10-Q
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 September 30, 2015
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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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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.
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Large accelerated filer | ý | Accelerated Filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The registrant had approximately 28.0 million common shares outstanding, no par value, at November 5, 2015.
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) |
| | | | | | | | | | | |
| September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 40,658 |
| | $ | 114,704 |
| | $ | 326,946 |
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Restricted cash | 181 |
| | 429 |
| | 173 |
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Accounts receivable, net | 201,664 |
| | 183,059 |
| | 162,270 |
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Inventories (Note 2) | 527,789 |
| | 795,655 |
| | 396,464 |
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Commodity derivative assets – current | 60,965 |
| | 92,771 |
| | 126,396 |
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Deferred income taxes | 6,735 |
| | 7,337 |
| | 148 |
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Other current assets | 66,411 |
| | 60,492 |
| | 36,518 |
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Total current assets | 904,403 |
| | 1,254,447 |
| | 1,048,915 |
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Other assets: | | | | | |
Commodity derivative assets – noncurrent | 1,584 |
| | 507 |
| | 2,383 |
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Goodwill | 116,086 |
| | 72,365 |
| | 58,554 |
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Other assets, net | 104,269 |
| | 59,162 |
| | 54,587 |
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Pension asset | — |
| | — |
| | 13,738 |
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Equity method investments | 223,207 |
| | 226,857 |
| | 257,166 |
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| 445,146 |
| | 358,891 |
| | 386,428 |
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Rail Group assets leased to others, net (Note 3) | 347,100 |
| | 297,747 |
| | 245,849 |
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Property, plant and equipment, net (Note 3) | 495,045 |
| | 453,607 |
| | 401,800 |
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Total assets | $ | 2,191,694 |
| | $ | 2,364,692 |
| | $ | 2,082,992 |
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The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) |
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| September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Liabilities and equity | | | | | |
Current liabilities: | | | | | |
Short-term debt | $ | 82,801 |
| | $ | 2,166 |
| | $ | 451 |
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Trade and other payables | 466,428 |
| | 706,823 |
| | 387,311 |
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Customer prepayments and deferred revenue | 23,581 |
| | 99,617 |
| | 27,246 |
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Commodity derivative liabilities – current | 49,911 |
| | 64,075 |
| | 229,265 |
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Accrued expenses and other current liabilities | 71,593 |
| | 78,610 |
| | 70,598 |
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Current maturities of long-term debt (Note 4) | 26,989 |
| | 76,415 |
| | 76,757 |
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Total current liabilities | 721,303 |
| | 1,027,706 |
| | 791,628 |
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Other long-term liabilities | 16,510 |
| | 15,507 |
| | 13,902 |
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Commodity derivative liabilities – noncurrent | 2,912 |
| | 3,318 |
| | 26,203 |
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Employee benefit plan obligations | 58,123 |
| | 59,308 |
| | 39,606 |
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Long-term debt, less current maturities (Note 4) | 413,561 |
| | 298,638 |
| | 289,448 |
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Deferred income taxes | 179,591 |
| | 136,166 |
| | 120,628 |
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Total liabilities | 1,392,000 |
| | 1,540,643 |
| | 1,281,415 |
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Commitments and contingencies (Note 13) |
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Shareholders’ equity: | | | | | |
Common shares, without par value (63,000 shares authorized; 29,430, 29,353 and 28,797 shares issued at 9/30/15, 12/31/14 and 9/30/14, respectively) | 96 |
| | 96 |
| | 96 |
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Preferred shares, without par value (1,000 shares authorized; none issued) | — |
| | — |
| | — |
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Additional paid-in-capital | 224,595 |
| | 222,789 |
| | 190,617 |
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Treasury shares, at cost (1,425, 390 and 373 shares at 9/30/15, 12/31/14 and 9/30/14, respectively) | (53,971 | ) | | (9,743 | ) | | (8,762 | ) |
Accumulated other comprehensive loss | (57,459 | ) | | (54,595 | ) | | (27,971 | ) |
Retained earnings | 666,507 |
| | 644,556 |
| | 622,722 |
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Total shareholders’ equity of The Andersons, Inc. | 779,768 |
| | 803,103 |
| | 776,702 |
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Noncontrolling interests | 19,926 |
| | 20,946 |
| | 24,875 |
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Total equity | 799,694 |
| | 824,049 |
| | 801,577 |
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Total liabilities and equity | $ | 2,191,694 |
| | $ | 2,364,692 |
| | $ | 2,082,992 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
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| | | | | | | | | | | | | | | |
| Three months ended
September 30, | | Nine months ended
September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Sales and merchandising revenues | $ | 935,774 |
| | $ | 952,927 |
| | $ | 3,094,355 |
| | $ | 3,268,303 |
