Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
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OHIO | | 34-1562374 |
(State of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1947 Briarfield Boulevard, Maumee, Ohio | | 43537 |
(Address of principal executive offices) | | (Zip Code) |
(419) 893-5050
(Telephone Number)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | Accelerated Filer | ¨ |
Non-accelerated filer | ¨
| Smaller reporting company | ¨ |
Emerging growth company | ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The registrant had approximately 28.3 million common shares outstanding, no par value, at April 27, 2018.
THE ANDERSONS, INC.
INDEX
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| Page No. |
PART I. FINANCIAL INFORMATION | |
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PART II. OTHER INFORMATION | |
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Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc. Condensed Consolidated Balance Sheets (Unaudited)(In thousands) |
| | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 31,497 |
| | $ | 34,919 |
| | $ | 29,645 |
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Restricted cash | — |
| | — |
| | 752 |
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Accounts receivable, net | 216,021 |
| | 183,238 |
| | 190,628 |
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Inventories (Note 2) | 731,629 |
| | 648,703 |
| | 641,294 |
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Commodity derivative assets – current (Note 5) | 43,810 |
| | 30,702 |
| | 48,049 |
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Other current assets | 57,147 |
| | 63,790 |
| | 83,623 |
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Assets held for sale | 57,775 |
| | 37,859 |
| | — |
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Total current assets | 1,137,879 |
| | 999,211 |
| | 993,991 |
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Other assets: | | | | | |
Commodity derivative assets – noncurrent (Note 5) | 1,739 |
| | 310 |
| | 339 |
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Goodwill | 6,024 |
| | 6,024 |
| | 63,934 |
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Other intangible assets, net | 108,855 |
| | 112,893 |
| | 103,057 |
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Other assets, net | 28,566 |
| | 12,557 |
| | 8,108 |
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Equity method investments | 224,449 |
| | 223,239 |
| | 208,993 |
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| 369,633 |
| | 355,023 |
| | 384,431 |
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Rail Group assets leased to others, net (Note 3) | 462,253 |
| | 423,443 |
| | 342,936 |
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Property, plant and equipment, net (Note 3) | 393,763 |
| | 384,677 |
| | 440,395 |
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Total assets | $ | 2,363,528 |
| | $ | 2,162,354 |
| | $ | 2,161,753 |
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The Andersons, Inc. Condensed Consolidated Balance Sheets (continued) (Unaudited)(In thousands) |
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| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Liabilities and equity | | | | | |
Current liabilities: | | | | | |
Short-term debt (Note 4) | $ | 489,000 |
| | $ | 22,000 |
| | $ | 255,000 |
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Trade and other payables | 263,519 |
| | 503,571 |
| | 276,834 |
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Customer prepayments and deferred revenue | 81,778 |
| | 59,710 |
| | 81,628 |
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Commodity derivative liabilities – current (Note 5) | 15,424 |
| | 29,651 |
| | 29,914 |
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Accrued expenses and other current liabilities | 60,095 |
| | 69,579 |
| | 65,952 |
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Current maturities of long-term debt (Note 4) | 14,134 |
| | 54,205 |
| | 56,144 |
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Total current liabilities | 923,950 |
| | 738,716 |
| | 765,472 |
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Other long-term liabilities | 31,536 |
| | 33,129 |
| | 36,125 |
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Commodity derivative liabilities – noncurrent (Note 5) | 1,414 |
| | 825 |
| | 450 |
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Employee benefit plan obligations | 26,310 |
| | 26,716 |
| | 34,832 |
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Long-term debt, less current maturities (Note 4) | 438,628 |
| | 418,339 |
| | 365,971 |
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Deferred income taxes | 118,933 |
| | 121,730 |
| | 181,541 |
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Total liabilities | 1,540,771 |
| | 1,339,455 |
| | 1,384,391 |
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Commitments and contingencies (Note 14) |
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Shareholders’ equity: | | | | | |
Common shares, without par value (63,000 shares authorized; 29,430 shares issued at 3/31/2018, 12/31/17 and 3/31/2017) | 96 |
| | 96 |
| | 96 |
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Preferred shares, without par value (1,000 shares authorized; none issued) | — |
| | — |
| | — |
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Additional paid-in-capital | 221,990 |
| | 224,622 |
| | 220,366 |
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Treasury shares, at cost (955, 1,063 and 1,074 shares at 3/31/2018, 12/31/17 and 3/31/2017, respectively) | (36,028 | ) | | (40,312 | ) | | (40,727 | ) |
Accumulated other comprehensive loss | (3,988 | ) | | (2,700 | ) | | (11,964 | ) |
Retained earnings | 618,572 |
| | 633,496 |
| | 601,560 |
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Total shareholders’ equity of The Andersons, Inc. | 800,642 |
| | 815,202 |
| | 769,331 |
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Noncontrolling interests | 22,115 |
| | 7,697 |
| | 8,031 |
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Total equity | 822,757 |
| | 822,899 |
| | 777,362 |
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Total liabilities and equity | $ | 2,363,528 |
| | $ | 2,162,354 |
| | $ | 2,161,753 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)
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| Three months ended March 31, |
| 2018 | | 2017 |
Sales and merchandising revenues | $ | 635,739 |
| | $ | 852,016 |
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Cost of sales and merchandising revenues | 572,034 |
| | 775,558 |
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Gross profit | 63,705 |
| | 76,458 |
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Operating, administrative and general expenses | 64,257 |
| | 81,545 |
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Interest expense | 6,999 |
| | 6,100 |
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Other income: | | | |
Equity in earnings (loss) of affiliates, net | 3,573 |
| | (1,878 | ) |
Other income, net | 1,686 |
| | 7,495 |
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Income (loss) before income taxes | (2,292 | ) | | (5,570 | ) |
Income tax provision (benefit) | (310 | ) | | (2,535 | ) |
Net income (loss) | (1,982 | ) | | (3,035 | ) |
Net income (loss) attributable to the noncontrolling interests | (282 | ) | | 54 |
