UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended 06/30/20212022
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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)
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class: | | Trading Symbol | | Name of each exchange on which registered: |
Common stock, $0.00 par value, $0.01 stated value | | ANDE | | The NASDAQ Stock Market LLC |
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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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 | ý☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ý
The registrant had 33,282,74933,860,914 common shares outstanding at July 23, 2021.22, 2022.
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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The Andersons, Inc. | Q2 2021 Form 10-Q | 2
Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc.
Condensed Consolidated Balance SheetsStatements of Operations (Unaudited)
(Unaudited)(In thousands)thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 27,538 | | | $ | 29,123 | | | $ | 30,011 | |
Accounts receivable, net | 721,575 | | | 659,834 | | | 537,011 | |
| 912,299 | | | 1,300,693 | | | 616,323 | |
Commodity derivative assets – current (Note 5) | 507,148 | | | 320,706 | | | 112,089 | |
Other current assets | 65,740 | | | 106,053 | | | 102,755 | |
Total current assets | 2,234,300 | | | 2,416,409 | | | 1,398,189 | |
Other assets: | | | | | |
Goodwill | 135,709 | | | 135,709 | | | 135,709 | |
Other intangible assets, net | 127,756 | | | 142,940 | | | 160,180 | |
Right of use assets, net | 61,299 | | | 56,031 | | | 62,838 | |
Other assets, net | 73,678 | | | 49,907 | | | 48,235 | |
Total other assets | 398,442 | | | 384,587 | | | 406,962 | |
Rail assets leased to others, net (Note 3) | 574,585 | | | 591,946 | | | 592,821 | |
Property, plant and equipment, net (Note 3) | 841,762 | | | 879,179 | | | 906,017 | |
Total assets | $ | 4,049,089 | | | $ | 4,272,121 | | | $ | 3,303,989 | |
Liabilities and equity | | | | | |
Current liabilities: | | | | | |
| $ | 757,271 | | | $ | 403,703 | | | $ | 96,071 | |
Trade and other payables | 547,169 | | | 957,683 | | | 503,892 | |
Customer prepayments and deferred revenue | 58,155 | | | 180,160 | | | 45,734 | |
Commodity derivative liabilities – current (Note 5) | 90,366 | | | 146,990 | | | 65,186 | |
Current maturities of long-term debt (Note 4) | 56,582 | | | 75,475 | | | 68,477 | |
Accrued expenses and other current liabilities | 181,015 | | | 167,671 | | | 147,422 | |
Total current liabilities | 1,690,558 | | | 1,931,682 | | | 926,782 | |
Long-term lease liabilities | 41,852 | | | 37,177 | | | 41,061 | |
Long-term debt, less current maturities (Note 4) | 866,454 | | | 916,540 | | | 975,973 | |
Deferred income taxes | 173,212 | | | 170,147 | | | 162,475 | |
Other long-term liabilities | 52,049 | | | 55,915 | | | 65,615 | |
Total liabilities | 2,824,125 | | | 3,111,461 | | | 2,171,906 | |
Commitments and contingencies (Note 13) | 0 | | 0 | | 0 |
Shareholders’ equity: | | | | | |
Common shares, without par value (63,000 shares authorized; 33,786, 33,599 and 33,599 shares issued at 6/30/2021, 12/31/2020 and 6/30/2020, respectively) | 140 | | | 138 | | | 138 | |
Preferred shares, without par value (1,000 shares authorized; NaN issued) | 0 | | | 0 | | | 0 | |
Additional paid-in-capital | 357,606 | | | 348,714 | | | 343,730 | |
Treasury shares, at cost (111, 45 and 40 shares at 6/30/2021, 12/31/2020 and 6/30/2020, respectively) | (2,650) | | | (966) | | | (953) | |
Accumulated other comprehensive loss | (1,837) | | | (12,076) | | | (26,245) | |
Retained earnings | 669,241 | | | 626,081 | | | 622,718 | |
Total shareholders’ equity of The Andersons, Inc. | 1,022,500 | | | 961,891 | | | 939,388 | |
Noncontrolling interests | 202,464 | | | 198,769 | | | 192,695 | |
Total equity | 1,224,964 | | | 1,160,660 | | | 1,132,083 | |
Total liabilities and equity | $ | 4,049,089 | | | $ | 4,272,121 | | | $ | 3,303,989 | |
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| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Sales and merchandising revenues | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | |
Cost of sales and merchandising revenues | 4,219,776 | | | 3,072,398 | | | 8,078,195 | | | 5,553,676 | |
Gross profit | 230,841 | | | 163,407 | | | 350,376 | | | 276,848 | |
Operating, administrative and general expenses | 112,559 | | | 105,560 | | | 214,546 | | | 202,558 | |
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Interest expense, net | 16,921 | | | 10,060 | | | 27,780 | | | 20,049 | |
Other income, net: | | | | | | | |
Equity in earnings (losses) of affiliates, net | (6,034) | | | 845 | | | (6,278) | | | 2,639 | |
Other income, net | 22,826 | | | 5,070 | | | 26,988 | | | 10,938 | |
Income before income taxes from continuing operations | 118,153 | | | 53,702 | | | 128,760 | | | 67,818 | |
Income tax provision from continuing operations | 15,753 | | | 9,677 | | | 19,856 | | | 14,038 | |
Net income from continuing operations | 102,400 | | | 44,025 | | | 108,904 | | | 53,780 | |
Income (loss) from discontinued operations, net of income taxes | (739) | | | 2,099 | | | (1,294) | | | 5,606 | |
Net income | 101,661 | | | 46,124 | | | 107,610 | | | 59,386 | |
Net income attributable to noncontrolling interests | 21,856 | | | 2,625 | | | 22,303 | | | 780 | |
Net income attributable to The Andersons, Inc. | $ | 79,805 | | | $ | 43,499 | | | $ | 85,307 | | | $ | 58,606 | |
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Average number of shares outstanding - basic | 33,850 | | | 33,263 | | | 33,795 | | | 33,226 | |
Average number of share outstanding - diluted | 34,416 | | | 33,579 | | | 34,416 | | | 33,617 | |
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Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | | | | | | | |
Basic earnings (loss): | | | | | | | |
Continuing operations | $ | 2.38 | | | $ | 1.25 | | | $ | 2.56 | | | $ | 1.60 | |
Discontinued operations | (0.02) | | | 0.06 | | | (0.04) | | | 0.16 | |
| $ | 2.36 | | | $ | 1.31 | | | $ | 2.52 | | | $ | 1.76 | |
Diluted earnings (loss): | | | | | | | |
Continuing operations | $ | 2.34 | | | $ | 1.23 | | | $ | 2.52 | | | $ | 1.58 | |
Discontinued operations | (0.02) | | | 0.07 | | | (0.04) | | | 0.16 | |
| $ | 2.32 | | | $ | 1.30 | | | $ | 2.48 | | | $ | 1.74 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20212022 Form 10-Q | 1
The Andersons, Inc.
Condensed Consolidated Statements of OperationsComprehensive Income (Unaudited)
(Unaudited)(In thousands, except per share data)thousands)
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| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Sales and merchandising revenues (Note 6) | $ | 3,273,726 | | | $ | 1,890,180 | | | $ | 5,909,455 | | | $ | 3,743,286 | |
Cost of sales and merchandising revenues | 3,099,682 | | | 1,783,914 | | | 5,612,699 | | | 3,573,890 | |
Gross profit | 174,044 | | | 106,266 | | | 296,756 | | | 169,396 | |
Operating, administrative and general expenses | 109,976 | | | 90,136 | | | 209,848 | | | 195,196 | |
Interest expense, net | 13,454 | | | 11,827 | | | 26,623 | | | 27,414 | |
Other income, net: | | | | | | | |
Equity in earnings of affiliates, net | 845 | | | 79 | | | 2,639 | | | 209 | |
Other income, net | 5,307 | | | 3,450 | | | 12,849 | | | 8,263 | |
Income (loss) before income taxes | 56,766 | | | 7,832 | | | 75,773 | | | (44,742) | |
Income tax provision (benefit) | 10,642 | | | (12,200) | | | 16,387 | | | (13,664) | |
Net income (loss) | 46,124 | | | 20,032 | | | 59,386 | | | (31,078) | |
Net income (loss) attributable to noncontrolling interests | 2,625 | | | (10,407) | | | 780 | | | (23,856) | |
Net income (loss) attributable to The Andersons, Inc. | $ | 43,499 | | | $ | 30,439 | | | $ | 58,606 | | | $ | (7,222) | |
Per common share: | | | | | | | |
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9) | $ | 1.31 | | | $ | 0.92 | | | $ | 1.76 | | | $ | (0.22) | |
Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9) | $ | 1.30 | | | $ | 0.92 | | | $ | 1.74 | | | $ | (0.22) | |
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| Three months ended June 30, | | Six months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 101,661 | | | $ | 46,124 | | | $ | 107,610 | | | $ | 59,386 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in unrecognized actuarial loss and prior service cost | 517 | | | (234) | | | 358 | | | (337) | |
Foreign currency translation adjustments | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | |
Cash flow hedge activity | 6,697 | | | (1,858) | | | 19,119 | | | 7,883 | |
Other comprehensive income (loss) | 1,535 | | | (623) | | | 13,896 | | | 10,239 | |
Comprehensive income | 103,196 | | | 45,501 | | | 121,506 | | | 69,625 | |
Comprehensive income attributable to the noncontrolling interests | 21,856 | | | 2,625 | | | 22,303 | | | 780 | |
Comprehensive income attributable to The Andersons, Inc. | $ | 81,340 | | | $ | 42,876 | | | $ | 99,203 | | | $ | 68,845 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)Balance Sheets (Unaudited)
(Unaudited)(In thousands)
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| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | $ | 46,124 | | | $ | 20,032 | | | $ | 59,386 | | | $ | (31,078) | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in unrecognized actuarial gain (loss) and prior service cost | (234) | | | 15 | | | (337) | | | (101) | |
Foreign currency translation adjustments | 1,469 | | | 3,249 | | | 2,693 | | | (3,390) | |
Cash flow hedge activity | (1,858) | | | (1,860) | | | 7,883 | | | (15,523) | |
Other comprehensive income (loss) | (623) | | | 1,404 | | | 10,239 | | | (19,014) | |
Comprehensive income (loss) | 45,501 | | | 21,436 | | | 69,625 | | | (50,092) | |
Comprehensive income (loss) attributable to the noncontrolling interests | 2,625 | | | (10,407) | | | 780 | | | (23,856) | |
Comprehensive income (loss) attributable to The Andersons, Inc. | $ | 42,876 | | | $ | 31,843 | | | $ | 68,845 | | | $ | (26,236) | |
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(In thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 86,035 | | | $ | 216,444 | | | $ | 27,538 | |
Accounts receivable, net | 1,141,167 | | | 835,180 | | | 702,869 | |
| 1,618,326 | | | 1,814,538 | | | 904,924 | |
Commodity derivative assets – current (Note 5) | 638,357 | | | 410,813 | | | 507,148 | |
Current assets held-for-sale (Note 14) | 18,627 | | | 20,885 | | | 28,555 | |
Other current assets | 70,367 | | | 74,468 | | | 63,266 | |
Total current assets | 3,572,879 | | | 3,372,328 | | | 2,234,300 | |
Other assets: | | | | | |
Goodwill | 129,342 | | | 129,342 | | | 131,542 | |
Other intangible assets, net | 105,222 | | | 117,137 | | | 125,731 | |
Right of use assets, net | 50,233 | | | 52,146 | | | 42,330 | |
Other assets held-for-sale (Note 14) | 24,298 | | | 43,169 | | | 620,745 | |
Other assets, net | 91,758 | | | 69,068 | | | 70,879 | |
Total other assets | 400,853 | | | 410,862 | | | 991,227 | |
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Property, plant and equipment, net (Note 3) | 763,443 | | | 786,029 | | | 823,563 | |
Total assets | $ | 4,737,175 | | | $ | 4,569,219 | | | $ | 4,049,090 | |
Liabilities and equity | | | | | |
Current liabilities: | | | | | |
| $ | 1,161,428 | | | $ | 501,792 | | | $ | 757,271 | |
Trade and other payables | 772,996 | | | 1,199,324 | | | 543,503 | |
Customer prepayments and deferred revenue | 184,154 | | | 358,119 | | | 55,943 | |
Commodity derivative liabilities – current (Note 5) | 185,903 | | | 128,911 | | | 90,366 | |
Current maturities of long-term debt (Note 4) | 53,951 | | | 32,256 | | | 50,069 | |
Current liabilities held-for-sale (Note 14) | 7,314 | | | 13,379 | | | 25,185 | |
Accrued expenses and other current liabilities | 211,830 | | | 230,148 | | | 168,221 | |
Total current liabilities | 2,577,576 | | | 2,463,929 | | | 1,690,558 | |
Long-term lease liabilities | 28,929 | | | 31,322 | | | 27,134 | |
Long-term debt, less current maturities (Note 4) | 563,447 | | | 600,487 | | | 837,609 | |
Deferred income taxes | 63,383 | | | 71,127 | | | 173,212 | |
Other long-term liabilities held-for-sale (Note 14) | 3,113 | | | 16,119 | | | 43,993 | |
Other long-term liabilities | 83,521 | | | 78,531 | | | 51,620 | |
Total liabilities | 3,319,969 | | | 3,261,515 | | | 2,824,126 | |
Commitments and contingencies (Note 13) | 0 | | 0 | | 0 |
Shareholders’ equity: | | | | | |
Common shares, without par value (63,000 shares authorized; 34,064, 33,870 and 33,786 shares issued at 6/30/2022, 12/31/2021 and 6/30/2021, respectively) | 142 | | | 140 | | | 140 | |
Preferred shares, without par value (1,000 shares authorized; none issued) | — | | | — | | | — | |
Additional paid-in-capital | 378,740 | | | 368,595 | | | 357,606 | |
Treasury shares, at cost (62, 11 and 111 shares at 6/30/2022, 12/31/2021 and 6/30/2021, respectively) | (2,313) | | | (263) | | | (2,650) | |
Accumulated other comprehensive income (loss) | 15,090 | | | 1,194 | | | (1,837) | |
Retained earnings | 775,495 | | | 702,759 | | | 669,241 | |
Total shareholders’ equity of The Andersons, Inc. | 1,167,154 | | | 1,072,425 | | | 1,022,500 | |
Noncontrolling interests | 250,052 | | | 235,279 | | | 202,464 | |
Total equity | 1,417,206 | | | 1,307,704 | | | 1,224,964 | |
Total liabilities and equity | $ | 4,737,175 | | | $ | 4,569,219 | | | $ | 4,049,090 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20212022 Form 10-Q | 3
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Unaudited)(In thousands)
| | | Six months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating Activities | Operating Activities | | | | Operating Activities | | | |
Net income (loss) | $ | 59,386 | | | $ | (31,078) | | |
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: | | |
Net income from continuing operations | | Net income from continuing operations | $ | 108,904 | | | $ | 53,780 | |
Income (loss) from discontinued operations, net of income taxes | | Income (loss) from discontinued operations, net of income taxes | (1,294) | | | 5,606 | |
Net income | | Net income | 107,610 | | | 59,386 | |
Adjustments to reconcile net income to cash used in operating activities: | | Adjustments to reconcile net income to cash used in operating activities: | |
Depreciation and amortization | Depreciation and amortization | 95,154 | | | 93,898 | | Depreciation and amortization | 67,945 | | | 95,154 | |
Bad debt (recovery) expense, net | (1,156) | | | 6,290 | | |
Equity in earnings of affiliates, net of dividends | (2,639) | | | (209) | | |
Gain on sales of Rail assets and related leases, net | (4,987) | | | (569) | | |
(Gain) loss on sales of assets, net | (1,266) | | | 341 | | |
Bad debt expense, net | | Bad debt expense, net | 3,069 | | | (1,156) | |
Equity in (earnings) losses of affiliates, net of dividends | | Equity in (earnings) losses of affiliates, net of dividends | 6,278 | | | (2,639) | |
Gain on sales of assets, net | | Gain on sales of assets, net | (10,305) | | | (6,253) | |
Stock-based compensation expense | Stock-based compensation expense | 4,112 | | | 5,016 | | Stock-based compensation expense | 4,708 | | | 4,112 | |
Deferred federal income tax | Deferred federal income tax | 170 | | | 21,761 | | Deferred federal income tax | (13,755) | | | 170 | |
Inventory write down | 2,599 | | | 10,922 | | |
| Other | Other | 2,971 | | | 2,797 | | Other | 8,549 | | | 5,570 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (58,338) | | | (9,181) | | Accounts receivable | (289,196) | | | (58,338) | |
Inventories | Inventories | 390,506 | | | 536,951 | | Inventories | 186,685 | | | 390,506 | |
Commodity derivatives | Commodity derivatives | (250,691) | | | 14,980 | | Commodity derivatives | (189,090) | | | (250,691) | |
Other assets | 35,568 | | | (24,784) | | |
Payables and other accrued expenses | (516,883) | | | (481,624) | | |
Net cash (used in) provided by operating activities | (245,494) | | | 145,511 | | |
Other current and non-current assets | | Other current and non-current assets | 5,106 | | | 35,568 | |
Payables and other current and non-current liabilities | | Payables and other current and non-current liabilities | (609,403) | | | (516,883) | |
Net cash used in operating activities | | Net cash used in operating activities | (721,799) | | | (245,494) | |
Investing Activities | Investing Activities | | | | Investing Activities | | | |
Purchases of property, plant and equipment and capitalized software | | Purchases of property, plant and equipment and capitalized software | (43,472) | | | (34,264) | |
Proceeds from sale of assets | | Proceeds from sale of assets | 4,672 | | | 3,794 | |
Purchases of investments | | Purchases of investments | (2,105) | | | (4,701) | |
| Purchases of Rail assets | Purchases of Rail assets | (4,751) | | | (24,649) | | Purchases of Rail assets | (27,276) | | | (4,751) | |
Proceeds from sale of Rail assets | Proceeds from sale of Rail assets | 15,616 | | | 4,637 | | Proceeds from sale of Rail assets | 36,341 | | | 15,616 | |
Purchases of property, plant and equipment and capitalized software | (34,264) | | | (44,644) | | |
Proceeds from sale of assets | 3,794 | | | 1,503 | | |
Purchase of investments | (4,701) | | | (2,849) | | |
Other | Other | 832 | | | 0 | | Other | 1,746 | | | 832 | |
Net cash used in investing activities | Net cash used in investing activities | (23,474) | | | (66,002) | | Net cash used in investing activities | (30,094) | | | (23,474) | |
Financing Activities | Financing Activities | | | | Financing Activities | | | |
Net borrowings (payments) under lines of credit | (258,157) | | | (47,564) | | |
Net receipts (payments) under short-term lines of credit | | Net receipts (payments) under short-term lines of credit | 862,698 | | | (258,157) | |
Proceeds from issuance of short-term debt | Proceeds from issuance of short-term debt | 608,250 | | | 0 | | Proceeds from issuance of short-term debt | 350,000 | | | 608,250 | |
Payments of short-term debt | | Payments of short-term debt | (550,000) | | | — | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | 108,300 | | | 165,975 | | Proceeds from issuance of long-term debt | — | | | 108,300 | |
Payments of long-term debt | Payments of long-term debt | (177,586) | | | (203,835) | | Payments of long-term debt | (15,077) | | | (177,586) | |
Contributions from noncontrolling interest owner | Contributions from noncontrolling interest owner | 2,940 | | | 4,409 | | Contributions from noncontrolling interest owner | 2,450 | | | 2,940 | |
Distributions to noncontrolling interest owner | Distributions to noncontrolling interest owner | (25) | | | (10,298) | | Distributions to noncontrolling interest owner | (9,980) | | | (25) | |
Payments of debt issuance costs | Payments of debt issuance costs | (2,059) | | | (250) | | Payments of debt issuance costs | (7,802) | | | (2,059) | |
Dividends paid | Dividends paid | (11,677) | | | (11,469) | | Dividends paid | (12,245) | | | (11,677) | |
Proceeds from exercises of stock options | | Proceeds from exercises of stock options | 5,024 | | | — | |
Other | Other | (2,436) | | | (2,036) | | Other | (2,955) | | | (2,436) | |
Net cash provided by (used in) financing activities | 267,550 | | | (105,068) | | |
Net cash provided by financing activities | | Net cash provided by financing activities | 622,113 | | | 267,550 | |
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | (167) | | | 675 | | Effect of exchange rates on cash and cash equivalents | (629) | | | (167) | |
Decrease in cash and cash equivalents | Decrease in cash and cash equivalents | (1,585) | | | (24,884) | | Decrease in cash and cash equivalents | (130,409) | | | (1,585) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 29,123 | | | 54,895 | | Cash and cash equivalents at beginning of period | 216,444 | | | 29,123 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 27,538 | | | $ | 30,011 | | Cash and cash equivalents at end of period | $ | 86,035 | | | $ | 27,538 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20212022 Form 10-Q | 4
The Andersons, Inc.