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Cost of sales and merchandising revenues | 850,584 |
| | 868,009 |
| | 2,817,681 |
| | 2,985,115 |
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Gross profit | 85,190 |
| | 84,918 |
| | 276,674 |
| | 283,188 |
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Operating, administrative and general expenses | 88,698 |
| | 76,737 |
| | 251,044 |
| | 223,997 |
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Interest expense | 6,147 |
| | 4,253 |
| | 16,210 |
| | 16,401 |
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Other income: | | | | | | | |
Equity in earnings of affiliates, net | 3,845 |
| | 23,917 |
| | 23,295 |
| | 76,631 |
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Other income, net | 3,355 |
| | 1,685 |
| | 20,235 |
| | 25,094 |
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Income (loss) before income taxes | (2,455 | ) | | 29,530 |
| | 52,950 |
| | 144,515 |
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Income tax provision (benefit) | (1,505 | ) | | 10,251 |
| | 17,556 |
| | 49,837 |
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Net income (loss) | (950 | ) | | 19,279 |
| | 35,394 |
| | 94,678 |
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Net income attributable to the noncontrolling interests | 277 |
| | 2,454 |
| | 1,433 |
| | 10,844 |
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Net income (loss) attributable to The Andersons, Inc. | $ | (1,227 | ) | | $ | 16,825 |
| | $ | 33,961 |
| | $ | 83,834 |
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Per common share: | | | | | | | |
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.04 | ) | | $ | 0.59 |
| | $ | 1.19 |
| | $ | 2.95 |
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Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.04 | ) | | $ | 0.59 |
| | $ | 1.19 |
| | $ | 2.95 |
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Dividends declared | $ | 0.14 |
| | $ | 0.11 |
| | $ | 0.42 |
| | $ | 0.33 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)(In thousands)
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| Three months ended
September 30, | | Nine months ended
September 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net income (loss) | $ | (950 | ) | | $ | 19,279 |
| | $ | 35,394 |
| | $ | 94,678 |
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Other comprehensive income (loss), net of tax: | | | | | | | |
Decrease in estimated fair value of investment in debt securities (net of income tax of $0, $(736), $0 and $(4,044)) | — |
| | (1,214 | ) | | — |
| | (6,676 | ) |
Change in unrecognized actuarial loss and prior service cost (net of income tax of $235, $113, $1,760 and $(196) - Note 8) | 388 |
| | 187 |
| | 2,906 |
| | (324 | ) |
Foreign currency translation adjustments (net of income tax of $(696), $0, ($82) and $0) | (2,750 | ) | | — |
| | (5,954 | ) | | — |
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Cash flow hedge activity (net of income tax of $38, $48, $112 and $127) | 62 |
| | 79 |
| | 184 |
| | 210 |
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Other comprehensive loss | (2,300 | ) | | (948 | ) | | (2,864 | ) | | (6,790 | ) |
Comprehensive income (loss) | (3,250 | ) | | 18,331 |
| | 32,530 |
| | 87,888 |
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Comprehensive income attributable to the noncontrolling interests | 277 |
| | 2,454 |
| | 1,433 |
| | 10,844 |
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Comprehensive income (loss) attributable to The Andersons, Inc. | $ | (3,527 | ) | | $ | 15,877 |
| | $ | 31,097 |
| | $ | 77,044 |
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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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| Nine months ended
September 30, |
| 2015 | | 2014 |
Operating Activities | | | |
Net income | $ | 35,394 |
| | $ | 94,678 |
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Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation and amortization | 57,365 |
| | 44,307 |
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Bad debt expense | 802 |
| | 198 |
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Equity in earnings of affiliates, net of dividends | (3,868 | ) | | 8,643 |
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Gain on sale of investments in affiliates | — |
| | (17,055 | ) |
Gains on sales of Rail Group assets and related leases | (12,438 | ) | | (14,666 | ) |
Excess tax benefit from share-based payment arrangement | (1,299 | ) | | (1,770 | ) |
Deferred income taxes | 18,921 |
| | 9,441 |
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Stock-based compensation expense | 2,598 |
| | 7,542 |
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Goodwill impairment expense | 1,985 |
| | — |
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Other | 1,061 |
| | (446 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (6,003 | ) | | 10,161 |
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Inventories | 292,960 |
| | 218,460 |
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Commodity derivatives | 16,160 |
| | 127,655 |
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Other assets | (1,465 | ) | | 11,755 |
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Trade and other payables | (344,400 | ) | | (396,629 | ) |
Net cash provided by operating activities | 57,773 |
| | 102,274 |
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Investing Activities | | | |
Acquisition of business, net of cash acquired | (124,592 | ) | | — |
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Purchases of Rail Group assets | (112,346 | ) | | (39,294 | ) |
Proceeds from sale of Rail Group assets | 64,978 |
| | 30,894 |
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Purchases of property, plant and equipment | (42,387 | ) | | (39,624 | ) |
Proceeds from sale of property, plant and equipment | 184 |
| | 1,043 |
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Proceeds from returns of investments in affiliates | 1,480 |
| | 35,920 |
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Cash distributions to noncontrolling interests | — |
| | (1,494 | ) |
Investments in affiliates | — |
| | (238 | ) |
Change in restricted cash | 248 |
| | 235 |