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Net income (loss) attributable to The Andersons, Inc. | $ | (1,700 | ) | | $ | (3,089 | ) |
Per common share: | | | |
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.06 | ) | | $ | (0.11 | ) |
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders | $ | (0.06 | ) | | $ | (0.11 | ) |
Dividends declared | $ | 0.165 |
| | $ | 0.160 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
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| Three months ended March 31, |
| 2018 | | 2017 |
Net income (loss) | $ | (1,982 | ) | | $ | (3,035 | ) |
Other comprehensive income (loss), net of tax: | | | |
Change in fair value of convertible preferred securities (net of income tax of $(87) and $0) | (87 | ) | | — |
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Change in unrecognized actuarial loss and prior service cost (net of income tax of $15 and $7) | (51 | ) | | (10 | ) |
Foreign currency translation adjustments (net of income tax of $0 and $0) | (1,150 | ) | | 514 |
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Other comprehensive income (loss) | (1,288 | ) | | 504 |
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Comprehensive income (loss) | (3,270 | ) | | (2,531 | ) |
Comprehensive income (loss) attributable to the noncontrolling interests | (282 | ) | | 54 |
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Comprehensive income (loss) attributable to The Andersons, Inc. | $ | (2,988 | ) | | $ | (2,585 | ) |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
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| Three months ended March 31, |
| 2018 | | 2017 |
Operating Activities | | | |
Net income (loss) | $ | (1,982 | ) | | $ | (3,035 | ) |
Adjustments to reconcile net income (loss) to cash used in operating activities: | | | |
Depreciation and amortization | 22,679 |
| | 21,003 |
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Bad debt expense (recovery) | (531 | ) | | 629 |
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Equity in (earnings) losses of affiliates, net of dividends | (2,360 | ) | | 1,931 |
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Gains on sale of Rail Group assets and related leases | (2,280 | ) | | (3,609 | ) |
(Gain) loss on sale of assets | 277 |
| | (4,698 | ) |
Stock-based compensation expense | 1,268 |
| | 1,220 |
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Other | (70 | ) | | (725 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (30,730 | ) | | 7,563 |
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Inventories | (85,262 | ) | | 33,456 |
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Commodity derivatives | (45,775 | ) | | 4,017 |
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Other assets | 1,134 |
| | (9,375 | ) |
Payables and other accrued expenses | (235,075 | ) | | (277,612 | ) |
Net cash provided by (used in) operating activities | (378,707 | ) | | (229,235 | ) |
Investing Activities | | | |
Purchases of Rail Group assets | (29,516 | ) | | (25,074 | ) |
Proceeds from sale of Rail Group assets | 14,575 |
| | 5,621 |
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Purchases of property, plant and equipment and capitalized software | (29,414 | ) | | (5,608 | ) |
Proceeds from sale of assets | 6 |
| | 13,912 |
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Purchase of investments | — |
| | (1,817 | ) |
Other | — |
| | (281 | ) |
Net cash provided by (used in) investing activities | (44,349 | ) | | (13,247 | ) |
Financing Activities | | | |
Net change in short-term borrowings | 467,000 |
| | 226,000 |
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Proceeds from issuance of long-term debt | 50,000 |
| | 15,175 |
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Proceeds from long-term financing arrangement | — |
| | 10,396 |
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Payments of long-term debt | (106,515 | ) | | (37,852 | ) |
Proceeds from noncontrolling interest owner | 14,700 |
| | — |
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Proceeds from sale of treasury shares to employees and directors | — |
| | 511 |
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Payments of debt issuance costs | (787 | ) | | (33 | ) |
Dividends paid | (4,650 | ) | | (4,483 | ) |
Other | (114 | ) | | (217 | ) |
Net cash provided by (used in) financing activities | 419,634 |
| | 209,497 |
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Decrease in cash and cash equivalents | (3,422 | ) | | (32,985 | ) |
Cash and cash equivalents at beginning of period | 34,919 |
| | 62,630 |
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Cash and cash equivalents at end of period | $ | 31,497 |
| | $ | 29,645 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
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| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2016 | $ | 96 |
| | $ | 222,910 |
| | $ | (45,383 | ) | | $ | (12,468 | ) | | $ | 609,206 |
| | $ | 16,336 |
| | $ | 790,697 |
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Net income (loss) | | | | | | | | | (3,089 | ) | | 54 |
| | (3,035 | ) |
Other comprehensive income (loss) | | | | | | | 504 |
| | | | | | 504 |
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Other change in noncontrolling interest | | | | | | | | | | | (8,359 | ) | | (8,359 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $(323) (126 shares) | | | (2,549 | ) | | 4,604 |
| | | | | | | | 2,055 |
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Dividends declared ($0.16 per common share) | | | | | | | | | (4,500 | ) | | | | (4,500 | ) |
Restricted share award dividend equivalents | | | 5 |
| | 52 |
| | | | (57 | ) | | | | — |
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Balance at March 31, 2017 | $ | 96 |
| | $ | 220,366 |
| | $ | (40,727 | ) | | $ | (11,964 | ) | | $ | 601,560 |
| | $ | 8,031 |
| | $ | 777,362 |
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Balance at December 31, 2017 | $ | 96 |
| | $ | 224,622 |
| | $ | (40,312 | ) | | $ | (2,700 | ) | | $ | 633,496 |
| | $ | 7,697 |
| | $ | 822,899 |
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Net income (loss) | | | | | | | | | (1,700 | ) | | (282 | ) | | (1,982 | ) |
Other comprehensive income (loss) | | | | | | | (1,288 | ) | | | | | | (1,288 | ) |
Cash received from noncontrolling interest | | | | | | | | | | | 14,700 |
| | 14,700 |
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Adoption of accounting standard, net of income tax of $2,869 | | | | | | | | | (8,441 | ) | | | | (8,441 | ) |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $(0) (105 shares) | | | (2,632 | ) | | 4,164 |
| | | | | | | | 1,532 |
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Dividends declared ($0.165 per common share) | | | | | | | | | (4,663 | ) | | | | (4,663 | ) |
Restricted share award dividend equivalents | | |
|
| | 120 |
| | | | (120 | ) | | | | — |
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Balance at March 31, 2018 | $ | 96 |
| | $ | 221,990 |
| | $ | (36,028 | ) | | $ | (3,988 | ) | | $ | 618,572 |
| | $ | 22,115 |
| | $ | 822,757 |
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See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. An unaudited Condensed Consolidated Balance Sheet as of March 31, 2017 has been included as the Company operates in several seasonal industries. Certain prior year amounts within the operating and investing activities sections of the statements of cash flows have been reclassified to conform to current year presentation.