Condensed Consolidated Statements of Equity (Unaudited)
(Unaudited)(In thousands, except per share data)
| | | Three Months Ended | | Three Months Ended |
| | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total | | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at March 31, 2020 | $ | 137 | | | $ | 341,382 | | | $ | (652) | | | $ | (27,649) | | | $ | 599,039 | | | $ | 201,605 | | | $ | 1,113,862 | | |
Net income (loss) | | 30,439 | | | (10,407) | | | 20,032 | | |
Other comprehensive loss | | (234) | | | (234) | | |
Amounts reclassified from accumulated other comprehensive income | | 1,638 | | | 1,638 | | |
Contributions from noncontrolling interests | | 1,102 | | | 1,102 | | |
Noncontrolling interests recognized in connection with business combination | | (459) | | | 395 | | (64) | | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (20 shares) | 1 | | 2,807 | | | (454) | | | (843) | | | 1,511 | | |
Dividends declared ($0.175 per common share) | | (5,764) | | | (5,764) | | |
Restricted share award dividend equivalents | | 153 | | | (153) | | | 0 | | |
Balance at June 30, 2020 | $ | 138 | | | $ | 343,730 | | | $ | (953) | | | $ | (26,245) | | | $ | 622,718 | | | $ | 192,695 | | | $ | 1,132,083 | | |
| Balance at March 31, 2021 | Balance at March 31, 2021 | $ | 140 | | | $ | 355,961 | | | $ | (2,872) | | | $ | (1,214) | | | $ | 631,652 | | | $ | 198,884 | | | $ | 1,182,551 | | Balance at March 31, 2021 | $ | 140 | | | $ | 355,961 | | | $ | (2,872) | | | $ | (1,214) | | | $ | 631,652 | | | $ | 198,884 | | | $ | 1,182,551 | |
Net income (loss) | | 43,499 | | | 2,625 | | | 46,124 | | |
Net income | | Net income | | 43,499 | | | 2,625 | | | 46,124 | |
Other comprehensive loss | Other comprehensive loss | | (2,108) | | | (2,108) | | Other comprehensive loss | | (2,108) | | | (2,108) | |
Amounts reclassified from accumulated other comprehensive income | Amounts reclassified from accumulated other comprehensive income | | 1,485 | | | 1,485 | | Amounts reclassified from accumulated other comprehensive income | | 1,485 | | | 1,485 | |
Contributions from noncontrolling interests | Contributions from noncontrolling interests | | 980 | | | 980 | | Contributions from noncontrolling interests | | 980 | | | 980 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | (25) | | | (25) | | Distributions to noncontrolling interests | | (25) | | | (25) | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (11 shares) | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (11 shares) | | 1,645 | | | 138 | | | 1,783 | | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (11 shares) | | 1,645 | | | 138 | | | 1,783 | |
Dividends declared ($0.175 per common share) | | (5,826) | | | (5,826) | | |
Dividends declared ($0.1750 per common share) | | Dividends declared ($0.1750 per common share) | | (5,826) | | | (5,826) | |
Restricted share award dividend equivalents | Restricted share award dividend equivalents | | 84 | | | (84) | | | 0 | | Restricted share award dividend equivalents | | 84 | | | (84) | | | — | |
Balance at June 30, 2021 | Balance at June 30, 2021 | $ | 140 | | | $ | 357,606 | | | $ | (2,650) | | | $ | (1,837) | | | $ | 669,241 | | | $ | 202,464 | | | $ | 1,224,964 | | Balance at June 30, 2021 | $ | 140 | | | $ | 357,606 | | | $ | (2,650) | | | $ | (1,837) | | | $ | 669,241 | | | $ | 202,464 | | | $ | 1,224,964 | |
| Balance at March 31, 2022 | | Balance at March 31, 2022 | $ | 142 | | | $ | 375,794 | | | $ | (2,265) | | | $ | 13,555 | | | $ | 701,799 | | | $ | 228,196 | | | $ | 1,317,221 | |
Net income | | Net income | | 79,805 | | | 21,856 | | | 101,661 | |
Other comprehensive income | | Other comprehensive income | | 750 | | | 750 | |
Amounts reclassified from accumulated other comprehensive income | | Amounts reclassified from accumulated other comprehensive income | | 785 | | | 785 | |
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (1 share) | | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (1 share) | | 2,946 | | | (63) | | | 2,883 | |
Dividends declared ($0.180 per common share) | | Dividends declared ($0.180 per common share) | | (6,094) | | | (6,094) | |
Restricted share award dividend equivalents | | Restricted share award dividend equivalents | | 15 | | | (15) | | | — | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | $ | 142 | | | $ | 378,740 | | | $ | (2,313) | | | $ | 15,090 | | | $ | 775,495 | | | $ | 250,052 | | | $ | 1,417,206 | |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2019 | $ | 137 | | | $ | 345,359 | | | $ | (7,342) | | | $ | (7,231) | | | $ | 642,687 | | | $ | 222,045 | | | $ | 1,195,655 | |
Net income (loss) | | | | | | | | | (7,222) | | | (23,856) | | | (31,078) | |
Other comprehensive loss | | | | | | | (21,208) | | | | | | | (21,208) | |
Amounts reclassified from accumulated other comprehensive income | | | | | | | 2,194 | | | | | | | 2,194 | |
Contributions from noncontrolling interests | | | | | | | | | | | 4,409 | | | 4,409 | |
Distributions to noncontrolling interests | | | | | | | | | | | (10,298) | | | (10,298) | |
Noncontrolling interests recognized in connection with business combination | | | (459) | | | | | | | | | 395 | | | (64) | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (167 shares) | 1 | | (1,170) | | | 5,998 | | | | | (843) | | | | | 3,986 | |
Dividends declared ($0.350 per common share) | | | | | | | | | (11,513) | | | | | (11,513) | |
Restricted share award dividend equivalents | | | | | 391 | | | | | (391) | | | | | 0 | |
Balance at June 30, 2020 | $ | 138 | | | $ | 343,730 | | | $ | (953) | | | $ | (26,245) | | | $ | 622,718 | | | $ | 192,695 | | | $ | 1,132,083 | |
| | | | | | | | | | | | | |
Balance at December 31, 2020 | $ | 138 | | | $ | 348,714 | | | $ | (966) | | | $ | (12,076) | | | $ | 626,081 | | | $ | 198,769 | | | $ | 1,160,660 | |
Net income (loss) | | | | | | | | | 58,606 | | | 780 | | | 59,386 | |
Other comprehensive income | | | | | | | 7,311 | | | | | | | 7,311 | |
Amounts reclassified from accumulated other comprehensive income | | | | | | | 2,928 | | | | | | | 2,928 | |
Contributions from noncontrolling interests | | | | | | | | | | | 2,940 | | | 2,940 | |
Distributions to noncontrolling interests | | | | | | | | | | | (25) | | | (25) | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (67 shares) | 2 | | | 8,892 | | | (2,016) | | | | | (3,480) | | | | | 3,398 | |
Dividends declared ($0.350 per common share) | | | | | | | | | (11,634) | | | | | (11,634) | |
Restricted share award dividend equivalents | | | | | 332 | | | | | (332) | | | | | 0 | |
Balance at June 30, 2021 | $ | 140 | | | $ | 357,606 | | | $ | (2,650) | | | $ | (1,837) | | | $ | 669,241 | | | $ | 202,464 | | | $ | 1,224,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2020 | $ | 138 | | | $ | 348,714 | | | $ | (966) | | | $ | (12,076) | | | $ | 626,081 | | | $ | 198,769 | | | $ | 1,160,660 | |
Net income | | | | | | | | | 58,606 | | | 780 | | | 59,386 | |
Other comprehensive income | | | | | | | 7,311 | | | | | | | 7,311 | |
Amounts reclassified from Accumulated other comprehensive income | | | | | | | 2,928 | | | | | | | 2,928 | |
Cash received from noncontrolling interests, net | | | | | | | | | | | 2,940 | | | 2,940 | |
Distributions to noncontrolling interests | | | | | | | | | | | (25) | | | (25) | |
| | | | | | | | | | | | | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (67 shares) | 2 | | 8,892 | | | (2,016) | | | | | (3,480) | | | | | 3,398 | |
Dividends declared ($0.350 per common share) | | | | | | | | | (11,634) | | | | | (11,634) | |
Restricted share award dividend equivalents | | | | | 332 | | | | | (332) | | | | | — | |
Balance at June 30, 2021 | $ | 140 | | | $ | 357,606 | | | $ | (2,650) | | | $ | (1,837) | | | $ | 669,241 | | | $ | 202,464 | | | $ | 1,224,964 | |
| | | | | | | | | | | | | |
Balance at December 31, 2021 | $ | 140 | | | $ | 368,595 | | | $ | (263) | | | $ | 1,194 | | | $ | 702,759 | | | $ | 235,279 | | | $ | 1,307,704 | |
Net income | | | | | | | | | 85,307 | | | 22,303 | | | 107,610 | |
Other comprehensive income | | | | | | | 11,721 | | | | | | | 11,721 | |
Amounts reclassified from Accumulated other comprehensive income | | | | | | | 2,175 | | | | | | | 2,175 | |
Cash received from noncontrolling interests, net | | | | | | | | | | | 2,450 | | | 2,450 | |
Distributions to noncontrolling interests | | | | | | | | | | | (9,980) | | | (9,980) | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (51 shares) | 2 | | | 10,091 | | | (2,385) | | | | | | | | | 7,708 | |
Dividends declared ($0.360 per common share) | | | | | | | | | (12,182) | | | | | (12,182) | |
Restricted share award dividend equivalents | | | 54 | | | 335 | | | | | (389) | | | | | — | |
Balance at June 30, 2022 | $ | 142 | | | $ | 378,740 | | | $ | (2,313) | | | $ | 15,090 | | | $ | 775,495 | | | $ | 250,052 | | | $ | 1,417,206 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20212022 Form 10-Q | 6
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”). Controlled subsidiaries include majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as noncontrolling interests. 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.
During the third quarter of 2021, substantially all of the assets and liabilities of the Rail business were classified as held-for-sale in the accompanying Condensed Consolidated Balance Sheets. As discussed further in Note 14, the Company executed a definitive agreement to sell the Rail Leasing business. In conjunction with the sale of the Rail Leasing business, the Company announced its intent to divest the remainder of the Rail business, which primarily consisted of the Rail Repair business. These transactions effectively constitute the entirety of what has historically been included in the Rail reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations for all periods presented. Throughout this Quarterly Report on Form 10-Q, with the exception of the Condensed Consolidated Statements of Cash Flows and unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the Condensed Consolidated Balance Sheet presentation of assets and liabilities as held-for-sale and Condensed Consolidated Statements of Operations presentation of results classified as discontinued operations in relation to the Rail business transactions noted above.
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, 2021.2022. An unaudited Condensed Consolidated Balance Sheet as of June 30, 20202021 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 20202021 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, 20202021 (the “2020“2021 Form 10-K”).
Recently Adopted Accounting Pronouncements
Simplified Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12. The new standard simplifies accounting for income taxes, including guidance relating to the approach for calculating income taxes in an interim period, intraperiod tax allocation, and the recognitionAndersons, Inc. | Q2 2022 Form 10-Q | 7
2. Inventories
Major classes of inventories are presented below. Readily Marketable Inventories ("RMI") are agricultural commodity inventories such as corn, soybeans, wheat, and ethanol co-products, among others, carried at net realizable value which approximates fair value based on their commodity characteristics, widely available markets, and pricing mechanisms. The net realizable value of RMI is calculated as the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. All other inventories are held at lower of cost or net realizable value.
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Grain and other agricultural products (a) | Grain and other agricultural products (a) | $ | 636,380 | | | $ | 1,025,809 | | | $ | 452,339 | | Grain and other agricultural products (a) | $ | 1,241,933 | | | $ | 1,427,708 | | | $ | 636,380 | |
Frac sand and propane (a) | 11,265 | | | 12,477 | | | 6,498 | | |
Propane and frac sand (a) | | Propane and frac sand (a) | 19,483 | | | 23,780 | | | 11,265 | |
Ethanol and co-products (a) | Ethanol and co-products (a) | 155,993 | | | 114,895 | | | 63,195 | | Ethanol and co-products (a) | 179,175 | | | 184,354 | | | 155,993 | |
Plant nutrients and cob products | Plant nutrients and cob products | 101,286 | | | 139,885 | | | 87,346 | | Plant nutrients and cob products | 177,735 | | | 178,696 | | | 101,286 | |
Railcar repair parts | 7,375 | | | 7,627 | | | 6,945 | | |
Total Inventories | Total Inventories | $ | 912,299 | | | $ | 1,300,693 | | | $ | 616,323 | | Total Inventories | $ | 1,618,326 | | | $ | 1,814,538 | | | $ | 904,924 | |
(a) Includes RMI of $612.21,214.4 million, $983.2$1,410.9 million and $418.0$612.2 million at June 30, 2021,2022, December 31, 20202021 and June 30, 2020,2021, respectively.
The Andersons, Inc. | Q2 2021 Form 10-Q | 7
Inventories do not include 1.21.3 million,, 3.0 million and 1.71.2 million bushels of grain held in storage for others as of June 30, 2021,2022, December 31, 20202021 and June 30, 2020,2021, respectively. 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.
Lower of cost or net realizable value charges were $2.6 million and $10.9 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The charge in the prior year was a result of lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Land | Land | $ | 39,884 | | | $ | 40,222 | | | $ | 40,188 | | Land | $ | 38,630 | | | $ | 39,162 | | | $ | 39,367 | |
Land improvements and leasehold improvements | Land improvements and leasehold improvements | 97,454 | | | 96,700 | | | 96,028 | | Land improvements and leasehold improvements | 91,542 | | | 91,122 | | | 93,166 | |
Buildings and storage facilities | Buildings and storage facilities | 386,832 | | | 387,992 | | | 377,652 | | Buildings and storage facilities | 370,453 | | | 368,577 | | | 377,946 | |
Machinery and equipment | Machinery and equipment | 948,517 | | | 925,074 | | | 881,144 | | Machinery and equipment | 949,142 | | | 936,476 | | | 921,190 | |
Construction in progress | Construction in progress | 19,987 | | | 19,725 | | | 35,982 | | Construction in progress | 31,237 | | | 20,676 | | | 19,723 | |
| | 1,492,674 | | | 1,469,713 | | | 1,430,994 | | | 1,481,004 | | | 1,456,013 | | | 1,451,392 | |
Less: accumulated depreciation | Less: accumulated depreciation | 650,912 | | | 590,534 | | | 524,977 | | Less: accumulated depreciation | 717,561 | | | 669,984 | | | 627,829 | |
Property, plant and equipment, net | Property, plant and equipment, net | $ | 841,762 | | | $ | 879,179 | | | $ | 906,017 | | Property, plant and equipment, net | $ | 763,443 | | | $ | 786,029 | | | $ | 823,563 | |
Depreciation expense on property, plant and equipment used in continuing operations was $64.2$55.8 million and $62.3$62.5 million for the six months ended June 30, 20212022 and 2020,2021, respectively. Additionally, depreciation expense on property, plant and equipment used in continuing operations was $32.3$27.5 million and $31.2$31.4 million for the three months ended June 30, 2022 and 2021, and 2020, respectively.