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Net cash used in investing activities | (212,435 | ) | | (12,558 | ) |
Financing Activities | | | |
Net change in short-term borrowings | 79,700 |
| | — |
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Proceeds from issuance of long-term debt | 152,796 |
| | 1,787 |
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Payments of long-term debt | (87,032 | ) | | (64,442 | ) |
Purchase of treasury stock | (49,089 | ) | | — |
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Distributions to noncontrolling interest owner | (2,453 | ) | | — |
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Proceeds from sale of treasury shares to employees and directors | 447 |
| | 1,564 |
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Payments of debt issuance costs | (271 | ) | | (3,175 | ) |
Dividends paid | (12,011 | ) | | (9,359 | ) |
Excess tax benefit from share-based payment arrangement | 1,299 |
| | 1,770 |
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Other | (2,770 | ) | | — |
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Net cash provided by (used in) financing activities | 80,616 |
| | (71,855 | ) |
Increase (decrease) in cash and cash equivalents | (74,046 | ) | | 17,861 |
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Cash and cash equivalents at beginning of period | 114,704 |
| | 309,085 |
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Cash and cash equivalents at end of period | $ | 40,658 |
| | $ | 326,946 |
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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, 2013 | $ | 96 |
| | $ | 184,380 |
| | $ | (10,222 | ) | | $ | (21,181 | ) | | $ | 548,401 |
| | $ | 22,947 |
| | $ | 724,421 |
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Net income | | | | | | | | | 83,834 |
| | 10,844 |
| | 94,678 |
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Other comprehensive loss | | | | | | | (6,790 | ) | | | | | | (6,790 | ) |
Cash distributions to noncontrolling interest | | | | | | | | | | | (8,916 | ) | | (8,916 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,542 (220 shares) | | | 6,161 |
| | 1,460 |
| | | | | | | | 7,621 |
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Payment of cash in lieu for stock split (187 shares) | | | (58 | ) | | | | | | | | | | (58 | ) |
Dividends declared ($0.33 per common share) | | | | | | | | | (9,379 | ) | | | | (9,379 | ) |
Performance share unit dividend equivalents | | | 134 |
| | | | | | (134 | ) | | | | — |
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Balance at September 30, 2014 | $ | 96 |
| | $ | 190,617 |
| | $ | (8,762 | ) | | $ | (27,971 | ) | | $ | 622,722 |
| | $ | 24,875 |
| | $ | 801,577 |
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| | | | | | | | | | | | | |
Balance at December 31, 2014 | $ | 96 |
| | $ | 222,789 |
| | $ | (9,743 | ) | | $ | (54,595 | ) | | $ | 644,556 |
| | $ | 20,946 |
| | $ | 824,049 |
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Net income | | | | | | | | | 33,961 |
| | 1,433 |
| | 35,394 |
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Other comprehensive loss | | | | | | | (2,864 | ) | | | | | | (2,864 | ) |
Cash distributions to noncontrolling interest | | | | | | | | | | | (2,453 | ) | | (2,453 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $819 (163 shares) | | | (2,635 | ) | | 4,861 |
| | | | | | | | 2,226 |
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Purchase of treasury shares (1,193 shares) | | | | | (49,089 | ) | | | | | | | | (49,089 | ) |
Dividends declared ($0.42 per common share) | | | | | | | | | (11,872 | ) | | | | (11,872 | ) |
Shares issued for acquisitions (77 shares) | | | 4,303 |
| | | | | | | | | | 4,303 |
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Performance share unit dividend equivalents | | | 138 |
| | | | | | (138 | ) | | | | — |
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Balance at September 30, 2015 | $ | 96 |
| | $ | 224,595 |
| | $ | (53,971 | ) | | $ | (57,459 | ) | | $ | 666,507 |
| | $ | 19,926 |
| | $ | 799,694 |
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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, 2015.
The Condensed Consolidated Balance Sheet data at December 31, 2014 was derived from the audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. An unaudited Condensed Consolidated Balance Sheet as of September 30, 2014 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, 2014 (the “2014 Form 10-K”).
New Accounting Standards
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. This standard amends the recognition requirements for adjustments to provisional amounts in business combinations so that changes are recognized in the period in which they are identified. The Company has elected to early adopt this standard for business combination reporting as of the current period. The Company does not expect this standard will have a material impact on its Consolidated Financial Statements and disclosures.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. This standard requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company does not expect this standard will have a material impact on its Consolidated Financial Statements and disclosures.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. The standard is effective for annual and interim periods beginning after December 15, 2015 and will not have a material impact on the Company's Consolidated Financial Statements and disclosures.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. This standard provides amendments to the manner in which companies assess the characteristics of variable interest entities. The standard is effective for annual periods beginning after December 15, 2015. The Company is currently assessing the impact this standard will have on its Consolidated Financial Statements and disclosures.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers. The core principle of the new revenue model is that an entity recognizes revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is currently effective for annual and interim periods beginning after December 15, 2016, however, the FASB has extended the effective date for one year. The Company is currently assessing the method of adoption and the impact this standard will have on its Consolidated Financial Statements and disclosures.