The Condensed Consolidated Balance Sheet data at December 31, 2017 was derived from the audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC 606). The FASB issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10 ASU 2016-12 and ASU 2016-20, respectively. The core principle of the new revenue standard is that an entity recognizes revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the standard in the current period using the modified retrospective method. As a result of the adoption we recognized a cumulative catch-up transition adjustment in beginning retained earnings at January 1, 2018 for non-recourse financing transactions that were open as of December 31, 2017. This resulted in a $25.6 million increase in Rail Group net assets, $34.0 million increase in financing liabilities and deferred tax liabilities and $8.4 million decrease to retained earnings. See Note 7 for further detail.
Leasing
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). ASC 842 supersedes the current accounting for leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. ASC 842 is effective for fiscal years beginning after December 15, 2018, and interim periods within. Early adoption is permitted, however the Company does not plan to early adopt. The new standard is effective for the Company beginning January 1, 2019 and must be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning of the earliest comparative period presented or the optional alternative approach, which requires application of the new guidance at the beginning of the standard’s effective date.
The Company expects this standard to have the effect of bringing certain off balance-sheet rail assets onto the balance sheet along with a corresponding liability for the associated obligations. Additionally, we have other arrangements currently classified as operating leases which will be recorded as a right of use asset and corresponding liability on the balance sheet. We are currently evaluating the impact these changes will have on the Consolidated Financial Statements.
Other applicable standards
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. This guidance is effective for fiscal years beginning after December 15, 2018. We have evaluated the impact of this new standard on our consolidated financial statements and do not expect the impact to be material. Early adoption is permitted, however the Company has not chosen to do so at this time.
In August 2017, the FASB issued ASU 2017-12 Targeted Improvements to Accounting for Hedging Activities. This standard simplifies the recognition and presentation of changes in the fair value of hedging instruments. The ASU is effective for annual periods beginning December 15, 2018. Early adoption is permitted, and the Company plans to adopt this standard in the second quarter of 2018. The Company does not expect the impact from adoption of this standard to be material to its Consolidated Financial Statements and disclosures.
In May 2017, the FASB issued ASU 2017-09 Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. This standard states that if the vesting conditions, fair value, and classification of the awards are the same immediately before and after the modification an entity would not apply modification accounting. The Company has adopted this standard in the current period noting no impact as the Company has not made any modifications to our stock compensation awards.
In March 2017, the FASB issued ASU 2017-07 Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that the service cost component be reported in the same line item as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit costs should be presented in the income statement separately from the service cost component and outside of income from operations if that subtotal is presented. The Company has adopted this standard in the current period and prior periods have been recast to reflect this change.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how companies present and classify certain cash receipts and payments in the statement of cash flows. The Company has adopted this standard in the current period noting the impact is immaterial.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. This includes allowances for trade receivables. The Company has not historically incurred significant credit losses and does not currently anticipate circumstances that would lead to a CECL approach differing from the Company's existing allowance estimates in a material way. The guidance is effective for fiscal years beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted, however the Company does not plan to do so.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The FASB issued subsequent amendments to the initial guidance in February 2018 and March 2018 within ASU 2018-03 and ASU 2018-04, respectively. This standard provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The Company has adopted this standard in the current period noting the impact is immaterial.
2. Inventories
Major classes of inventories are as follows:
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(in thousands) | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Grain | $ | 541,272 |
| | $ | 505,217 |
| | $ | 443,870 |
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Ethanol and co-products | 14,320 |
| | 11,003 |
| | 15,549 |
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Plant nutrients and cob products | 170,748 |
| | 126,962 |
| | 165,584 |
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Retail merchandise | — |
| | — |
| | 11,082 |
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Railcar repair parts | 5,289 |
| | 5,521 |
| | 5,209 |
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| $ | 731,629 |
| | $ | 648,703 |
| | $ | 641,294 |
|
Inventories on the Condensed Consolidated Balance Sheets at March 31, 2018, December 31, 2017 and March 31, 2017 do not include 0.7 million, 1.0 million and 2.7 million bushels of grain, respectively, held in storage for others. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
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| | | | | | | | | | | |
(in thousands) | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Land | $ | 29,915 |
| | $ | 22,388 |
| | $ | 29,331 |
|
Land improvements and leasehold improvements | 69,320 |
| | 69,127 |
| | 78,798 |
|
Buildings and storage facilities | 285,084 |
| | 284,820 |
| | 321,344 |
|
Machinery and equipment | 377,563 |
| | 373,127 |
| | 388,230 |
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Construction in progress | 15,116 |
| | 7,502 |
| | 13,113 |
|
| 776,998 |
| | 756,964 |
| | 830,816 |
|
Less: accumulated depreciation | 383,235 |
| | 372,287 |
| | 390,421 |
|
| $ | 393,763 |
| | $ | 384,677 |
| | $ | 440,395 |
|
Depreciation expense on property, plant and equipment was $11.6 million and $12.1 million for the three months ended March 31, 2018 and 2017, respectively.
In December 2017, the Company recorded charges totaling $10.9 million for impairment of property, plant and equipment in the Grain segment, of which $5.6 million relates to assets that are deemed held and used and $5.3 million related to assets that have been reclassified as assets held for sale at December 31, 2017. The Company wrote down the value of these assets to the extent their carrying amounts exceeded fair value. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 inputs in the fair value hierarchy.
Rail Group Assets
The components of Rail Group assets leased to others are as follows:
|
| | | | | | | | | | | |
(in thousands) | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Rail Group assets leased to others | $ | 577,678 |
| | $ | 531,391 |
| | $ | 448,761 |
|
Less: accumulated depreciation | 115,425 |
| | 107,948 |
| | 105,825 |
|
| $ | 462,253 |
| | $ | 423,443 |
| | $ | 342,936 |
|
Depreciation expense on Rail Group assets leased to others amounted to $6.2 million and $4.7 million for the three months ended March 31, 2018 and 2017, respectively.
4. Debt
The Company has a line of credit agreement with a syndicate of banks. The agreement provides for a credit facility in the amount of $800 million. Total borrowing capacity for the Company under all lines of credit is currently at $950.0 million, including subsidiary debt that is non-recourse to the Company of $15.0 million for The Andersons Denison Ethanol LLC ("TADE"), $70 million for ELEMENT LLC and $65 million for The Andersons Railcar Leasing Company LLC. At March 31, 2018, the Company had a total of $338.3 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit. The Company was in compliance with all financial covenants as of March 31, 2018.
