as follows:
(in thousands)
 
Inventory
$
3,757

Intangible assets
1,000

Goodwill
1,985

Property, plant and equipment
3,941

Total purchase price
$
10,683

The goodwill recogized as a result of the Mt. Pulaski acquisition is $2.0 million, for which the full amount is deductible for tax purposes, and is included in the Turf & Specialty reportable segment. The goodwill relates to expected synergies from combining operations as well as an assembled workforce.
Details of the intangible assets acquired are as follows:
 

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(in thousands)
Fair
Value
 
Useful
Life
Trademark
$
300

 
Indefinite
Customer list
600

 
10 years
Noncompete agreement
100

 
7 years
Total identifiable intangible assets
$
1,000

 
10 years *
*weighted average number of years


14. Income Taxes

Income tax expense of $9.1 million was provided at 42.4%. In the first quarter of 2012, income tax expense of $10.2 million was provided at a rate of 36.6%. The increase in the effective tax rate was due primarily to decreased benefits related to domestic production activities and a correction made with respect to the accounting for the other comprehensive income (“OCI”) portion of the Company's retiree health care plan liability and the Medicare Part D subsidy.
The Company's provision for income taxes includes deferred tax expense of $1.4 million due to a correction of other comprehensive income (“OCI”) related to the portion of the Company's retiree health care plan liability and the Medicare Part D subsidy. The correction related to the years 2009 through 2012 and was recorded during the first quarter of 2013. The impact of this error on amounts previously reported was determined to be immaterial to the Consolidated Financial Statements for those years and is expected to be immaterial to the full year of 2013. As a result of the correction of the error, deferred income tax expense for the period ended March 31, 2013 increased and accumulated other comprehensive loss decreased by $1.4 million, respectively.
The Company did not make any tax payments in the first quarter of 2013 due to overpayment of income taxes in 2012.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. You are urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”). In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.


Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2012 Form 10-K, have not materially changed during the first quarter of 2013.
Executive Overview
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income.
Grain Business
Our Grain business operates grain elevators in various states in the U.S. Corn Belt. In addition to storage, merchandising and grain trading, Grain performs marketing, risk management, and corn origination services to its customers and affiliated ethanol production facilities. Grain is a significant investor in Lansing Trade Group, LLC (“LTG”), an established commodity trading, grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices.
Grain inventories on hand at March 31, 2013 were 86.4 million bushels, of which 17.7 million bushels were stored for others. This compares to 75.7 million bushels on hand at March 31, 2012, of which 0.3 million bushels were stored for others.
The 2012 drought will continue to impact grain operations income in the form of fewer ownership bushels and significantly lower space income. Spring planting is getting a slower start this year due to colder temperatures and rain. Although corn acreage is anticipated to be around 96 million acres, planting and favorable growing season weather are the key factors that will impact the Grain Group's financial performance in the second half of 2013 and into 2014.
Wheat conditions for 2013, as tracked by the USDA, for unharvested crops, are worse than 2012 at this time with 57%, on average, rated as good to excellent for the states where we have facilities. The primary harvest period for winter wheat is in the month of July.
Ethanol Business
Our Ethanol business holds investments in four ethanol production facilities organized as separate limited liability companies, three of which are accounted for under the equity method (the "unconsolidated ethanol LLCs") and one that is consolidated The Andersons Denison Ethanol LLC ("TADE"). The Ethanol business purchases and sells ethanol, offers facility operations, risk management, and ethanol, corn oil and distillers dried grains (“DDG”) marketing to the ethanol plants in which it invests in and operates, as well as third parties.
Drought conditions in 2012 resulted in much lower corn production and higher corn prices. Earnings realized from our ethanol LLC investments showed a slight loss for the first quarter. This is as a result of low ethanol demand, and the increased corn cost. Tight supplies of available corn in some areas may adversely impact gross profit in the second and third quarters of 2013. At this time, we have some future production and required inputs contracted for much of the second quarter at positive margins.

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Ethanol volumes shipped for the three months ended March 31, 2013 and 2012 were as follows:
(in thousands)
Three months ended March 31,
 
2013
 
2012
Ethanol (gallons shipped)
69,834

 
59,064

E-85 (gallons shipped)
3,721

 
4,147

Corn Oil (pounds shipped)
17,247

 
9,054

DDG (tons shipped)
262

 
228

Plant Nutrient Business
Our Plant Nutrient business is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt, Florida and Puerto Rico. The Plant Nutrient Group provides warehousing, packaging and manufacturing services to basic manufacturers and other distributors. The business also manufactures and distributes a variety of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air pollution control systems used in coal-fired power plants, water treatment products, and de-icers and anti-icers for airport runways, roadways, and other commercial applications. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur.

Storage capacity at our wholesale nutrient and farm center facilities was approximately 470,000 tons for dry nutrients and approximately 397,000 tons for liquid nutrients at March 31, 2013.
Fertilizer tons sold (including sales and service tons) for the three months ended March 31, 2013 was 29% lower than the quarter ended March 31, 2012. In the first quarter of 2012, we experienced warm and dry conditions which were favorable for spring fertilizer application. The first quarter of this year has been much cooler and wetter so volume is lower in comparison to the same period last year. We still anticipate corn planted acres to be around 96 million, which should support good nutrient demand in the second quarter.
Rail Business
Our Rail business buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The business also provides fleet management services to fleet owners. Rail has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives.
In the first quarter, Rail had gains on sales of railcars and related leases in the amount of $9.3 million compared to $6.3 million in the prior year. Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at March 31, 2013 were 23,508 compared to 22,963 at March 31, 2012. The average utilization rate (railcars and locomotives under management that are in lease services, exclusive of railcars managed for third party investors) has decreased slightly from 85.7% to 84.6% for the quarters ended March 31, 2012 and 2013.
Turf & Specialty Business
Turf & Specialty is one of a very limited number of processors of corncob-based products in the United States. Corncob-based products are manufactured for a variety of uses including laboratory animal bedding, private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. Corncob-based products are sold throughout the year. Turf & Specialty also produces granular fertilizer products for the professional lawn care and golf course markets. It also sells consumer fertilizer and weed and turf pest control products for “do-it-yourself” application to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing of fertilizer and weed and turf pest control products. These products are distributed throughout the United States and Canada and into Europe and Asia. The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer.
Retail Business
Our Retail business includes large retail stores operated as “The Andersons” and a specialty food market operated as “The Andersons Market”. It also operates a sales and service facility for outdoor power equipment. The retail concept is More for Your Home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden centers.

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The retail business is highly competitive. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The Retail Group continues to work on new departments and products to maximize the profitability.
Other
Our “Other” business segment represents corporate functions that provide support and services to the operating segments. The results contained within this segment include expenses and benefits not allocated back to the operating segments, including implementation expenses for our ERP project.

Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Income with a separate discussion by segment. Additional segment information is included in the Notes to the Condensed Consolidated Financial Statements herein in Note 7. Segment Information.
 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
1,271,970

 
$
1,137,133

Cost of sales and merchandising revenues
1,192,697

 
1,051,263

Gross profit
79,273

 
85,870

Operating, administrative and general expenses
62,008

 
60,100

Interest expense
6,404

 
5,330

Equity in earnings of affiliates
7,804

 
4,283

Other income, net
2,726

 
3,246

Income before income taxes
21,391

 
27,969

Income (loss) attributable to noncontrolling interests
(266
)
 
(679
)
Operating income
$
21,657

 
$
28,648

Comparison of the three months ended March 31, 2013 with the three months ended March 31, 2012:
Grain Group
 
 
Three months ended
March 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
836,495

 
$
699,861

Cost of sales and merchandising revenues
811,645

 
667,260

Gross profit
24,850

 
32,601

Operating, administrative and general expenses
21,183

 
16,693

Interest expense
3,849

 
3,252

Equity in earnings of affiliates
7,910

 
5,952

Other income, net
571

 
827

Operating income
$
8,299

 
$
19,435