2. Inventories
Major classes of inventories are as follows:
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(in thousands) | September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Grain | $ | 325,536 |
| | $ | 570,916 |
| | $ | 227,014 |
|
Ethanol and by-products | 8,365 |
| | 13,154 |
| | 9,696 |
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Plant nutrients and cob products | 161,562 |
| | 181,136 |
| | 128,573 |
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Retail merchandise | 26,079 |
| | 23,810 |
| | 25,647 |
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Railcar repair parts | 6,057 |
| | 6,431 |
| | 5,336 |
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Other | 190 |
| | 208 |
| | 198 |
|
| $ | 527,789 |
| | $ | 795,655 |
| | $ | 396,464 |
|
Inventories on the Condensed Consolidated Balance Sheets at September 30, 2015, December 31, 2014 and September 30, 2014 do not include 3.2 million, 3.1 million and 2.0 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 are as follows:
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| | | | | | | | | | | |
(in thousands) | September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Land | $ | 30,285 |
| | $ | 23,380 |
| | $ | 22,415 |
|
Land improvements and leasehold improvements | 76,414 |
| | 71,817 |
| | 68,976 |
|
Buildings and storage facilities | 301,125 |
| | 275,059 |
| | 238,664 |
|
Machinery and equipment | 368,338 |
| | 333,559 |
| | 320,648 |
|
Software | 70,781 |
| | 55,436 |
| | 55,791 |
|
Construction in progress | 21,044 |
| | 29,620 |
| | 28,260 |
|
| 867,987 |
| | 788,871 |
| | 734,754 |
|
Less: accumulated depreciation and amortization | 372,942 |
| | 335,264 |
| | 332,954 |
|
| $ | 495,045 |
| | $ | 453,607 |
| | $ | 401,800 |
|
Depreciation and amortization expense on property, plant and equipment amounted to $39.0 million and $31.6 million for the nine months ended September 30, 2015 and 2014, respectively. Depreciation and amortization expense on property, plant and equipment were $13.6 million and $11.2 million for the three months ended September 30, 2015 and 2014, respectively.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
| | | | | | | | | | | |
(in thousands) | September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Rail Group assets leased to others | $ | 441,267 |
| | $ | 384,958 |
| | $ | 330,318 |
|
Less: accumulated depreciation | 94,167 |
| | 87,211 |
| | 84,469 |
|
| $ | 347,100 |
| | $ | 297,747 |
| | $ | 245,849 |
|
Depreciation expense on Rail Group assets leased to others amounted to $12.9 million and $10.5 million for the nine months ended September 30, 2015 and 2014, respectively. Depreciation expense on Rail Group assets leased to others amounted to $4.6 million and $3.6 million for the three months ended September 30, 2015 and 2014, respectively.
Amortization expense on intangibles was $2.6 million and $5.5 million for the three and nine months ended September 30, 2015, and $1.1 million and $2.2 million for the three and nine months ended September 30, 2014.
4. Debt
The Company is party to borrowing arrangements with a syndicate of banks. See Note 10 in the Company’s 2014 Form 10-K for a description of these arrangements. Total borrowing capacity for the Company under all lines of credit is currently at $875.0 million, including $25.0 million of debt of The Andersons Denison Ethanol LLC ("TADE"), which is non-recourse to the Company. At September 30, 2015, the Company had a total of $657.9 million available for borrowing under its lines of credit. Our borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of September 30, 2015.
The Company’s short-term and long-term debt at September 30, 2015, December 31, 2014 and September 30, 2014 consisted of the following: |
| | | | | | | | | | | |
(in thousands) | September 30,
2015 | | December 31,
2014 | | September 30,
2014 |
Short-term debt – recourse | $ | 82,801 |
| | $ | 2,166 |
| | $ | 451 |
|
Total short-term debt | 82,801 |
| | 2,166 |
| | 451 |
|
Current maturities of long-term debt – non-recourse | — |
| | — |
| | — |
|
Current maturities of long-term debt – recourse | 26,989 |
| | 76,415 |
| | 76,757 |
|
Total current maturities of long-term debt | 26,989 |
| | 76,415 |
| | 76,757 |
|
Long-term debt, less current maturities – non-recourse | — |
| | — |
| | — |
|
Long-term debt, less current maturities – recourse | 413,561 |
| | 298,638 |
| | 289,448 |
|
Total long-term debt, less current maturities | $ | 413,561 |
| | $ | 298,638 |
| | $ | 289,448 |
|
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over the counter forward and option contracts with various counterparties. The exchange traded contracts are primarily via the regulated Chicago Mercantile Exchange ("CME"). The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
All of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter
contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The 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 September 30, 2015, December 31, 2014 and September 30, 2014, 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:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2015 | | December 31, 2014 | | September 30, 2014 |