ELEMENT, LLC, a consolidated subsidiary of the Company, entered into a financing agreement during the first quarter. This agreement provides a construction loan of up to $70.0 million. Upon project completion, the agreement provides the opportunity for the Company to convert the construction loan to a term loan of up to $50.0 million and a revolving term loan of up to $20.0 million. The maturity date of the credit agreement is March 2, 2025. During the construction period, borrowings under the credit agreement bear interest at variable interest rates, which are based off LIBOR plus an applicable spread. Upon
conversion of the construction loan to a term loan, the Company will have the option of fixing the interest on portions of the loans, or continuing at the previously described variable interest rates. There are no outstanding borrowings under this agreement as of March 31, 2018. The agreements include both financial and non-financial covenants that ELEMENT LLC, among other things, is required at a minimum to maintain various working capital levels and debt service coverage ratios based on project milestones as well as a minimum owner's equity level.
The Andersons Railcar Leasing Company LLC, a consolidated subsidiary of the Company, entered into a revolving asset based loan agreement on March 22, 2018 that provides for a credit facility in the amount of $65 million. The maturity date of the loan agreement is March 23, 2021. Borrowings under the agreement bear interest at market driven, variable interest rates which was 3.88% as of March 31, 2018 The agreement includes both financial and non-financial covenants, including maintaining certain leverage and interest coverage ratios, tangible net worth and utilization levels. There are $40.0 million of outstanding borrowings under this agreement as of March 31, 2018, the proceeds of which were used to pay down outstanding balances of the Company's primary credit facility agreement.
The Company’s short-term and long-term debt at March 31, 2018, December 31, 2017 and March 31, 2017 consisted of the following: |
| | | | | | | | | | | |
(in thousands) | March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
Short-term Debt – Non-Recourse | $ | — |
| | $ | — |
| | $ | — |
|
Short-term Debt – Recourse | 489,000 |
| | 22,000 |
| | 255,000 |
|
Total Short-term Debt | $ | 489,000 |
| | $ | 22,000 |
| | $ | 255,000 |
|
| | | | | |
Current Maturities of Long-term Debt – Non-Recourse | $ | 2,922 |
| | $ | — |
| | $ | — |
|
Current Maturities of Long-term Debt – Recourse | 11,212 |
| | 54,205 |
| | 56,144 |
|
Total Current Maturities of Long-term Debt | $ | 14,134 |
| | $ | 54,205 |
| | $ | 56,144 |
|
| | | | | |
Long-term Debt, Less: Current Maturities – Non-Recourse | $ | 72,977 |
| | $ | — |
| | $ | — |
|
Long-term Debt, Less: Current Maturities – Recourse | 365,651 |
| | 418,339 |
| | 365,971 |
|
Total Long-term Debt, Less: Current Maturities | $ | 438,628 |
| | $ | 418,339 |
| | $ | 365,971 |
|
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established “unhedged” position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via the regulated CME. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
All of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in cost of sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at March 31, 2018, December 31, 2017 and March 31, 2017, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or noncurrent commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
(in thousands) | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position | | Net derivative asset position | | Net derivative liability position |
Collateral paid (received) | $ | 54,762 |
| | $ | — |
| | $ | 1,351 |
| | $ | — |
| | $ | (2,769 | ) | | $ | — |
|
Fair value of derivatives | (18,874 | ) | | — |
| | 17,252 |
| | — |
| | 32,310 |
| | — |
|
Balance at end of period | $ | 35,888 |
| | $ | — |
| | $ | 18,603 |
| | $ | — |
| | $ | 29,541 |
| | $ | — |
|
The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2018 |
(in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | $ | 29,861 |
| | $ | 1,851 |
| | $ | 3,115 |
| | $ | 47 |
| | $ | 34,874 |
|
Commodity derivative liabilities | (40,813 | ) | | (112 | ) | | (18,539 | ) | | (1,461 | ) | | (60,925 | ) |
Cash collateral | 54,762 |
| | — |
| | — |
| | — |
| | 54,762 |
|
Balance sheet line item totals | $ | 43,810 |
| | $ | 1,739 |
| | $ | (15,424 | ) | | $ | (1,414 | ) | | $ | 28,711 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | $ | 36,929 |
| | $ | 311 |
| | $ | 489 |
| | $ | 1 |
| | $ | 37,730 |
|
Commodity derivative liabilities | (7,578 | ) | | (1 | ) | | (30,140 | ) | | (826 | ) | | (38,545 | ) |
Cash collateral | 1,351 |
| | — |
| | — |
| | — |
| | 1,351 |
|
Balance sheet line item totals | $ | 30,702 |
| | $ | 310 |
| | $ | (29,651 | ) | | $ | (825 | ) | | $ | 536 |
|
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2017 |
(in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | $ | 57,499 |
| | $ | 341 |
| | $ | 554 |
| | $ | 3 |
| | $ | 58,397 |
|
Commodity derivative liabilities | (6,681 | ) | | (2 | ) | | (30,468 | ) | | (453 | ) | | (37,604 | ) |
Cash collateral | (2,769 | ) | | — |
| | — |
| | — |
| | (2,769 | ) |
Balance sheet line item totals | $ | 48,049 |
| | $ | 339 |
| | $ | (29,914 | ) | | $ | (450 | ) | | $ | 18,024 |
|
The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line items in which they are located for the three months ended March 31, 2018 and 2017 are as follows:
|
| | | | | | | |
| Three months ended March 31, |
(in thousands) | 2018 | | 2017 |
Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues | $ | (25,236 | ) | | $ | 27,025 |
|
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at March 31, 2018, December 31, 2017 and March 31, 2017:
|
| | | | | | | | | | | |
| March 31, 2018 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
Non-exchange traded: | | | | | | | |
Corn | 335,887 |
| | — |
| | — |
| | — |
|
Soybeans | 48,003 |
| | — |
| | — |
| | — |
|
Wheat | 16,639 |
| | — |
| | — |
| | — |
|
Oats | 40,555 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 280,243 |
| |
|
| | — |
|
Corn oil | — |
| | — |
| | 5,048 |
| | — |
|
Other | 27 |