Rail Assets
The components of Rail assets leased to others are as follows:
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Rail assets leased to others | $ | 735,255 | | | $ | 750,473 | | | $ | 742,107 | |
Less: accumulated depreciation | 160,670 | | | 158,527 | | | 149,286 | |
Rail assets, net | $ | 574,585 | | | $ | 591,946 | | | $ | 592,821 | |
Depreciation expenseDuring the second quarter of 2022, the Company closed on Railthe sale of the remaining assets leased to others amounted to $15.3of the Company's Frac Sand business for total consideration of $8.4 million and $15.4 million for the six months ended June 30, 2021 and 2020, respectively. Additionally, depreciation expense on Rail assets leased to others amounted to $7.6 million and $7.7 million for the three months ended June 30, 2021 and 2020, respectively.resulting in a pre-tax gain of $3.7 million.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 8
4. Debt
Short-term and long-term debt at June 30, 2021,2022, December 31, 20202021 and June 30, 20202021 consisted of the following:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Short-term debt – non-recourse | Short-term debt – non-recourse | $ | 120,020 | | | $ | 93,192 | | | $ | 43,284 | | Short-term debt – non-recourse | $ | 97,668 | | | $ | 65,485 | | | $ | 120,020 | |
Short-term debt – recourse | Short-term debt – recourse | 637,251 | | | 310,511 | | | 52,787 | | Short-term debt – recourse | 1,063,760 | | | 436,307 | | | 637,251 | |
Total short-term debt | Total short-term debt | $ | 757,271 | | | $ | 403,703 | | | $ | 96,071 | | Total short-term debt | $ | 1,161,428 | | | $ | 501,792 | | | $ | 757,271 | |
| Current maturities of long-term debt – non-recourse | Current maturities of long-term debt – non-recourse | $ | 9,078 | | | $ | 6,438 | | | $ | 4,845 | | Current maturities of long-term debt – non-recourse | $ | 7,707 | | | $ | 7,601 | | | $ | 3,691 | |
Current maturities of long-term debt – recourse | Current maturities of long-term debt – recourse | 47,504 | | | 69,037 | | | 63,632 | | Current maturities of long-term debt – recourse | 46,244 | | | 24,655 | | | 46,378 | |
Total current maturities of long-term debt | Total current maturities of long-term debt | $ | 56,582 | | | $ | 75,475 | | | $ | 68,477 | | Total current maturities of long-term debt | $ | 53,951 | | | $ | 32,256 | | | $ | 50,069 | |
| Long-term debt, less: current maturities – non-recourse | Long-term debt, less: current maturities – non-recourse | $ | 116,219 | | | $ | 143,406 | | | $ | 325,819 | | Long-term debt, less: current maturities – non-recourse | $ | 60,396 | | | $ | 64,972 | | | $ | 100,876 | |
Long-term debt, less: current maturities – recourse | Long-term debt, less: current maturities – recourse | 750,235 | | | 773,134 | | | 650,154 | | Long-term debt, less: current maturities – recourse | 503,051 | | | 535,515 | | | 736,733 | |
Total long-term debt, less: current maturities | Total long-term debt, less: current maturities | $ | 866,454 | | | $ | 916,540 | | | $ | 975,973 | | Total long-term debt, less: current maturities | $ | 563,447 | | | $ | 600,487 | | | $ | 837,609 | |
On February 4, 2021,March 2, 2022, the Company completed the secondan incremental term loan amendment to its credit agreement dated January 11, 2019. The amendment which replaced an underwritten bridge loan received on January 21, 2021, provided for a short-term $250 million term note in which the entire stated principal is due on December 31, 2021. The term note bears interest at variable rates, which are based on LIBOR plus an applicable spread.
On May 6, 2021, the Company completed the third amendment to its credit agreement dated January 11, 2019. The amendment provides for a short term note of approximately $358$250.0 million in which the entire stated principal iswas due on May 31, 2022 (subsequently extended to August 31, 2022 as described below). On March 9, 2022, the Company completed an additional term loan amendment that expanded the short-term note capacity from $250.0 million to $450.0 million. On May 27, 2022, the Company completed an additional amendment to convert the $350.0 million then outstanding balance from the $450.0 million incremental term loan amendment to a revolving credit agreement with a capacity of up to $450.0 million. The entire amount outstanding will be due on August 31, 2022. The term noterevolving credit agreement will bear interest at variable rates, which are based on LIBORSOFR plus an applicable spread. As of June 30, 2022, the Company had drawn $250.0 million on the revolving credit agreement.
On March 28, 2022, the Company amended its credit agreement dated January 11, 2019. The amendment increased borrowing capacity on the revolver from $900.0 million to $1,550.0 million and extended the maturity dates of the $140.6 million and $209.4 million long-term notes originally due in 2026 to March 26, 2027 and March 28, 2029, respectively. The amendment also transitions the reference rate in the credit agreement from LIBOR to SOFR. The revolver and term notes will bear interest at variable rates, which are based on SOFR plus an applicable spread.
During the first quarter of 2022, the Company repaid the remaining $200.0 million balance that was outstanding as of December 31, 2021 on a short-term note that was classified as recourse debt to the Company.
The total borrowing capacity of the Company's lines of credit at June 30, 20212022 was $1,404.6$2,501.7 million of which the Company had a total of $1,173.5$1,315.2 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.
As of June 30, 2021,2022, December 31, 20202021 and June 30, 2020,2021, the estimated fair value of long-term debt, including the current portion, was $946.8$617.5 million, $1,026.8$650.7 million and $1,090.1$910.5 million, respectively. The Company estimates the fair value of its long-term debt based upon the Company’s credit standing and current interest rates offered to the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities.
The Company is in compliance with all financial covenants as of June 30, 2021.2022.
The Andersons, Inc. | Q2 2022 Form 10-Q | 9
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and EthanolRenewables businesses have established “unhedged” futures 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)contract). To reduce the exposure to market price risk on commodities owned and forward 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 regulated commodity exchanges. 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. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
The Andersons, Inc. | Q2 2021 Form 10-Q | 9
Most 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 primarily 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 commodity 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 June 30, 2021,2022, December 31, 20202021 and June 30, 2020,2021, 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 non-current commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Cash collateral paid | Cash collateral paid | $ | 219,469 | | | $ | 208,670 | | | $ | 799 | | Cash collateral paid | $ | 70,442 | | | $ | 165,250 | | | $ | 219,469 | |
Fair value of derivatives | Fair value of derivatives | (180,842) | | | (157,301) | | | 21,363 | | Fair value of derivatives | 165,223 | | | (36,843) | | | (180,842) | |
Net derivative asset position | Net derivative asset position | $ | 38,627 | | | $ | 51,369 | | | $ | 22,162 | | Net derivative asset position | $ | 235,665 | | | $ | 128,407 | | | $ | 38,627 | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 10
The following table presents, on a gross basis, current and non-current commodity derivative assets and liabilities:
| | | June 30, 2021 | | June 30, 2022 |
(in thousands) | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | Commodity derivative assets | $ | 547,186 | | | $ | 16,480 | | | $ | 34,327 | | | $ | 423 | | | $ | 598,416 | | Commodity derivative assets | $ | 707,542 | | | $ | 14,257 | | | $ | 29,223 | | | $ | 1,945 | | | $ | 752,967 | |
Commodity derivative liabilities | Commodity derivative liabilities | (259,507) | | | (873) | | | (124,693) | | | (3,874) | | | (388,947) | | Commodity derivative liabilities | (138,627) | | | (2,132) | | | (216,126) | | | (12,040) | | | (368,925) | |
Cash collateral paid | Cash collateral paid | 219,469 | | | 0 | | | 0 | | | 0 | | | 219,469 | | Cash collateral paid | 69,442 | | | — | | | 1,000 | | | — | | | 70,442 | |
Balance sheet line item totals | Balance sheet line item totals | $ | 507,148 | | | $ | 15,607 | | | $ | (90,366) | | | $ | (3,451) | | | $ | 428,938 | | Balance sheet line item totals | $ | 638,357 | | | $ | 12,125 | | | $ | (185,903) | | | $ | (10,095) | | | $ | 454,484 | |
The Andersons, Inc. | Q2 2021 Form 10-Q | 10
| | | December 31, 2020 | | December 31, 2021 |
(in thousands) | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | Commodity derivative assets | $ | 304,533 | | | $ | 4,328 | | | $ | 19,386 | | | $ | 14 | | | $ | 328,261 | | Commodity derivative assets | $ | 339,321 | | | $ | 4,677 | | | $ | 23,762 | | | $ | 1,209 | | | $ | 368,969 | |
Commodity derivative liabilities | Commodity derivative liabilities | (192,023) | | | (348) | | | (166,850) | | | (243) | | | (359,464) | | Commodity derivative liabilities | (93,758) | | | (105) | | | (152,673) | | | (2,578) | | | (249,114) | |
Cash collateral paid | Cash collateral paid | 208,196 | | | 0 | | | 474 | | | 0 | | | 208,670 | | Cash collateral paid | 165,250 | | | — | | | — | | | — | | | 165,250 | |
Balance sheet line item totals | Balance sheet line item totals | $ | 320,706 | | | $ | 3,980 | | | $ | (146,990) | | | $ | (229) | | | $ | 177,467 | | Balance sheet line item totals | $ | 410,813 | | | $ | 4,572 | | | $ | (128,911) | | | $ | (1,369) | | | $ | 285,105 | |
| | | June 30, 2020 | | June 30, 2021 |
(in thousands) | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total | (in thousands) | Commodity Derivative Assets - Current | | Commodity Derivative Assets - Noncurrent | | Commodity Derivative Liabilities - Current | | Commodity Derivative Liabilities - Noncurrent | | Total |
Commodity derivative assets | Commodity derivative assets | $ | 142,110 | | | $ | 2,916 | | | $ | 5,511 | | | $ | 124 | | | $ | 150,661 | | Commodity derivative assets | $ | 547,186 | | | $ | 16,480 | | | $ | 34,327 | | | $ | 423 | | | $ | 598,416 | |
Commodity derivative liabilities | Commodity derivative liabilities | (30,820) | | | (214) | | | (70,697) | | | (3,813) | | | (105,544) | | Commodity derivative liabilities | (259,507) | | | (873) | | | (124,693) | | | (3,874) | | | (388,947) | |
Cash collateral paid | Cash collateral paid | 799 | | | 0 | | | 0 | | | 0 | | | 799 | | Cash collateral paid | 219,469 | | | — | | | — | | | — | | | 219,469 | |
Balance sheet line item totals | Balance sheet line item totals | $ | 112,089 | | | $ | 2,702 | | | $ | (65,186) | | | $ | (3,689) | | | $ | 45,916 | | Balance sheet line item totals | $ | 507,148 | | | $ | 15,607 | | | $ | (90,366) | | | $ | (3,451) | | | $ | 428,938 | |
The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments are included in the Company’s Condensed Consolidated Statements of Operations and the line item in which they are located for the three and six months ended June 30, 20212022 and 20202021 are as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Gains on commodity derivatives included in cost of sales and merchandising revenues | $ | 73,688 | | | $ | 8,797 | | | $ | 240,673 | | | $ | 39,757 | | |
Gains on commodity derivatives included in Cost of sales and merchandising revenues | | Gains on commodity derivatives included in Cost of sales and merchandising revenues | $ | 230,188 | | | $ | 73,688 | | | $ | 264,186 | | | $ | 240,673 | |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 11
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2021,2022, December 31, 20202021 and June 30, 2020:2021:
| | | June 30, 2021 | | June 30, 2022 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons | (in thousands) | Number of Bushels | | Number of Gallons | | | Number of Tons |
Non-exchange traded: | Non-exchange traded: | | | | | | | | Non-exchange traded: | | | | | | |
Corn | Corn | 696,674 | | | 0 | | | 0 | | | 0 | | Corn | 628,471 | | | — | | | | — | |
Soybeans | Soybeans | 75,507 | | | 0 | | | 0 | | | 0 | | Soybeans | 116,679 | | | — | | | | — | |
Wheat | Wheat | 129,264 | | | 0 | | | 0 | | | 0 | | Wheat | 97,224 | | | — | | | | — | |
Oats | Oats | 45,810 | | | 0 | | | 0 | | | 0 | | Oats | 37,355 | | | — | | | | — | |
Ethanol | Ethanol | 0 | | | 198,316 | | | 0 | | | 0 | | Ethanol | — | | | 200,388 | | | | — | |
Corn oil | 0 | | | 0 | | | 70,637 | | | 0 | | |
Soybean Oil | 0 | | | 0 | | | 23,952 | | | 0 | | |
Dried distillers grain | | Dried distillers grain | — | | | — | | | | 318 | |
Soybean meal | | Soybean meal | — | | | — | | | | 421 | |
Other | Other | 7,803 | | | 3,957 | | | 2,757 | | | 1,925 | | Other | 8,549 | | | 25,767 | | | | 3,032 | |
Subtotal | Subtotal | 955,058 | | | 202,273 | | | 97,346 | | | 1,925 | | Subtotal | 888,278 | | | 226,155 | | | | 3,771 | |
Exchange traded: | Exchange traded: | | | | | | | | Exchange traded: | | | | | | |
Corn | Corn | 243,190 | | | 0 | | | 0 | | | 0 | | Corn | 219,020 | | | — | | | | — | |
Soybeans | Soybeans | 49,375 | | | 0 | | | 0 | | | 0 | | Soybeans | 69,115 | | | — | | | | — | |
Wheat | Wheat | 80,004 | | | 0 | | | 0 | | | 0 | | Wheat | 74,418 | | | — | | | | — | |
Oats | Oats | 1,430 | | | 0 | | | 0 | | | 0 | | Oats | 650 | | | — | | | | — | |
Ethanol | Ethanol | 0 | | | 112,812 | | | 0 | | | 0 | | Ethanol | — | | | 94,794 | | | | — | |
Propane | Propane | 0 | | | 18,480 | | | 0 | | | 0 | | Propane | — | | | 25,578 | | | | — | |
Other | Other | 0 | | | 5 | | | 2,351 | | | 197 | | Other | 95 | | | 546 | | | | 360 | |
Subtotal | Subtotal | 373,999 | | | 131,297 | | | 2,351 | | | 197 | | Subtotal | 363,298 | | | 120,918 | | | | 360 | |
Total | Total | 1,329,057 | | | 333,570 | | | 99,697 | | | 2,122 | | Total | 1,251,576 | | | 347,073 | | | | 4,131 | |
| | | December 31, 2020 | | December 31, 2021 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons | | (in thousands) | Number of Bushels | | Number of Gallons | | | Number of Tons | |
Non-exchange traded: | Non-exchange traded: | | | | | | | | | Non-exchange traded: | | | | | | | |
Corn | Corn | 684,654 | | | 0 | | | 0 | | | 0 | | | Corn | 685,681 | | | — | | | | — | | |
Soybeans | Soybeans | 73,521 | | | 0 | | | 0 | | | 0 | | | Soybeans | 77,592 | | | — | | | | — | | |
Wheat | Wheat | 109,661 | | | 0 | | | 0 | | | 0 | | | Wheat | 109,547 | | | — | | | | — | | |
Oats | Oats | 27,482 | | | 0 | | | 0 | | | 0 | | | Oats | 31,627 | | | — | | | | — | | |
Ethanol | Ethanol | 0 | | | 124,795 | | | 0 | | | 0 | | | Ethanol | — | | | 192,447 | | | | — | | |
Corn oil | 0 | | | 0 | | | 36,015 | | | 0 | | | |
Soybean oil | 0 | | | 0 | | | 26,510 | | | 0 | | | |
Dried distillers grain | | Dried distillers grain | — | | | — | | | | 507 | | |
Soybean meal | | Soybean meal | — | | | — | | | | 544 | | |
Other | Other | 4,371 | | | 2,058 | | | 740 | | | 1,859 | | | Other | 57,268 | | | 16,092 | | | | 1,854 | | |
Subtotal | Subtotal | 899,689 | | | 126,853 | | | 63,265 | | | 1,859 | | | Subtotal | 961,715 | | | 208,539 | | | | 2,905 | | |
Exchange traded: | Exchange traded: | | | | | | | | | Exchange traded: | | | | | | | |
Corn | Corn | 267,792 | | | 0 | | | 0 | | | 0 | | | Corn | 226,215 | | | — | | | | — | | |
Soybeans | Soybeans | 53,730 | | | 0 | | | 0 | | | 0 | | | Soybeans | 64,730 | | | — | | | | — | | |
Wheat | Wheat | 80,733 | | | 0 | | | 0 | | | 0 | | | Wheat | 65,020 | | | — | | | | — | | |
Oats | Oats | 1,800 | | | 0 | | | 0 | | | 0 | | | Oats | 1,300 | | | — | | | | — | | |
Ethanol | Ethanol | 0 | | | 73,584 | | | 0 | | | 0 | | | Ethanol | — | | | 100,884 | | | | — | | |
Propane | Propane | 0 | | | 17,094 | | | 0 | | | 0 | | | Propane | — | | | 31,542 | | | | — | | |
Other | Other | 0 | | | 2,898 | | | 14 | | | 149 | | | Other | 75 | | | 798 | | | | 353 | | |
Subtotal | Subtotal | 404,055 | | | 93,576 | | | 14 | | | 149 | | | Subtotal | 357,340 | | | 133,224 | | | | 353 | | |
Total | Total | 1,303,744 | | | 220,429 | | | 63,279 | | | 2,008 | | | Total | 1,319,055 | | | 341,763 | | | | 3,258 | | |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 12
| | | June 30, 2020 | | June 30, 2021 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | Number of Pounds | | Number of Tons | (in thousands) | Number of Bushels | | Number of Gallons | | | Number of Tons |
Non-exchange traded: | Non-exchange traded: | | | | | | | | Non-exchange traded: | | | | | | |
Corn | Corn | 437,275 | | | 0 | | | 0 | | | 0 | | Corn | 696,674 | | | — | | | | — | |
Soybeans | Soybeans | 50,012 | | | 0 | | | 0 | | | 0 | | Soybeans | 75,507 | | | — | | | | — | |
Wheat | Wheat | 95,133 | | | 0 | | | 0 | | | 0 | | Wheat | 129,264 | | | — | | | | — | |
Oats | Oats | 49,053 | | | 0 | | | 0 | | | 0 | | Oats | 45,810 | | | — | | | | — | |
Ethanol | Ethanol | 0 | | | 141,549 | | | 0 | | | 0 | | Ethanol | — | | | 198,316 | | | | — | |
Corn oil | 0 | | | 0 | | | 8,098 | | | 0 | | |
Dried distillers grain | | Dried distillers grain | — | | | — | | | | 372 | |
Soybean meal | | Soybean meal | — | | | — | | | | 411 | |
Other | Other | 25,005 | | | 5,000 | | | 415 | | | 2,370 | | Other | 7,803 | | | 3,957 | | | | 1,191 | |
Subtotal | Subtotal | 656,478 | | | 146,549 | | | 8,513 | | | 2,370 | | Subtotal | 955,058 | | | 202,273 | | | | 1,974 | |
Exchange traded: | Exchange traded: | | | | | | | | Exchange traded: | | | | | | |
Corn | Corn | 287,840 | | | 0 | | | 0 | | | 0 | | Corn | 243,190 | | | — | | | | — | |
Soybeans | Soybeans | 36,970 | | | 0 | | | 0 | | | 0 | | Soybeans | 49,375 | | | — | | | | — | |
Wheat | Wheat | 67,040 | | | 0 | | | 0 | | | 0 | | Wheat | 80,004 | | | — | | | | — | |
Oats | Oats | 685 | | | 0 | | | 0 | | | 0 | | Oats | 1,430 | | | — | | | | — | |
Ethanol | Ethanol | 0 | | | 27,300 | | | 0 | | | 0 | | Ethanol | — | | | 112,812 | | | | — | |
| Propane | Propane | 0 | | | 28,602 | | | 0 | | | 0 | | Propane | — | | | 18,480 | | | | — | |
Other | Other | 0 | | | 13,650 | | | 340 | | | 208 | | Other | — | | | 5 | | | | 198 | |
Subtotal | Subtotal | 392,535 | | | 69,552 | | | 340 | | | 208 | | Subtotal | 373,999 | | | 131,297 | | | | 198 | |
Total | Total | 1,049,013 | | | 216,101 | | | 8,853 | | | 2,578 | | Total | 1,329,057 | | | 333,570 | | | | 2,172 | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 13
Interest Rate and Other Derivatives
The Company’s objectives for using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The gains or losses on the derivatives designated as hedging instruments are recorded in Other Comprehensive Income (Loss)comprehensive income (loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
At June 30, 2021,2022, December 31, 20202021 and June 30, 2020,2021, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Derivatives not designated as hedging instruments | | | | | |
Interest rate contracts included in Accrued expenses and other current liabilities | $ | 0 | | | $ | (589) | | | $ | (1,174) | |
Interest rate contracts included in Other long-term liabilities | (309) | | | (430) | | | (553) | |
Foreign currency contracts included in Other current assets | 1,523 | | | 2,753 | | | 791 | |
Derivatives designated as hedging instruments | | | | | |
Interest rate contracts included in Other current assets | $ | 3,849 | | | $ | 164 | | | $ | 0 | |
Interest rate contracts included in Accrued expenses and other current liabilities | (6,944) | | | (6,664) | | | (8,806) | |
Interest rate contracts included in Other long-term liabilities | (11,506) | | | (18,539) | | | (24,388) | |
The Andersons, Inc. | Q2 2021 Form 10-Q | 13
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Derivatives not designated as hedging instruments | | | | | |
Interest rate contracts included in Accrued expenses and other current liabilities | $ | — | | | $ | (174) | | | $ | — | |
Interest rate contracts included in Other long-term liabilities | — | | | — | | | (309) | |
Foreign currency contracts included in Other current (liabilities) assets | (1,749) | | | (1,069) | | | 1,523 | |
Derivatives designated as hedging instruments | | | | | |
Interest rate contracts included in Other current assets | $ | 3,276 | | | $ | — | | | $ | — | |
Interest rate contracts included in Other assets | 15,047 | | | 4,574 | | | 3,849 | |
Interest rate contracts included in Accrued expenses and other current liabilities | — | | | (5,206) | | | (6,944) | |
Interest rate contracts included in Other long-term liabilities | — | | | (6,555) | | | (11,506) | |
The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | | | Derivatives not designated as hedging instruments | | | | | | | |
Interest rate derivative gains (losses) included in Interest income (expense), net | $ | 355 | | | $ | 186 | | | $ | 709 | | | $ | (720) | | |
Interest rate derivative gains (losses) included in Interest expense, net | | Interest rate derivative gains (losses) included in Interest expense, net | $ | 114 | | | $ | 355 | | | $ | 123 | | | $ | 709 | |
| Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Derivatives designated as hedging instruments | |
Interest rate derivative losses included in Other comprehensive income (loss) | 2,471 | | | (2,475) | | | $ | (10,476) | | | $ | (20,657) | | |
Interest rate derivatives losses included in Interest income (expense), net | $ | (1,656) | | | $ | (1,917) | | | (3,273) | | | (2,700) | | |
Interest rate derivative gains (losses) included in Other comprehensive income (loss) | | Interest rate derivative gains (losses) included in Other comprehensive income (loss) | $ | 8,923 | | | $ | 2,471 | | | $ | 25,464 | | | $ | (10,476) | |
Interest rate derivative gains (losses) included in Interest expense, net | | Interest rate derivative gains (losses) included in Interest expense, net | (1,013) | | | (1,656) | | | (2,631) | | | (3,273) | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 14
Outstanding interest rate derivatives, as of June 30, 2021,2022, are as follows:
| Interest Rate Hedging Instrument | Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Description | |
Interest Rate | Interest Rate Hedging Instrument | | Year Entered | | Year of Maturity | | Initial Notional Amount (in millions) | | Description | |
Interest Rate |
Long-term | Long-term | | | | | | | | | | | Long-term | | | | | | | | | | |
Swap | Swap | | 2014 | | 2023 | | $ | 23.0 | | | Interest rate component of debt - not accounted for as a hedge | | 1.9% | Swap | | 2019 | | 2025 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.3% |
Swap | Swap | | 2017 | | 2022 | | $ | 20.0 | | | Interest rate component of debt - accounted for as a hedge | | 1.8% | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% |
Swap | Swap | | 2018 | | 2023 | | $ | 10.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.6% | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% |
Swap | Swap | | 2018 | | 2025 | | $ | 20.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.7% | Swap | | 2020 | | 2030 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% |
Swap | Swap | | 2019 | | 2025 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.5% | Swap | | 2020 | | 2030 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% |
Swap | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.5% | Swap | | 2022 | | 2025 | | $ | 20.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.6% |
Swap | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.5% | Swap | | 2022 | | 2029 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.0% |
Swap | | 2020 | | 2023 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% | |
Swap | | 2020 | | 2023 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.7% | |
Swap | | 2020 | | 2030 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% | |
Swap | | 2020 | | 2030 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 0.0% to 0.8% | |
|
The Andersons, Inc. | Q2 2022 Form 10-Q | 15
6. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of Accounting Standard Codification ("ASC") 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and EthanolRenewables sales contracts are derivatives under ASC 815, Derivatives and HedgingHedging. and the Rail leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and otherthe two standards are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Revenues under ASC 606 | $ | 640,083 | | | $ | 459,105 | | | $ | 1,146,551 | | | $ | 806,607 | |
Revenues under ASC 815 | 2,611,981 | | | 1,406,307 | | | 4,719,603 | | | 2,886,360 | |
Revenues under ASC 842 | 21,662 | | | 24,768 | | | 43,301 | | | 50,319 | |
Total revenues | $ | 3,273,726 | | | $ | 1,890,180 | | | $ | 5,909,455 | | | $ | 3,743,286 | |
The Andersons, Inc. | Q2 2021 Form 10-Q | 14
The Company's revenues under ASC 842 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Operating lease revenue | $ | 20,458 | | | $ | 23,276 | | | $ | 41,308 | | | $ | 47,332 | |
Sales-type lease revenue | 101 | | | 232 | | | 202 | | | 334 | |
Variable lease revenue | 1,103 | | | 1,260 | | | 1,791 | | | 2,653 | |
Total revenues | $ | 21,662 | | | $ | 24,768 | | | $ | 43,301 | | | $ | 50,319 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Revenues under ASC 606 | $ | 956,013 | | | $ | 623,813 | | | $ | 1,633,869 | | | $ | 1,110,908 | |
Revenues under ASC 815 | 3,494,604 | | | 2,611,992 | | | 6,794,702 | | | 4,719,616 | |
Total revenues | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | |
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line for the three and six months ended June 30, 20212022 and 2020,2021, respectively:
| | | Three months ended June 30, 2021 | | Three months ended June 30, 2022 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | Specialty nutrients | $ | 0 | | | $ | 0 | | | $ | 84,915 | | | $ | 0 | | | $ | 84,915 | | Specialty nutrients | $ | — | | | $ | — | | | $ | 104,357 | | | $ | 104,357 | |
Primary nutrients | Primary nutrients | 0 | | | 0 | | | 213,604 | | | 0 | | | 213,604 | | Primary nutrients | — | | | — | | | 336,487 | | | 336,487 | |
Services | 2,114 | | | 0 | | | 3,869 | | | 9,233 | | | 15,216 | | |
Products and co-products | Products and co-products | 74,948 | | | 184,263 | | | 0 | | | 0 | | | 259,211 | | Products and co-products | 101,195 | | | 329,224 | | | — | | | 430,419 | |
Frac sand and propane | 36,649 | | | 0 | | | 0 | | | 0 | | | 36,649 | | |
Propane and frac sand | | Propane and frac sand | 46,935 | | | — | | | — | | | 46,935 | |
Other | Other | 4,037 | | | 394 | | | 19,020 | | | 7,037 | | | 30,488 | | Other | 6,997 | | | 1,378 | | | 29,440 | | | 37,815 | |
Total | Total | $ | 117,748 | | | $ | 184,657 | | | $ | 321,408 | | | $ | 16,270 | | | $ | 640,083 | | Total | $ | 155,127 | | | $ | 330,602 | | | $ | 470,284 | | | $ | 956,013 | |
|
| | | Three months ended June 30, 2020 | | Three months ended June 30, 2021 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | Specialty nutrients | $ | 0 | | | $ | 0 | | | $ | 82,634 | | | $ | 0 | | | $ | 82,634 | | Specialty nutrients | $ | — | | | $ | — | | | $ | 84,915 | | | $ | 84,915 | |
Primary nutrients | Primary nutrients | 0 | | | 0 | | | 188,463 | | | 0 | | | 188,463 | | Primary nutrients | — | | | — | | | 213,604 | | | 213,604 | |
Service | 2,357 | | | 0 | | | 2,596 | | | 8,658 | | | 13,611 | | |
Products and co-products | Products and co-products | 63,344 | | | 75,773 | | | 0 | | | 0 | | | 139,117 | | Products and co-products | 74,948 | | | 184,263 | | | — | | | 259,211 | |
Frac sand and propane | 21,439 | | | 0 | | | 0 | | | 0 | | | 21,439 | | |
Propane and frac sand | | Propane and frac sand | 36,649 | | | — | | | — | | | 36,649 | |
Other | Other | 5,330 | | | 352 | | | 6,132 | | | 2,027 | | | 13,841 | | Other | 6,151 | | | 394 | | | 22,889 | | | 29,434 | |
Total | Total | $ | 92,470 | | | $ | 76,125 | | | $ | 279,825 | | | $ | 10,685 | | | $ | 459,105 | | Total | $ | 117,748 | | | $ | 184,657 | | | $ | 321,408 | | | $ | 623,813 | |
|
| | | Six months ended June 30, 2021 | | Six months ended June 30, 2022 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | Specialty nutrients | $ | 0 | | | $ | 0 | | | $ | 161,721 | | | $ | 0 | | | $ | 161,721 | | Specialty nutrients | $ | — | | | $ | — | | | $ | 197,625 | | | $ | 197,625 | |
Primary nutrients | Primary nutrients | 0 | | | 0 | | | 285,263 | | | 0 | | | 285,263 | | Primary nutrients | — | | | — | | | 426,369 | | | 426,369 | |
Service | 3,568 | | | 0 | | | 5,158 | | | 19,177 | | | 27,903 | | |
Products and co-products | Products and co-products | 146,936 | | | 329,907 | | | 0 | | | 0 | | | 476,843 | | Products and co-products | 209,066 | | | 561,918 | | | — | | | 770,984 | |
Frac sand and propane | 128,714 | | | 0 | | | 0 | | | 0 | | | 128,714 | | |
Propane and frac sand | | Propane and frac sand | 166,727 | | | — | | | — | | | 166,727 | |
Other | Other | 6,969 | | | 4,153 | | | 38,518 | | | 16,467 | | | 66,107 | | Other | 13,239 | | | 2,593 | | | 56,332 | | | 72,164 | |
Total | Total | $ | 286,187 | | | $ | 334,060 | | | $ | 490,660 | | | $ | 35,644 | | | $ | 1,146,551 | | Total | $ | 389,032 | | | $ | 564,511 | | | $ | 680,326 | | | $ | 1,633,869 | |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 1516
| | | Six months ended June 30, 2020 | | Six months ended June 30, 2021 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | Specialty nutrients | $ | 0 | | | $ | 0 | | | $ | 155,865 | | | $ | 0 | | | $ | 155,865 | | Specialty nutrients | $ | — | | | $ | — | | | $ | 161,721 | | | $ | 161,721 | |
Primary nutrients | Primary nutrients | 0 | | | 0 | | | 234,153 | | | 0 | | | 234,153 | | Primary nutrients | — | | | — | | | 285,263 | | | 285,263 | |
Service | 4,043 | | | 0 | | | 2,778 | | | 17,394 | | | 24,215 | | |
Products and co-products | Products and co-products | 116,509 | | | 177,472 | | | 0 | | | 0 | | | 293,981 | | Products and co-products | 146,936 | | | 329,907 | | | — | | | 476,843 | |
Frac sand and propane | 71,314 | | | 0 | | | 0 | | | 0 | | | 71,314 | | |
Propane and frac sand | | Propane and frac sand | 128,714 | | | — | | | — | | | 128,714 | |
Other | Other | 9,318 | | | 968 | | | 11,942 | | | 4,851 | | | 27,079 | | Other | 10,538 | | | 4,153 | | | 43,676 | | | 58,367 | |
Total | Total | $ | 201,184 | | | $ | 178,440 | | | $ | 404,738 | | | $ | 22,245 | | | $ | 806,607 | | Total | $ | 286,188 | | | $ | 334,060 | | | $ | 490,660 | | | $ | 1,110,908 | |
Approximately 3%Substantially all of the Company's revenues accounted for under ASC 606 during boththe three and six months periods ended June 30, 20212022 and 2020,2021, respectively, are recorded at a point in time instead of over time which primarily relates to service revenues noted above.time.
Contract balances
The balances of the Company’s contract liabilities were $17.0$21.7 million and $45.6$100.8 million as of June 30, 20212022 and December 31, 2020,2021, respectively. 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. The main driver of the contract liabilities balance as of December 31, 2021, is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. Due to seasonality of this business, contract liabilities were built up at year-end and through the first quarter in preparation for the spring application season. As expected, the revenue recognized in the current period satisfied the contract liabilities throughout the spring application season.season for our Plant Nutrient segment.
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted 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 sixthree months ended June 30, 2021,2022, the Company estimated its annualrecorded income tax expense from continuing operations of $15.8 million. The Company's effective tax rate utilizingwas 13.3% on income before taxes from continuing operations of $118.2 million. The difference between the annualized13.3% effective tax rate method under ASC 740, Income Taxes, to calculate its interim income tax provision. Forand the six months ended June 30, 2020, the Company utilized the discrete effectiveU.S. federal statutory tax rate method,of 21.0% is primarily attributable to the tax impact of non-controlling interest as allowed under ASC 740, to calculate its interim income tax provision. Thewell as certain discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual periodderivatives and determines the income tax expense or benefit on that basis. At the time, it was not possible to reliably estimate the annual effective tax rate for the year due to uncertainty createdhedging activities offset by the COVID-19 pandemic. As a result, relatively small changes in the provision forstate and local income taxes in 2020 caused disproportionate changes in the effective tax rate, as compared to 2021.and nondeductible compensation.
For the three months ended June 30, 2021, the Company recorded income tax expense from continuing operations of $10.6 million at an$9.7 million. The Company’s effective income tax rate was 18.0% on income from continuing operations of 18.7%.$53.7 million. The annual effective tax rate differs from the statutory U.S. Federalfederal statutory tax rate of 21.0% due to the impactstax impact of certain discrete derivatives and hedging activities offset by state and local taxes and non-deductible compensation, offset by benefits related tonondeductible compensation.
For the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the threesix months ended June 30, 2021 as compared to2022, the same period last year was primarily attributed to the favorable impactCompany recorded income tax expense from continuing operations of the mark-to-market activity on certain contracts in the Ethanol segment, coupled with additional benefits from the CARES Act in the prior year. For the three months ended June 30, 2020, using the discrete$19.9 million. The Company's effective tax rate method to calculatewas 15.4% on income before taxes from continuing operations of $128.8 million. The difference between the interim15.4% effective tax provision,rate and the Company recorded an income tax benefit of $12.2 million at an effective incomeU.S. federal statutory tax rate of 155.8%.
The Andersons, Inc. | Q2 2021 Form 10-Q | 16
non-controlling interest as well as certain discrete derivatives and hedging activities offset by state and local income taxes and nondeductible compensation.
For the six months ended June 30, 2021, the Company recorded an income tax expense from continuing operations of $16.4 million at an$14.0 million. The Company’s effective income tax rate was 20.7% on income from continuing operations of 21.6%.$67.8 million. The annual effective tax rate differs from the statutory U.S. Federalfederal statutory tax rate of 21.0% due to the impactstax impact of certain discrete derivatives and hedging activities offset by state and local taxes and non-deductible compensation, offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the six months ended June 30, 2021, as compared to the same period last year was primarily attributed to additional tax benefits from net operating loss carry backs as a result of the CARES Act in the prior year, offset by the favorable impact of the mark-to-market activity on the contracts within the ethanol segment. For the six months ended June 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit of $13.7 million at an effective income tax rate of 30.5%.nondeductible compensation.
The 2021 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the Company’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $44.4 million and $24.7 million as of June 30, 2021 and June 30, 2020, respectively. The unrecognized tax benefits of $44.4 million include $40.6 million recorded as a reduction of the deferred tax asset and refundable credits associated with the Federal Research and Development Credits.
The Andersons, Inc. | Q2 2022 Form 10-Q | 17
8. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) ("AOCI") attributable to the Company for the three and six months ended June 30, 20212022 and 2020:2021:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Currency Translation Adjustment | Currency Translation Adjustment | | | | | | | | | Currency Translation Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | 6,963 | | | $ | (5,574) | | | $ | 5,739 | | | $ | 1,065 | | Beginning balance | | $ | 5,729 | | | $ | 6,963 | | | $ | 5,631 | | | $ | 5,739 | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | 1,469 | | | 3,249 | | | 2,693 | | | (3,390) | | Other comprehensive income (loss) before reclassifications | | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | |
| Tax effect | Tax effect | | 0 | | | 0 | | | 0 | | | 0 | | Tax effect | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | 1,469 | | | 3,249 | | | 2,693 | | | (3,390) | | Other comprehensive income (loss), net of tax | | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | |
Ending balance | Ending balance | | $ | 8,432 | | | $ | (2,325) | | | $ | 8,432 | | | $ | (2,325) | | Ending balance | | $ | 50 | | | $ | 8,432 | | | $ | 50 | | | $ | 8,432 | |
Hedging Adjustment | Hedging Adjustment | | | | | | | | | Hedging Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | (8,365) | | | $ | (23,106) | | | $ | (18,106) | | | $ | (9,443) | | Beginning balance | | $ | 7,087 | | | $ | (8,365) | | | $ | (5,335) | | | $ | (18,106) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (3,514) | | | (3,669) | | | 4,613 | | | (18,059) | | Other comprehensive income (loss) before reclassifications | | 7,910 | | | (3,514) | | | 22,833 | | | 4,613 | |
Amounts reclassified from accumulated other comprehensive income (loss)(a) | | 2,208 | | | 2,412 | | | 4,360 | | | 3,381 | | |
Amounts reclassified from AOCI (a) | | Amounts reclassified from AOCI (a) | | 1,013 | | | 2,208 | | | 2,631 | | | 4,360 | |
Tax effect | Tax effect | | (552) | | | (603) | | | (1,090) | | | (845) | | Tax effect | | (2,226) | | | (552) | | | (6,345) | | | (1,090) | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (1,858) | | | (1,860) | | | 7,883 | | | (15,523) | | Other comprehensive income (loss), net of tax | | 6,697 | | | (1,858) | | | 19,119 | | | 7,883 | |
Ending balance | Ending balance | | $ | (10,223) | | | $ | (24,966) | | | $ | (10,223) | | | $ | (24,966) | | Ending balance | | $ | 13,784 | | | $ | (10,223) | | | $ | 13,784 | | | $ | (10,223) | |
Pension and Other Postretirement Adjustment | Pension and Other Postretirement Adjustment | | | | | | | | | Pension and Other Postretirement Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | (70) | | | $ | 773 | | | $ | 33 | | | $ | 889 | | Beginning balance | | $ | 481 | | | $ | (70) | | | $ | 640 | | | $ | 33 | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (63) | | | 186 | | | 5 | | | 241 | | Other comprehensive income (loss) before reclassifications | | 845 | | | (63) | | | 914 | | | 5 | |
Amounts reclassified from accumulated other comprehensive income (loss)(b) | | (228) | | | (228) | | | (456) | | | (456) | | |
Amounts reclassified from AOCI (b) | | Amounts reclassified from AOCI (b) | | (228) | | | (228) | | | (456) | | | (456) | |
Tax effect | Tax effect | | 57 | | | 57 | | | 114 | | | 114 | | Tax effect | | (100) | | | 57 | | | (100) | | | 114 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (234) | | | 15 | | | (337) | | | (101) | | Other comprehensive income (loss), net of tax | | 517 | | | (234) | | | 358 | | | (337) | |
Ending balance | Ending balance | | $ | (304) | | | $ | 788 | | | $ | (304) | | | $ | 788 | | Ending balance | | $ | 998 | | | $ | (304) | | | $ | 998 | | | $ | (304) | |
Investments in Convertible Preferred Securities Adjustment | Investments in Convertible Preferred Securities Adjustment | | | | | | | | | Investments in Convertible Preferred Securities Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | 258 | | | $ | 258 | | | $ | 258 | | | $ | 258 | | Beginning balance | | $ | 258 | | | $ | 258 | | | $ | 258 | | | $ | 258 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | 0 | | | 0 | | | 0 | | | 0 | | Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | |
Ending balance | Ending balance | | $ | 258 | | | $ | 258 | | | $ | 258 | | | $ | 258 | | Ending balance | | $ | 258 | | | $ | 258 | | | $ | 258 | | | $ | 258 | |
| Total AOCI Ending Balance | Total AOCI Ending Balance | | $ | (1,837) | | | $ | (26,245) | | | $ | (1,837) | | | $ | (26,245) | | Total AOCI Ending Balance | | $ | 15,090 | | | $ | (1,837) | | | $ | 15,090 | | | $ | (1,837) | |
(a) Amounts reclassified from gain (loss) on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in Interest expense, net. See Note 5 for additional information.
The Andersons, Inc. | Q2 2021 Form 10-Q | 17
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost recorded in Operating, administrative and general expenses.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 18
9. Earnings Per Share
| (in thousands, except per common share data) | (in thousands, except per common share data) | Three months ended June 30, | | Six months ended June 30, | (in thousands, except per common share data) | Three months ended June 30, | | Six months ended June 30, |
2021 | | 2020 | | 2021 | | 2020 | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income (loss) available to The Andersons Inc. common shareholders | $ | 43,499 | | | $ | 30,439 | | | $ | 58,606 | | | $ | (7,222) | | |
Net income from continuing operations | | Net income from continuing operations | $ | 102,400 | | | $ | 44,025 | | | $ | 108,904 | | | $ | 53,780 | |
Net income attributable to noncontrolling interests(a) | | Net income attributable to noncontrolling interests(a) | 21,856 | | | 2,625 | | | 22,303 | | | 780 | |
Net income attributable to The Andersons Inc. common shareholders from continuing operations | | Net income attributable to The Andersons Inc. common shareholders from continuing operations | $ | 80,544 | | | $ | 41,400 | | | $ | 86,601 | | | $ | 53,000 | |
| Income (loss) from discontinued operations, net of income taxes | | Income (loss) from discontinued operations, net of income taxes | $ | (739) | | | $ | 2,099 | | | $ | (1,294) | | | $ | 5,606 | |
| Denominator: | Denominator: | | Denominator: | |
Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | 33,263 | | | 32,932 | | | 33,226 | | | 32,876 | | Weighted average shares outstanding – basic | 33,850 | | | 33,263 | | | 33,795 | | | 33,226 | |
Effect of dilutive awards | Effect of dilutive awards | 316 | | | 77 | | | 391 | | | 0 | | Effect of dilutive awards | 566 | | | 316 | | | 621 | | | 391 | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | 33,579 | | | 33,009 | | | 33,617 | | | 32,876 | | Weighted average shares outstanding – diluted | 34,416 | | | 33,579 | | | 34,416 | | | 33,617 | |
Earnings (loss) per share | | | | | | | | |
Basic | $ | 1.31 | | | $ | 0.92 | | | $ | 1.76 | | | $ | (0.22) | | |
Diluted | $ | 1.30 | | | $ | 0.92 | | | $ | 1.74 | | | $ | (0.22) | | |
| Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | | Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | |
Basic earnings (loss): | | Basic earnings (loss): | |
Continuing operations | | Continuing operations | $ | 2.38 | | | $ | 1.25 | | | $ | 2.56 | | | $ | 1.60 | |
Discontinued operations | | Discontinued operations | (0.02) | | | 0.06 | | | (0.04) | | | 0.16 | |
| | | $ | 2.36 | | | $ | 1.31 | | | $ | 2.52 | | | $ | 1.76 | |
Diluted earnings (loss): | | Diluted earnings (loss): | | | | | | | |
Continuing operations | | Continuing operations | $ | 2.34 | | | $ | 1.23 | | | $ | 2.52 | | | $ | 1.58 | |
Discontinued operations | | Discontinued operations | (0.02) | | | 0.07 | | | (0.04) | | | 0.16 | |
| | | $ | 2.32 | | | $ | 1.30 | | | $ | 2.48 | | | $ | 1.74 | |
(a) All net income (loss) attributable to noncontrolling interests is within continuing operations of the Company.
There were 57 thousand and 471 thousand antidilutive awards for the three months ended June 30, 2021 and June 30, 2020, respectively. There were 82 thousand antidilutive share awards outstanding for the six months ended June 30, 2021.
All awards were antidilutive for the six months ended June 30, 2020 as the Company incurred a net loss.
The Andersons, Inc. | Q2 2022 Form 10-Q | 19
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021,2022, December 31, 20202021 and June 30, 2020:2021:
| (in thousands) | (in thousands) | June 30, 2021 | (in thousands) | June 30, 2022 |
Assets (liabilities) | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | Commodity derivatives, net (a) | $ | 38,627 | | | $ | 390,311 | | | $ | 0 | | | $ | 428,938 | | Commodity derivatives, net (a) | $ | 235,665 | | | $ | 218,819 | | | $ | — | | | $ | 454,484 | |
Provisionally priced contracts (b) | Provisionally priced contracts (b) | 32,710 | | | (25,210) | | | 0 | | | 7,500 | | Provisionally priced contracts (b) | 38,061 | | | (27,945) | | | — | | | 10,116 | |
Convertible preferred securities (c) | Convertible preferred securities (c) | 0 | | | 0 | | | 13,550 | | | 13,550 | | Convertible preferred securities (c) | — | | | — | | | 16,803 | | | 16,803 | |
Other assets and liabilities (d) | Other assets and liabilities (d) | 5,373 | | | (14,909) | | | 0 | | | (9,536) | | Other assets and liabilities (d) | 1,097 | | | 18,323 | | | — | | | 19,420 | |
Total | Total | $ | 76,710 | | | $ | 350,192 | | | $ | 13,550 | | | $ | 440,452 | | Total | $ | 274,823 | | | $ | 209,197 | | | $ | 16,803 | | | $ | 500,823 | |
| (in thousands) | (in thousands) | December 31, 2020 | (in thousands) | December 31, 2021 |
Assets (liabilities) | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| Commodity derivatives, net (a) | Commodity derivatives, net (a) | $ | 51,369 | | | $ | 126,098 | | | $ | 0 | | | $ | 177,467 | | Commodity derivatives, net (a) | $ | 128,407 | | | $ | 156,698 | | | $ | — | | | $ | 285,105 | |
Provisionally priced contracts (b) | Provisionally priced contracts (b) | 19,793 | | | (48,818) | | | 0 | | | (29,025) | | Provisionally priced contracts (b) | 43,944 | | | (89,797) | | | — | | | (45,853) | |
Convertible preferred securities (c) | Convertible preferred securities (c) | 0 | | | 0 | | | 8,849 | | | 8,849 | | Convertible preferred securities (c) | — | | | — | | | 11,618 | | | 11,618 | |
Other assets and liabilities (d) | Other assets and liabilities (d) | 7,972 | | | (26,058) | | | 0 | | | (18,086) | | Other assets and liabilities (d) | 2,784 | | | (7,361) | | | — | | | (4,577) | |
Total | Total | $ | 79,134 | | | $ | 51,222 | | | $ | 8,849 | | | $ | 139,205 | | Total | $ | 175,135 | | | $ | 59,540 | | | $ | 11,618 | | | $ | 246,293 | |
| (in thousands) | (in thousands) | June 30, 2020 | (in thousands) | June 30, 2021 |
Assets (liabilities) | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total | Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| Commodity derivatives, net (a) | Commodity derivatives, net (a) | $ | 22,162 | | | $ | 23,754 | | | $ | 0 | | | $ | 45,916 | | Commodity derivatives, net (a) | $ | 38,627 | | | $ | 390,311 | | | $ | — | | | $ | 428,938 | |
Provisionally priced contracts (b) | Provisionally priced contracts (b) | (15,139) | | | (41,897) | | | 0 | | | (57,036) | | Provisionally priced contracts (b) | 32,710 | | | (25,210) | | | — | | | 7,500 | |
Convertible preferred securities (c) | Convertible preferred securities (c) | 0 | | | 0 | | | 8,654 | | | 8,654 | | Convertible preferred securities (c) | — | | | — | | | 13,550 | | | 13,550 | |
Other assets and liabilities (d) | Other assets and liabilities (d) | 4,102 | | | (34,922) | | | 0 | | | (30,820) | | Other assets and liabilities (d) | 5,373 | | | (14,909) | | | — | | | (9,536) | |
Total | Total | $ | 11,125 | | | $ | (53,065) | | | $ | 8,654 | | | $ | (33,286) | | Total | $ | 76,710 | | | $ | 350,192 | | | $ | 13,550 | | | $ | 440,452 | |
(a)Includes associated cash posted/received as collateral
(b)Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
(c)Recorded in “Other assets, net” on the Company’s Condensed Consolidated Balance Sheets related to certain available for sale securities.
(d)Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans and foreign exchange derivative contracts (Level 1), as well as interest rate derivatives (Level 2).
The Andersons, Inc. | Q2 2021 Form 10-Q | 19
Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral, that the Company has in its margin account.
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices quoted on various exchanges 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, the Company has concluded that “basis” is typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for these commodity contracts.
The Andersons, Inc. | Q2 2022 Form 10-Q | 20
These fair value disclosures exclude RMI which consists of agricultural commodity 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 of RMI 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 exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
| | | Convertible Preferred Securities | | Convertible Preferred Securities |
(in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 |
Assets at January 1, | Assets at January 1, | $ | 8,849 | | | $ | 8,404 | | Assets at January 1, | $ | 11,618 | | | $ | 8,849 | |
Additional investments | Additional investments | 2,800 | | | 250 | | Additional investments | 3,883 | | | 2,800 | |
| Gains included in Other income, net | | Gains included in Other income, net | 404 | | | — | |
Assets at March 31, | Assets at March 31, | $ | 11,649 | | | $ | 8,654 | | Assets at March 31, | $ | 15,905 | | | $ | 11,649 | |
Additional Investments | Additional Investments | 1,901 | | | 0 | | Additional Investments | 772 | | | 1,901 | |
| Gains included in Other income, net | | Gains included in Other income, net | 126 | | | — | |
Assets at June 30, | Assets at June 30, | $ | 13,550 | | | $ | 8,654 | | Assets at June 30, | $ | 16,803 | | | $ | 13,550 | |
| |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2021
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2021,2022, December 31, 20202021 and June 30, 2020:2021:
| | | Quantitative Information about Recurring Level 3 Fair Value Measurements | | Quantitative Information about Recurring Level 3 Fair Value Measurements |
| | Fair Value as of | | | Fair Value as of | |
(in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | | Valuation Method | | Unobservable Input | | Weighted Average | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | Convertible preferred securities (a) | $ | 13,550 | | | $ | 8,849 | | | $ | 8,654 | | | Implied based on market prices | | N/A | | N/A | Convertible preferred securities (a) | $ | 16,803 | | | $ | 11,618 | | | $ | 13,550 | | | Implied based on market prices | | N/A | | N/A |
(a) The Company considers observable price changes and other additional market data available to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quantitative Information about Non-Recurring Level 3 Fair Value Measurements |
(in thousands) | Fair Value as of 6/30/2022 | | Valuation Method | | Unobservable Input | | Weighted Average |
Equity method investment (a) | $ | 11,538 | | | Discounted cash flow analysis | | Various | | N/A |
(a) The Company recorded an other-than-temporary impairment charge on an existing equity method investment. The fair value of the investment was determined using a discounted cash flow analysis.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quantitative Information about Non-Recurring Level 3 Fair Value Measurements |
(in thousands) | Fair Value as of 12/31/2021 | | Valuation Method | | Unobservable Input | | Weighted Average |
Frac sand assets (b) | $ | 2,946 | | | Third party appraisal | | Various | | N/A |
Real property (c) | 700 | | | Market approach | | Various | | N/A |
(b) The Company recognized impairment charges on long lived assets related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.
(c) The Company recognized impairment charges on certain Trade assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined using prior transactions in the local market and a recent sale of comparable Trade group assets held by the Company.
There were no non-recurring fair value measurements as of June 30, 2021, December 31, 2020 and June 30, 2020.2021.
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
11. Related Parties
In the ordinary course of business, and on an arm's length basis, the Company will enter into related party transactions with the minority shareholders of the Company's ethanolRenewables operations and several equity method investments that the Company holds, along with other related parties.
The following table sets forth the related party transactions entered into for the time periods presented:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Sales revenues | Sales revenues | $ | 85,294 | | | $ | 29,659 | | | $ | 151,940 | | | $ | 84,353 | | Sales revenues | $ | 103,106 | | | $ | 85,294 | | | $ | 189,255 | | | $ | 151,940 | |
Purchases of product and capital assets | Purchases of product and capital assets | 8,662 | | | 6,419 | | | 20,336 | | | 21,996 | | Purchases of product and capital assets | 11,983 | | | 8,662 | | | 38,409 | | | 20,336 | |
|
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Accounts receivable (a) | $ | 11,835 | | | $ | 5,623 | | | $ | 7,332 | |
Accounts payable (b) | 2,287 | | | 5,251 | | | 2,598 | |
(a) Accounts receivable represents amounts due from related parties for the sale of ethanol and other various items.
(b) Accounts payable represents amounts due to related parties for purchases of ethanol equipment and other various items. | | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Accounts receivable | $ | 17,560 | | | $ | 9,984 | | | $ | 11,835 | |
Accounts payable | 3,060 | | | 6,034 | | | 2,287 | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 22
12. Segment Information
The Company’s operations include 43 reportable business segments that are distinguished primarily on the basis of products and services offered as well as the structure of management. The Trade business includes commodity merchandising and the operation of terminal grain elevator facilities. The EthanolRenewables business produces ethanol and co-products through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Other category includes other corporate level costs not attributable to an operating segment and intercompany eliminations between the segments. See Note 14 for details of the divestiture of the Rail segment.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. The Company does not have any customers who represent 10 percent or more of total revenues from external customers.revenues.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Revenues from external customers | | | | | | | |
Trade | $ | 3,097,767 | | | $ | 2,297,869 | | | $ | 6,182,448 | | | $ | 4,280,377 | |
Renewables | 882,567 | | | 616,527 | | | 1,565,798 | | | 1,059,486 | |
Plant Nutrient | 470,283 | | | 321,409 | | | 680,325 | | | 490,661 | |
Total | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Income (loss) before income taxes from continuing operations | | | | | | | |
Trade | $ | 23,666 | | | $ | 13,777 | | | $ | 27,335 | | | $ | 27,632 | |
Renewables1 | 67,776 | | | 26,156 | | | 73,738 | | | 27,237 | |
Plant Nutrient | 38,311 | | | 23,995 | | | 49,054 | | | 32,518 | |
Other | (11,600) | | | (10,226) | | | (21,367) | | | (19,569) | |
Income before income taxes from continuing operations | $ | 118,153 | | | $ | 53,702 | | | $ | 128,760 | | | $ | 67,818 | |
1Includes income attributable to noncontrolling interests of $21.9 million and $2.6 million for the three months ended June 30, 2022 and 2021, respectively, and $22.3 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2123
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Revenues from external customers | | | | | | | |
Trade | $ | 2,297,869 | | | $ | 1,351,168 | | | $ | 4,280,377 | | | $ | 2,729,209 | |
Ethanol | 616,527 | | | 223,745 | | | 1,059,486 | | | 536,784 | |
Plant Nutrient | 321,409 | | | 279,825 | | | 490,661 | | | 404,738 | |
Rail | 37,921 | | | 35,442 | | | 78,931 | | | 72,555 | |
Total | $ | 3,273,726 | | | $ | 1,890,180 | | | $ | 5,909,455 | | | $ | 3,743,286 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Income (loss) before income taxes attributable to the Company | | | | | | | |
Trade | $ | 13,777 | | | $ | 393 | | | $ | 27,632 | | | $ | (9,591) | |
Ethanol | 23,531 | | | 868 | | | 26,457 | | | (23,108) | |
Plant Nutrient | 23,995 | | | 19,407 | | | 32,518 | | | 18,215 | |
Rail | 3,064 | | | 2,606 | | | 7,955 | | | 3,613 | |
Other | (10,226) | | | (5,035) | | | (19,569) | | | (10,015) | |
Income (loss) before income taxes attributable to the Company | 54,141 | | | 18,239 | | | 74,993 | | | (20,886) | |
Income (loss) attributable to noncontrolling interests | 2,625 | | | (10,407) | | | 780 | | | (23,856) | |
Income (loss) before income taxes | $ | 56,766 | | | $ | 7,832 | | | $ | 75,773 | | | $ | (44,742) | |
13. Commitments and Contingencies
Litigation activities
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time or may result in continued reserves to account for the potential of such post-verdict actions.
Specifically, the Company is party to a non-regulatory litigation claim, which is in response to penalties and fines paid to regulatory entities by a previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity. While the Company believes it has meritorious defenses against the suit, the ultimate resolution of the matter could result in a loss in excess of the amount accrued. Given the preliminary status of the claim, the Company does not believe the excess, net of the acquisition-related indemnity, is determinable.material.
The Andersons Marathon Holdings LLC ("TAMH") received a Pre-Filing Negotiation Offer from the United States Environmental Protection Agency ("U.S. EPA") regarding the ethanol facilities owned by TAMH. The Company owns 50.1% of TAMH, which is a consolidated subsidiary of the Company. The U.S. EPA investigated alleged recordkeeping and reporting violations under the Emergency Planning and Community Right-to-Know Act. The Company settled this matter with the U.S. EPA for approximately $1.7 million in the second quarter of 2022.
The estimated losses for all other outstanding claims that are considered reasonably possible are not material.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2224
14. Discontinued Operations
On August 16, 2021, the Company entered into a definitive agreement under which the Company sold the assets of the Company’s Rail Leasing business for a cash purchase price of approximately $543.1 million. In conjunction with the sale of the Rail Leasing business, the Company announced its intent to divest the remaining pieces of the Rail Leasing business and the Rail Repair business. In the second quarter of 2022, the Company entered into an agreement to sell the Rail Repair business and divested substantially all of the remaining leases under the Rail Leasing business.
Starting in the third quarter of 2021, substantially all of the assets and liabilities of our Rail business were classified as discontinued operations in the accompanying Condensed Consolidated Balance Sheets.
The table below summarizes the results of the Rail Leasing business and the Rail Repair business for the three and six months ended June 30, 2022 and 2021 which are reflected in the Consolidated Statements of Operations as discontinued operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Sales and merchandising revenues | $ | 12,076 | | | $ | 37,921 | | | $ | 25,191 | | | $ | 78,931 | |
Cost of sales and merchandising revenues | 12,877 | | | 27,284 | | | 23,948 | | | 59,023 | |
Gross profit (loss) | (801) | | | 10,637 | | | 1,243 | | | 19,908 | |
Operating, administrative and general expenses | 4,434 | | | 4,416 | | | 5,813 | | | 7,290 | |
Interest expense, net | — | | | 3,394 | | | — | | | 6,574 | |
Other income, net | 6,547 | | | 237 | | | 6,620 | | | 1,911 | |
Income from discontinued operations before income taxes | 1,312 | | | 3,064 | | | 2,050 | | | 7,955 | |
Income tax provision | 2,051 | | | 965 | | | 3,344 | | | 2,349 | |
Income (loss) from discontinued operations, net of income taxes | $ | (739) | | | $ | 2,099 | | | $ | (1,294) | | | $ | 5,606 | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 25
The following table summarizes the assets and liabilities which are classified as discontinued operations at June 30, 2022, December 31, 2021 and June 30, 2021.
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Assets | | | | | |
Current assets: | | | | | |
| | | | | |
Accounts receivable, net | $ | 11,998 | | | $ | 12,643 | | | $ | 18,707 | |
Inventories | 6,318 | | | 6,739 | | | 7,375 | |
Other current assets | 311 | | | 1,503 | | | 2,473 | |
Current assets held-for-sale | 18,627 | | | 20,885 | | | 28,555 | |
Other assets: | | | | | |
Rail assets leased to others, net | 427 | | | 458 | | | 574,585 | |
Property, plant and equipment, net | 17,370 | | | 17,280 | | | 18,199 | |
Goodwill | 4,167 | | | 4,167 | | | 4,167 | |
Other intangible assets, net | — | | | 24 | | | 2,025 | |
Right of use assets, net | 2,322 | | | 20,999 | | | 18,969 | |
Other assets, net | 12 | | | 241 | | | 2,800 | |
Total non-current assets held-for-sale | 24,298 | | | 43,169 | | | 620,745 | |
Total assets held-for-sale | $ | 42,925 | | | $ | 64,054 | | | $ | 649,300 | |
Liabilities | | | | | |
Current liabilities: | | | | | |
Trade and other payables | $ | 1,883 | | | $ | 2,546 | | | $ | 3,666 | |
Customer prepayments and deferred revenue | — | | | — | | | 2,211 | |
Current maturities of long-term debt | — | | | — | | | 6,513 | |
Current operating lease liabilities | 2,112 | | | 4,672 | | | 6,023 | |
Accrued expenses and other current liabilities | 3,319 | | | 6,161 | | | 6,772 | |
Total current liabilities held-for-sale | 7,314 | | | 13,379 | | | 25,185 | |
Long-term lease liabilities | 3,113 | | | 16,119 | | | 14,718 | |
Long-term debt, less current maturities | — | | | — | | | 28,845 | |
Other long-term liabilities | — | | | — | | | 430 | |
Non-current liabilities held-for-sale | 3,113 | | | 16,119 | | | 43,993 | |
Total liabilities held-for-sale | $ | 10,427 | | | $ | 29,498 | | | $ | 69,178 | |
The following table summarizes cash flow data relating to discontinued operations for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | |
| Six months ended June 30, |
(in thousands) | 2022 | | 2021 |
Depreciation and amortization | $ | — | | | $ | 17,588 | |
Capital expenditures | (27,276) | | | (5,703) | |
Proceeds from sale of assets | 36,341 | | | 15,616 | |
| | | |
Non-cash operating activities - Gain on sale of railcars | (6,176) | | | (4,987) | |
Non-cash operating activities - fixed asset impairment | 2,818 | | | 234 | |
Non-cash investing activities - capital expenditures, consisting of unpaid capital expenditure liabilities at period end | — | | | (113) | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 26
15. Subsequent Events
On July 8, 2022, the Company closed on the sale of the remaining assets and certain liabilities of the Company's Rail Repair business for $55.1 million resulting in an estimated pre-tax gain of approximately $30 million.
The Andersons, Inc. | Q2 2022 Form 10-Q | 27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. Such factors include, but are not limited to, the effects on our business from the COVID-19 pandemic and the pace of recovery from the pandemic, economic and political conditions, globally and in the markets we serve including the ongoing economic impacts from the conflict in Ukraine, fluctuations in cost and availability of commodities, weather and agricultural conditions, governmental regulations, the effectiveness of our internal control over financial reporting and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors. The reader is urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report onthe 2021 Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”).and under Item 1A in this report. 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 management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 20202021 Form 10-K, have not materially changed through the second quarter of 2021.2022.
Executive Overview
Our operations are organized, managed and classified into fourthree reportable business segments: Trade, Ethanol,Renewables and Plant Nutrient, and Rail.Nutrient. Each of these segments is generally based on the nature of products and services offered and aligns with the management structure. Due to the Rail segment being presented as discontinued operations, the Company has excluded Rail from the following discussions of financial condition and results of operations.
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 merchandising revenues and Cost of sales and cost of salesmerchandising revenues and a much less significant impact on grossGross profit. As a result, changes in salesSales and merchandising revenues between periods may not necessarily be indicative of the overall performance of the business and more focusgreater emphasis should be placed on changes in grossGross profit.
The Company has considered the potential impact ofthat the book value of the Company’s total shareholders’ equity exceedingbriefly exceeded the Company’s market capitalization at various points during the yearquarter for impairment indicators. Management ultimately concluded that an impairment triggering event had not occurred. The Company continues to believebelieves that the share price is not an accurate reflection of its current value. Thevalue as conditions are currently strong in the agriculture space with a positive long-term outlook remains positive for agricultural commodities due to market volatility driven by scarcity of supply and strong demand.outlook. Management believes that the market’s impact on the Company’s equity value does not accuratelyactually reflect the impact of these external factors on the Company. As a result of prior period tests, reviews of current operating results and other relevant market factors, management ultimatelythe Company concluded that, while the Company's shareholders equity exceeded the market capitalization for certain portions of the period, that no impairment trigger existed as of June 30, 2021. However, adverse market conditions or alternative management decisions on operations may result in future impairment considerations.2022.
Trade
The Trade Group’s second quarter results improved substantially over the prior year as the Group saw the benefits of a demand-driven agriculture rally. Commodity price volatility and market dislocations created merchandising opportunities for the Group to be well positioned and execute on many commodities in both the domestic and export markets. This demand driven rally has created an inversion in the futures market for the majority of the agricultural commodities stored by the Group's asset business. However, traditional space income through the old crop carryout has been accelerated and exceeded by strong elevation margins and merchandising results. The Group’s propane business added significant volume both through a new terminal location and displacement opportunities. Finally, the business continued to benefit from prior year reorganization synergies and other cost-cutting efforts.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2328
Trade
The Trade segment’s second quarter operating results improved from the prior year as the segment entered the quarter with good ownership positions and, as expected, benefited from basis improvements. Wheat ownership in our grain terminal assets is now earning space income and we had very strong results from our Midwest truck grain merchandising business. Our food and specialty ingredients business also delivered strong results in the quarter, particularly in our UK subsidiary, Feed Factors.
Agricultural inventories on hand were 107.0 million and 85.8 million bushels at June 30, 2021 were 85.8 million bushels, of which 1.2 million bushels were stored for others. These amounts compare to 74.4 million bushels on hand at2022 and June 30, 2020,2021, respectively. These bushels consist of which 1.7 million bushels were stored for others.inventory held at company-owned or leased facilities, transload inventory, in-transit inventory, and third-party held inventory. Total Trade storage space capacity at company-owned or leased facilities, including temporary pile storage, was approximately 202 million bushels at June 30, 2021 compared to 201approximately 184 million bushels at June 30, 2020.2022 compared to 202 million bushels at June 30, 2021.
We expect continuedCurrent crop conditions vary by geography, but despite initial delays in planting, crop conditions are good in our key draw areas. Continued merchandising opportunities into harvest as scarcity of supply is impacting overall prices. Crop conditions in the majority of the Group's draw area are excellent and the business is preparing for a large harvest. As the volume of grain in store is expected to remain at levels below recent years for some time, high prices and strong elevation margins are also expected to continue into 2022.through the remainder of the year as global stocks are not projected to recover quickly from the recent worldwide production shortfalls.
EthanolRenewables
The Ethanol Group'sRenewables segment's second quarter operating results were profitable, and a substantial improvement compared to the prior year. The Group's prior year results were significantly impacted by COVID-19 as negative crush margins and weak demand plagued the ethanol industry. The 2021 results reflect a considerable improvement in crush margins, overall ethanol demand and higher ethanol trading results. The Group also benefited from increased co-product values, including high protein and traditional DDG products, as well as corn and other vegetable oils.
Spot ethanol crush margins have continued to improve from the prior year anddue to higher corn and soybean meal prices continue to support feed product values. While there is a level of uncertainty that persists regarding a tighter corn balance sheet and how quickly the ethanol industry as a whole will recover from COVID-19, the group has observed rebounding driving demand, strong coproductproduction margins and continued trading opportunities.yields. Also contributing to the increased results was $24.4 million of positive mark-to-market impact; nearly $18 million of which are reversals of prior losses. This compared to positive mark-to-market impacts of $13.5 million in the second quarter of 2021. The ethanol facilities received $17.6 million of USDA Biofuels Producer COVID relief funds, of which, $8.9 million is included in pre-tax income attributable to the Company.
Higher export demand has helped keep ethanol prices firm, despite lower than anticipated seasonal domestic demand being impacted by the overall high gasoline prices. High corn costs for ethanol production in the western US may negatively impact ethanol production there, while the Company's eastern corn belt production facilities are better positioned for corn supply.
Ethanol and related co-products volumes for the three and six months ended June 30, 20212022 and 20202021 were as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Ethanol (gallons shipped) | Ethanol (gallons shipped) | 186,396 | | | 119,528 | | | 358,608 | | | 266,873 | | Ethanol (gallons shipped) | 196,536 | | | 186,396 | | | 391,547 | | | 358,608 | |
E-85 (gallons shipped) | E-85 (gallons shipped) | 11,914 | | | 4,396 | | | 19,805 | | | 13,489 | | E-85 (gallons shipped) | 10,600 | | | 11,914 | | | 17,315 | | | 19,805 | |
Corn oil (pounds shipped) | Corn oil (pounds shipped) | 56,760 | | | 20,968 | | | 104,708 | | | 50,262 | | Corn oil (pounds shipped) | 122,223 | | | 56,760 | | | 232,544 | | | 104,708 | |
DDG (tons shipped)* | DDG (tons shipped)* | 454 | | | 334 | | | 931 | | | 964 | | DDG (tons shipped)* | 450 | | | 454 | | | 950 | | | 931 | |
* DDG tons shipped converts wet tons to a dry ton equivalent amount.
Plant Nutrient
The Plant Nutrient Group'ssegment's second quarter operating results were considerably improved compared toincreased from the prior year period. Tons sold across all product lines were down period over period, however, the lower volumes were more than offset by significant margin increases from well-positioned inventory. The improvement was largely driven by improved margins inmost significant margin improvements came from the Ag Supply Chain and Specialty Liquids product lineslines. While we have seen some lowering of base nutrient prices, continued strong global demand and reflect demand from favorable spring weather, strong growerdisruption should keep prices higher than historical averages. Strong farm income and well-positionedmay drive purchasing decisions while overall price levels could cause customers to delay fertilizer inventory. Engineered Granules maintained strong demand but contended against rising input costs and a tight labor market. The group's outlook is positive, anticipating continued higher fertilizer prices and strong demand into the fall application season.purchases.
Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 463448 thousand tons for dry nutrients and approximately 509511 thousand tons for liquid nutrients at June 30, 2021, compared2022, which is similar to approximately 481 thousand tons for dry nutrients and approximately 510 thousand tons for liquid nutrients at June 30, 2020.the prior year.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2429
Tons of product sold for the three and six months ended June 30, 20212022 and 20202021 were as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Ag Supply Chain | Ag Supply Chain | 661 | | | 690 | | | 1,008 | | | 904 | | Ag Supply Chain | 492 | | | 661 | | | 649 | | | 1,008 | |
Specialty Liquids | Specialty Liquids | 133 | | | 121 | | | 233 | | | 196 | | Specialty Liquids | 98 | | | 133 | | | 190 | | | 233 | |
Engineered Granules | Engineered Granules | 165 | | | 151 | | | 323 | | | 273 | | Engineered Granules | 121 | | | 165 | | | 228 | | | 323 | |
Total tons | Total tons | 959 | | | 962 | | | 1,564 | | | 1,373 | | Total tons | 711 | | | 959 | | | 1,067 | | | 1,564 | |
In the table above, Ag Supply Chain represents facilities principally engaged in the wholesale distribution and retail sale and application of primary agricultural nutrients such as bulk nitrogen, phosphorus, and potassium. Specialty Liquid locations produce and sell a variety of low-salt liquid starter fertilizers, micronutrients for agricultural use, and specialty products for use in various industrial processes. Engineered Granules include a variety of corncob-based products and facilities that primarily manufacture granulated dry products for use in specialty turf and agricultural applications and a variety of corncob-based products.
Rail
Rail results increased driven by the opportunistic sale of older railcars due to favorable scrap prices. The leasing business improved due to lower maintenance expenses and bad debt recoveries despite slightly decreased average lease rates. Average utilization rates increased from 88.3 percent in the second quarter of 2020 to 89.7 percent in the second quarter of 2021. Rail assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2021 were 21.8 thousand compared to 24.0 thousand at June 30, 2020.
While the North American railcar industry is showing signs of a slow recovery, lease rates are expected to stay relatively flat for much of the year.applications.
Other
Our “Other” activities include corporate income and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments and other elimination and consolidation adjustments.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2530
Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 12, Segment Information.
Comparison of the three months ended June 30, 20212022 with the three months ended June 30, 20202021 including a reconciliation of GAAP to non-GAAP measures:
| | | Three months ended June 30, 2021 | | Three months ended June 30, 2022 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total |
Sales and merchandising revenues | Sales and merchandising revenues | $ | 2,297,869 | | | $ | 616,527 | | | $ | 321,409 | | | $ | 37,921 | | | $ | — | | | $ | 3,273,726 | | Sales and merchandising revenues | $ | 3,097,767 | | | $ | 882,567 | | | $ | 470,283 | | | $ | — | | | $ | 4,450,617 | |
Cost of sales and merchandising revenues | Cost of sales and merchandising revenues | 2,220,038 | | | 581,811 | | | 270,549 | | | 27,284 | | | — | | | 3,099,682 | | Cost of sales and merchandising revenues | 2,995,773 | | | 822,679 | | | 401,324 | | | — | | | 4,219,776 | |
Gross profit | Gross profit | 77,831 | | | 34,716 | | | 50,860 | | | 10,637 | | | — | | | 174,044 | | Gross profit | 101,994 | | | 59,888 | | | 68,959 | | | — | | | 230,841 | |
Operating, administrative and general expenses | Operating, administrative and general expenses | 61,514 | | | 6,577 | | | 26,568 | | | 4,416 | | | 10,901 | | | 109,976 | | Operating, administrative and general expenses | 62,977 | | | 8,590 | | | 29,591 | | | 11,401 | | | 112,559 | |
Interest expense (income), net | Interest expense (income), net | 7,452 | | | 2,021 | | | 1,146 | | | 3,394 | | | (559) | | | 13,454 | | Interest expense (income), net | 13,300 | | | 2,012 | | | 1,923 | | | (314) | | | 16,921 | |
Equity in earnings of affiliates, net | 845 | | | — | | | — | | | — | | | — | | | 845 | | |
Other income, net | 4,067 | | | 38 | | | 849 | | | 237 | | | 116 | | | 5,307 | | |
Income (loss) before income taxes | $ | 13,777 | | | $ | 26,156 | | | $ | 23,995 | | | $ | 3,064 | | | $ | (10,226) | | | $ | 56,766 | | |
Equity in earnings (losses) of affiliates, net | | Equity in earnings (losses) of affiliates, net | (6,034) | | | — | | | — | | | — | | | (6,034) | |
Other income (expense), net | | Other income (expense), net | 3,983 | | | 18,490 | | | 866 | | | (513) | | | 22,826 | |
Income (loss) before income taxes from continuing operations | | Income (loss) before income taxes from continuing operations | $ | 23,666 | | | $ | 67,776 | | | $ | 38,311 | | | $ | (11,600) | | | $ | 118,153 | |
Income (loss) before income taxes attributable to the noncontrolling interests | Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 2,625 | | | — | | | — | | | — | | | 2,625 | | Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 21,856 | | | — | | | — | | | 21,856 | |
Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 13,777 | | | $ | 23,531 | | | $ | 23,995 | | | $ | 3,064 | | | $ | (10,226) | | | $ | 54,141 | | |
Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | | Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 23,666 | | | $ | 45,920 | | | $ | 38,311 | | | $ | (11,600) | | | $ | 96,297 | |
| | | Three months ended June 30, 2020 | | Three months ended June 30, 2021 |
(in thousands) | (in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total |
Sales and merchandising revenues | Sales and merchandising revenues | $ | 1,351,168 | | | $ | 223,745 | | | $ | 279,825 | | | $ | 35,442 | | | $ | — | | | $ | 1,890,180 | | Sales and merchandising revenues | $ | 2,297,869 | | | $ | 616,527 | | | $ | 321,409 | | | $ | — | | | $ | 3,235,805 | |
Cost of sales and merchandising revenues | Cost of sales and merchandising revenues | 1,291,786 | | | 226,344 | | | 241,060 | | | 24,724 | | | — | | | 1,783,914 | | Cost of sales and merchandising revenues | 2,220,038 | | | 581,811 | | | 270,549 | | | — | | | 3,072,398 | |
Gross profit | Gross profit | 59,382 | | | (2,599) | | | 38,765 | | | 10,718 | | | — | | | 106,266 | | Gross profit | 77,831 | | | 34,716 | | | 50,860 | | | — | | | 163,407 | |
Operating, administrative and general expenses | Operating, administrative and general expenses | 54,998 | | | 5,506 | | | 18,281 | | | 5,184 | | | 6,167 | | | 90,136 | | Operating, administrative and general expenses | 61,514 | | | 6,577 | | | 26,568 | | | 10,901 | | | 105,560 | |
Interest expense (income), net | Interest expense (income), net | 5,056 | | | 1,900 | | | 1,463 | | | 3,833 | | | (425) | | | 11,827 | | Interest expense (income), net | 7,452 | | | 2,021 | | | 1,146 | | | (559) | | | 10,060 | |
Equity in earnings (losses) of affiliates, net | Equity in earnings (losses) of affiliates, net | 79 | | | — | | | — | | | — | | | — | | | 79 | | Equity in earnings (losses) of affiliates, net | 845 | | | — | | | — | | | — | | | 845 | |
Other income (expense), net | Other income (expense), net | 986 | | | 466 | | | 386 | | | 905 | | | 707 | | | 3,450 | | Other income (expense), net | 4,067 | | | 38 | | | 849 | | | 116 | | | 5,070 | |
Income (loss) before income taxes | $ | 393 | | | $ | (9,539) | | | $ | 19,407 | | | $ | 2,606 | | | $ | (5,035) | | | $ | 7,832 | | |
Income (loss) before income taxes from continuing operations | | Income (loss) before income taxes from continuing operations | $ | 13,777 | | | $ | 26,156 | | | $ | 23,995 | | | $ | (10,226) | | | $ | 53,702 | |
Income (loss) before income taxes attributable to the noncontrolling interests | Income (loss) before income taxes attributable to the noncontrolling interests | — | | | (10,407) | | | — | | | — | | | — | | | (10,407) | | Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 2,625 | | | — | | | — | | | 2,625 | |
Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 393 | | | $ | 868 | | | $ | 19,407 | | | $ | 2,606 | | | $ | (5,035) | | | $ | 18,239 | | |
Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | | Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 13,777 | | | $ | 23,531 | | | $ | 23,995 | | | $ | (10,226) | | | $ | 51,077 | |
The Company uses Income (loss) before income taxes attributable to the Company from continuing operations, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company from continuing operations is a useful measure of the Company’s performance because it provides investors additional information about the Company's operations allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be alternativesan alternative to Income (loss) before income taxes from continuing operations, the most directly comparable amounts reported under GAAP.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 2631
Trade
Operating results for the Trade Groupsegment increased by $13.4$9.9 million compared to the results of the same period last year. Sales and merchandising revenues increased by $946.7$799.9 million and cost of sales and merchandising revenues increased by $928.3$775.7 million for a favorable net gross profit impact of $18.4$24.2 million. The increase to sales and cost of sales is the result of increased commodity prices and volumes. Much of the volume increase is related to the opening of the international merchandising office in the second half of prior year. The increase in gross profit was driven by a strong performance in our domestic assets, particularly around our core footprint in the eastern grain belt, along with well-positioned inventory in our in our feed ingredients business that led to strong margins.
Operating, administrative and general expenses increased by $1.5 million. The increase from the prior year is primarily related to higher labor costs as a result of new locations opened in the second half of 2021.
Interest expense increased by $5.8 million due to both higher borrowings and interest rates on the Company's short-term line of credit compared to the prior year.
Equity in earnings of affiliates decreased by $6.9 million mainly as a result of an impairment of one of the Company's equity method investments of approximately $4.5 million.
Renewables
Operating results for the Renewables segment increased by $22.4 million from the same period last year. Sales and merchandising revenues increased by $266.0 million and cost of sales and merchandising revenues increased by $240.9 million compared to prior year results. As a result, gross profit increased by $25.2 million compared to 2021 results. Most of the increase to sales and cost of sales is the result of increased corn and ethanol commodity prices. The net increase into gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures marketscurrent period results reflect stronger production margins and yields. Included in several commodities provided less spacepre-tax income replacing and acceleratingin the income with merchandising opportunities noted above.quarter is $24.4 million of positive mark-to-market impact of which nearly $18 million are reversals of prior mark-to-market losses. This compared to positive mark-to-market impacts of $13.5 million in the second quarter of 2021.
Operating, administrative and general expenses increased by $6.5$2.0 million primarily due to higher labor and utility costs from the prior year.
Other income increased by $18.5 million, and almost all of the increase from the prior year was a result of the proceeds received as a part of the USDA Biofuel Producer Relief Program that was enacted as a part of the CARES Act, of which approximately half of these proceeds were attributable to the noncontrolling interest.
Plant Nutrient
Operating results for the Plant Nutrient segment increased by $14.3 million compared to the same period in the prior year. Sales and merchandising revenues increased by $148.9 million and cost of sales and merchandising revenues increased by $130.8 million resulting in an $18.1 million increase in gross profit. The increase in gross profit was driven by very strong margins across the Ag Supply Chain and Specialty Liquids product lines due to strong grower income and well-positioned fertilizer inventory despite lower volumes sold.
Operating, administrative and general expenses increased by $3.0 million due to increased labor costs from the prior year.
Interest expense increased by $0.8 million due to higher interest rates and borrowings.
Other
Operating results for the quarter declined by $1.4 million compared to the same period in the prior year. The increase in operating losses was primarily driven by higher operating, administrative and general expenses due to increased variable incentive-based compensation as a result of improved company-wide performance year-over-year.
The Andersons, Inc. | Q2 2022 Form 10-Q | 32
Income Taxes
For the three months ended June 30, 2022, the Company recorded income tax expense from continuing operations of $15.8 million. The Company's effective tax rate was 13.3% on income before taxes from continuing operations of $118.2 million. The difference between the 13.3% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to the tax impact of non-controlling interest as well as certain discrete derivatives and hedging activities offset by state and local income taxes and nondeductible compensation.
For the three months ended June 30, 2021, the Company recorded income tax expense from continuing operations of $9.7 million at an effective tax rate of 18.0%. The difference between the 18.0% effective tax rate and the U.S. federal statutory tax rate of 21% is due to the tax impact of certain discrete derivatives and hedging activities offset by state and local taxes and nondeductible compensation.
The Andersons, Inc. | Q2 2022 Form 10-Q | 33
Operating Results
Comparison of the six months ended June 30, 2022 with the six months ended June 30, 2021 including a reconciliation of GAAP to non-GAAP measures:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2022 |
(in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total |
Sales and merchandising revenues | $ | 6,182,448 | | | $ | 1,565,798 | | | $ | 680,325 | | | $ | — | | | $ | 8,428,571 | |
Cost of sales and merchandising revenues | 6,012,835 | | | 1,490,719 | | | 574,641 | | | — | | | 8,078,195 | |
Gross profit | 169,613 | | | 75,079 | | | 105,684 | | | — | | | 350,376 | |
Operating, administrative and general expenses | 122,520 | | | 16,480 | | | 54,916 | | | 20,630 | | | 214,546 | |
Interest expense (income), net | 21,487 | | | 3,779 | | | 3,384 | | | (870) | | | 27,780 | |
Equity in earnings (losses) of affiliates, net | (6,278) | | | — | | | — | | | — | | | (6,278) | |
Other income (expense), net | 8,007 | | | 18,918 | | | 1,670 | | | (1,607) | | | 26,988 | |
Income (loss) before income taxes from continuing operations | $ | 27,335 | | | $ | 73,738 | | | $ | 49,054 | | | $ | (21,367) | | | $ | 128,760 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 22,303 | | | — | | | — | | | 22,303 | |
Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 27,335 | | | $ | 51,435 | | | $ | 49,054 | | | $ | (21,367) | | | $ | 106,457 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 |
(in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total |
Sales and merchandising revenues | $ | 4,280,377 | | | $ | 1,059,486 | | | $ | 490,661 | | | $ | — | | | $ | 5,830,524 | |
Cost of sales and merchandising revenues | 4,129,989 | | | 1,016,287 | | | 407,400 | | | — | | | 5,553,676 | |
Gross profit | 150,388 | | | 43,199 | | | 83,261 | | | — | | | 276,848 | |
Operating, administrative and general expenses | 118,445 | | | 13,233 | | | 49,967 | | | 20,913 | | | 202,558 | |
Interest expense (income), net | 14,503 | | | 4,094 | | | 2,212 | | | (760) | | | 20,049 | |
Equity in earnings (losses) of affiliates, net | 2,639 | | | — | | | — | | | — | | | 2,639 | |
Other income (expense), net | 7,553 | | | 1,365 | | | 1,436 | | | 584 | | | 10,938 | |
Income (loss) before income taxes from continuing operations | $ | 27,632 | | | $ | 27,237 | | | $ | 32,518 | | | $ | (19,569) | | | $ | 67,818 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 780 | | | — | | | — | | | 780 | |
Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 27,632 | | | $ | 26,457 | | | $ | 32,518 | | | $ | (19,569) | | | $ | 67,038 | |
Trade
Operating results for the Trade segment were consistent with the same period of prior year. Sales and merchandising revenues increased by $1,902.1 million and cost of sales and merchandising revenues increased by $1,882.8 million for an increased gross profit impact of $19.2 million. Most of the increase to sales and merchandising revenues and cost of sales and merchandising revenues was a result of increased commodity prices and volumes. Much of the volume increase is related to the opening of the international merchandising office in the second half of prior year. The increase in gross profit was driven by a strong elevation margins in our domestic assets, along with well-positioned inventories in our feed ingredients business that led to strong margins. These factors were partially offset by the exceptional propane merchandising results from the unseasonably frigid weather experienced by the central U.S. in the first quarter of the prior year that did not recur in the current period.
Operating, administrative and general expenses increased by $4.1 million. The increase from the prior year is primarily related to higher incentive compensationlabor costs from improved operating results and other professional service fees.as a result of new locations opened in the second half of 2021.
Interest expense increased by $2.4$7.0 million due to both higher group borrowings and interest rates on the Company's short-term line of credit compared to the prior year.
Other income increasedThe Andersons, Inc. | Q2 2022 Form 10-Q | 34
Equity in earnings of affiliates decreased by $3.1$8.9 million mainly as a result of an impairment of one of the Company's equity method investments of approximately $4.5 million combined with favorable results from the same equity method investment in the prior year largely driven by a gain on the sale of a grain locationthat didn't recur in the current year.2022.
EthanolRenewables
Operating results for the Ethanol GroupRenewables increased by $22.7$25.0 million from the same period last year. Sales and merchandising revenues increased by $392.8$506.3 million and cost of sales and merchandising revenues increased by $355.5$474.4 million compared to prior year results.year. As a result, gross profit increased by $37.3$31.9 million compared to 2020 results. Mostprior year. The vast majority of the increase to sales and merchandising revenues and cost of sales and merchandising revenues is the result of increased commodity prices. The net increase to gross profit in the current period results reflect improved board crush margins and yields across the ethanol margins, higher coproduct sales from DDGs and corn oilplants, improved co-product values and strong merchandising revenues. Themargins. Unrealized mark-to-market adjustments improved approximately $3.7 million from the prior year results were significantly impacted by COVID-19.year.
Operating, administrative and general expenses increased by $1.1$3.2 million primarily due to higher labor and utility costs from the prior year.
Other income increased by $17.6 million and almost all of the increase in labor and incentive compensation costs from increased production and improved operating results, respectively.the prior year was a result of the proceeds received as a part of the USDA Biofuel Producer Relief Program that was enacted as a part of the CARES Act, of which approximately half of these proceeds were attributable to the noncontrolling interest.
Plant Nutrient
Operating results for the Plant Nutrient Groupsegment increased by $4.6$16.5 million compared to the same period in the prior year. Sales and merchandising revenues increased by $41.6$189.7 million and cost of sales and merchandising revenues increased by $29.5$167.2 million resulting in a $12.1 million increase in gross profit. The increase inincreased gross profit was driven byof $22.4 million. Both sales and merchandising revenues and cost of sales and merchandising revenues were higher due to higher fertilizer prices from the prior year. Gross profit improved year-over-year due to strong margins across thefrom well-positioned inventory in a tight supply market. The most significant margin improvements came from Ag Supply Chain and Specialty Liquids product lines and reflects higher spring demand, strong grower income and well positioned fertilizer inventory.lines.
Operating, administrative and general expenses increased by $8.3$4.9 million due to higher incentive compensationincreased labor costs from and improved operating results.
Interest expense decreased by $0.3 million due to lower interest rates.
Rail
Operating results increased by $0.5 million from the same period last year. Sales and merchandising revenues increased by $2.5 million from prior year. This was driven by a $4.9 million increase in car sale revenues and a $0.6 million increase in repair revenues that was partially offset by a $3.0 million decrease in leasing revenue. Cost of sales and merchandising revenues increased by $2.6 million compared to the prior year due to increased car sale revenues from the prior year. As a result, gross profit decreased by $0.1 million compared to the same period last year.
Operating, administrative and general expenses decreased by $0.8 million due to a decrease in bad debt expense as compared to the prior year. This was partially offset by higher incentive compensation from improved operating results.
Interest expense decreased by $0.4 million due to lower interest rates.
The Andersons, Inc. | Q2 2021 Form 10-Q | 27
Other
Operating results for the second quarter declined by $5.2 million compared to the same period in 2020. The increase in operating losses was primarily driven by higher operating, administrative and general expenses due to increased incentive-based compensation as a result of improved company-wide performance year over year and higher professional services expenses.
Income Taxes
For the three months ended June 30, 2021, the Company recorded an income tax expense of $10.6 million at an effective rate of 18.7%. For the three months ended June 30, 2020, the Company recorded an income tax benefit of $12.2 million at an effective tax rate of 155.8%. The change in effective tax rate for the three months ended June 30, 2021 as compared to the same period last year was primarily attributed to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The prior year also reflects the benefit of net operating loss carryback tax savings opportunities as provided by the CARES Act.
Comparison of the six months ended June 30, 2021 with the six months ended June 30, 2020 including a reconciliation of GAAP to non-GAAP measures:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 4,280,377 | | | $ | 1,059,486 | | | $ | 490,661 | | | $ | 78,931 | | | $ | — | | | $ | 5,909,455 | |
Cost of sales and merchandising revenues | 4,129,989 | | | 1,016,287 | | | 407,400 | | | 59,023 | | | — | | | 5,612,699 | |
Gross profit | 150,388 | | | 43,199 | | | 83,261 | | | 19,908 | | | — | | | 296,756 | |
Operating, administrative and general expenses | 118,445 | | | 13,233 | | | 49,967 | | | 7,290 | | | 20,913 | | | 209,848 | |
Interest expense (income), net | 14,503 | | | 4,094 | | | 2,212 | | | 6,574 | | | (760) | | | 26,623 | |
Equity in earnings (losses) of affiliates, net | 2,639 | | | — | | | — | | | — | | | — | | | 2,639 | |
Other income (expense), net | 7,553 | | | 1,365 | | | 1,436 | | | 1,911 | | | 584 | | | 12,849 | |
Income (loss) before income taxes | $ | 27,632 | | | $ | 27,237 | | | $ | 32,518 | | | $ | 7,955 | | | $ | (19,569) | | | $ | 75,773 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 780 | | | — | | | — | | | — | | | 780 | |
Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 27,632 | | | $ | 26,457 | | | $ | 32,518 | | | $ | 7,955 | | | $ | (19,569) | | | $ | 74,993 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2020 |
(in thousands) | Trade | | Ethanol | | Plant Nutrient | | Rail | | Other | | Total |
Sales and merchandising revenues | $ | 2,729,209 | | | $ | 536,784 | | | $ | 404,738 | | | $ | 72,555 | | | $ | — | | | $ | 3,743,286 | |
Cost of sales and merchandising revenues | 2,607,361 | | | 568,782 | | | 345,609 | | | 52,138 | | | — | | | 3,573,890 | |
Gross profit | 121,848 | | | (31,998) | | | 59,129 | | | 20,417 | | | — | | | 169,396 | |
Operating, administrative and general expenses | 123,153 | | | 11,621 | | | 38,022 | | | 10,443 | | | 11,957 | | | 195,196 | |
Interest expense (income), net | 12,245 | | | 4,257 | | | 3,248 | | | 8,316 | | | (652) | | | 27,414 | |
Equity in earnings (losses) of affiliates, net | 209 | | | — | | | — | | | — | | | — | | | 209 | |
Other income (expense), net | 3,750 | | | 912 | | | 356 | | | 1,955 | | | 1,290 | | | 8,263 | |
Income (loss) before income taxes | $ | (9,591) | | | $ | (46,964) | | | $ | 18,215 | | | $ | 3,613 | | | $ | (10,015) | | | $ | (44,742) | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | (23,856) | | | — | | | — | | | — | | | (23,856) | |
Non-GAAP Income (loss) before income taxes attributable to the Company | $ | (9,591) | | | $ | (23,108) | | | $ | 18,215 | | | $ | 3,613 | | | $ | (10,015) | | | $ | (20,886) | |
The Andersons, Inc. | Q2 2021 Form 10-Q | 28
Trade
Operating results for the Trade Group increased by $37.2 million compared to the results of the same period last year. Sales and merchandising revenues increased by $1,551.2 million and cost of sales and merchandising revenues increased by $1,522.6 million for an increased gross profit impact of $28.5 million. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase in gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures markets in several commodities provided less space income, replacing and accelerating the income with merchandising opportunities noted above.
Operating, administrative and general expenses decreased by $4.7 million. The decrease from the prior year is primarily related to the Company's cost saving initiatives, much of which is headcount reduction, both from acquisition integration and in response to the COVID-19 pandemic. The decrease was partially offset by higher incentive compensation costs from improved operating results.
Interest expense increased by $2.3$1.2 million due to higher group borrowings on the Company's short-term line of credit compared to the prior year.
Ethanol
Operating results for the Ethanol Group increased by $49.6 million from the same period last year. Sales and merchandising revenues increased by $522.7 million and cost of sales and merchandising revenues increased by $447.5 million compared to prior year. As a result, gross profit increased by $75.2 million compared to prior year. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase to gross profit in the current period results reflect significantly improved crush margins, higher coproduct sales from DDGs and corn oil and strong merchandising revenues. The prior year results were significantly impacted by COVID-19 and the group recorded a $10.9 million inventory write down and a $9.6 million mark to market loss.
Operating, administrative and general expenses increased by $1.6 million primarily due to higher labor and incentive compensation costs from increased production and improved operating results, respectively.
Plant Nutrient
Operating results for the Plant Nutrient Group increased by $14.3 million compared to the same period in the prior year. Sales and merchandising revenues increased $85.9 million and cost of sales and merchandising revenues increased by $61.8 million resulting in increased gross profit of $24.1 million. Gross profit improved year over year due to increases in volumes and margins across the breadth of product lines and reflects higher demand, strong grower income and well positioned fertilizer inventory.
Operating, administrative and general expenses increased by $11.9 million due to increased incentive compensation from improved operating results, and other variable expenses supporting additional volume in the current year.
Interest expense decreased by $1.0 million from lower interest rates compared to the prior year.
Rail
Operating results increased by $4.3 million from the same period last year. Sales and merchandising revenues increased by $6.4 million. This was driven by a $11.5 million increase in car sale revenues and a $1.8 million increase in repair revenues that was partially offset by a $6.9 million decrease in leasing revenue. Cost of sales and merchandising increased by $6.9 million compared to the prior year driven by the book value of cars that were sold in the quarter. As a result, gross profit decreased by $0.5 million compared to the same period last year.
Operating, administrative and general expenses decreased by $3.2 million driven by a $1.6 million recovery of previously written off bad debt and overall lower expenses in the period.
Interest expense decreased by $1.7 million from lower borrowings and interest rates compared to the prior year.
The Andersons, Inc. | Q2 2021 Form 10-Q | 29
Other
Operating results declined by $9.6$1.8 million from the same period last year. The increasedecrease in operating lossesother income, net from the prior year was primarily driven by increased incentive-based compensation in operating, administrative and general expenses due to improved company-wide performance year over year and higher professional services expenses.interest received on a tax refund as a result of the CARES Act that did not recur in current year.
Income Taxes
For the six months ended June 30, 2021,2022, the Company recorded an income tax expense from continuing operations of $16.4 million at an$19.9 million. The Company's effective tax rate was 15.4% on income before taxes from continuing operations of $128.8 million. The difference between the 15.4% effective tax rate and the U.S. federal statutory tax rate of 21.6%. 21% is primarily attributable to the tax impact of non-controlling interest as well as certain discrete derivatives and hedging activities offset by state and local income taxes and nondeductible compensation.
For the six months ended June 30, 2020,2021, the Company recorded an income tax benefitexpense from continuing operations of $13.7$14.0 million at an effective tax rate of 30.5%20.7%. The change indifference between the 20.7% effective tax rate forand the six months ended June 30, 2021 as comparedU.S. federal statutory tax rate of 21% due to the same period last year primarily attributed improved operating results in the current year, including additionaltax impact of certain discrete derivatives and hedging activities offset by state and local taxes and nondeductible compensation and increased foreign tax expense, as well as the treatment of mark-to-market activity on certain contracts in the Ethanol segment.compensation.
The Andersons, Inc. | Q2 2022 Form 10-Q | 35
Liquidity and Capital Resources
Working Capital
At June 30, 2021,2022, the Company had working capital from continuing operations of $543.7 million. The following table presents$984.0 million, an increase of $443.6 million from the prior year. This increase was attributable to changes in the following components of current assets from continuing operations and current liabilities:liabilities from continuing operations:
| (in thousands) | (in thousands) | June 30, 2021 | | June 30, 2020 | | Variance | (in thousands) | June 30, 2022 | | June 30, 2021 | | Variance |
Current Assets: | | | | | | |
Current Assets from Continuing Operations: | | Current Assets from Continuing Operations: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 27,538 | | | $ | 30,011 | | | $ | (2,473) | | Cash and cash equivalents | $ | 86,035 | | | $ | 27,538 | | | $ | 58,497 | |
Accounts receivable, net | Accounts receivable, net | 721,575 | | | 537,011 | | | 184,564 | | Accounts receivable, net | 1,141,167 | | | 702,869 | | | 438,298 | |
Inventories | Inventories | 912,299 | | | 616,323 | | | 295,976 | | Inventories | 1,618,326 | | | 904,924 | | | 713,402 | |
Commodity derivative assets – current | Commodity derivative assets – current | 507,148 | | | 112,089 | | | 395,059 | | Commodity derivative assets – current | 638,357 | | | 507,148 | | | 131,209 | |
Other current assets | Other current assets | 65,740 | | | 102,755 | | | (37,015) | | Other current assets | 70,367 | | | 63,266 | | | 7,101 | |
Total current assets | $ | 2,234,300 | | | $ | 1,398,189 | | | $ | 836,111 | | |
Current Liabilities: | | | | | | |
Total current assets from continuing operations | | Total current assets from continuing operations | $ | 3,554,252 | | | $ | 2,205,745 | | | $ | 1,348,507 | |
Current Liabilities from Continuing Operations: | | Current Liabilities from Continuing Operations: | | | | | |
Short-term debt | Short-term debt | 757,271 | | | 96,071 | | | 661,200 | | Short-term debt | 1,161,428 | | | 757,271 | | | 404,157 | |
Trade and other payables | Trade and other payables | 547,169 | | | 503,892 | | | 43,277 | | Trade and other payables | 772,996 | | | 543,503 | | | 229,493 | |
Customer prepayments and deferred revenue | Customer prepayments and deferred revenue | 58,155 | | | 45,734 | | | 12,421 | | Customer prepayments and deferred revenue | 184,154 | | | 55,943 | | | 128,211 | |
Commodity derivative liabilities – current | Commodity derivative liabilities – current | 90,366 | | | 65,186 | | | 25,180 | | Commodity derivative liabilities – current | 185,903 | | | 90,366 | | | 95,537 | |
Current maturities of long-term debt | Current maturities of long-term debt | 56,582 | | | 68,477 | | | (11,895) | | Current maturities of long-term debt | 53,951 | | | 50,069 | | | 3,882 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 181,015 | | | 147,422 | | | 33,593 | | Accrued expenses and other current liabilities | 211,830 | | | 168,221 | | | 43,609 | |
Total current liabilities | $ | 1,690,558 | | | $ | 926,782 | | | $ | 763,776 | | |
Working Capital | $ | 543,742 | | | $ | 471,407 | | | $ | 72,335 | | |
Total current liabilities from continuing operations | | Total current liabilities from continuing operations | $ | 2,570,262 | | | $ | 1,665,373 | | | $ | 904,889 | |
Working Capital from Continuing Operations | | Working Capital from Continuing Operations | $ | 983,990 | | | $ | 540,372 | | | $ | 443,618 | |
Current assets from continuing operations as of June 30, 20212022 increased $836.1$1,348.5 million in comparison to those as of June 30, 2020.2021. This increase was noted in all areas except for cashmainly accounts receivable, inventories and cash equivalents and other current commodity derivative assets. The increases in those accounts receivable, current commodity derivative assets and inventory balances can largely be attributableattributed to the significant increases in the prices of agricultural commodities, including fertilizer, that the Company transacts in the ordinary course of business. The decrease in other current assets is attributable tobusiness from the receipt of federal income tax refunds as a resultsame period of the CARES Actprior year. The Company also opened an international merchandising office in 2020. See also the discussion below on additional sources and usesthird quarter of cash for an understanding ofthe prior year which is contributing to the increase in cash from prior year.working capital as there is a substantial volume of commodities held in that business in 2022.
Current liabilities from continuing operations increased $763.8$904.9 million across all financial statement line items when compared to the prior year primarily due to increases in short-term debt and trade and other payables.year. The increase in short-term debt is the result of higher working capital needs and driven by the significant increasesincrease in agricultural commodity prices from the prices of agricultural commodities.prior year. The increase in trade and other payables, iscustomer prepayments and deferred revenue, and current commodity derivative liabilities are also the result of increasing agricultural commodity prices. Short-term borrowings, while typically at a seasonal high in the spring, are further supporting an unusual price run-up in our core commodities. As we liquidate these commodities in advance of harvest, we expect a reduction to the level of short-term borrowing. The increase in current liabilities was slightly offset by reductions in current maturities of long-term debt.
The Andersons, Inc. | Q2 2021 Form 10-Q | 30
Sources and Uses of Cash
| | | Six Months Ended | | Six Months Ended |
(in thousands) | (in thousands) | | June 30, 2021 | | June 30, 2020 | (in thousands) | | June 30, 2022 | | June 30, 2021 |
Net cash (used in) provided by operating activities | | $ | (245,494) | | | $ | 145,511 | | |
Net cash used in operating activities | | Net cash used in operating activities | | $ | (721,799) | | | $ | (245,494) | |
Net cash used in investing activities | Net cash used in investing activities | | (23,474) | | | (66,002) | | Net cash used in investing activities | | (30,094) | | | (23,474) | |
Net cash provided by (used in) financing activities | | 267,550 | | | (105,068) | | |
Net cash provided by financing activities | | Net cash provided by financing activities | | 622,113 | | | 267,550 | |
Operating Activities
Our operating activities used cash of $245.5$721.8 million and provided cash of $145.5$245.5 million in the first six months of 20212022 and 2020,2021, respectively. The increase in cash used was primarily due to a result in the change ofincreased working capital needs, as discussed above, driven by significant increases in agricultural commodity prices. However, when you removeprices and the impact fromnew international merchandising locations being included in the current year. When the changes in working capital,operating assets and liabilities are removed, cash provided by operating activities was much strongerslightly lower than the prior periodyear due to favorable operating results.the timing of tax refunds and credits in the first quarter of 2021.
The Andersons, Inc. | Q2 2022 Form 10-Q | 36
Investing Activities
Investing activities used cash of $23.5$30.1 million through the first six months of 20212022 compared to cash used of $66.0$23.5 million in the prior year.period. The decreaseincrease from the prior yearperiod was a result of higher proceeds from sales of assets and railcars, fewer purchased railcars and the continued strategic use ofa modest increase in capital spending to enhance overall liquidity and cash management.on continuing operations from the prior year.
We expect to invest approximately $100 million in property, plant and equipment in 2021; approximately 60% of which will be2022 related to maintain facilities.continuing operations.
Financing Activities
Financing activities provided cash of $267.6$622.1 million and $105.1$267.6 million for the six months ended June 30, 20212022 and 2020,2021, respectively. This changeincrease from the prior year was largely due to athe significant increase in short term borrowingsagricultural commodity prices from the prior period and the related need for short-term borrowings. The Company's short-term debt balance of $1,161.4 million is closely aligned to cover working capital needsthe balance of readily marketable inventories of $1,214.4 million as the prices of agricultural commodities continue to rise.June 30, 2022.
The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,404.6$2,501.7 million in borrowings.borrowing capacity. Of the total capacity, $404.6$395.7 million is non-recourse to the Company. As of June 30, 2021,2022, the Company had $1,173.5$1,315.2 million available for borrowing with $237.2$277.5 million of that total being non-recourse to the Company.
The Company paid $11.7$12.2 million in dividends in the first six months of 20212022 compared to $11.5$11.7 million in the prior year.period. The Company paid dividends of $0.180 and $0.175 per common share for the dividends paid in January and April of 2022 and 2021, and 2020.respectively. On June 25, 2021,16, 2022, the Company declared a cash dividend of $0.175$0.180 per common share payable on July 22, 20212022 to shareholders of record on July 6, 2021.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. The Company is in compliance with all such covenants as of June 30, 2021. 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 and railcar assets.1, 2022.
Because the Company is a significant borrower 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, the Company could receive a return of cash.
Management believes our sources of liquidity will be adequate to fund our operations, capital expenditures and service our indebtedness.
At June 30, 2021,2022, the Company had standby letters of credit outstanding of $25.5$5.1 million.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 3137
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.2021. There were no material changes in market risk, specifically commodity and interest rate risk during the six months ended June 30, 2021.2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 20212022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the second quarter of 2021,2022, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 3238
Part II. Other Information
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 20202021 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have beenThe information presented below updates, and should be read in conjunction with, the risk factors in Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Except as presented below, there were no materialother significant changes toin the Company’s risk factors sinceduring the 2020 Form 10-K.
quarter ended June 30, 2022.
The Company faces risks related to international conflicts, such as the ongoing conflict between Russia and Ukraine, that may adversely impact the Company's financial condition or results of operations.
In late February of 2022, Russia initiated a military operation in Ukraine. The Black Sea region is a key international grain and fertilizer export market and the conflict between Russia and Ukraine could continue to disrupt supply and logistics, cause volatility in prices, and impact global margins due to increased commodity, energy, and input costs. While the Company does not have any assets or employees located in the Black Sea region, it does engage in business with parties operating in the region, including some grain originations directly from Ukrainian producers. The conflict could negatively affect our ability to secure product in this region and the credit worthiness of agricultural producers with which we do business. The Company currently does not purchase fertilizer directly from this region, however, the impact to the global fertilizer supply could put the Company’s ability to secure product at risk over time.
To the extent the conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening other risks disclosed in Part I, “Item 1A. Risk Factors” in the Company's 2021 Annual Report on Form 10-K, any of which could materially and adversely affect the Company's financial condition and results of operations. However, due to the continually evolving nature of the conflict, the potential impact that the conflict could have on such risk factors, and others that cannot yet be identified, remains uncertain. The Company continues to monitor the conflict and assess alternatives to mitigate these risks.
The Andersons, Inc. | Q2 2022 Form 10-Q | 39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
April 2021 | | 12,760 | | | $ | 27.38 | | | — | | | — | |
May 2021 | | — | | | — | | | — | | | — | |
June 2021 | | 177 | | | 30.86 | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | 12,937 | | | $ | 27.43 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Periods | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
April 2022 | | — | | | $ | — | | | — | | | $ | — | |
May 2022 | | 588 | | | 50.26 | | | — | | | — | |
June 2022 | | — | | | — | | | — | | | — | |
Total | | 588 | | | $ | 50.26 | | | — | | | $ | 100,000,000 | |
(1) During the three months ended June 30, 2021,2022, the Company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2) NoAs of August 20, 2021, the Company was authorized to purchase up to $100 million of the Company’s common stock (the "Repurchase Plan") on or before August 20, 2024. As of June 30, 2022, none of the $100 million available to repurchase shares were purchased as parthad been utilized. The Repurchase Plan does not obligate the Company to acquire any specific number of publicly announcedshares. Under the Repurchase Plan, shares may be repurchased in privately negotiated and/or open market transactions, including under plans or programs.complying with Rule 10b5-1 under the Exchange Act.
Item 4. Mine Safety Disclosure
The Company is committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values and as an organization strive to ensure that safety is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating performance to mitigate any potential loss to people, equipment, production and the environment. The Company has implemented employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment. Management believes that through these policies the Company has developed an effective safety management system.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95.1 of Item 6. Exhibits of this Quarterly Report on Form 10-Q.
The Andersons, Inc. | Q2 2021 Form 10-Q | 33
Item 6. Exhibits
| | | | | | | | |
| | |
Exhibit Number | | Description |
| | |
10.1 | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1** | | |
| | |
95.1* | | |
| | |
101** | | Inline XBRL Document Set for the Condensed Consolidated Financial Statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
| | |
104** | | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
| | |
* Filed herewith |
** Furnished herewith |
| | |
Items 3, 4, and 5 are not applicable and have been omittedomitted.
The Andersons, Inc. | Q2 20212022 Form 10-Q | 3440
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | |
| | THE ANDERSONS, INC. |
| |
Date: August 4, 20218, 2022 | | /s/ Patrick E. Bowe |
| | Patrick E. Bowe |
| | President and Chief Executive Officer |
| | |
Date: August 4, 20218, 2022 | | /s/ Brian A. Valentine |
| | Brian A. Valentine |
| | Executive Vice President and Chief Financial Officer |
| |
The Andersons, Inc. | Q2 20212022 Form 10-Q | 3541