(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) | $ | 28,585 |
| | $ | — |
| | $ | 79,646 |
| | $ | — |
| | $ | (79,711 | ) | | $ | — |
|
Fair value of derivatives | 5,733 |
| | — |
| | (10,981 | ) | | — |
| | 147,983 |
| | — |
|
Balance at end of period | $ | 34,318 |
| | $ | — |
| | $ | 68,665 |
| | $ | — |
| | $ | 68,272 |
| | $ | — |
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2015 |
(in thousands) | Commodity derivative assets - current | | Commodity derivative assets - noncurrent | | Commodity derivative liabilities - current | | Commodity derivative liabilities - noncurrent | | Total |
Commodity derivative assets | $ | 43,892 |
| | $ | 1,591 |
| | $ | 2,306 |
| | $ | 32 |
| | $ | 47,821 |
|
Commodity derivative liabilities | (11,512 | ) | | (7 | ) | | (52,217 | ) | | (2,944 | ) | | (66,680 | ) |
Cash collateral | 28,585 |
| | — |
| | — |
| | — |
| | 28,585 |
|
Balance sheet line item totals | $ | 60,965 |
| | $ | 1,584 |
| | $ | (49,911 | ) | | $ | (2,912 | ) | | $ | 9,726 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2014 |
(in thousands) | Commodity derivative assets - current | | Commodity derivative assets - noncurrent | | Commodity derivative liabilities - current | | Commodity derivative liabilities - noncurrent | | Total |
Commodity derivative assets | $ | 49,847 |
| | $ | 545 |
| | $ | 6,123 |
| | $ | 118 |
| | $ | 56,633 |
|
Commodity derivative liabilities | (36,722 | ) | | (38 | ) | | (70,198 | ) | | (3,436 | ) | | (110,394 | ) |
Cash collateral | 79,646 |
| | — |
| | — |
| | — |
| | 79,646 |
|
Balance sheet line item totals | $ | 92,771 |
| | $ | 507 |
| | $ | (64,075 | ) | | $ | (3,318 | ) | | $ | 25,885 |
|
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2014 |
(in thousands) | Commodity derivative assets - current | | Commodity derivative assets - noncurrent | | Commodity derivative liabilities - current | | Commodity derivative liabilities - noncurrent | | Total |
Commodity derivative assets | $ | 212,760 |
| | $ | 2,383 |
| | $ | 2,897 |
| | $ | 196 |
| | $ | 218,236 |
|
Commodity derivative liabilities | (6,653 | ) | | — |
| | (232,162 | ) | | (26,399 | ) | | (265,214 | ) |
Cash collateral | (79,711 | ) | | — |
| | — |
| | — |
| | (79,711 | ) |
Balance sheet line item totals | $ | 126,396 |
| | $ | 2,383 |
| | $ | (229,265 | ) | | $ | (26,203 | ) | | $ | (126,689 | ) |
The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the three and nine months ended September 30, 2015 and 2014 are as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended
September 30, | | Nine months ended
September 30, |
(in thousands) | 2015 | | 2014 | | 2015 | | 2014 |
Gains (losses) on commodity derivatives included in sales and merchandising revenues | $ | 44,290 |
| | $ | 86,558 |
| | $ | 105,651 |
| | $ | 106,389 |
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2015, December 31, 2014 and September 30, 2014:
|
| | | | | | | | | | | |
| September 30, 2015 |
Commodity | Number of bushels (in thousands) | | Number of gallons (in thousands) | | Number of pounds (in thousands) | | Number of tons (in thousands) |
Non-exchange traded: | | | | | | | |
Corn | 331,740 |
| | — |
| | — |
| | — |
|
Soybeans | 47,208 |
| | — |
| | — |
| | — |
|
Wheat | 12,631 |
| | — |
| | — |
| | — |
|
Oats | 19,449 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 131,789 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 10,063 |
| | — |
|
Other | 572 |
| | — |
| | — |
| | 123 |
|
Subtotal | 411,600 |
| | 131,789 |
| | 10,063 |
| | 123 |
|
Exchange traded: | | | | | | | |
Corn | 129,810 |
| | — |
| | — |
| | — |
|
Soybeans | 24,860 |
| | — |
| | — |
| | — |
|
Wheat | 28,360 |
| | — |
| | — |
| | — |
|
Oats | 3,285 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 3,192 |
| | — |
| | — |
|
Bean Oil | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
|
Subtotal | 186,315 |
| | 3,192 |
| | — |
| | — |
|
Total | 597,915 |
| | 134,981 |
| | 10,063 |
| | 123 |
|
|
| | | | | | | | | | | |
| December 31, 2014 |
Commodity | Number of bushels (in thousands) | | Number of gallons (in thousands) | | Number of pounds (in thousands) | | Number of tons (in thousands) |
Non-exchange traded: | | | | | | | |
Corn | 265,574 |
| | — |
| | — |
| | — |
|
Soybeans | 23,820 |
| | — |
| | — |
| | — |
|
Wheat | 14,967 |
| | — |
| | — |
| | — |
|
Oats | 23,440 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 233,637 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 18,076 |
| | — |
|
Other | 28 |
| | — |
| | — |
| | 139 |
|
Subtotal | 327,829 |
| | 233,637 |
| | 18,076 |
| | 139 |
|
Exchange traded: | | | | | | | |
Corn | 159,575 |
| | — |
| | — |
| | — |
|
Soybeans | 31,265 |
| | — |
| | — |
| | — |
|
Wheat | 30,360 |
| | — |
| | — |
| | — |
|
Oats | 7,545 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 41,832 |
| | — |
| | — |
|
Bean oil | — |
| | — |
| | 2,700 |
| | — |
|
Other | — |
| | — |
| | — |
| | 5 |
|
Subtotal | 228,745 |
| | 41,832 |
| | 2,700 |
| | 5 |
|
Total | 556,574 |
| | 275,469 |
| | 20,776 |
| | 144 |
|
|
| | | | | | | | | | | |
| September 30, 2014 |
Commodity | Number of bushels (in thousands) | | Number of gallons (in thousands) | | Number of pounds (in thousands) | | Number of tons (in thousands) |