| | 4,500 |
| |
|
| | 90 |
|
Subtotal | 441,111 |
| | 284,743 |
| | 5,048 |
| | 90 |
|
Exchange traded: | | | | | | | |
Corn | 146,505 |
| | — |
| | — |
| | — |
|
Soybeans | 52,460 |
| | — |
| | — |
| | — |
|
Wheat | 74,805 |
| | — |
| | — |
| | — |
|
Oats | 2,290 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 108,108 |
| | — |
| | — |
|
Subtotal | 276,060 |
| | 108,108 |
| | — |
| | — |
|
Total | 717,171 |
| | 392,851 |
| | 5,048 |
| | 90 |
|
|
| | | | | | | | | | | |
| December 31, 2017 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
Non-exchange traded: | | | | | | | |
Corn | 218,391 |
| |
|
| |
|
| | — |
|
Soybeans | 18,127 |
| | — |
| | — |
| | — |
|
Wheat | 14,577 |
| | — |
| | — |
| | — |
|
Oats | 25,953 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 197,607 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 6,074 |
| | — |
|
Other | 47 |
| | — |
| | — |
| | 97 |
|
Subtotal | 277,095 |
| | 197,607 |
| | 6,074 |
| | 97 |
|
Exchange traded: | | | | | | | |
Corn | 82,835 |
| | — |
| | — |
| | — |
|
Soybeans | 37,170 |
| | — |
| | — |
| | — |
|
Wheat | 65,640 |
| | — |
| | — |
| | — |
|
Oats | 1,345 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 39,438 |
| | — |
| | — |
|
Other | — |
| | 840 |
| | — |
| | — |
|
Subtotal | 186,990 |
| | 40,278 |
| | — |
| | — |
|
Total | 464,085 |
| | 237,885 |
| | 6,074 |
| | 97 |
|
|
| | | | | | | | | | | |
| March 31, 2017 |
Commodity (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons |
Non-exchange traded: | | | | | | | |
Corn | 201,200 |
| | — |
| | — |
| | — |
|
Soybeans | 29,015 |
| | — |
| | — |
| | — |
|
Wheat | 7,956 |
| | — |
| | — |
| | — |
|
Oats | 46,861 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 178,040 |
| | — |
| | — |
|
Corn oil | — |
| | — |
| | 6,279 |
| | — |
|
Other | 100 |
| | 1,000 |
| | — |
| | 239 |
|
Subtotal | 285,132 |
| | 179,040 |
| | 6,279 |
| | 239 |
|
Exchange traded: | | | | | | | |
Corn | 104,790 |
| | — |
| | — |
| | — |
|
Soybeans | 47,605 |
| | — |
| | — |
| | — |
|
Wheat | 40,855 |
| | — |
| | — |
| | — |
|
Oats | 1,660 |
| | — |
| | — |
| | — |
|
Ethanol | — |
| | 16,590 |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | 15 |
|
Subtotal | 194,910 |
| | 16,590 |
| | — |
| | 15 |
|
Total | 480,042 |
| | 195,630 |
| | 6,279 |
| | 254 |
|
At March 31, 2018, December 31, 2017 and March 31, 2017, the Company had recorded the following amounts for the fair value of the Company's other derivatives not designated as hedging instruments: |
| | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
(in thousands) | | |
Interest rate contracts included in other long-term liabilities | $ | (453 | ) | | $ | (1,244 | ) | | $ | (2,141 | ) |
Foreign currency contracts included in other current assets (Accrued expenses and other current liabilities) | (695 | ) | | 426 |
| | (14 | ) |
The gains and losses included in the Company's Consolidated Statements of Operations and the line item in which they are located for derivatives not designated as hedging instruments are as follows: |
| | | | | | | |
| Three months ended March 31, |
(in thousands) | 2018 | | 2017 |
Interest rate derivative gains (losses) included in Interest income (expense) | $ | 1,408 |
| | $ | 389 |
|
Foreign currency derivative gains (losses) included in Other income, net | (1,122 | ) | | 98 |
|
6. Employee Benefit Plans
The following are components of the net periodic benefit cost for the pension and postretirement benefit plans maintained by the Company for the three months ended March 31, 2018 and 2017:
|
| | | | | | | |
| Pension Benefits |
(in thousands) | Three months ended March 31, |
2018 | | 2017 |
Interest cost | $ | 33 |
| | $ | 39 |
|
Recognized net actuarial loss | 61 |
| | 63 |
|
Benefit cost | $ | 94 |
| | $ | 102 |
|
|
| | | | | | | |
| Postretirement Benefits |
(in thousands) | Three months ended March 31, |
2018 | | 2017 |
Service cost | $ | 87 |
| | $ | 123 |
|
Interest cost | 187 |
| | 300 |
|
Amortization of prior service cost | (228 | ) | | — |
|
Benefit cost | $ | 46 |
| | $ | 423 |
|
7. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of ASC 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Grain and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail Group's leasing revenue is accounted for under ASC 840, Leases. The breakdown of revenues between ASC 606 and other standards is as follows:
|
| | | |
(in thousands) | Three months ended March 31, 2018 |
Revenues under ASC 606 | $ | 193,650 |
|
Revenues under ASC 840 | 26,029 |
|
Revenues under ASC 815 | 416,060 |
|
Total Revenues | $ | 635,739 |
|
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following table disaggregates revenues under ASC 606 by major product/service line:
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2018 |
(in thousands) | Grain | | Ethanol | | Plant Nutrient | | Rail | | Total |
Specialty nutrients | $ | — |
| | $ | — |
| | $ | 75,078 |
| | $ | — |
| | $ | 75,078 |
|
Primary nutrients | — |
| | — |
| | 53,219 |
| | — |
| | 53,219 |
|
Service | 4,418 |
| | 2,545 |
| | 209 |
| | 8,117 |
| | 15,289 |
|
Co-products | — |
| | 26,646 |
| | — |
| | — |
| | 26,646 |
|
Other | 210 |
| | — |
| | 7,111 |
| | 16,097 |
| | 23,418 |
|
Total | $ | 4,628 |
| | $ | 29,191 |
| | $ | 135,617 |
| | $ | 24,214 |
| | $ | 193,650 |
|
Approximately 8% of revenues accounted for under ASC 606 are recorded over time which primarily relates to service revenues noted above.
Specialty and primary nutrients
The Company sells several different types of specialty nutrient products, including: low-salt liquid starter fertilizers, micro-nutrients and other specialty lawn products. These products can be sold through the wholesale distribution channels as well as directly to end users at the farm center locations. Similarly, the Company sells several different types of primary nutrient products, including: nitrogen, phosphorus and potassium. These products may be purchased and re-sold as is or sold as finished goods resulting from a blending and manufacturing process. The contracts associated with specialty and primary nutrients generally have just a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer. Payment terms generally range from 0 - 30 days.
Service
Service revenues primarily relate to the railcar repair business. The Company owns several railcar repair shops which repair railcars through specific contracts with customers or through operating as an agent for a particular railroad to repair cars that are on their rail line per American Association of Railroads (“AAR”) standards. These contracts contain a single performance obligation which is to complete the requested and/or required repairs on the railcars. As the customer simultaneously receives and consumes the benefit of the repair work we perform, revenue for these contracts is recognized over time. The Company uses an input-based measure of progress using costs incurred to total expected costs as that is the measure that most faithfully depicts our progress towards satisfying our performance obligation. Upon completion of the work, the invoice is sent to the customer, with payment terms that generally range from 0 - 30 days.
Co-products
In addition to the ethanol sales contracts that are considered derivative instruments, the Ethanol Group sells several other co-products that remain subject to ASC 606, including E-85, DDGs, syrups and renewable identification numbers (“RINs”). RINs are credits for compliance with the Environmental Protection Agency's Renewable Fuel Standard Program and are created by renewable fuel producers. Contracts for these co-products generally have a single performance obligation, as the Company has elected the accounting policy to consider shipping and handling costs as fulfillment costs. Revenue is recognized when control of the product has passed to the customer which follows shipping terms on the contract. Payment terms generally range from 5 - 15 days.
Contract balances
The opening and closing balances of the Company’s contract liabilities are as follows:
|
| | | |
in thousands | Contract liabilities |
Balance at January 1, 2018 | $ | 25,520 |
|
Balance at March 31, 2018 | $ | 67,715 |
|
The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. Contract liabilities relate to the Plant Nutrient business for payments received in advance of fulfilling our performance obligations under our customer contracts. Further, due
to seasonality of this business, the amount of revenue recognized in the current period related to the beginning of the year contract liability is not material.
Impact of New Revenue Guidance on Financial Statement Line Items
The following table compares the reported condensed consolidated balance sheet and statement of operations, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous guidance been in effect:
|
| | | | | | | | | | | |
| Balance Sheet |
(in thousands) | As Reported | | ASC 606 Impact | | Pro forma as if the previous accounting guidance was in effect |
Cash and cash equivalents and restricted cash | $ | 31,497 |
| | $ | — |
| | $ | 31,497 |
|
Accounts receivable, net | 216,021 |
| | — |
| | 216,021 |
|
Inventories | 731,629 |
| | 145 |
| | 731,774 |
|
Commodity derivative assets - current | 43,810 |
| | — |
| | 43,810 |
|
Other current assets | 114,922 |
| | (170 | ) | | 114,752 |
|
Other noncurrent assets | 369,633 |
| | — |
| | 369,633 |
|
Rail Group assets leased to others, net | 462,253 |
| | (24,844 | ) | | 437,409 |
|
Property, plant and equipment | 393,763 |
| | — |
| | 393,763 |
|
Total assets | 2,363,528 |
|
| (24,869 | ) | | 2,338,659 |
|
Short-term debt and current maturities of long-term debt | 503,134 |
| | (2,922 | ) | | 500,212 |
|
Trade and other payables and accrued expenses and other current liabilities | 323,614 |
| | — |
| | 323,614 |
|
Commodity derivative liabilities - current | 15,424 |
| | — |
| | 15,424 |
|
Customer prepayments and deferred revenue | 81,778 |
| | — |
| | 81,778 |
|
Commodity derivative liabilities - noncurrent and Other long-term liabilities | 32,950 |
| | — |
| | 32,950 |
|
Employee benefit plan obligations | 26,310 |
| | — |
| | 26,310 |
|
Long-term debt, less current maturities | 438,628 |
| | (33,318 | ) | | 405,310 |
|
Deferred income taxes | 118,933 |
| | 2,942 |
| | 121,875 |
|
Total liabilities | 1,540,771 |
| | (33,298 | ) | | 1,507,473 |
|
Retained earnings | 618,572 |
| | 8,429 |
| | 627,001 |
|
Common shares, additional paid-in-capital, treasury shares, accumulated other comprehensive loss and noncontrolling interests | 204,185 |
| | — |
| | 204,185 |
|
Total equity | 822,757 |
| | 8,429 |
| | 831,186 |
|
Total liabilities and equity | 2,363,528 |
| | (24,869 | ) | | 2,338,659 |
|
Total reported assets were $24.9 million greater than the pro forma balance sheet, which assumes the previous guidance remained in effect as of March 31, 2018. This was largely due to the Rail Group assets that were recorded on the balance sheet as part of the cumulative catch-up adjustment upon the adoption of ASC 606.
Total reported liabilities were $33.3 million greater than the pro forma balance sheet, which assumes the previous guidance remained in effect as of March 31, 2018. This was largely due to the financing obligation and deferred taxes related to the Rail Group assets that were recorded on the balance sheet as part of the cumulative catch-up adjustment upon the adoption of ASC 606.
|
| | | | | | | | | | | |
| Statement of Operations |
in thousands | As Reported | | ASC 606 Impact | | Pro forma as if the previous accounting guidance was in effect |
Sales and merchandising revenues | $ | 635,739 |
| | $ | 164,189 |
| | $ | 799,928 |
|
Cost of sales and merchandising revenues | 572,034 |
| | 164,650 |
| | 736,684 |
|
Gross profit | 63,705 |
| | (461 | ) | | 63,244 |
|
Operating, administrative and general expenses | 64,257 |
| | — |
| | 64,257 |
|
Goodwill impairment |
|
| | — |
| | — |
|
Interest expense | 6,999 |
| | (403 | ) | | 6,596 |
|
Other income: | | | | | |
Equity in earnings of affiliates, net | 3,573 |
| | — |
| | 3,573 |
|
Other income, net | 1,686 |
| | — |
| | 1,686 |
|
Income (loss) before income taxes | (2,292 | ) | | (58 | ) | | (2,350 | ) |
Income tax provision | (310 | ) | | (22 | ) | | (332 | ) |
Net income (loss) | (1,982 | ) | | (36 | ) | | (2,018 | ) |
Net income attributable to the noncontrolling interests | (282 | ) | | — |
| | (282 | ) |
Net income (loss) attributable to The Andersons, Inc. | $ | (1,700 | ) | | $ | (36 | ) | | $ | (1,736 | ) |
The following summarizes the significant changes on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2018 as a result of the adoption of ASC 606 on January 1, 2018 compared to if the Company had continued to recognize revenues under ASC 605:
| |
• | While grain origination agreements, and their related sales contracts, will be accounted for under ASC 815, we are still required to evaluate the principal versus agent guidance in ASC 606 to determine whether realized gains or losses should be presented on a gross or net basis in the consolidated statements of operations upon physical settlement. The Company has determined that it is the agent in certain origination arrangements within our Grain Group and therefore realized gains or losses will be presented on a net basis upon adoption of ASC 606. As a result of these transactions now being recorded on a net basis, revenues and related cost of sales would have been $161.9 million higher under the previous guidance. |
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• | ASC 606 required certain Rail Group assets and related financing obligations to be recorded on the balance sheet as these transactions no longer qualified as sales as a result of the existence of repurchase options within the sales contracts. The result of this change primarily impacts geography within the income statement, as lease expense to the financial institution will be replaced with a combination of depreciation and interest expense. |
The net impact of accounting for revenue under the new guidance had an immaterial impact on net income (loss) and no impact on the Company's earnings per common share for the three months ended March 31, 2018.
The adoption of ASC 606 had an immaterial on the Company’s cash flows from operations. The aforementioned impacts resulted in offsetting shifts in cash flows throughout net income and various changes in working capital balances.
Transaction Price Allocated to Future Performance Obligations
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied at period end. The guidance provides certain practical expedients that limit this requirement. The Company has various contracts that meet the following practical expedients provided by ASC 606:
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• | The performance obligation is part of a contract that has an original expected duration of one year or less. |
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• | The variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met. |
Contract costs
The company has elected to apply the practical expedient and accordingly recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in Operating, administrative and general expenses.
Significant judgments
In making its determination of standalone selling price, the Company maximizes its use of observable inputs. Standalone selling price, once established, is then used to allocate total consideration proportionally to the various performance obligations, if applicable, within a contract.
To estimate variable consideration, the Company applies both the “expected value” method and “most likely amount” method based on the form of variable consideration, according to which method would provide the best prediction. The expected value method involves a probability-weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.
The primary types of variable consideration present in the Company’s contracts are product returns, volume rebates and the CPI index. The overall impact of this variable consideration is not material.
Practical expedients
The Company has elected to apply the following practical expedients provided by ASC 606:
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• | Future performance obligations - see discussion above. |
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• | Contract costs - see discussion above. |
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• | Shipping and handling activities - see discussion above. |
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• | Sales tax presentation - the Company has elected to exclude from the transaction price all sales taxes that are assessed by a governmental authority that are imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer. |
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• | Modified retrospective approach - see discussion in Note 1. regarding adoption elections. |
8. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes if necessary based on new information or events. The estimated annual effective tax rate is forecast based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the three months ended March 31, 2018, the Company recorded income tax benefit of $0.3 million at an effective tax rate of 13.5%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impact of state income taxes and nondeductible compensation. The effective tax rate for the three month period ended March 31, 2018 also includes tax benefits from the release of reserves upon the expiration of statutes of limitation, offset by changes in the state allocation/apportionment as a result of a statutory merger and excess tax expense from stock-based compensation. The decrease in effective tax rate for the three months ended March 31, 2018 as compared to the same period last year was primarily attributed to the reduction of the U.S. corporate tax rate from 35% to 21% as a result of the U.S. tax reform. For the three months ended March 31, 2017, the Company recorded an income tax benefit of $2.5 million at an effective tax rate of 45.5%.
The Company’s accounting for the certain elements of the Tax Act was incomplete as of the period ended December 31, 2017, and remains incomplete as of March 31, 2018. However, the Company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, the Company recorded a provisional discrete net tax benefit of $73.5 million in the period ended December 31, 2017. This provisional estimate consists of a net expense of $1.4 million for the one-time transition tax and a net benefit of $74.9 million related to revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate. To determine the transition tax, the Company must determine the amount of post-1986 accumulated earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While the Company was able to make a reasonable estimate of the transition tax, the Company continues to gather additional information to more precisely compute the final amount. Likewise, while the Company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, its rate may be affected by other analysis related to the Tax Act, including, but not limited to, the state tax
effect of adjustments made to federal temporary differences. Due to the complexity of the new global intangible low-taxed income ("GILTI") tax rules, the company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under GAAP, the Company is allowed to make an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method"); or (ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules is dependent on additional analysis and potential future modifications to existing structures, which are not currently known. The Company has not made a policy decision regarding whether to record deferred taxes on GILTI. The Company will continue to analyze the full effects of the Tax Act on its Consolidated Financial Statements.
9. Accumulated Other Comprehensive Loss
The following tables summarize the after-tax components of accumulated other comprehensive income (loss) attributable to the Company for the three months ended March 31, 2018 and 2017:
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| | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a)
|
| | | Three months ended March 31, 2018 |
(in thousands) | | Foreign Currency Translation Adjustment | | Investment in Convertible Preferred Securities | | Defined Benefit Plan Items | | Total |
Beginning Balance | | $ | (7,716 | ) | | $ | 344 |
| | $ | 4,672 |
| | $ | (2,700 | ) |
| Other comprehensive income (loss) before reclassifications | | (1,150 | ) | | (87 | ) | | 117 |
| | $ | (1,120 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | — |
| | (168 | ) | | $ | (168 | ) |
Net current-period other comprehensive income (loss) | | (1,150 | ) | | (87 | ) | | (51 | ) | | (1,288 | ) |
Ending balance | | $ | (8,866 | ) | | $ | 257 |
| | $ | 4,621 |
| | $ | (3,988 | ) |
|
| | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) |
| | | Three months ended March 31, 2017 |
(in thousands) | | | Foreign Currency Translation Adjustment | | Defined Benefit Plan Items | | Total |
Beginning Balance | | | $ | (11,002 | ) | | $ | (1,466 | ) | | $ | (12,468 | ) |
| Other comprehensive income (loss) before reclassifications
| | | 514 |
| | (10 | ) | | 504 |
|
| Amounts reclassified from accumulated other comprehensive loss | | | — |
| | — |
| | — |
|
Net current-period other comprehensive income (loss) | | | 514 |
| | (10 | ) | | 504 |
|
Ending balance | | | $ | (10,488 | ) | | $ | (1,476 | ) | | $ | (11,964 | ) |
(a) All amounts are net of tax. Amounts in parentheses indicate debits
The following table shows the reclassification adjustments from accumulated other comprehensive loss to net income for the three months ended March 31, 2018: |
| | | | | | |
| | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (a) |
(in thousands) | Three months ended March 31, 2018 |
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | Affected Line Item in the Statement Where Net Income Is Presented |
Defined Benefit Plan Items | | | | |
Amortization of prior-service cost | | (228 | ) | | (b) |
| | (228 | ) | | Total before tax |
| | 60 |
| | Income tax provision |
| | $ | (168 | ) | | Net of tax |
| | | | |
Total reclassifications for the period | | $ | (168 | ) | | Net of tax |
(a) Amounts in parentheses indicate credits to profit/loss
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost (see Note 6).
There were no reclassification adjustments from accumulated other comprehensive loss to net income for the three months ended March 31, 2017.
10. Earnings Per Share
The Company’s non-vested restricted stock that was granted prior to March 2015 is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest. Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings.
|
| | | | | | | |
(in thousands, except per common share data) | Three months ended March 31, |
2018 | | 2017 |
Net income (loss) attributable to The Andersons, Inc. | $ | (1,700 | ) | | $ | (3,089 | ) |
Less: Distributed and undistributed earnings allocated to nonvested restricted stock | — |
| | — |
|
Earnings (losses) available to common shareholders | $ | (1,700 | ) | | $ | (3,089 | ) |
Earnings per share – basic: | | | |
Weighted average shares outstanding – basic | 28,237 |
| | 28,281 |
|
Earnings (losses) per common share – basic | $ | (0.06 | ) | | $ | (0.11 | ) |
Earnings per share – diluted: | | | |
Weighted average shares outstanding – basic | 28,237 |
| | 28,281 |
|
Effect of dilutive awards | — |
| | — |
|
Weighted average shares outstanding – diluted | 28,237 |
| | 28,281 |
|
Earnings (losses) per common share – diluted | $ | (0.06 | ) | | $ | (0.11 | ) |
All outstanding share awards were antidilutive for the three months ended March 31, 2018 and March 31, 2017 as the Company experienced a net loss in both periods.
11. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2018, December 31, 2017 and March 31, 2017:
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| | | | | | | | | | | | | | | |
(in thousands) | March 31, 2018 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | $ | 35,888 |
| | $ | (7,177 | ) | | $ | — |
| | $ | 28,711 |
|
Provisionally priced contracts (b) | (48,478 | ) | | (31,847 | ) | | — |
| | (80,325 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 7,388 |
| | 7,388 |
|
Other assets and liabilities (d) | 8,947 |
| | (454 | ) | | — |
| | 8,493 |
|
Total | $ | (3,643 | ) | | $ | (39,478 | ) | | $ | 7,388 |
| | $ | (35,733 | ) |
|
| | | | | | | | | | | | | | | |
(in thousands) | December 31, 2017 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | 18,603 |
| | (18,067 | ) | | — |
| | 536 |
|
Provisionally priced contracts (b) | (98,190 | ) | | (67,094 | ) | | — |
| | (165,284 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 7,388 |
| | 7,388 |
|
Other assets and liabilities (d) | 9,705 |
| | (1,244 | ) | | — |
| | 8,461 |
|
Total | $ | (69,882 | ) | | $ | (86,405 | ) | | $ | 7,388 |
| | $ | (148,899 | ) |
|
| | | | | | | | | | | | | | | |
(in thousands) | March 31, 2017 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Restricted cash | $ | 752 |
| | $ | — |
| | $ | — |
| | $ | 752 |
|
Commodity derivatives, net (a) | 29,566 |
| | (11,542 | ) | | — |
| | 18,024 |
|
Provisionally priced contracts (b) | (86,314 | ) | | (37,643 | ) | | — |
| | (123,957 | ) |
Convertible preferred securities (c) | — |
| | — |
| | 3,294 |
| | 3,294 |
|
Other assets and liabilities (d) | 8,518 |
| | (2,141 | ) | | — |
| | 6,377 |
|
Total | $ | (47,478 | ) | | $ | (51,326 | ) | | $ | 3,294 |
| | $ | (95,510 | ) |
| |
(a) | Includes associated cash posted/received as collateral |
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(b) | Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2) |
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(c) | Recorded in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheets related to certain available securities. |
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(d) | Included in other assets and liabilities are assets held in rabbi trusts to fund deferred compensation plans, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), and interest rate derivatives (Level 2). |
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Level 1 commodity derivatives reflect the fair value of the exchange-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because basis for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that basis is a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a material input to fair value for these commodity contracts.
These fair value disclosures exclude physical grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or the Company has delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted CBOT prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. All other unpriced contracts, primarily delayed price contracts, are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy as they include variable future and basis components.
The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted CBOT prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
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| | | | | | | |
| Convertible Preferred Securities |
(in thousands) | 2018 | | 2017 |
Assets (liabilities) at January 1, | $ | 7,388 |
| | $ | 3,294 |
|
Gains (losses) included in earnings | — |
| | — |
|
Assets (liabilities) at March 31, | $ | 7,388 |
| | $ | 3,294 |
|
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of March 31, 2018, December 31, 2017 and March 31, 2017:
|
| | | | | | | | | |
Quantitative Information about Level 3 Fair Value Measurements |
(in thousands) | Fair Value as of March 31, 2018 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 7,388 |
| | Implied based on market prices | | N/A | | N/A |
Real Property (b) | $ | 29,347 |
| | Third Party Appraisal | | N/A | | N/A |
|
| | | | | | | | | |
(in thousands) | Fair Value as of December 31, 2017 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 7,388 |
| | Implied based on market prices | | N/A | | N/A |
Real Property (b) | $ | 29,347 |
| | Third-Party Appraisal | | N/A | | N/A |
|
| | | | | | | | | |
(in thousands) | Fair Value as of March 31, 2017 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | $ | 3,294 |
| | Cost Basis, Plus Interest | | N/A | | N/A |
(a) Due to early stages of business and timing of investments, cost basis, plus interest was deemed to approximate fair value in prior periods. As the underlying enterprises have matured, additional market data is available to consider in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
(b) The Company recognized impairment charges on certain grain assets during 2017 and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the grain assets was determined using prior transactions, prior third-party appraisals and a pending sale of grain assets held by the Company.
Fair Value of Financial Instruments
The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.
|
| | | | | | | | | | | |
(in thousands) | March 31, 2018 |
| December 31, 2017 | | March 31, 2017 |
Fair value of long-term debt, including current maturities | $ | 448,346 |
| | $ | 474,769 |
| | $ | 426,105 |
|
Fair value in excess of carrying value (a) | 8,241 |
| | 1,451 |
| | 1,036 |
|
(a) Carrying value used for this purpose excludes unamortized prepaid debt issuance costs
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
12. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
The following table presents the Company’s investment balance in each of its equity method investees by entity: