UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
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.) | |
1947 Briarfield Boulevard, Maumee, Ohio | 43537 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code (419) 893-5050
Securities registered pursuant to Section 12(b) of the Act: Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No ý
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 aggregate market value of the registrant's voting stock which may be voted by persons other than affiliates of the registrant was $918.1 million as of June 30, 2017, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq Global Select Market.
The registrant had approximately 28.2 million common shares outstanding, no par value, at February 15, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 11, 2018, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Commission on or about March 15, 2018.
THE ANDERSONS, INC.
Table of Contents
Page No. | |
PART I. | |
Item 1. Business | |
Item 1A. Risk Factors | |
Item 1B. Unresolved Staff Comments | |
Item 2. Properties | |
Item 3. Legal Proceedings | |
Item 4. Mine Safety | |
PART II. | |
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters | |
Item 6. Selected Financial Data | |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk | |
Item 8. Financial Statements and Supplementary Data | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | |
Item 9A. Controls and Procedures | |
PART III. | |
Item 10. Directors and Executive Officers of the Registrant | |
Item 11. Executive Compensation | |
Item 12. Security Ownership of Certain Beneficial Owners and Management | |
Item 13. Certain Relationships and Related Transactions | |
Item 14. Principal Accountant Fees and Services | |
PART IV. | |
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K | |
Item 16. Form 10-K Summary | |
Exhibits | |
Signatures | |
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Part I.
Item 1. Business
Company Overview
The Andersons, Inc. (the "Company") is a diversified company rooted in agriculture. Founded in Maumee, Ohio in 1947, the Company conducts business across North America in the grain, ethanol, plant nutrient and rail sectors.
Segment Descriptions
The Company's operations are classified into five reportable business segments: Grain, Ethanol, Rail, Plant Nutrient, and Retail. Each of these segments is organized based upon the nature of products and services offered. See Note 13 to the Consolidated Financial Statements in Item 8 for information regarding business segments.
Grain Group
The Grain business primarily operates grain elevators in various states in the U.S. Corn Belt. Income is earned on grain bought and sold or “put thru” the elevator, grain that is purchased and conditioned for resale, and space income. Space income consists of appreciation or depreciation in the basis value of grain held and represents the difference between the cash price of a commodity in one of the Company's facilities and an exchange traded futures price (“basis”); appreciation or depreciation between the future exchange contract months (“spread”); and grain stored for others upon which storage fees are earned. The Grain business also offers a number of unique grain marketing, risk management and corn origination services to its customers and affiliated ethanol facilities for which it collects fees.
The Company has a lease and marketing agreement with Cargill, Incorporated (“Cargill”) for Cargill's Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill holds marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. The lease of the Cargill-owned facilities covers approximately 6%, or 8.7 million bushels, of the Company's total storage space.
Grain prices are not predetermined, so sales are negotiated by the Company's merchandising staff. The principal grains sold by the Company are corn, soybeans and wheat. Approximately 92% of grain sales by the Company in 2017 were purchased by U.S. grain processors and feeders, and approximately 8% were exported. Most of the Company's exported grain sales are made through intermediaries while some grain is shipped directly to foreign countries, mainly Canada. The Company ships grain from its facilities by rail, truck, or boat. Rail shipments are made primarily to grain processors and feeders with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo. In addition, grain is transported via truck for direct ship transactions in which producers sell grain to the Company but have it delivered directly to the end user.
The Company's grain operations rely principally on forward purchase contracts with producers, dealers and commercial elevators to ensure an adequate supply of grain to the Company's facilities throughout the year. The Company makes grain purchases at prices referenced to the Chicago Mercantile Exchange (“the CME”).
The Company competes in the sale of grain with other public and private grain brokers, elevator operators and farmer owned cooperative elevators. Some of the Company's competitors are also its customers. Competition is based primarily on price, service and reliability. Because the Company generally buys in smaller lots, its competition for the purchase of grain is generally local or regional in scope, although there are some large national and international companies that maintain regional grain purchase and storage facilities. Significant portions of grain bushels purchased and sold are made using forward contracts.
The grain handling business is seasonal in nature in that the largest portion of the principal grains are harvested and delivered from the farm and commercial elevators in July, October and November although a significant portion of the principal grains are bought, sold and handled throughout the year.
Fixed price purchase and sale commitments as well as grain held in inventory expose the Company to risks related to adverse changes in market prices. Grain prices are typically comprised of two components, futures prices on the CME and local basis adjustments. The Company manages the futures price risk by entering into exchange-traded futures and option contracts with the CME. The contracts are economic hedges of price risk, but are not designated or accounted for as hedging instruments.
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The CME is a regulated commodity futures exchange that maintains futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.
The Company's grain risk management practices are designed to reduce the risk of changing commodity prices. In that regard, such practices also limit potential gains from further changes in market prices. The Company has policies that provide key controls over its risk management practices. These policies include a description of the objectives of the programs and review of daily position limits by key management outside of the trading function along with other internal controls. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company monitors its counterparties on a regular basis for credit worthiness, defaults and non-delivery.
Purchases of grain can be made the day the grain is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of grain generally are made by contract for delivery in a future period. When the Company purchases grain at a fixed price or at a price where a component of the purchase price is fixed via reference to a futures price on the CME, it also enters into an offsetting sale of a futures contract on the CME. Similarly, when the Company sells grain at a fixed price, the sale is offset with the purchase of a futures contract on the CME. At the close of business each day, inventory and open purchase and sale contracts as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company's ownership positions due to changing market prices are netted with, and generally offset in the statement of operations by, losses and gains in the value of the Company's futures positions.
When a futures contract is entered into, an initial margin deposit must be sent to the CME. The amount of the margin deposit is set by the CME and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company's position, an additional margin deposit, called a maintenance margin, is required by the CME. Subsequent price changes could require additional maintenance margin deposits or result in the return of maintenance margin deposits by the CME. Significant increases in market prices, such as those that occur when grain supplies are affected by unfavorable weather conditions and/or when increases in demand occur, can have an effect on the Company's liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize CME option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.
The Company owns 33% of the equity in Lansing Trade Group LLC (“LTG”). LTG is largely focused on the movement of physical commodities, including grain and ethanol, and is exposed to some of the same risks as the Company's grain and ethanol businesses. LTG also trades in commodities that the Company's grain and ethanol businesses do not trade in, some of which are not exchange traded. This investment provides the Company with further opportunity to diversify and complement its income through activity outside of its traditional product and geographic regions. This investment is accounted for under the equity method. The Company, along with LTG, also established joint ventures and purchased a grain and food-bean handler and agronomy input provider with 12 locations across Ontario, Canada and Minnesota. These investments are accounted for under the equity method. The Company periodically enters into transactions with these joint ventures as disclosed in Note 12 to the Consolidated Financial Statements in Item 8.
Ethanol Group
The Ethanol Group has ownership interests in four limited liability companies (“the ethanol LLCs” or “LLCs”). Each of the LLCs owns an ethanol plant that is operated by the Company's Ethanol Group. The plants are located in Iowa, Indiana, Michigan, and Ohio and have combined nameplate capacity of 385 million gallons of ethanol. The Group purchases and sells ethanol, offers facility operations, risk management, and ethanol and corn oil marketing services to the ethanol plants it invests in and operates.
The Company holds an 85% interest in The Andersons Denison Ethanol LLC ("TADE"), which is a consolidated entity. The Company holds a 55% interest in The Andersons Albion Ethanol LLC (“TAAE”) and a 39% interest in The Andersons Clymers Ethanol LLC (“TACE”). On January 1, 2017, The Andersons Ethanol Investment LLC (“TAEI”) was merged with and into The Andersons Marathon Ethanol LLC (“TAME”). The Company had owned (66)% of TAEI, which, in turn, had owned 50% of TAME. Pursuant to the merger, the Company’s ownership units in TAEI were canceled and converted into ownership units in TAME. As a result, the Company now directly owns 33% of the outstanding ownership units of TAME. All operating ethanol LLC investments, except TADE, are accounted for using the equity method of accounting.
The Company has a management agreement with each of the LLCs. As part of these agreements, the Ethanol Group runs the day-to-day operations of the plants and provides all administrative functions. The Company is compensated for these services based on a fixed cost plus an indexed annual increase determined by a consumer price index. Additionally, the Company has entered into agreements with each of the unconsolidated LLCs under which it has the exclusive right to act as supplier for
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100% of the corn used by the LLCs in the production of ethanol. For this service, the Company receives a fee for each bushel of corn sold. The Company has entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchases most, if not all, of the ethanol produced by the LLCs at the same price it will resell the ethanol to external customers. The Ethanol Group receives a fee for each gallon of ethanol sold to external customers sourced from these LLCs. Under the distillers dried grains ("DDG") and corn oil marketing agreements, the Company markets the DDG and corn oil and receives a fee on units sold.
Plant Nutrient Group
The Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients, corncob-based products, and pelleted lime and gypsum products in the U.S. Corn Belt and Puerto Rico. The Group provides warehousing, packaging and manufacturing services to basic nutrient producers and other distributors. The Group 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, and water treatment and dust abatement products.
In its plant nutrient businesses, the Company competes with regional and local cooperatives, wholesalers and retailers, predominantly publicly owned manufacturers and privately owned retailers, wholesalers and importers. Some of these competitors are also suppliers and have considerably larger resources than the Company. Competition in the nutrient business is based largely on depth of product offering, price, location and service. Sales and warehouse shipments of agricultural nutrients are heaviest in the spring and fall.
Wholesale Nutrients - The Wholesale Nutrients business manufactures, stores, and distributes dry and liquid agricultural nutrients, and pelleted lime and gypsum products annually. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur. Product lines include base nutrients which are typically bought and sold as commodities and value added products which support more sustainable farming practices and command higher margins. The distribution and sales channels for both types of nutrients are shared within the Wholesale Nutrients business.
Farm Centers - The Farm Centers offer a variety of essential crop nutrients, crop protection chemicals and seed products in addition to application and agronomic services to commercial and family farmers. Soil and tissue sampling along with global satellite assisted services provide for pinpointing crop or soil deficiencies and prescriptive agronomic advice is provided to farmers.
Cob Products - Corncob-based products are manufactured for a variety of uses including laboratory animal bedding and private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. The products are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for corncobs are seed corn producers.
Turf Products - Proprietary professional turf care products are produced for the golf course and professional turf care markets, serving both U.S. and international customers. These products are sold both directly and through distributors to golf courses and lawn service applicators. The Company also produces and sells fertilizer and control products to various markets.
Rail Group
The Company's Rail Group leases, repairs, and sells various types of railcars, locomotives and barges. In addition, the Rail Group offers fleet management services to private railcar owners.
The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, tank cars and pressure differential cars), locomotives and barges serving a broad customer base. The Company operates in both the new and used car markets, allowing the Company to diversify its fleet both in terms of car types, industries and age of cars, as well as repairing and refurbishing used cars for specific markets and customers.
A significant portion of the railcars, locomotives and barges managed by the Company are included on the balance sheet as long-lived assets. The others are either in off-balance sheet operating leases (with the Company leasing assets from financial intermediaries and leasing those same assets to the end-users) or non-recourse arrangements (in which the Company is not subject to any lease arrangement related to the assets, but provides management services to the owner of the assets). The Company generally holds purchase options on most assets owned by financial intermediaries. We are under contract to provide maintenance services for many of the Rail Group assets that we own or manage. Refer to the Off-Balance Sheet Transactions section of Management's Discussion and Analysis for a breakdown of our railcar, locomotive and barge positions at December 31, 2017.
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In the case of the Company's off-balance sheet Rail Group assets, the Company's risk management philosophy is to match-fund the lease commitments where possible. Match-funding (in relation to lease transactions) means matching the terms of the financial intermediary funding arrangement with the lease terms of the customer in which the Company is both lessee and sublessor. If the Company is unable to match-fund, it will attempt to negotiate an early buyout provision within the funding arrangement to match the underlying customer lease. The Company does not attempt to match-fund lease commitments for Rail Group assets that are on its balance sheet.
Competition for marketing and fleet maintenance services is based primarily on price, service ability, and access to both used equipment and third-party financing. Repair facility competition is based primarily on price, quality and location.
Retail Group
The Company's Retail Group included large retail stores operated as “The Andersons,” which were located in the Columbus and Toledo, Ohio markets. The stores focused 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.
In January 2017, the Company announced its decision to close all retail operations. As of December 31, 2017, the Retail Group has closed all stores, completed its liquidation efforts, and sold three of the four properties.
Employees
The Andersons offers a broad range of full-time and part-time career opportunities. Each position in the Company is important to its success, and the Company recognizes the worth and dignity of every individual. The Company strives to treat each person with respect and utilize his or her unique talents. At December 31, 2017, the Company had 1,795 full-time and 48 part-time or seasonal employees.
Government Regulation
Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).
The production levels, markets and prices of the grains that the Company merchandises are affected by United States government programs, which include acreage control and price support programs of the USDA. In regards to our investments in ethanol production facilities, the U.S. government has mandated a ten percent blend for motor fuel gasoline sold.
The U.S. Food and Drug Administration (“FDA”) has developed bioterrorism prevention regulations for food facilities, which require that the Company registers its grain operations with the FDA, provide prior notice of any imports of food or other agricultural commodities coming into the United States and maintain records to be made available upon request that identifies the immediate previous sources and immediate subsequent recipients of its grain commodities.
The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company's existing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. Compliance with environmental laws and regulations did not materially affect the Company's earnings or competitive position in 2017.
In addition, the Company continues to assess the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and has concluded that the Company is not a major swap dealer or major swap participant. The Company continues to monitor developments in the law, including the regulation of swaps and derivatives.
Available Information
The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on the Company's website soon after filing with the Securities and Exchange Commission. The Company's website address is http://www.andersonsinc.com. The public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These reports are also available at the SEC's website: http://www.sec.gov.
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Item 1A. Risk Factors
Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-K and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained elsewhere in this Form 10-K.
Certain of our business segments are affected by the supply and demand of commodities, and are sensitive to factors outside of our control. Adverse price movements could negatively affect our profitability and results of operations.
Our Grain, Ethanol and Plant Nutrient businesses buy, sell and hold inventories of agricultural input and output commodities, some of which are readily traded on commodity futures exchanges. Unfavorable weather conditions, both local and worldwide, as well as other factors beyond our control, can affect the supply and demand of these commodities and expose us to liquidity pressures to finance hedges in the grain business in rapidly rising markets. In our Plant Nutrient business, changes in the supply and demand of these commodities can also affect the value of inventories that we hold, as well as the price of raw materials as we are unable to effectively hedge these commodities. Increased costs of inventory and prices of raw material would decrease our profit margins and adversely affect our results of operations.
Corn - The principal raw material that the ethanol LLCs use to produce ethanol and coproducts is corn. As a result, an increase in the price of corn in the absence of a corresponding increase in petroleum based fuel prices will typically decrease ethanol margins thus adversely affecting financial results in the ethanol LLCs. At certain levels, corn prices may make ethanol uneconomical to produce for fuel markets. The price of corn is influenced by weather conditions and other factors affecting crop yields, shift in acreage allocated to corn versus other major crops and general economic and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult to predict. Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and potentially harm the income generated from our investments in ethanol LLCs. In addition, we may also have difficulty, from time to time, in physically sourcing corn on economical terms due to supply shortages. High costs or shortages could require us to suspend ethanol operations until corn is available on economical terms, which would have an adverse effect on operating results.
Grains - While we attempt to manage the risk associated with commodity price changes for our grain inventory positions with derivative instruments, including purchase and sale contracts, we are unable to offset 100% of the price risk of each transaction due to timing, availability of futures and options contracts and third-party credit risk. Furthermore, there is a risk that the derivatives we employ will not be effective in offsetting all of the risks that we are trying to manage. This can happen when the derivative and the underlying value of grain inventories and purchase and sale contracts are not perfectly matched. Our grain derivatives, for example, do not perfectly correlate with the basis component of our grain inventory and contracts. (Basis is defined as the difference between the local cash price of a commodity and the corresponding exchange-traded futures price.) Differences can reflect time periods, locations or product forms. Although the basis component is smaller and generally less volatile than the futures component of our grain market price, basis moves on a large grain position can significantly impact the profitability of the Grain business.
Our futures, options and over-the-counter contracts are subject to margin calls. If there are large movements in the commodities market, we could be required to post significant levels of margin deposits, which would impact our liquidity. There is no assurance that the efforts we have taken to mitigate the impact of the volatility of the prices of commodities upon which we rely will be successful and any sudden change in the price of these commodities could have an adverse effect on our business and results of operations.
Natural gas - We rely on third parties for our supply of natural gas, which is consumed in the drying of wet grain, manufacturing of certain turf products, pelleted lime and gypsum, and manufacturing of ethanol within the LLCs. The prices for and availability of natural gas are subject to market conditions. These market conditions often are affected by factors beyond our control such as higher prices resulting from colder than average weather and overall economic conditions. Significant disruptions in the supply of natural gas could impair the operations of the ethanol facilities. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect future results of operations and financial position.
Gasoline and oil - We market ethanol as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and as a substitute for petroleum based gasoline. As a result,
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ethanol prices will be influenced by the supply and demand for gasoline and oil and our future results of operations and financial position may be adversely affected if gasoline and oil demand or price changes.
Potash, phosphate and nitrogen - Raw materials used by the Plant Nutrient business include potash, phosphate and nitrogen, for which prices can be volatile and are driven by global and local supply and demand factors. Significant increases in the price of these commodities may result in lower customer demand and higher than optimal inventory levels. In contrast, reductions in the price of these commodities may create lower-of-cost-or-market adjustments to inventories.
Some of our business segments operate in highly regulated industries. Changes in government regulations or trade association policies could adversely affect our results of operations.
Many of our business segments are subject to government regulation and regulation by certain private sector associations, compliance with which can impose significant costs on our business. Other regulations are applicable generally to all our businesses and corporate functions, including, without limitation, those promulgated under the Internal Revenue Code, the Affordable Care Act, the Employee Retirement Income Security Act (ERISA) and other employment and health care related laws, federal and state securities laws, and the US Patriot Act. Failure to comply with such regulations can result in additional costs, fines or criminal action.
A significant part of our operations is regulated by environmental laws and regulations, including those governing the labeling, use, storage, discharge and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in environmental requirements or an unanticipated significant adverse environmental event could have an adverse effect on our business. We cannot assure that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in our products. We are also exposed to residual risk because some of the facilities and land which we have acquired may have environmental liabilities arising from their prior use. In addition, changes to environmental regulations may require us to modify our existing plant and processing facilities and could significantly increase the cost of those operations.
Grain and Ethanol businesses - In our Grain and Ethanol businesses, agricultural production and trade flows can be affected by government programs and legislation. Production levels, markets and prices of the grains we merchandise can be affected by U.S. government programs, which include acreage controls and price support programs administered by the USDA and required levels of ethanol in gasoline through the Renewable Fuel Standards as administered by the EPA. Other examples of government policies that can have an impact on our business include tariffs, duties, subsidies, import and export restrictions and outright embargoes. Because a portion of our grain sales are to exporters, the imposition of export restrictions and other foreign countries' regulations could limit our sales opportunities and create additional credit risk associated with export brokers if shipments are rejected at their destination.
The compliance burden and impact on our operations and profitability as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations have imposed additional regulatory tasks which took effect in 2014, although the full burden of the Act is not yet fully-known as some areas of regulatory rule making are not yet completed. These efforts to change the regulation of financial markets may subject users of derivatives to extensive oversight and regulation by the Commodity Futures Trading Commission (CFTC). Such initiatives could impose significant additional costs on us, including operating and compliance costs, and could materially affect the availability, as well as the cost and terms, of certain transactions. We will continue to monitor these developments. Any of these matters could have an adverse effect on our business, financial condition, liquidity, results of operations and prospects.
Rail - Our Rail business is subject to regulation by the American Association of Railroads and the Federal Railroad Administration. These agencies regulate rail operations with respect to health and safety matters. New regulatory rulings could negatively impact financial results through higher maintenance costs or reduced economic value of railcar assets.
The Rail business is also subject to risks associated with the demands and restrictions of the Class I railroads, a group of rail companies owning a high percentage of the existing rail lines. These companies exercise a high degree of control over whether private railcars can be allowed on their lines and may reject certain railcars or require maintenance or improvements to the railcars. This presents risk and uncertainty for our Rail business and it can increase maintenance costs. In addition, a shift in the railroads' strategy to investing in new rail cars and improvements to existing railcars, instead of investing in locomotives and infrastructure, could adversely impact our business by causing increased competition and creating an oversupply of railcars. Our rail fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives. However, a large concentration of a particular type of railcar could expose us to risk if
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demand were to decrease for that railcar type. Failure on our part to identify and assess risks and uncertainties such as these could negatively impact our business.
Similarly, our marine assets and operations are subject to rules and regulations relating to safety, citizenship, emissions, ballast discharges, and other environmental and operational matters enforced by various federal and state agencies, including the Maritime Administration of the U.S. Department of Transportation, the U.S. Coast Guard, and the U.S. Environmental Protection Agency (“EPA”). If we fail to comply with these rules and regulations, we could be prohibited from operating or leasing marine assets in the U.S. market, and under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets.
Plant Nutrient - Our Plant Nutrient business manufactures certain agricultural nutrients and uses potentially hazardous materials. All products containing pesticides, fungicides and herbicides must be registered with the EPA and state regulatory bodies before they can be sold. The inability to obtain or the cancellation of such registrations could have an adverse impact on our business. In the past, regulations governing the use and registration of these materials have required us to adjust the raw material content of our products and make formulation changes. Future regulatory changes may have similar consequences. Regulatory agencies, such as the EPA, may at any time reassess the safety of our products based on new scientific knowledge or other factors. If it were determined that any of our products were no longer considered to be safe, it could result in the amendment or withdrawal of existing approvals, which, in turn, could result in a loss of revenue, cause our inventory to become obsolete or give rise to potential lawsuits against us. Consequently, changes in existing and future government or trade association polices may restrict our ability to do business and cause our financial results to suffer.
We are required to carry significant amounts of inventory across all of our businesses. If a substantial portion of our inventory becomes damaged or obsolete, its value would decrease and our profit margins would suffer.
We are exposed to the risk of a decrease in the value of our inventories due to a variety of circumstances in all of our businesses. For example, within our Grain and Ethanol businesses, there is the risk that the quality of our grain inventory could deteriorate due to damage, moisture, insects, disease or foreign material. If the quality of our grain were to deteriorate below an acceptable level, the value of our inventory could decrease significantly. In our Plant Nutrient business, planted acreage, and consequently the volume of fertilizer and crop protection products applied, is partially dependent upon government programs and the producer's perception of demand. Technological advances in agriculture, such as genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could also affect the demand for our crop nutrients and crop protection products. Either of these factors could render some of our inventory obsolete or reduce its value. Within our rail repair business, major design improvements to loading, unloading and transporting of certain products can render existing (especially old) equipment obsolete.
Our substantial indebtedness could negatively affect our financial condition, decrease our liquidity and impair our ability to operate the business.
If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time when we are unable to draw on our credit facility, it could have an adverse affect on our ability to conduct our business. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is dependent on various factors. These factors include general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Certain of our long-term borrowings include provisions that require minimum levels of working capital and equity, and impose limitations on additional debt. Our ability to satisfy these provisions can be affected by events beyond our control, such as the demand for and the fluctuating price of grain. Although we are and have been in compliance with these provisions, noncompliance could result in default and acceleration of long-term debt payments.
We face increasing competition and pricing pressure from other companies in our industries. If we are unable to compete effectively with these companies, our sales and profit margins would decrease, and our earnings and cash flows would be adversely affected.
The markets for our products in each of our business segments are highly competitive. While we have substantial operations in our region, some of our competitors are significantly larger, compete in wider markets, have greater purchasing power, and have considerably larger financial resources. We also may enter into new markets where our brand is not recognized and in which we do not have an established customer base. Competitive pressures in all of our businesses could affect the price of, and customer demand for, our products, thereby negatively impacting our profit margins and resulting in a loss of market share.
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Our grain and ethanol businesses use derivative contracts to reduce volatility in the commodity markets. Non-performance by the counter-parties to those contracts could adversely affect our future results of operations and financial position.
A significant amount of our grain and ethanol purchases and sales are made through forward contracting. In addition, the Company uses exchange traded and to a lesser degree over-the-counter contracts to reduce volatility in changing commodity prices. A significant adverse change in commodity prices could cause a counter-party to one or more of our derivative contracts to not perform on its obligation.
A significant portion of the Company's assets are geographically concentrated in the Eastern Corn Belt. Localized weather and other market factors may have a disproportionate impact on our business compared to our competitors.
A significant portion of Company's the assets are exposed to conditions in the Eastern Corn Belt. In this region, adverse weather during the fertilizer application, planting, and harvest seasons can have negative impacts on our Grain and Plant Nutrient businesses. Higher basis levels in the Eastern Corn Belt can increase the input costs of our Ethanol facilities relative to other market participants that do not have the same geographic concentration.
We rely on a limited number of suppliers for certain of our raw materials and other products and the loss of one or several of these suppliers could increase our costs and have a material adverse effect on any one of our business segments.
We rely on a limited number of suppliers for certain of our raw materials and other products. If we were unable to obtain these raw materials and products from our current vendors, or if there were significant increases in our supplier's prices, it could significantly increase our costs and reduce our profit margins.
Our investments in unconsolidated entities accounted for under the equity method are subject to risks beyond our control.
We currently have investments in numerous limited liability companies and joint ventures. By operating a business through this arrangement, we do not have control over operating decisions as we would if we owned the business outright. Specifically, we cannot act on major business initiatives without the consent of the other investors, who may not always be in agreement with our ideas.
The Company may not be able to effectively integrate future businesses it acquires.
We continuously look for opportunities to enhance our existing businesses through strategic acquisitions. The process of integrating an acquired business into our existing business and operations may result in unforeseen operating difficulties and expenditures as well as require a significant amount of management resources. There is also the risk that our due diligence efforts may not uncover significant business flaws or hidden liabilities. In addition, we may not realize the anticipated benefits of an acquisition and they may not generate the anticipated financial results. Additional risks may include the inability to effectively integrate the operations, products, technologies and personnel of the acquired companies. The inability to maintain uniform standards, controls, procedures and policies would also negatively impact operations.
Our business involves considerable safety risks. Significant unexpected costs and liabilities would have an adverse effect on our profitability and overall financial position.
Due to the nature of some of the businesses in which we operate, we are exposed to significant operational hazards such as grain dust explosions, fires, malfunction of equipment, abnormal pressures, blowouts, pipeline and tank ruptures, chemical spills or run-off, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. If grain dust were to explode at one of our elevators or if one of our pieces of equipment were to fail or malfunction due to an accident or improper maintenance, it could put our employees and others at serious risk.
The Company's information technology systems may impose limitations or failures, or may face external threats, which may affect the Company's ability to conduct its business.
The Company's information technology systems, some of which are dependent on services provided by third parties, provide critical data connectivity, information and services for internal and external users. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, human resources and other processes necessary to manage the
10
business. The Company has put in place business continuity plans for its critical systems. However, if the Company's information technology systems are damaged, or cease to function properly due to any number of causes, such as catastrophic events or power outages, and the Company's business continuity plans do not allow it to effectively recover on a timely basis, the Company may suffer interruptions in the ability to manage its operations, which may adversely impact the Company's operating results. Our security measures may also be breached due to employee error, malfeasance, or otherwise. In addition, although the systems have been refreshed periodically, portions of the infrastructure are outdated and may not be adequate to support new business processes, accounting for new transactions, or implementation of new accounting standards if requirements are complex or materially different than what is currently in place.
Additionally, outside parties may attempt to destroy critical information, or fraudulently induce employees, third-party service providers, or users to disclose sensitive information in order to gain access to our data or our users' data. As a response, the Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company data or accounts. The Company also conducts annual tests and assessments using independent third parties. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. We cannot assure our ability to prevent, repel or mitigate the effects of such an attack by outside parties. The Company relies on third parties to maintain and process certain information which could be subject to breach or unauthorized access to Company or employee information. Any such breach or unauthorized access could result in an inability to perform critical functions, significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our services that could potentially have an adverse affect on our business.
The Company's design and implementation of a new Enterprise Resource Planning system could face significant difficulties.
In early 2012, the Company began the design and implementation of a new Enterprise Resource Planning ("ERP") system, requiring significant capital and human resources to deploy. The first wave of implementation was more expensive and took longer to fully implement than originally planned, including increased capital investment, higher fees and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented. Future releases would be subject to similar risks and, as such, the ultimate costs and schedules are not yet known. If for any reason portions of the implementation are not successful, the Company could be required to expense rather than capitalize related amounts. Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company's ability to operate successfully and efficiently. These risks include, without limitation, inefficient use of employees, distractions to the Company's core businesses, adverse customer reactions, loss of key information, delays in decision making, as well as unforeseen additional costs due to the inability to integrate vital information processes.
Unauthorized disclosure of sensitive or confidential customer information could harm the Company's business and standing with our customers.
The protection of our customer, employee and Company data is critical to us. The Company relies on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. The Company also conducts annual tests and assessments using independent third parties. Despite the security measures the Company has in place, its facilities and systems, and those of its third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by the Company or its vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations and harm our business.
A change in tax laws or regulations of any federal, state or international jurisdiction in which we operate could increase our tax burden and otherwise adversely affect our financial position, results of operations, cash flows and liquidity.
We continue to assess the impact of various U.S. federal, state, local and international legislative proposals that could result in a material increase to our U.S. federal, state, local and/or international taxes. We cannot predict whether any specific legislation will be enacted or the terms of any such legislation. However, if such proposals were to be enacted, or if modifications were to be made to certain existing regulations, the consequences could have a material adverse impact on us, including increasing our tax burden, increasing our cost of tax compliance or otherwise adversely affecting our financial position, results of operations, cash flows and liquidity. Moreover, the full impact on the company, its suppliers or customers of the recently enacted Tax Cuts and Jobs Act of 2017 is not yet fully known. Such impact may also be affected positively or negatively by subsequent potential judicial interpretation or related regulation or legislation which cannot be predicted with certainty.
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Item 1B. Unresolved Staff Comments
The Company has no unresolved staff comments.
Item 2. Properties
The Company's principal agriculture, rail, and other properties are described below.
Agriculture Facilities
Agricultural Fertilizer | |||||||||
(in thousands) | Grain Storage | Dry Storage | Liquid Storage | ||||||
Location | (bushels) | (tons) | (tons) | ||||||
Canada | 562 | — | — | ||||||
Illinois | 11,359 | 55 | 11 | ||||||
Indiana | 26,094 | 142 | 141 | ||||||
Iowa | 2,600 | — | 69 | ||||||
Michigan | 30,411 | 70 | 48 | ||||||
Minnesota | — | — | 47 | ||||||
Nebraska | 13,222 | — | 45 | ||||||
Ohio | 40,203 | 189 | 64 | ||||||
Puerto Rico | — | — | 10 | ||||||
Tennessee | 14,570 | — | — | ||||||
Texas | 1,386 | — | — | ||||||
Wisconsin | — | 24 | 77 | ||||||
140,407 | 480 | 512 | |||||||
The grain facilities are mostly concrete and steel tanks, with some flat storage buildings. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps. Approximately 91% of the total storage capacity noted above, which excludes temporary pile storage, is owned, while the remaining 9% of the total capacity is leased from third parties.
The Plant Nutrient Group's wholesale nutrient and farm center properties consist mainly of fertilizer warehouse and formulation and packaging facilities for dry and liquid fertilizers. The Company owns approximately 99% of the dry and liquid storage capacity noted above.
Other Properties
The Company owns an ethanol facility in Denison, Iowa with a nameplate capacity of 55 million gallons. The Company owns lawn fertilizer production facilities in Maumee, Ohio, Bowling Green, Ohio, Montgomery, Alabama, and Mocksville, North Carolina. It also owns a corncob processing and storage facility in Delphi, Indiana. The Company leases 370,000 square feet of a lawn fertilizer warehouse facility in Toledo, Ohio and a 245,000 square foot distribution center in Maumee, Ohio. The Company operates 19 railcar repair facilities throughout the country.
In January 2017, the Company announced its decision to close all retail operations. The Retail Group closed all of its stores in 2017. The Toledo store, which consists of about 162,000 square feet, is the only remaining store that has not been sold and is currently included in Assets held for sale.
The Company's administrative office building is leased under a build-to-suit financing arrangement. The Company owns approximately 2,031 acres of land on which the above properties and facilities are located and approximately 412 acres of farmland and land held for future use.
The Company believes that its properties are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.
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Item 3. Legal Proceedings
The Company is currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counterclaims. The Company accrues liabilities in which litigation losses are deemed probable and estimable. The Company believes it is unlikely that the results of its current legal proceedings, even if unfavorable, will be materially different from what it currently has accrued. There can be no assurance, however, that any claims or suits arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.
Item 4. Mine Safety
Not applicable.
Executive Officers of the Registrant
The information is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The executive officers of The Andersons, Inc., their positions and ages (as of February 26, 2018) are presented in the table below.
Name | Position | Age | Year Assumed |
Jeffrey C. Blair | President, Plant Nutrient Group Vice President of Sales (Intrepid Potash, Inc) Director of Potash Sales (Intrepid Potash, Inc) Commercial Director - Sales and Account Management (Orica Mining Services) | 45 | 2017 2016 2013 2011 |
Valerie M. Blanchett | Vice President, Human Resources Vice President, Human Resources, Food Ingredients and Systems (Cargill) | 56 | 2016 2010 |
Patrick E. Bowe | President and Chief Executive Officer Corporate Vice President, Food Ingredients and Systems (Cargill) | 59 | 2015 2007 |
Naran U. Burchinow | Senior Vice President, General Counsel and Secretary | 64 | 2005 |
Srikanth R. Dasari | Vice President, Treasurer Treasurer (Westinghouse Electric Company) Head of Treasury Front Office (Dow Corning) | 47 | 2017 2016 2010 |
Tamara S. Goetz | Vice President, Financial Planning & Analysis Vice President, Corporate Business /Financial Analysis | 49 | 2015 2007 |
John J. Granato | Chief Financial Officer | 52 | 2012 |
Michael S. Irmen | President, Ethanol Group Vice President and General Manager, Ethanol Group Vice President, Commodities and Risk, Ethanol Group | 64 | 2016 2015 2012 |
Corbett J. Jorgenson | President, Grain Group Vice President, Americas, Corporate Transportation (Cargill) Vice President, Commercial Lead, AgHorizons USA (Cargill) | 43 | 2016 2015 2013 |
Anthony A. Lombardi | Chief Information Officer Vice President, Global Business Services and Chief Information Officer (Armstrong World Industries) | 59 | 2016 2010 |
Joseph E. McNeely | President, Rail Group President and Chief Executive Officer (FreightCar America, Inc.) Vice President Finance, Chief Financial Officer and Treasurer (FreightCar America, Inc.) | 53 | 2017 2013 2010 |
Anne G. Rex | Vice President, Corporate Controller | 53 | 2012 |
Rasesh H. Shah | Senior Director - Rail President, Rail Group | 63 | 2017 1999 |
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Part II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The Common Shares of The Andersons, Inc. trade on the Nasdaq Global Select Market under the symbol “ANDE.” On February 18, 2014, the Company effected a three-for-two stock split to its outstanding shares as of January 21, 2014. All share, dividend and per share information set forth in this 10-K has been retroactively adjusted to reflect the stock split.
Shareholders
At February 15, 2018, there were approximately 28.2 million common shares outstanding, 1,131 shareholders of record and approximately 10,176 shareholders for whom security firms acted as nominees.
The following table sets forth the high and low bid prices for the Company's Common Shares for the four fiscal quarters in each of 2017 and 2016.
2017 | 2016 | ||||||
High | Low | High | Low | ||||
Quarter Ended | |||||||
March 31 | $43.30 | $36.75 | $32.24 | $24.01 | |||
June 30 | $38.80 | $32.20 | $36.46 | $25.94 | |||
September 30 | $34.65 | $31.00 | $38.30 | $34.40 | |||
December 31 | $37.45 | $29.85 | $44.80 | $34.50 | |||
The Company's transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, IL 60602. Telephone: 312-588-4991.
Dividends
The Company has declared and paid consecutive quarterly dividends since the end of 1996, its first year of trading on the Nasdaq market. Dividends paid from January 2016 to January 2018 are as follows:
Payment Date | Amount | |
1/25/2016 | $0.1550 | |
4/22/2016 | $0.1550 | |
7/22/2016 | $0.1550 | |
10/24/2016 | $0.1550 | |
1/24/2017 | $0.1600 | |
4/24/2017 | $0.1600 | |
7/24/2017 | $0.1600 | |
10/23/2017 | $0.1600 | |
1/23/2018 | $0.1650 | |
While the Company's objective is to pay a quarterly cash dividend, dividends are subject to Board of Director approval.
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Equity Plans
The following table gives information as of December 31, 2017 about the Company's Common Shares that may be issued upon the exercise of options under all of its existing equity compensation plans.
Equity Compensation Plan Information | |||||||
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||
Equity compensation plans approved by security holders | 1,010,984 (1) | $ | 34.93 | 668,213 (2) | |||
Equity compensation plans not approved by security holders | — | — | — | ||||
(1) | This number includes 325,000 Non-Qualified Stock Options (“Options”), 182,596 total shareholder return-based performance share units, 274,798 earnings per share-based performance share units, and 228,590 restricted shares outstanding under The Andersons, Inc. 2014 Long-Term Performance Compensation Plan. This number does not include any shares related to the Employee Share Purchase Plan. The Employee Share Purchase Plan allows employees to purchase common shares at the lower of the market value on the beginning or end of the calendar year through payroll withholdings. These purchases are completed as of December 31. |
(2) | This number includes 95,918 Common Shares available to be purchased under the Employee Share Purchase Plan and 572,295 shares available under equity compensation plans. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In October 2014, the Board approved the repurchase of shares at a value not to exceed $50.0 million. The Company repurchased approximately 1.2 million shares, exhausting the October 2014 authorization amount in 2015.
No shares were repurchased in 2017 or 2016.
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Performance Graph
The graph below compares the total shareholder return on the Corporation's Common Shares to the cumulative total return for the Nasdaq U.S. Index and a Peer Group Index. The indices reflect the year-end market value of an investment in the stock of each company in the index, including additional shares assumed to have been acquired with cash dividends, if any. The Peer Group Index, weighted for market capitalization, includes the following companies:
Agrium, Inc. | Ingredion Incorporated |
Archer-Daniels-Midland Co. | The Greenbrier Companies, Inc. |
GATX Corp. | The Scott's Miracle-Gro Company |
Green Plains, Inc. | |
This Peer Group Index was adjusted in 2017 to better reflect the Company’s business. We removed Lowe's Companies, Inc. as we closed the Retail business and we added Green Plains, Inc. to include additional representation of our Ethanol group.
The graph assumes a $100 investment in The Andersons, Inc. Common Shares on December 31, 2012 and also assumes investments of $100 in each of the Nasdaq U.S. and Peer Group indices, respectively, on December 31 of the first year of the graph. The value of these investments as of the following calendar year-ends is shown in the table below the graph.
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Base Period | Cumulative Returns | |||||||||||||||||
December 31, 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||
The Andersons, Inc. | $ | 100.00 | $ | 210.05 | $ | 189.34 | $ | 114.54 | $ | 164.80 | $ | 117.05 | ||||||
NASDAQ U.S. | 100.00 | 140.12 | 160.78 | 171.97 | 187.22 | 242.71 | ||||||||||||
Peer Group Index | 100.00 | 130.57 | 154.68 | 130.65 | 168.04 | 174.20 | ||||||||||||
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Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 2017 are derived from the Consolidated Financial Statements of the Company. The data presented below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7, and the Consolidated Financial Statements and notes thereto included in Item 8.
(in thousands, except for per share and ratios and other data) | For the years ended December 31, | ||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Operating results | |||||||||||||||||||
Sales and merchandising revenues (a) | $ | 3,686,345 | $ | 3,924,790 | $ | 4,198,495 | $ | 4,540,071 | $ | 5,604,574 | |||||||||
Gross profit | 318,799 | 345,506 | 375,838 | 397,139 | 365,225 | ||||||||||||||
Equity in earnings of affiliates | 16,723 | 9,721 | 31,924 | 96,523 | 68,705 | ||||||||||||||
Other income, net (b) | 23,444 | 14,775 | 46,472 | 31,125 | 14,876 | ||||||||||||||
Net income (loss) | 42,609 | 14,470 | (11,322 | ) | 122,645 | 95,702 | |||||||||||||
Net income (loss) attributable to The Andersons, Inc. | 42,511 | 11,594 | (13,067 | ) | 109,726 | 89,939 | |||||||||||||
EBITDA (c) | 87,356 | 123,949 | 85,219 | 254,992 | 219,917 | ||||||||||||||
Financial position | ||||||||||||||
Total assets | 2,162,354 | 2,232,849 | 2,359,101 | 2,364,692 | 2,273,556 | |||||||||
Working capital | 260,495 | 258,350 | 241,485 | 226,741 | 229,451 | |||||||||
Long-term debt (d) | 418,339 | 397,065 | 436,208 | 298,638 | 371,150 | |||||||||
Long-term debt, non-recourse (d) | — | — | — | — | 4,063 | |||||||||
Total equity | 822,899 | 790,697 | 783,739 | 824,049 | 724,421 | |||||||||
Cash flows / liquidity | ||||||||||||||
Cash flows from (used in) operations | 75,285 | 39,585 | 154,134 | (10,071 | ) | 337,188 | ||||||||
Depreciation and amortization | 86,412 | 84,325 | 78,456 | 62,005 | 55,307 | |||||||||
Cash invested in acquisitions (e) | (3,507 | ) | — | (128,549 | ) | (20,037 | ) | (15,252 | ) | |||||
Purchase of investments (f) | (5,679 | ) | (2,523 | ) | (938 | ) | (238 | ) | (49,251 | ) | ||||
Investments in property, plant and equipment and capitalized software | (34,602 | ) | (77,740 | ) | (72,469 | ) | (59,675 | ) | (46,786 | ) | ||||
Net proceeds from (investment in) Rail Group assets (g) | (106,124 | ) | (28,579 | ) | (38,407 | ) | (57,968 | ) | 4,648 | |||||
Per share data (h) | ||||||||||||||
Net income (loss) - basic | 1.51 | 0.41 | (0.46 | ) | 3.85 | 3.20 | ||||||||
Net income (loss) - diluted | 1.50 | 0.41 | (0.46 | ) | 3.84 | 3.18 | ||||||||
Dividends declared | 0.6450 | 0.6250 | 0.5750 | 0.4700 | 0.4300 | |||||||||
Year-end market value | 31.15 | 44.70 | 31.63 | 53.14 | 59.45 | |||||||||
Ratios and other data | ||||||||||||||
Net income attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc. | 5.5 | % | 1.5 | % | (1.6 | )% | 15.6 | % | 15.1 | % | ||||
Funded long-term debt to equity ratio (i) | 0.5-to-1 | 0.5-to-1 | 0.6-to-1 | 0.4-to-1 | 0.5-to-1 | |||||||||
Weighted average shares outstanding (000's) | 28,126 | 28,193 | 28,288 | 28,367 | 27,986 | |||||||||
Effective tax rate | 307.6 | % | 32.3 | % | 2.1 | % | 33.4 | % | 36.0 | % | ||||
(a) Includes sales of $1,089.7 million in 2017, $854.6 million in 2016, $872.1 million in 2015, $1,064.4 million in 2014, and $1,333.2 million in 2013 pursuant to marketing and origination agreements between the Company and the unconsolidated ethanol LLCs.
(b) Includes $23.1 million for the gain on dilution and partial share redemption of the LTG investment in 2015 and $17.1 million for the gain on partial share redemption of LTG in 2014.
(c) Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measure. The Company believes EBITDA provides additional information to investors and others about its operations allowing an evaluation of underlying operating performance and better period-to-period comparability. EBITDA does not and should not be considered as an alternative to net income or income before income taxes as determined by generally accepted accounting principles.
(d) Excludes current portion of long-term debt.
(e) During 2015, the Company acquired 100% of the stock of Kay Flo Industries, Inc.
(f) During 2013, the Company and LTG established 50/50 joint ventures to acquire 100% of the stock of Thompsons Limited and its related U.S. operating company.
(g) Represents the net of purchases of Rail Group assets offset by proceeds on sales of Rail Group assets.
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(h) Earnings per share are calculated based on Income attributable to The Andersons, Inc.
(i) Calculated by dividing long-term debt by total year-end equity as stated under “Financial position.”
The following table sets forth our calculation of EBITDA.
For the years ended December 31, | |||||||||||||||||||
(in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||
Net income (loss) attributable to The Andersons, Inc. | $ | 42,511 | $ | 11,594 | $ | (13,067 | ) | $ | 109,726 | $ | 89,939 | ||||||||
Add: | |||||||||||||||||||
Provision (benefit) for income taxes | (63,134 | ) | 6,911 | (242 | ) | 61,501 | 53,811 | ||||||||||||
Interest expense | 21,567 | 21,119 | 20,072 | 21,760 | 20,860 | ||||||||||||||
Depreciation and amortization | 86,412 | 84,325 | 78,456 | 62,005 | 55,307 | ||||||||||||||
EBITDA | 87,356 | 123,949 | 85,219 | 254,992 | 219,917 | ||||||||||||||
The Company has included its Computation of Earnings to Fixed Charges in Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 10-K as Exhibit 12.
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Item 7. 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. The reader is urged to carefully consider these risks and factors, including those listed under Item 1A, “Risk Factors.” In some cases, the reader 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.
Executive Overview
Our operations are organized, managed and classified into five reportable business segments: Grain, Ethanol, Plant Nutrient, Rail, and Retail. Each of these segments is based on the nature of products and services offered.
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 gross profit.
Grain Group
The Grain Group's performance reflects continued recovery from the prior year. Holding corn, beans, and wheat has led to higher space income. Additionally, our risk management services, trading income, and earnings from affiliates have improved. While the 2017 harvest quality and yield was good, a drawn out harvest prevented strong margins on bushels sold. The Group continues to refine its portfolio and signed an agreement in February 2018 to sell three of its Tennessee locations. Assets associated with these locations have been classified as Held for Sale, including approximately 3.4 million bushels of inventory.
Total grain storage capacity, including temporary pile storage, is approximately 150 million bushels as of December 31, 2017, similar to capacity at December 31, 2016. Grain inventories on hand at December 31, 2017 were 113.8 million bushels, of which 1.0 million bushels were stored for others. This compares to 108.4 million bushels on hand at December 31, 2016, of which 0.9 million bushels were stored for others.
The group estimates that growers will plant 87 to 90 million acres of corn in 2018, perhaps slightly below the 90 million acres planted in 2017. Soybean planted acres are expected to be 89 to 92 million, compared to 90 million acres planted last year. Total wheat acres planted have been reported to be approximately 46 million in 2017 compared to 50 million in 2016. Normal weather conditions during planting and growing seasons should create good storage and merchandising opportunities in the coming year.
Ethanol Group
The Ethanol Group's results reflect record industry production and excess supply in the market leading to lower margins on ethanol sold. Additionally, higher input costs negatively impacted margins. DDG margins were also impacted by vomitoxin issues remaining from the 2016 harvest. Weak ethanol and DDG margins were partially offset by high ethanol export demand and strong E-85 and corn oil sales. DDG margins rebounded at year-end, in part due to a lack of significant vomitoxin issues noted in the 2017 harvest. As we move into 2018, we expect margins to continue to be impacted by high industry production and inventory levels.
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Volumes shipped for the years ended December 31, 2017 and 2016 were as follows:
Twelve months ended December 31, | |||||
(in thousands) | 2017 | 2016 | |||
Ethanol (gallons) | 411,087 | 295,573 | |||
E-85 (gallons) | 47,676 | 37,709 | |||
Corn Oil (pounds) | 17,959 | 14,794 | |||
DDG (tons) | 162 | 164 | |||
The above table shows only shipped volumes that flow through the Company's revenues. Total ethanol, DDG, and corn oil production by the unconsolidated LLCs is higher. However, the portion of this volume that is sold directly to their customers is excluded here.
Plant Nutrient Group
The Plant Nutrient Group's results reflect a continued, depressed nutrient market. The oversupply of base nutrients in the market has continued to put pressure on prices, which has compressed overall margins, while volumes remained steady.
Total storage capacity at our wholesale nutrient and farm center facilities was approximately 480 thousand tons for dry nutrients and approximately 512 thousand tons for liquid nutrients at December 31, 2017.
During the year, the Plant Nutrient Group recorded goodwill impairment losses related to the Wholesale reporting unit of $59.1 million. As a result, there is no remaining goodwill in the Wholesale reporting unit as of December 31, 2017.
Looking ahead, we expect low prices and oversupply conditions to persist, putting further pressure on margins into next year. The Group will remain focused on productivity, operational efficiency and sales force development.
Tons shipped by product line (including sales and service tons) for the years ended December 31, 2017 and 2016 were as follows:
(in thousands) | Twelve months ended December 31, | ||||
2017 | 2016 | ||||
Wholesale Nutrients - Base Nitrogen, Phosphorus, Potassium | 1,262 | 1,246 | |||
Wholesale Nutrients - Value added products | 489 | 491 | |||
Other (Includes Farm Center, Turf, and Cob) | 447 | 553 | |||
Total tons | 2,198 | 2,290 | |||
Other tons shipped decreased from 553 in 2016 to 447 in 2017 as a result of the sale of four farm center locations in Florida.
Rail Group
The Rail Group's results were lower than the prior year, primarily in its base leasing business. This was due to decreases in lease utilization and average lease rates. Rail Group assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at December 31, 2017 were 24,104 compared to 23,236 at December 31, 2016. The average utilization rate (Rail Group assets under management that are in lease service, exclusive of those managed for third-party investors) was 85.0% for the year ended December 31, 2017 which was 2.8 percent lower than the prior year.
For the year ended December 31, 2017, Rail recorded gains on sales of Rail Group assets and related leases in the amount of $11.0 million and a similar amount for the year ended December 31, 2016.
In 2018 the Group will continue to focus on ways to strategically grow the rail fleet while increasing the average remaining life of the fleet and continue to look for opportunities to open new repair facilities and other adjacent businesses. The Group expects an increase in 2018 tank car recertification expense. Additionally, sales will be impacted by changes in accounting standards as certain transactions the group has engaged in over time will not qualify for sale treatment under the new revenue recognition rules in 2018.
21
Retail Group
In January 2017, the Company announced its decision to close all remaining retail operations. The Retail Group closed all stores, completed its liquidation efforts, and has sold all but one the retail properties, which is currently being actively marketed for sale.
Other
Our “Other” represents corporate functions that provide support and services to the operating segments. The results contained within this group include expenses and benefits not allocated back to the operating segments, including a significant portion of our ERP project and the settlement charges from the termination of our defined benefit pension plan in 2015.
Operating Results
On February 14, 2018, we furnished a Current Report on Form 8-K to the SEC that included a press release issued that same day announcing the fourth quarter and full-year financial results for the period ended December 31, 2017, which was furnished as Exhibit 99.1 thereto (the Earnings Release). The Earnings Release reported: (a) net income attributable to The Andersons, Inc. of $68.4 million and $41.2 million; and (b) diluted earnings per common share attributable to The Andersons, Inc. shareholders of $2.42 and $1.46, each for the three and twelve months ended December 31, 2017. The Consolidated Statements of Operations and accompanying notes in this Annual Report on Form 10-K reports (a) net income attributable to The Andersons, Inc. of $69.7 million and $42.5 million; and (b) diluted earnings per common share attributable to The Andersons, Inc. shareholders of $2.47 and $1.50, each for the three and twelve months ended December 31, 2017. Subsequent to the Earnings Release, we recorded additional tax benefit of $1.3 million as we finalized our tax provision.
The following discussion focuses on the operating results as shown in the Consolidated Statements of Operations with a separate discussion by segment. Additional segment information is included in Note 13 to the Company's Consolidated Financial Statements in Item 8.
Year ended December 31, | |||||||||||
(in thousands) | 2017 | 2016 | 2015 | ||||||||
Sales and merchandising revenues | $ | 3,686,345 | $ | 3,924,790 | $ | 4,198,495 | |||||
Cost of sales and merchandising revenues | 3,367,546 | 3,579,284 | 3,822,657 | ||||||||
Gross profit | 318,799 | 345,506 | 375,838 | ||||||||
Operating, administrative and general expenses | 287,930 | 318,395 | 337,829 | ||||||||
Pension settlement | — | — | 51,446 | ||||||||
Asset impairment | 10,913 | 9,107 | 285 | ||||||||
Goodwill impairment | 59,081 | — | 56,166 | ||||||||
Interest expense | 21,567 | 21,119 | 20,072 | ||||||||
Equity in earnings of affiliates | 16,723 | 9,721 | 31,924 | ||||||||
Other income, net | 23,444 | 14,775 | 46,472 | ||||||||
Income (loss) before income taxes | (20,525 | ) | 21,381 | (11,564 | ) | ||||||
Income attributable to noncontrolling interests | 98 | 2,876 | 1,745 | ||||||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (20,623 | ) | $ | 18,505 | $ | (13,309 | ) | |||
22
Comparison of 2017 with 2016
Grain Group
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | 2,106,464 | $ | 2,357,171 | |||
Cost of sales and merchandising revenues | 1,975,076 | 2,249,089 | |||||
Gross profit | 131,388 | 108,082 | |||||
Operating, administrative and general expenses | 107,478 | 112,507 | |||||
Asset impairment | 10,913 | — | |||||
Interest expense | 8,320 | 7,955 | |||||
Equity in earnings of affiliates | 4,509 | (8,746 | ) | ||||
Other income, net | 3,658 | 5,472 | |||||
Income (loss) before income taxes | 12,844 | (15,654 | ) | ||||
Loss attributable to noncontrolling interests | — | (3 | ) | ||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 12,844 | $ | (15,651 | ) | ||
Operating results for the Grain Group improved $28.5 million compared to full year 2016 results. Sales and merchandising revenues decreased $250.7 million compared to 2016 due to a 24% decrease in bushels sold. This decrease was driven by two main factors. First, more bushels are being strategically stored due to strong space income opportunities in the market. Second, there was an intentional reduction in bushels sold directly from supplier to customer as the group continues to focus only on the most profitable markets to increase margins. Cost of sales and merchandising revenues decreased due to the same items above but to a lesser extent for a net favorable gross profit impact of approximately $23.3 million. The gross profit increase was driven by a $31.5 million increase in space income relating to corn, beans, and wheat as the value of storage capacity significantly improved, as well as a $7.8 million increase from risk management fees, trading income and other items compared to the prior year. These gains were partially offset by a $12.9 million decrease in drying and mixing income related to unusual wheat blending opportunities in 2016 that did not occur in 2017 and handling margins related to both harvest timing and grain storage decisions.
Operating, administrative and general expenses decreased $5.0 million compared to full year 2016 results. The decrease was primarily due to a reduction of $3.5 million in costs as a result of the disposition of the Iowa facilities in 2016 and a $3.6 million decrease due to reductions in labor and benefits at the remaining facilities as a result of productivity initiatives and lower employee costs. The decreases were partially offset by minor increases in 2017 depreciation, maintenance and other expenses.
The Grain Group recorded asset impairment charges of $10.9 million relating to its Western Tennessee assets.
Equity in earnings of affiliates improved $13.3 million primarily due to the improved operating results of LTG, which also continues to recover from under performance in its core markets in 2016.
Ethanol Group
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | 708,063 | $ | 544,556 | |||
Cost of sales and merchandising revenues | 688,206 | 524,252 | |||||
Gross profit | 19,857 | 20,304 | |||||
Operating, administrative and general expenses | 13,216 | 11,211 | |||||
Interest expense | (67 | ) | 35 | ||||
Equity in earnings of affiliates | 12,214 | 18,467 | |||||
Other income, net | 54 | 77 | |||||
Income before income taxes | 18,976 | 27,602 | |||||
Income attributable to noncontrolling interests | 98 | 2,879 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 18,878 | $ | 24,723 | |||
23
Operating results attributable to the Company for the Ethanol Group declined $5.8 million from full year 2016 results. Sales and merchandising revenues increased $163.5 million. This was driven by a 39% increase in ethanol gallons sold, a portion of which is attributable to the Albion plant expansion. Cost of sales and merchandising revenues increased $164.0 million due to an increase in input cost and lower DDG values. Despite higher volumes, higher input costs caused gross profit to decrease $0.4 million.
Operating, administrative and general expenses increased $2.0 million compared to the same period in 2016, primarily as a result of the write-off of a potential capital project. Equity in earnings of affiliates decreased $6.3 million due to lower results from the unconsolidated ethanol LLCs. These results were primarily driven by low ethanol and DDG margins. The decrease is also driven by our merging TAEI with and into TAME in the first quarter. Prior to this transaction, the noncontrolling interest in TAEI was attributed 33% of the gains and losses of TAME recorded by the Company in its equity in earnings of affiliates. With a 33% direct ownership in TAME now, our share of gains and losses recorded in equity in earnings of affiliates will decrease, with a correlated decrease in income attributable to noncontrolling interests.
Plant Nutrient Group
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | 651,824 | $ | 725,176 | |||
Cost of sales and merchandising revenues | 547,179 | 603,045 | |||||
Gross profit | 104,645 | 122,131 | |||||
Operating, administrative and general expenses | 89,357 | 102,892 | |||||
Asset impairment | — | 2,331 | |||||
Goodwill impairment | 59,081 | — | |||||
Interest expense | 6,420 | 6,448 | |||||
Other income, net | 5,092 | 3,716 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (45,121 | ) | $ | 14,176 | ||
Operating results for the Plant Nutrient Group declined $59.3 million compared to full year 2016 results. Sales and merchandising revenues decreased $73.4 million. Approximately 64% of the decrease is due to a 30% decrease in farm center tons sold as a result of the sales of our farm center locations in Florida in the first quarter of 2017 and Iowa in the first quarter of 2016 and a 6% decrease in average sales prices for all locations. A 6% decrease in average sale prices in the wholesale business accounts for the majority of the remaining decrease. Cost of sales and merchandising revenues decreased $55.9 million, for the same reasons. As such, gross profit decreased by $17.5 million. Margins remain tight due to competitive pressures, excess nutrient supply in the wholesale and farm center businesses, and lower crop prices.
Operating, administrative, and general expenses decreased $13.5 million from the prior year. The largest driver was a $8.1 million decrease in labor and benefits, much of it relating to the sale of farm center locations in Florida in the first quarter of 2017 and the sale of the farm center locations in Iowa in the first quarter of 2016. Smaller reductions were also realized in a number of other categories as part of our overall cost control efforts. The group recognized goodwill impairment charges of $59.1 million after experiencing several periods of compressed margins and lower sales volumes, as well as anticipated unfavorable operating conditions in the nutrient market for some time. The group recognized a $2.3 million asset impairment in 2016 associated with the closure of a cob facility.
Other income increased $1.4 million primarily as a result of a $4.7 million gain on the sale of farm center locations in Florida in the first quarter of 2017. This increase was partially offset by a $1.8 million legal settlement, net of insurance recoveries, in the third quarter of 2017.
24
Rail Group
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | 172,123 | $ | 163,658 | |||
Cost of sales and merchandising revenues | 119,664 | 107,729 | |||||
Gross profit | 52,459 | 55,929 | |||||
Operating, administrative and general expenses | 23,270 | 18,971 | |||||
Asset impairment | — | 287 | |||||
Interest expense | 7,023 | 6,461 | |||||
Other income, net | 2,632 | 2,218 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 24,798 | $ | 32,428 | |||
Operating results for the Rail Group declined $7.6 million compared to the full year 2016 results. Sales and merchandising revenues increased $8.5 million. Revenue from car sales increased by $11.0 million due to a higher volume of car sales and repair and other revenue increased $2.0 million as a result of revenue generated by new shops. These increases were partially offset by a $4.5 million decrease in leasing revenues due to average utilization of 85.0% in the current year and 87.8% in the prior year, as well as a 2% decrease in lease rates compared to the prior year. Cost of sales and merchandising revenues increased $11.9 million due to an $11.0 million increases in car sales and $0.8 million related to leasing costs. As a result of these factors, Rail gross profit decreased $3.5 million compared to the prior year.
Operating expenses increased by $4.3 million, largely due to higher labor and benefit costs from opening new repair shops. Interest expense increased due to higher rates and more debt resulting from purchases in 2017.
Retail Group
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | 47,871 | $ | 134,229 | |||
Cost of sales and merchandising revenues | 37,421 | 95,169 | |||||
Gross profit | 10,450 | 39,060 | |||||
Operating, administrative and general expenses | 28,119 | 41,430 | |||||
Asset impairment | — | 6,489 | |||||
Interest expense | 324 | 496 | |||||
Other income, net | 10,684 | 507 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (7,309 | ) | $ | (8,848 | ) | |
Operating results for the Retail Group improved $1.5 million compared to the prior year. Sales and merchandising revenues decreased $86.4 million while cost of sales and merchandising revenues decreased $57.7 million. These decreases were due to lower volumes as a result of the closure of the retail business during the second quarter of 2017. Additionally, inventory liquidation markdowns caused a significant decrease in margins leading to a $28.6 million decrease in gross profit.
Operating, administrative and general expenses decreased by $13.3 million as a result of the mid-year closure. This decrease was partially offset by one time exit charges of $11.5 million, most of which was for severance costs. Other income increased $10.2 million primarily from gains on the sale of three store properties and fixtures.
25
Other
Year ended December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Sales and merchandising revenues | $ | — | $ | — | |||
Cost of sales and merchandising revenues | — | — | |||||
Gross profit | — | — | |||||
Operating, administrative and general expenses | 26,490 | 31,384 | |||||
Interest expense (income) | (453 | ) | (276 | ) | |||
Other income, net | 1,324 | 2,785 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (24,713 | ) | $ | (28,323 | ) | |
The Other operating loss not allocated to business segments decreased $3.6 million compared to the prior year primarily due to a reduction in IT costs and higher severance costs in the prior year.
Income Taxes
Income tax benefit of $63.1 million was provided at 307.6%. In 2016, income tax expense of $6.9 million was provided at 32.3%. The higher effective tax rate in 2017 relative to the loss before income taxes was due primarily to the US enacted Tax Cuts and Jobs Act, also commonly referred to as “US tax reform” and non-deductible goodwill impairment charges.
26
Comparison of 2016 with 2015
Grain Group
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | 2,357,171 | $ | 2,483,643 | |||
Cost of sales and merchandising revenues | 2,249,089 | 2,359,998 | |||||
Gross profit | 108,082 | 123,645 | |||||
Operating, administrative and general expenses | 112,507 | 121,833 | |||||
Goodwill impairment | — | 46,422 | |||||
Interest expense | 7,955 | 5,778 | |||||
Equity in earnings of affiliates | (8,746 | ) | 14,703 | ||||
Other income, net | 5,472 | 26,229 | |||||
Income (loss) before income taxes | (15,654 | ) | (9,456 | ) | |||
Loss attributable to noncontrolling interests | (3 | ) | (10 | ) | |||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (15,651 | ) | $ | (9,446 | ) | |
Operating results for the Grain Group decreased $6.2 million compared to full year 2015 results. Sales and merchandising revenues decreased $126.5 million compared to 2015. This was partially offset by a decrease of cost of sales and merchandising revenues of $110.9 million for a net unfavorable gross profit impact of approximately $15.6 million. The decrease was driven by $6.0 million in gross profit reduction from the 2016 sale of underperforming assets in Iowa as well as $4.4 million of decrease in margins on sale of grain. We also saw a significant decline in opportunities for basis appreciation compared to 2015 for a negative gross profit variance of $14.2 million compared to the prior year. This was caused by a poor harvest causing elevated basis levels in the fourth quarter of 2015. These items were partially offset by $4.5 million of increased income from blending operations, $3.9 million of increased earnings on risk management fees, and a $1.7 million favorable variance on trading income.
Operating, administrative and general expenses were $9.3 million lower than in 2015. The decrease was primarily due to $8.2 million in reduced costs from the sale of Iowa facilities with cost reductions in labor and benefits at remaining facilities accounting for an additional $1.7 million. The decreases were offset by $2.7 million of additional allocation charges, including amortization and support costs for the company's new Enterprise Resource Planning system.
The Grain Group recognized a goodwill impairment charge of $46.4 million in 2015 driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets, including oil and ethanol, as well as foreign currency exchange impacts.
Equity in earnings of affiliates decreased $23.4 million due to the reduced operating results of LTG and Thompsons Limited. The declines were largely driven by reduced performance at LTG caused by historically soft margins at grain handling facilities. Also included in our equity results is a charge of $1.5 million (our proportional share) related to an LTG debt refinancing completed in the fourth quarter of 2016. This refinancing should result in lower relative interest charges in future years.
Other income decreased $20.3 million, which is attributable to a prior year gain of $23.1 million from equity ownership transactions in LTG which reduced our ownership from 39 percent to 31 percent.
27
Ethanol Group
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | 544,556 | $ | 556,188 | |||
Cost of sales and merchandising revenues | 524,252 | 531,864 | |||||
Gross profit | 20,304 | 24,324 | |||||
Operating, administrative and general expenses | 11,211 | 11,594 | |||||
Interest expense | 35 | 70 | |||||
Equity in earnings of affiliates | 18,467 | 17,221 | |||||
Other income, net | 77 | 377 | |||||
Income (loss) before income taxes | 27,602 | 30,258 | |||||
Income attributable to noncontrolling interests | 2,879 | 1,755 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 24,723 | $ | 28,503 | |||
Operating results for the Ethanol Group decreased $3.8 million from full year 2015 results. Sales and merchandising revenues decreased $11.6 million which was partially offset by a decrease in cost of sales and merchandising revenues of $7.6 million for a net gross profit impact of $4.0 million. The decline in revenues and associated cost of sales is largely driven by a three percent decline in average ethanol sales price and a fifteen percent decline in average DDG sales price compared to the prior year. While corn and natural gas costs declined during 2016, we also saw a nine percent decrease in DDG sales prices realized relative to the value of the corn feedstock. Marketing fees received from our joint venture due to a renegotiated operating agreement.
Equity in earnings of affiliates increased $1.2 million from 2015 and represents an increase in income from investments in three unconsolidated ethanol LLCs. Throughout 2016, the ethanol facilities' productivity and output remained strong, and the increase in earnings is primarily attributable to modest increases in average margins compared to the prior year.
Plant Nutrient Group
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | 725,176 | $ | 848,338 | |||
Cost of sales and merchandising revenues | 603,045 | 728,798 | |||||
Gross profit | 122,131 | 119,540 | |||||
Operating, administrative and general expenses | 102,892 | 105,478 | |||||
Asset impairment | 2,331 | — | |||||
Goodwill impairment | — | 9,744 | |||||
Interest expense | 6,448 | 7,243 | |||||
Other income, net | 3,716 | 3,046 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 14,176 | $ | 121 | |||
Operating results for the Plant Nutrient Group increased $14.1 million compared to full year 2015 results. Sales and merchandising revenues decreased $123 million primarily due to lower base nutrient prices throughout the year. Volumes were up two percent, however the impact on revenues from that increase was minimal. Cost of sales and merchandising revenues decreased $126 million, in line with the decline in revenues. Margins did improve modestly due to the impact of 2015 Kay Flo inventory being stepped up to fair value at acquisition causing margin compression in the second half of 2015. Total gross profit increased by $2.8 million.
Operating, administrative, and general expenses decreased $2.6 million from 2015. This included a reduction in labor and benefits of $3.4 million and maintenance reductions of $1.2 million. Smaller reductions were realized in a number of other categories as part of our overall cost control efforts. These items were partially offset by a $3.4 million increase in depreciation and amortization, largely due to the full-year impact of the Kay Flo acquisition. The prior year included goodwill impairment charges of $9.7 million for our Farm Center and Cob businesses due to reduced volumes over the past several years while the current year included $2.3 million of asset impairments associated with the closure of a cob processing facility.
28
Rail Group
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | 163,658 | $ | 170,848 | |||
Cost of sales and merchandising revenues | 107,729 | 103,161 | |||||
Gross profit | 55,929 | 67,687 | |||||
Operating, administrative and general expenses | 18,971 | 25,650 | |||||
Asset impairment | 287 | 285 | |||||
Interest expense | 6,461 | 7,006 | |||||
Other income, net | 2,218 | 15,935 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | 32,428 | $ | 50,681 | |||
Operating results for the Rail Group decreased $18.3 million compared to the full year 2015 results. Sales and merchandising revenues decreased $7.2 million. The decrease was driven by a five percentage point decrease in average lease utilization rates during the year as well as a reduction in car sales compared to 2015. Cost of sales and merchandising revenues increased $4.6 million due to higher storage costs associated with our reduced utilization rates as well as a periodic revision to our repair overhead rates which increased the amount of cost absorption. As a result of these factors, Rail gross profit declined $11.8 million compared to 2015.
Operating expenses decreased by $6.7 million, largely due to the impact of higher overhead rates noted above. Other income decreased $13.7 million, primarily due to higher than normal lease settlement activity in 2015.
Retail Group
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | 134,229 | $ | 139,478 | |||
Cost of sales and merchandising revenues | 95,169 | 98,836 | |||||
Gross profit | 39,060 | 40,642 | |||||
Operating, administrative and general expenses | 41,430 | 41,298 | |||||
Asset impairment | 6,489 | — | |||||
Interest expense | 496 | 356 | |||||
Other income, net | 507 | 557 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (8,848 | ) | $ | (455 | ) | |
Operating results for the Retail Group declined $8.4 million compared to 2015. The largest contributors to this decline were a $6.5 million impairment of long-lived assets as well as approximately $0.7 million of incremental cost associated with closing the segment's specialty food store in the fourth quarter of 2016. Customer count declined 4 percent compared 2015.
Other
Year ended December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Sales and merchandising revenues | $ | — | $ | — | |||
Cost of sales and merchandising revenues | — | — | |||||
Gross profit | — | — | |||||
Operating, administrative and general expenses | 31,384 | 31,976 | |||||
Pension settlement | — | 51,446 | |||||
Interest income | (276 | ) | (381 | ) | |||
Other income, net | 2,785 | 328 | |||||
Income (loss) before income taxes attributable to The Andersons, Inc. | $ | (28,323 | ) | $ | (82,713 | ) | |
29
The net corporate operating loss (costs not allocated back to the business units) decreased $54.4 million to a loss of $28.3 million for 2016. The most significant decrease was due to the prior year $51.4 million settlement charge for the termination of the defined benefit pension plan.
Income Taxes
Income tax expense of $6.9 million was provided at 32.3%. In 2015, an income tax benefit of $0.2 million was provided at 2.1%. The lower effective tax rate in 2015 relative to the loss before income taxes was due primarily to a goodwill write-off that did not provide a corresponding tax benefit
Liquidity and Capital Resources
Working Capital
At December 31, 2017, the Company had working capital of $260.5 million, an increase of $2.1 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:
(in thousands) | December 31, 2017 | December 31, 2016 | Variance | ||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 34,919 | $ | 62,630 | $ | (27,711 | ) | ||||
Restricted cash | — | 471 | (471 | ) | |||||||
Accounts receivables, net | 183,238 | 194,698 | (11,460 | ) | |||||||
Inventories | 648,703 | 682,747 | (34,044 | ) | |||||||
Commodity derivative assets – current | 30,702 | 45,447 | (14,745 | ) | |||||||
Other current assets | 63,790 | 72,133 | (8,343 | ) | |||||||
Assets held for sale | 37,859 | — | 37,859 | ||||||||
Total current assets | 999,211 | 1,058,126 | (58,915 | ) | |||||||
Current Liabilities: | |||||||||||
Short-term debt | 22,000 | 29,000 | (7,000 | ) | |||||||
Trade and other payables | 503,571 | 581,826 | (78,255 | ) | |||||||
Customer prepayments and deferred revenue | 59,710 | 48,590 | 11,120 | ||||||||
Commodity derivative liabilities – current | 29,651 | 23,167 | 6,484 | ||||||||
Accrued expenses and other current liabilities | 69,579 | 69,648 | (69 | ) | |||||||
Current maturities of long-term debt | 54,205 | 47,545 | 6,660 | ||||||||
Total current liabilities | 738,716 | 799,776 | (61,060 | ) | |||||||
Working capital | $ | 260,495 | $ | 258,350 | $ | 2,145 | |||||
In comparison to the prior year, current assets decreased primarily due to a decrease in cash, accounts receivable, inventory, commodity derivative assets, and other current assets. Accounts receivable decreased due to a decrease in Grain receivables as a result of lower sales and shipment activity. Inventory decreased for several reasons including the closure of the retail stores, an intentional reduction of inventory levels in the wholesale business, plus good sales volume immediately prior to year-end, and $11.4 million of grain inventory was moved to assets held for sale. Other current assets decreased primarily due to a decrease in the number of rail cars classified as a current asset. Assets held for sale increased as Retail assets, certain Grain assets, and a Plant Nutrient administrative office were moved to Assets held for sale. Current commodity derivative assets and liabilities, which reflect the customer net asset or liability based on the value of forward contracts as compared to market prices at the end of the period, have decreased. See the discussion below on additional sources and uses of cash for an understanding of the decrease in cash from prior year.
Current liabilities decreased primarily as a result of lower payables due to a significant decrease in hold pay amounts within the Grain businesses as well as a decrease in Accounts Payable related to the closed Retail business. This decrease was partially offset by an increase in customer prepayments and deferred revenue due to an increase in Grain sales that have been prepaid in December but not yet delivered.
30
Sources and Uses of Cash 2017 compared to 2016
Operating Activities and Liquidity
Our operating activities provided cash of $75.3 million in 2017 compared to cash provided by operations of $39.6 million in 2016. The increase in cash provided was due to several factors. Net income excluding the non-cash impact of impairments, gains on sale of assets and deferred tax change increased by $6.0 million compared to the prior year and the impact of operating asset and liability fluctuations resulted in a $50.0 million increase in operating cash flows. This was partially offset by a $25.3 million decrease due to improved operating results at our equity affiliates which were not fully distributed in the form of cash, as well as other individually small fluctuations in operating activities.
Net income tax refunds of $2.1 million and $10.6 million were received in 2017 and 2016, respectively. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The net refunds received in 2016 are primarily due to a $12.0 million refund of overpaid 2015 Federal income taxes.
Investing Activities
Investing activities used $113.5 million in 2017 compared to $28.2 million used in 2016. Purchases of Rail Group assets increased to $143.0 million in the current year compared to $85.3 million in 2016. This increase was partially offset by proceeds from the sale of Rail Group assets which were $36.9 million in 2017 and $56.7 million in 2016. As such, net spend on Rail assets increased $77.5 million compared to the prior year. Property, plant, and equipment and capitalized software decreased $43.1 million compared to the same period in 2016 with the largest decrease related to the corporate headquarter spend in the prior year. Capital spending for 2017 on property, plant and equipment includes: Grain - $10.9 million; Ethanol - $3.7 million; Plant Nutrient - $10.7 million; Rail - $3.5 million; and $5.8 million in corporate / enterprise resource planning project spending. Proceeds from the sale of assets decreased $36.0 million.
We expect to spend approximately $65 million in 2018 on conventional property, plant and equipment which includes estimated 2018 capital spending for the continuing project to replace current technology with an enterprise resource planning system. An additional $145 million is estimated to be spent on the purchase and capitalized modifications of railcars and barges with related sales or financings of approximately $120 million.
Financing Arrangements
Net cash provided by financing activities was $10.5 million in 2017, compared to $12.5 million used in 2016. The change in financing activity is primarily the result of a decrease in the pay down of long term debt compared to 2016 which was partially offset by an increase in cash being paid to reduce short term borrowings.
We have significant amounts of committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks that provides a total of $815.0 million in borrowing capacity, including $15.0 million in non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $660.5 million remaining available for borrowing at December 31, 2017. Peak short-term borrowings were $367.0 million on February 15, 2017. Typically, the Company's highest borrowing occurs in the first half of the year due to seasonal inventory requirements in the fertilizer businesses.
We paid $18.2 million in dividends in 2017 compared to $17.4 million in 2016. We paid $0.16 per common share for the dividends paid in January, April, July and October 2017, and $0.155 per common share for the dividends paid in January, April, July and October 2016. On December 20, 2017, we declared a cash dividend of $0.165 per common share, payable on January 23, 2018 to shareholders of record on January 2, 2018.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of December 31, 2017. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets.
Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and / or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.
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We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends in the foreseeable future.
Sources and Uses of Cash 2016 compared to 2015
Operating Activities and Liquidity
Our operating activities provided cash of $39.6 million in 2016 compared to cash provided by operations of $154.1 million in 2015. The significant change in operating cash flows in 2016 relates primarily to the changes in working capital, particularly accounts receivable and accounts payable as discussed above, which were partly offset by reduced inventory balances. Additionally, while net income has improved compared to the prior year, our operating cash flows are down since the loss incurred in the prior year included significant non-cash charges related to goodwill impairment and the settlement of our defined benefit pension plan.
In 2016, the Company received refunds, net of taxes paid, of $10.6 million, compared to $4.9 million of taxes paid, net of refunds received, in 2015. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The net refunds received in 2016 are primarily due to a $12.0 million refund of overpaid 2015 Federal income taxes.
Investing Activities
Investing activities used $28.2 million in 2016 compared to $238.5 million used in 2015. The decrease in cash used for investing activities is primarily driven by the 2015 acquisition of Kay Flo Industries, Inc. for $128.5 million. In addition, a portion of 2016 spending relates to purchases of Rail Group assets in the amount of $85.3 million, which is lower than the prior year. These purchases of Rail Group assets were partially offset in the current year by proceeds from the sale of Rail Group assets in the amount of $56.7 million, however net spend on Rail assets is still down from the prior year. The current year results include cash received of $15.0 million primarily from the redemption of our investment in IANR as well as proceeds from the sale of facilities in Iowa totaling $54.3 million which reduce our net outflow from investing activities. Capital spending for 2016 on property, plant and equipment includes: Grain - $21.4 million; Ethanol - $2.3 million; Plant Nutrient - $15.2 million; Rail - $4.3 million; Retail - $0.4 million and $34.1 million in corporate / enterprise resource planning project spending.
Financing Arrangements
Net cash used in financing activities was $12.5 million in 2016, compared to $33.4 million provided in 2015. The change in financing activity is primarily the result of significant debt issuance in the prior year to fund the Kay Flo acquisition which was partly offset by the 2015 completion of our $50 million share repurchase program.
We have significant amounts of committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks that provides a total of $871.3 million in borrowing capacity, including $21.3 million in non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $779.6 million remaining available for borrowing at December 31, 2016. Peak short-term borrowings were $412.0 million on January 6, 2016. Typically, the Company's highest borrowing occurs in the first half of the year due to seasonal inventory requirements in the fertilizer and retail businesses.
We paid $17.4 million in dividends in 2016 compared to $15.9 million in 2015. We paid $0.155 per common share for the dividends paid in January, April, July and October 2016, and $0.14 per common share for the dividends paid in January, April, July and October 2015. On December 16, 2016, we declared a cash dividend of $0.16 per common share, payable on January 24, 2017 to shareholders of record on January 3, 2017.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We were in compliance with all such covenants as of December 31, 2016. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets.
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Contractual Obligations
Future payments due under contractual obligations at December 31, 2017 are as follows:
Payments Due by Period | |||||||||||||||||||
(in thousands) | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | ||||||||||||||
Long-term debt | $ | 54,336 | $ | 32,400 | $ | 186,295 | $ | 202,357 | $ | 475,388 | |||||||||
Interest obligations (a) | 17,632 | 32,219 | 24,840 | 46,623 | 121,314 | ||||||||||||||
Operating leases (b) | 24,031 | 30,507 | 17,764 | 13,268 | 85,570 | ||||||||||||||
Purchase commitments (c) | 758,966 | 59,370 | — | — | 818,336 | ||||||||||||||
Other long-term liabilities (d) | 2,445 | 4,983 | 5,102 | 16,542 | 29,072 | ||||||||||||||
Total contractual cash obligations | $ | 857,410 | $ | 159,479 | $ | 234,001 | $ | 278,790 | $ | 1,529,680 | |||||||||
(a) Future interest obligations are calculated based on interest rates in effect as of December 31, 2017 for the Company's variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit.
(b) Approximately 48% of the operating lease commitments above relate to Rail Group assets that the Company leases from financial intermediaries. See “Off-Balance Sheet Transactions” below.
(c) Includes the amounts related to purchase obligations in the Company's operating units, including $588 million for the purchase of grain from producers and $160 million for the purchase of ethanol from the ethanol joint ventures. There are also forward grain and ethanol sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of businesses for the Grain and Ethanol Groups in Item 1 of this Annual Report on Form 10-K for further discussion.
(d) Other long-term liabilities include estimated obligations under our retiree healthcare programs and principal and interest payments for the financing arrangement on our headquarters. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 2021 have considered recent payment trends and actuarial assumptions.
At December 31, 2017, we had standby letters of credit outstanding of $32.5 million.
Off-Balance Sheet Transactions
Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leases. Rail Group assets we own or lease from a financial intermediary are generally leased to a customer under an operating lease. We also arrange non-recourse lease transactions under which we sell assets to a financial intermediary, and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing maintenance and management services for the financial intermediary, and receive a fee for such services. On most of the assets, we hold an option to purchase the assets at the end of the lease.
The following table describes our Rail Group asset positions at December 31, 2017.
Method of Control | Financial Statement | Units | ||
Owned - railcars available for sale | On balance sheet – current | 533 | ||
Owned - railcar assets leased to others | On balance sheet – non-current | 17,025 | ||
Railcars leased from financial intermediaries | Off balance sheet | 3,375 | ||
Railcars in non-recourse arrangements | Off balance sheet | 2,556 | ||
Total Railcars | 23,489 | |||
Locomotive assets leased to others | On balance sheet – non-current | 32 | ||
Locomotive leased from financial intermediaries | Off balance sheet | 4 | ||
Total Locomotive Assets | 36 | |||
Barge assets leased to others | On balance sheet – non-current | — | ||
Barge assets leased from financial intermediaries | Off balance sheet | 65 | ||
Total Barges | 65 | |||
In addition, we manage approximately 514 railcars for third-party customers or owners for which we receive a fee.
We have future lease payment commitments aggregating $40.7 million for the Rail Group assets we lease from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding fifteen years. Where
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appropriate, we utilize non-recourse arrangements in order to minimize credit risk. Refer to Note 14 to the Company's Consolidated Financial Statements in Item 8 for more information on our leasing activities.
Critical Accounting Estimates
The process of preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Management evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical experience and management's knowledge and understanding of current facts and circumstances. Actual results, under conditions and circumstances different from those assumed, may change from these estimates.
Certain of our accounting estimates are considered critical, as they are important to the depiction of the Company's financial statements and / or require significant or complex judgment by management. There are other items within our financial statements that require estimation, however, they are not deemed critical as defined above. Note 1 to the Consolidated Financial Statements in Item 8 describes our significant accounting policies which should be read in conjunction with our critical accounting estimates.
Management believes that the accounting for grain inventories and commodity derivative contracts, including adjustments for counterparty risk, and impairment of long-lived assets, goodwill and equity method investments involve significant estimates and assumptions in the preparation of the Consolidated Financial Statements.
Grain Inventories and Commodity Derivative Contracts
Grain inventories are stated at their net realizable value, which approximates estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company marks to market all forward purchase and sale contracts for grain and ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options contracts. The overall market for grain inventories is very liquid and active; market value is determined by reference to prices for identical commodities on the CME (adjusted primarily for transportation costs); and the Company's grain inventories may be sold without significant additional processing. The Company uses forward purchase and sale contracts and both exchange traded and over-the-counter contracts (such as derivatives generally used by the International Swap Dealers Association). Management estimates fair value based on exchange-quoted prices, adjusted for differences in local markets, as well as counter-party non-performance risk in the case of forward and over-the-counter contracts. The amount of risk, and therefore the impact to the fair value of the contracts, varies by type of contract and type of counter-party. With the exception of specific customers thought to be at higher risk, the Company looks at the contracts in total, segregated by contract type, in its quarterly assessment of non-performance risk. For those customers that are thought to be at higher risk, the Company makes assumptions as to performance based on past history and facts about the current situation. Changes in fair value are recorded as a component of cost of sales and merchandising revenues in the statement of operations.
Impairment of Long-Lived Assets, Goodwill, and Equity Method Investments
The Company's business segments are each highly capital intensive and require significant investment. Fixed assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This is done by evaluating the recoverability based on undiscounted projected cash flows, excluding interest. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group's carrying amount exceeds its fair value.
We also annually review the balance of goodwill for impairment in the fourth quarter, using quantitative analyses. Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below the operating segment. The quantitative review for impairment takes into account our estimates of future cash flows. Our estimates of future cash flows are based upon a number of assumptions including lease rates, lease terms, operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. These factors are discussed in more detail in Note 4, Goodwill and Intangible Assets.
In addition, the Company holds investments in several companies that are accounted for using the equity method of accounting. The Company reviews its investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other than temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.
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Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in the Company's market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.
Commodity Prices
The Company's daily net commodity position consists of inventories, related purchase and sale contracts, exchange-traded futures, and over-the-counter contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. The Company has established controls to manage and limit risk exposure, which consists of daily review of position limits and effects of potential market price moves on those positions.
A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its net commodity position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices. The result of this analysis, which may differ from actual results, is as follows:
December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Net commodity position | $ | (1,224 | ) | $ | (2,166 | ) | |
Market risk | (122 | ) | (217 | ) | |||
Interest Rates
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 and credit ratings for similar types of borrowing arrangements. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:
December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Fair value of long-term debt, including current maturities | $ | 474,769 | $ | 450,940 | |||
Fair value in excess of carrying value | 1,451 | 3,116 | |||||
Market risk | 7,643 | 8,833 | |||||
Actual results may differ. The estimated fair value and market risk will vary from year to year depending on the total amount of long-term debt and the mix of variable and fixed rate debt.
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Item 8. Financial Statements and Supplementary Data
The Andersons, Inc.
Index to Financial Statements
Report of Independent Registered Public Accounting Firms - Deloitte & Touche LLP / KPMG LLP / PricewaterhouseCoopers LLP - Canada / Crowe Chizek LLP | |
Consolidated Balance Sheets | |
Consolidated Statements of Operations | |
Consolidated Statements of Comprehensive Income | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Equity | |
Notes to Consolidated Financial Statements | |
Schedule II - Consolidated Valuation and Qualifying Accounts | |
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
The Andersons, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Andersons, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, based on our audits and the reports of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Lansing Trade Group, LLC as of and for the years ended December 31, 2017, 2016, and 2015, or Lux JV Treasury Holding Company S.à r.l. as of and for the years ended December 31, 2017 and 2016, the Company’s investments in which are accounted for by use of the equity method. The accompanying financial statements of the Company include its equity investment in Lansing Trade Group, LLC of $93 million and $89 million and Lux JV Treasury Holding Company S.à r.l. of $47 million and $46 million as of December 31, 2017 and 2016, respectively, and its equity in earnings (losses) in Lansing Trade Group, LLC of $4 million, ($9.9) million and $12 million for the years ended December 31, 2017, 2016, and 2015, respectively, and Lux JV Treasury Holding Company S.à r.l. of $.5 million and $1.2 million for the years ended December 31, 2017 and 2016, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Lansing Trade Group, LLC and Lux JV Treasury Holding Company S.à r.l., is based solely on the reports of the other auditors.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting based on our audit.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 26, 2018
We have served as the Company's auditor since 2015.
37
Report of Independent Registered Public Accounting Firm
To the Members and Board of Managers
Lansing Trade Group, LLC:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and subsidiaries (the Company) as of December 31, 2017, the related consolidated statements of comprehensive income, equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. (a 50% percent owned investee company). The Company’s investment in Lux JV Treasury Holding Company S.a.r.l. at December 31, 2017 was $46.7 million and its equity in earnings of Lux JV Treasury Holding Company S.a.r.l. was $0.7 million for the year ended December 31, 2017. The consolidated financial statements of Lux JV Treasury Holding Company S.a.r.l. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lux JV Treasury Holding Company S.a.r.l., is based solely on the report of the other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Kansas City, Missouri
February 26, 2018
38
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Shareholders of
Lux JV Treasury Holding Company S.à r.l.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Lux JV Treasury Holding Company
S.à r.l. and its subsidiaries, (together, the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (not included herein) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of operations and their cash flows for each of the three years in the period ended
December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in note 1 to the consolidated financial statements, the Company changed its method of presentation of deferred tax liabilities in 2017.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
February 16, 2018
London, Canada
We have served as the Company's auditor since 2013.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers
Lansing Trade Group, LLC
Overland Park, Kansas
We have audited the accompanying consolidated balance sheet of Lansing Trade Group, LLC and Subsidiaries (the “Company”) as of December 31, 2016 and the related consolidated statements of comprehensive income, equity and cash flows for each of the years in the two-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of Lux JV Treasury Holding Company S.à.r.l., an entity in which Lansing Trade Group, LLC has an investment in and accounts for under the equity method of accounting, for which Lansing Trade Group, LLC reflects an investment of $42.9 million as of December 31, 2016, respectively, and equity in earnings of affiliates of $2.6 million and $2.9 million for each of the years in the two-year period ended December 31, 2016, respectively. The financial statements of Lux JV Treasury Holding Company S.à.r.l. were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements expressed herein, insofar as it relates to the amounts included for Lux JV Treasury Holding Company S.à.r.l., is based solely on the report of the other auditors.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of, December 31, 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
/s/ Crowe Chizek LLP
Elkhart, Indiana
February 27, 2017
40
The Andersons, Inc. Consolidated Balance Sheets (In thousands) | |||||||
December 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 34,919 | $ | 62,630 | |||
Restricted cash | — | 471 | |||||
Accounts receivable, less allowance for doubtful accounts of $9,156 in 2017; $7,706 in 2016 | 183,238 | 194,698 | |||||
Inventories (Note 2) | 648,703 | 682,747 | |||||
Commodity derivative assets – current (Note 6) | 30,702 | 45,447 | |||||
Other current assets | 63,790 | 72,133 | |||||
Assets held for sale | 37,859 | — | |||||
Total current assets | 999,211 | 1,058,126 | |||||
Other assets: | |||||||
Commodity derivative assets – noncurrent (Note 6) | 310 | 100 | |||||
Goodwill (Note 4) | 6,024 | 63,934 | |||||
Other intangible assets, net (Note 4) | 112,893 | 106,100 | |||||
Other assets | 12,557 | 10,411 | |||||
Equity method investments | 223,239 | 216,931 | |||||
355,023 | 397,476 | ||||||
Rail Group assets leased to others, net (Note 3) | 423,443 | 327,195 | |||||
Property, plant and equipment, net (Note 3) | 384,677 | 450,052 | |||||
Total assets | $ | 2,162,354 | $ | 2,232,849 | |||
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The Andersons, Inc. Consolidated Balance Sheets (continued) (In thousands) | |||||||
December 31, 2017 | December 31, 2016 | ||||||
Liabilities and equity | |||||||
Current liabilities: | |||||||
Short-term debt (Note 5) | $ | 22,000 | $ | 29,000 | |||
Trade and other payables | 503,571 | 581,826 | |||||
Customer prepayments and deferred revenue | 59,710 | 48,590 | |||||
Commodity derivative liabilities – current (Note 6) | 29,651 | 23,167 | |||||
Accrued expenses and other current liabilities | 69,579 | 69,648 | |||||
Current maturities of long-term debt (Note 5) | 54,205 | 47,545 | |||||
Total current liabilities | 738,716 | 799,776 | |||||
Other long-term liabilities | 33,129 | 27,833 | |||||
Commodity derivative liabilities – noncurrent (Note 6) | 825 | 339 | |||||
Employee benefit plan obligations (Note 7) | 26,716 | 35,026 | |||||
Long-term debt, less current maturities (Note 5) | 418,339 | 397,065 | |||||
Deferred income taxes (Note 8) | 121,730 | 182,113 | |||||
Total liabilities | 1,339,455 | 1,442,152 | |||||
Commitments and contingencies (Note 14) | |||||||
Shareholders’ equity: | |||||||
Common shares, without par value (63,000 shares authorized; 29,430 shares issued in 2017 and 2016) | 96 | 96 | |||||
Preferred shares, without par value (1,000 shares authorized; none issued) | — | — | |||||
Additional paid-in-capital | 224,622 | 222,910 | |||||
Treasury shares, at cost (1,063 in 2017; 1,201 in 2016) | (40,312 | ) | (45,383 | ) | |||
Accumulated other comprehensive loss | (2,700 | ) | (12,468 | ) | |||
Retained earnings | 633,496 | 609,206 | |||||
Total shareholders’ equity of The Andersons, Inc. | 815,202 | 774,361 | |||||
Noncontrolling interests | 7,697 | 16,336 | |||||
Total equity | 822,899 | 790,697 | |||||
Total liabilities and equity | $ | 2,162,354 | $ | 2,232,849 | |||
The Notes to Consolidated Financial Statements are an integral part of these statements.
42
The Andersons, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Sales and merchandising revenues | $ | 3,686,345 | $ | 3,924,790 | $ | 4,198,495 | |||||
Cost of sales and merchandising revenues | 3,367,546 | 3,579,284 | 3,822,657 | ||||||||
Gross profit | 318,799 | 345,506 | 375,838 | ||||||||
Operating, administrative and general expenses | 287,930 | 318,395 | 337,829 | ||||||||
Pension settlement | — | — | 51,446 | ||||||||
Asset impairment | 10,913 | 9,107 | 285 | ||||||||
Goodwill impairment | 59,081 | — | 56,166 | ||||||||
Interest expense | 21,567 | 21,119 | 20,072 | ||||||||
Other income: | |||||||||||
Equity in earnings of affiliates, net | 16,723 | 9,721 | 31,924 | ||||||||
Other income, net | 23,444 | 14,775 | 46,472 | ||||||||
Income (loss) before income taxes | (20,525 | ) | 21,381 | (11,564 | ) | ||||||
Income tax provision (benefit) | (63,134 | ) | 6,911 | (242 | ) | ||||||
Net income (loss) | 42,609 | 14,470 | (11,322 | ) | |||||||
Net income attributable to the noncontrolling interests | 98 | 2,876 | 1,745 | ||||||||
Net income (loss) attributable to The Andersons, Inc. | $ | 42,511 | $ | 11,594 | $ | (13,067 | ) | ||||
Per common share: | |||||||||||
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 1.51 | $ | 0.41 | $ | (0.46 | ) | ||||
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | 1.50 | $ | 0.41 | $ | (0.46 | ) | ||||
Dividends declared | $ | 0.6450 | $ | 0.6250 | $ | 0.5750 | |||||
The Notes to Consolidated Financial Statements are an integral part of these statements.
43
The Andersons, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net income (loss) | $ | 42,609 | $ | 14,470 | $ | (11,322 | ) | ||||
Other comprehensive income (loss), net of tax: | |||||||||||
Change in fair value of convertible preferred securities (net of income tax of $0, $74 and $0) | 344 | (126 | ) | — | |||||||
Change in unrecognized actuarial gain and prior service cost (net of income tax of $(1,809), $(4,355) and $(24,746)) | 6,138 | 7,447 | 40,736 | ||||||||
Foreign currency translation adjustments (net of income tax of $0, $0 and $82) | 3,286 | 1,039 | (7,333 | ) | |||||||
Cash flow hedge activity (net of income tax of $0, $(72) and $(154)) | — | 111 | 253 | ||||||||
Other comprehensive income (loss) | 9,768 | 8,471 | 33,656 | ||||||||
Comprehensive income | 52,377 | 22,941 | 22,334 | ||||||||
Comprehensive income attributable to the noncontrolling interests | 98 | 2,876 | 1,745 | ||||||||
Comprehensive income attributable to The Andersons, Inc. | $ | 52,279 | $ | 20,065 | $ | 20,589 | |||||
The Notes to Consolidated Financial Statements are an integral part of these statements.
44
The Andersons, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Operating Activities | |||||||||||
Net income (loss) | $ | 42,609 | $ | 14,470 | (11,322 | ) | |||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization | 86,412 | 84,325 | 78,456 | ||||||||
Bad debt expense | 3,000 | 1,191 | 3,302 | ||||||||
Equity in (earnings) losses of affiliates, net of dividends | (10,494 | ) | 14,766 | (677 | ) | ||||||
Gain on sale of assets | (14,401 | ) | (667 | ) | (20,802 | ) | |||||
Gains on sales of Rail Group assets and related leases | (10,990 | ) | (11,019 | ) | (13,281 | ) | |||||
Deferred income taxes | (63,234 | ) | 6,030 | 27,279 | |||||||
Stock based compensation expense | 6,097 | 6,987 | 1,899 | ||||||||
Pension settlement charge, net of cash contributed | — | — | 48,344 | ||||||||
Goodwill impairment | 59,081 | — | 56,166 | ||||||||
Asset impairment charge | 10,913 | 9,107 | 285 | ||||||||
Other | (55 | ) | (2,070 | ) | (1,439 | ) | |||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | 9,781 | (26,429 | ) | 45,058 | |||||||
Inventories | 16,141 | 28,165 | 73,350 | ||||||||
Commodity derivatives | 20,285 | (9,990 | ) | 14,098 | |||||||
Other assets | (5,623 | ) | 19,407 | (26,315 | ) | ||||||
Accounts payable and accrued expenses | (74,237 | ) | (94,688 | ) | (120,267 | ) | |||||
Net cash provided by (used in) operating activities | 75,285 | 39,585 | 154,134 | ||||||||
Investing Activities | |||||||||||
Acquisition of businesses, net of cash acquired | (3,507 | ) | — | (128,549 | ) | ||||||
Purchases of Rail Group assets | (143,020 | ) | (85,268 | ) | (115,032 | ) | |||||
Proceeds from sale of Rail Group assets | 36,896 | 56,689 | 76,625 | ||||||||
Purchases of property, plant and equipment and capitalized software | (34,602 | ) | (77,740 | ) | (72,469 | ) | |||||
Proceeds from sale of assets | 33,879 | 69,904 | 284 | ||||||||
Proceeds from returns of investments in affiliates | 1,069 | 9,186 | 1,620 | ||||||||
Purchase of investments | (5,679 | ) | (2,523 | ) | (938 | ) | |||||
Other | 1,470 | ||||||||||