Non-exchange traded: | | | | | | | |
Corn | 293,592 |
| | — |
| | — |
| | — |
|
Soybeans | 68,486 |
| | — |
| | — |
| | — |
|
Wheat | 11,370 |
| | — |
| | — |
| | — |
|
Oats | 26,687 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 209,264 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 68,799 |
| | — |
|
Other | 140 |
| | — |
| | — |
| | 115 |
|
Subtotal | 400,275 |
| | 209,264 |
| | 68,799 |
| | 115 |
|
Exchange traded: | | | | | | | |
Corn | 117,175 |
| | — |
| | — |
| | — |
|
Soybeans | 34,760 |
| | — |
| | — |
| | — |
|
Wheat | 35,635 |
| | — |
| | — |
| | — |
|
Oats | 9,195 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 104,286 |
| | — |
| | — |
|
Other | — |
| | — |
| | 5,400 |
| | 11 |
|
Subtotal | 196,765 |
| | 104,286 |
| | 5,400 |
| | 11 |
|
Total | 597,040 |
| | 313,550 |
| | 74,199 |
| | 126 |
|
6. Employee Benefit Plans
In the fourth quarter of 2014, we began the process of terminating the funded defined benefit plan (the "Plan"), which will include settling the Plan liabilities by offering lump sum distributions to plan participants or purchasing annuity contracts for
those who do not elect lump sums. As part of the planned termination, in 2014 we adjusted our asset portfolio to a target asset allocation of 100% fixed income investments (up from 49%), which will provide a better matching of Plan assets to the characteristics of the liabilities. In the fourth quarter of 2014, we provided notice to plan participants of our intent to terminate the Plan and we applied for a determination with the Internal Revenue Service with regards to the termination. We will take further actions to minimize the volatility of the value of our pension assets relative to pension liabilities and to settle remaining Plan liabilities, including making such contributions to the Plan as may be necessary to make the Plan sufficient to settle all Plan liabilities.
As of December 31, 2014, we have valued the projected benefit obligations of the Plan based on the present value of estimated costs to settle the liabilities through a combination of lump sum payments to participants and purchasing annuities from an insurance company. This reflects an estimate of how many participants we expect will accept a lump sum offering, and an estimate of lump sum payouts for those participants based on the current lump sum rates approved by the IRS. Liabilities expected to be settled through annuity contracts have been estimated based on future benefit payments, discounted based on current interest rates that correspond to the liability payouts, adjusted to reflect a premium that would be assessed by the insurer. As the liabilities are settled, unamortized losses in accumulated other comprehensive income will be recognized based on the projected benefit obligations and assets measured as of the dates the settlements occur. Based on rates as of September 30, 2015, the amount of unamortized losses in other comprehensive income that would result in a one-time noncash pre-tax charge was estimated at $54.4 million. Prior to settling the liabilities, we will contribute such additional amounts (estimated to be approximately $6.9 million as of September 30, 2015) as may be necessary to fully fund the Plan. Such contributions are expected to be made concurrent with settling the liabilities but may be made earlier at our discretion. The impact of termination is subject to rate changes at the time of settlement. This planned termination does not yet constitute a settlement of liability under applicable accounting guidance for pension plans. The Company anticipates the conversion to individual annuity policies along with the liability discharge to occur in the fourth quarter. The defined benefit plan is included in the accompanying table for all periods presented.
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 nine months ended September 30, 2015 and 2014:
|
| | | | | | | | | | | | | | | |
| Pension Benefits |
(in thousands) | Three months ended
September 30, | | Nine months ended
September 30, |
2015 | | 2014 | | 2015 | | 2014 |
Service cost | $ | 59 |
| | $ | 45 |
| | $ | 177 |
| | $ | 135 |
|
Interest cost | 45 |
| | 1,193 |
| | 136 |
| | 3,580 |
|
Expected return on plan assets | — |
| | (1,903 | ) | | — |
| | (5,711 | ) |
Recognized net actuarial loss | 379 |
| | 234 |
| | 1,137 |
| | 701 |
|
Benefit cost (income) | $ | 483 |
| | $ | (431 | ) | | $ | 1,450 |
| | $ | (1,295 | ) |
|
| | | | | | | | | | | | | | | |
| Postretirement Benefits |
(in thousands) | Three months ended
September 30, | | Nine months ended
September 30, |
2015 | | 2014 | | 2015 | | 2014 |
Service cost | $ | 225 |
| | $ | 173 |
| | $ | 675 |
| | $ | 516 |
|
Interest cost | 396 |
| | 377 |
| | 1,188 |
| | 1,133 |
|
Amortization of prior service cost | (136 | ) | | (136 | ) | | (408 | ) | | (408 | ) |
Recognized net actuarial loss | 379 |
| | 203 |
| | 1,138 |
| | 609 |
|
Benefit cost | $ | 864 |
| | $ | 617 |
| | $ | 2,593 |
| | $ | 1,850 |
|
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 and local income taxes and income or losses attributable to non-controlling interests that do not impact the Company’s income tax provision.
For the three months ended September 30, 2015, an income tax benefit of $1.5 million was provided at 61.3%, which varied from the U.S. Federal tax rate of 35%. The higher effective tax rate this quarter is primarily due to the cumulative impact of revised full year earnings expectations, driven by the inclusion of a one-time charge expected in the fourth quarter related to the termination of the Company’s pension plan, and relatively low third quarter earnings. For the three months ended September 30, 2014, the Company recorded income tax expense of $10.3 million at an effective tax rate of 34.7%.
For the nine months ended September 30, 2015, income tax expense of $17.6 million was provided at 33.2%, which differs from the statutory U.S. Federal tax rate of 35% primarily due to lower earnings expectations and the relative benefit of the domestic production activity deduction and accounting for the investment in a foreign affiliate, partially offset by tax charges related to other permanent book to taxable income items. For the nine months ended September 30, 2014, income tax expense of $49.8 million was provided at a rate of 34.5%.
We have made income tax payments, net of refunds, of $4.5 million through the first nine months of 2015, and we expect to make payments totaling approximately $21.0 million for the remainder of 2015.
There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2014. The Company’s consolidated Federal income tax returns for 2011 and 2012 are currently being audited by the IRS, and it is anticipated that the IRS will substantially complete its examination in 2015. The Company does not expect that the resolution of the examination will have a material effect on its effective tax rate.
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 nine months ended September 30, 2015 and 2014: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | | For the three months ended September 30, 2015 | | For the nine months ended September 30, 2015 |
(in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total |
Beginning Balance | | $ | (242 | ) | | $ | (7,913 | ) | | $ | 126 |
| | $ | (47,130 | ) | | $ | (55,159 | ) | | $ | (364 | ) | | $ | (4,709 | ) | | $ | 126 |
| | $ | (49,648 | ) | | $ | (54,595 | ) |
| Other comprehensive income (loss) before reclassifications | | 62 |
| | (2,750 | ) | | — |
| | 473 |
| | (2,215 | ) | | 184 |
| | (5,954 | ) | | — |
| | 3,161 |
| | (2,609 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | — |
| | (85 | ) | | (85 | ) | | — |
| | — |
| | — |
| | (255 | ) | | (255 | ) |
Net current-period other comprehensive income (loss) | | 62 |
| | (2,750 | ) | | — |
| | 388 |
| | (2,300 | ) | | 184 |
| | (5,954 | ) | | — |
| | 2,906 |
| | (2,864 | ) |
Ending balance | | $ | (180 | ) | | $ | (10,663 | ) | | $ | 126 |
| | $ | (46,742 | ) | | $ | (57,459 | ) | | $ | (180 | ) | | $ | (10,663 | ) | | $ | 126 |
| | $ | (46,742 | ) | | $ | (57,459 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | | For the three months ended September 30, 2014 | | For the nine months ended September 30, 2014 |
(in thousands) | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total | | Losses on Cash Flow Hedges | | Foreign Currency Translation Adjustments | | Investment in Debt Securities | | Defined Benefit Plan Items | | Total |
Beginning Balance | | $ | (506 | ) | | $ | — |
| | $ | 2,399 |
| | $ | (28,916 | ) | | $ | (27,023 | ) | | $ | (637 | ) | | $ | — |
| | $ | 7,861 |
| | $ | (28,405 | ) | | $ | (21,181 | ) |
| Other comprehensive income (loss) before reclassifications | | 79 |
| | — |
| | (1,214 | ) | | 272 |
| | (863 | ) | | 210 |
| | — |
| | (6,676 | ) | | (69 | ) | | (6,535 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | — |
| | (85 | ) | | (85 | ) | | — |
| | — |
| | — |
| | (255 | ) | | (255 | ) |
Net current-period other comprehensive income (loss) | | 79 |
| | — |
| | (1,214 | ) | | 187 |
| | (948 | ) | | 210 |
| | — |
| | (6,676 | ) | | (324 | ) | | (6,790 | ) |
Ending balance | | $ | (427 | ) | | $ | — |
| | $ | 1,185 |
| | $ | (28,729 | ) | | $ | (27,971 | ) | | $ | (427 | ) | | $ | — |
| | $ | 1,185 |
| | $ | (28,729 | ) | | $ | (27,971 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The following tables show the reclassification adjustments from accumulated other comprehensive loss to net income (loss) for the three and nine months ended September 30, 2015 and 2014: |
| | | | | | | | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | For the three months ended September 30, 2015 | | For the nine months ended September 30, 2015 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | | | | | |
Amortization of prior-service cost | | $ | (136 | ) | | (b) | | $ | (408 | ) | | (b) |
| | (136 | ) | | Total before tax | | (408 | ) | | Total before tax |
| | 51 |
| | Income tax provision | | 153 |
| | Income tax provision |
| | $ | (85 | ) | | Net of tax | | $ | (255 | ) | | Net of tax |
| | | | | | | | |
Total reclassifications for the period | | $ | (85 | ) | | Net of tax | | $ | (255 | ) | | Net of tax |
|
| | | | | | | | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | For the three months ended September 30, 2014 | | For the nine months ended September 30, 2014 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | | | | | |
Amortization of prior-service cost | | $ | (136 | ) | | (b) | | $ | (408 | ) | | (b) |
| | (136 | ) | | Total before tax | | (408 | ) | | Total before tax |
| | 51 |
| | Income tax provision | | 153 |
| | Income tax provision |
| | $ | (85 | ) | | Net of tax | | $ | (255 | ) | | Net of tax |
| | | | | | | | |
Total reclassifications for the period | | $ | (85 | ) | | Net of tax | | $ | (255 | ) | | Net of tax |
(a) Amounts in parentheses indicate debits 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
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.
|
| | | | | | | | | | | | | | | |
(in thousands, except per common share data) | Three months ended
September 30, | | Nine months ended
September 30, |
2015 | | 2014 | | 2015 | | 2014 |
Net income (loss) attributable to The Andersons, Inc. | $ | (1,227 | ) | | $ | 16,825 |
| | $ | 33,961 |
| | $ | 83,834 |
|
Less: Distributed and undistributed earnings allocated to nonvested restricted stock | (2 | ) | | 93 |
| | 61 |
| | 443 |
|
Earnings available to common shareholders | $ | (1,225 | ) | | $ | 16,732 |
| | $ | 33,900 |
| | $ | 83,391 |
|
Earnings per share – basic: | | | | | | | |
Weighted average shares outstanding – basic | 28,071 |
| | 28,260 |
| | 28,394 |
| | 28,222 |
|
Earnings per common share – basic | $ | (0.04 | ) | | $ | 0.59 |
| | $ | 1.19 |
| | $ | 2.95 |
|
Earnings per share – diluted: | | | | | | | |
Weighted average shares outstanding – basic | 28,071 |
| | 28,260 |
| | 28,394 |
| | 28,222 |
|
Effect of dilutive awards | — |
| | 40 |
| | 60 |
| | 46 |
|
Weighted average shares outstanding – diluted | 28,071 |
| | 28,300 |
| | 28,454 |
| | 28,268 |
|
Earnings per common share – diluted | $ | (0.04 | ) | | $ | 0.59 |
| | $ | 1.19 |
| | $ | 2.95 |
|
There were no antidilutive stock-based awards outstanding at September 30, 2015 or 2014.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2015, December 31, 2014 and September 30, 2014:
|
| | | | | | | | | | | | | | | |
(in thousands) | September 30, 2015 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | $ | 16,121 |
| | $ | — |
| | $ | — |
| | $ | 16,121 |
|
Restricted cash | 181 |
| | — |
| | — |
| | 181 |
|
Commodity derivatives, net (a) | 34,337 |
| | (24,611 | ) | | — |
| | 9,726 |
|
Convertible preferred securities (b) | — |
| | — |
| | 12,800 |
| | 12,800 |
|
Other assets and liabilities (c) | 10,814 |
| | (4,010 | ) | | 350 |
| | 7,154 |
|
Total | $ | 61,453 |
| | $ | (28,621 | ) | | $ | 13,150 |
| | $ | 45,982 |
|
|
| | | | | | | | | | | | | | | |
(in thousands) | December 31, 2014 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | $ | 269 |
| | $ | — |
| | $ | — |
| | $ | 269 |
|
Restricted cash | 429 |
| | — |
| | — |
| | 429 |
|
Commodity derivatives, net (a) | 72,868 |
| | (46,983 | ) | | — |
| | 25,885 |
|
Convertible preferred securities (b) | — |
| | — |
| | 13,300 |
| | 13,300 |
|
Other assets and liabilities (c) | 10,869 |
| | (2,666 | ) | | — |
| | 8,203 |
|
Total | $ | 84,435 |
| | $ | (49,649 | ) | | $ | 13,300 |
| | $ | 48,086 |
|
|
| | | | | | | | | | | | | | | |
(in thousands) | September 30, 2014 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents | $ | 85,663 |
| | $ | — |
| | $ | — |
| | $ | 85,663 |
|
Restricted cash | 173 |
| | — |
| | — |
| | 173 |
|
Commodity derivatives, net (a) | 32,606 |
| | (159,295 | ) | | — |
| | (126,689 | ) |
Convertible preferred securities (b) | — |
| | — |
| | 15,000 |
| | 15,000 |
|
Other assets and liabilities (c) | 10,671 |
| | (1,636 | ) | | — |
| | 9,035 |
|
Total | $ | 129,113 |
| | $ | (160,931 | ) | | $ | 15,000 |
| | $ | (16,818 | ) |
| |
(a) | Includes associated cash posted/received as collateral |
| |
(b) | Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets |
| |
(c) | Included in other assets and liabilities are deferred compensation assets (Level 1), interest rate derivatives (Level 2), and contingent consideration to the former owners of Kay Flo Industries, Inc (Level 3). |
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.
The Company’s convertible preferred securities are measured at fair value using a combination of the income and market approaches on a quarterly 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. A comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows: