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 06/30/20222023
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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 | ☐ |
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 33,860,91433,752,186 common shares outstanding at July 22, 2022.21, 2023.
THE ANDERSONS, INC.
INDEX
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PART I. FINANCIAL INFORMATION | |
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PART II. OTHER INFORMATION | |
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Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Sales and merchandising revenues | Sales and merchandising revenues | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | | Sales and merchandising revenues | $ | 4,020,183 | | | $ | 4,450,617 | | | $ | 7,901,421 | | | $ | 8,428,571 | |
Cost of sales and merchandising revenues | Cost of sales and merchandising revenues | 4,219,776 | | | 3,072,398 | | | 8,078,195 | | | 5,553,676 | | Cost of sales and merchandising revenues | 3,798,246 | | | 4,219,776 | | | 7,531,473 | | | 8,078,195 | |
Gross profit | Gross profit | 230,841 | | | 163,407 | | | 350,376 | | | 276,848 | | Gross profit | 221,937 | | | 230,841 | | | 369,948 | | | 350,376 | |
Operating, administrative and general expenses | Operating, administrative and general expenses | 112,559 | | | 105,560 | | | 214,546 | | | 202,558 | | Operating, administrative and general expenses | 116,007 | | | 112,559 | | | 233,242 | | | 214,546 | |
Asset impairment | | Asset impairment | — | | | — | | | 87,156 | | | — | |
Interest expense, net | | Interest expense, net | 13,953 | | | 16,921 | | | 30,578 | | | 27,780 | |
| 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 | Other income, net | 22,826 | | | 5,070 | | | 26,988 | | | 10,938 | | Other income, net | 12,441 | | | 16,792 | | | 20,445 | | | 20,710 | |
Income before income taxes from continuing operations | Income before income taxes from continuing operations | 118,153 | | | 53,702 | | | 128,760 | | | 67,818 | | Income before income taxes from continuing operations | 104,418 | | | 118,153 | | | 39,417 | | | 128,760 | |
Income tax provision from continuing operations | Income tax provision from continuing operations | 15,753 | | | 9,677 | | | 19,856 | | | 14,038 | | Income tax provision from continuing operations | 21,732 | | | 15,753 | | | 15,848 | | | 19,856 | |
Net income from continuing operations | Net income from continuing operations | 102,400 | | | 44,025 | | | 108,904 | | | 53,780 | | Net income from continuing operations | 82,686 | | | 102,400 | | | 23,569 | | | 108,904 | |
Income (loss) from discontinued operations, net of income taxes | (739) | | | 2,099 | | | (1,294) | | | 5,606 | | |
Loss from discontinued operations, net of income taxes | | Loss from discontinued operations, net of income taxes | — | | | (739) | | | — | | | (1,294) | |
Net income | Net income | 101,661 | | | 46,124 | | | 107,610 | | | 59,386 | | Net income | 82,686 | | | 101,661 | | | 23,569 | | | 107,610 | |
Net income attributable to noncontrolling interests | 21,856 | | | 2,625 | | | 22,303 | | | 780 | | |
Net income (loss) attributable to noncontrolling interests | | Net income (loss) attributable to noncontrolling interests | 27,640 | | | 21,856 | | | (16,727) | | | 22,303 | |
Net income attributable to The Andersons, Inc. | Net income attributable to The Andersons, Inc. | $ | 79,805 | | | $ | 43,499 | | | $ | 85,307 | | | $ | 58,606 | | Net income attributable to The Andersons, Inc. | $ | 55,046 | | | $ | 79,805 | | | $ | 40,296 | | | $ | 85,307 | |
| Average number of shares outstanding - basic | Average number of shares outstanding - basic | 33,850 | | | 33,263 | | | 33,795 | | | 33,226 | | Average number of shares outstanding - basic | 33,744 | | | 33,850 | | | 33,683 | | | 33,795 | |
Average number of share outstanding - diluted | Average number of share outstanding - diluted | 34,416 | | | 33,579 | | | 34,416 | | | 33,617 | | Average number of share outstanding - diluted | 34,165 | | | 34,416 | | | 34,193 | | | 34,416 | |
| Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | 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): | | Basic earnings (loss): | |
Continuing operations | Continuing operations | $ | 2.38 | | | $ | 1.25 | | | $ | 2.56 | | | $ | 1.60 | | Continuing operations | $ | 1.63 | | | $ | 2.38 | | | $ | 1.20 | | | $ | 2.56 | |
Discontinued operations | Discontinued operations | (0.02) | | | 0.06 | | | (0.04) | | | 0.16 | | Discontinued operations | — | | | (0.02) | | | — | | | (0.04) | |
| | $ | 2.36 | | | $ | 1.31 | | | $ | 2.52 | | | $ | 1.76 | | | $ | 1.63 | | | $ | 2.36 | | | $ | 1.20 | | | $ | 2.52 | |
Diluted earnings (loss): | Diluted earnings (loss): | | Diluted earnings (loss): | |
Continuing operations | Continuing operations | $ | 2.34 | | | $ | 1.23 | | | $ | 2.52 | | | $ | 1.58 | | Continuing operations | $ | 1.61 | | | $ | 2.34 | | | $ | 1.18 | | | $ | 2.52 | |
Discontinued operations | Discontinued operations | (0.02) | | | 0.07 | | | (0.04) | | | 0.16 | | Discontinued operations | — | | | (0.02) | | | — | | | (0.04) | |
| | $ | 2.32 | | | $ | 1.30 | | | $ | 2.48 | | | $ | 1.74 | | | $ | 1.61 | | | $ | 2.32 | | | $ | 1.18 | | | $ | 2.48 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20222023 Form 10-Q | 1
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 101,661 | | | $ | 46,124 | | | $ | 107,610 | | | $ | 59,386 | | Net income | $ | 82,686 | | | $ | 101,661 | | | $ | 23,569 | | | $ | 107,610 | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
Change in unrecognized actuarial loss and prior service cost | Change in unrecognized actuarial loss and prior service cost | 517 | | | (234) | | | 358 | | | (337) | | Change in unrecognized actuarial loss and prior service cost | (189) | | | 517 | | | (377) | | | 358 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | | Foreign currency translation adjustments | 2,669 | | | (5,679) | | | 3,436 | | | (5,581) | |
Cash flow hedge activity | Cash flow hedge activity | 6,697 | | | (1,858) | | | 19,119 | | | 7,883 | | Cash flow hedge activity | 6,735 | | | 6,697 | | | 1,939 | | | 19,119 | |
Other comprehensive income (loss) | 1,535 | | | (623) | | | 13,896 | | | 10,239 | | |
Other comprehensive income | | Other comprehensive income | 9,215 | | | 1,535 | | | 4,998 | | | 13,896 | |
Comprehensive income | Comprehensive income | 103,196 | | | 45,501 | | | 121,506 | | | 69,625 | | Comprehensive income | 91,901 | | | 103,196 | | | 28,567 | | | 121,506 | |
Comprehensive income attributable to the noncontrolling interests | 21,856 | | | 2,625 | | | 22,303 | | | 780 | | |
Comprehensive income (loss) attributable to the noncontrolling interests | | Comprehensive income (loss) attributable to the noncontrolling interests | 27,640 | | | 21,856 | | | (16,727) | | | 22,303 | |
Comprehensive income attributable to The Andersons, Inc. | Comprehensive income attributable to The Andersons, Inc. | $ | 81,340 | | | $ | 42,876 | | | $ | 99,203 | | | $ | 68,845 | | Comprehensive income attributable to The Andersons, Inc. | $ | 64,261 | | | $ | 81,340 | | | $ | 45,294 | | | $ | 99,203 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20222023 Form 10-Q | 2
The Andersons, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
| (In thousands) | (In thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | (In thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Assets | Assets | | | | | | Assets | | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 86,035 | | | $ | 216,444 | | | $ | 27,538 | | Cash and cash equivalents | $ | 96,293 | | | $ | 115,269 | | | $ | 86,035 | |
Accounts receivable, net | Accounts receivable, net | 1,141,167 | | | 835,180 | | | 702,869 | | Accounts receivable, net | 1,030,271 | | | 1,248,878 | | | 1,141,167 | |
| | 1,618,326 | | | 1,814,538 | | | 904,924 | | | 990,789 | | | 1,731,725 | | | 1,618,326 | |
Commodity derivative assets – current (Note 5) | Commodity derivative assets – current (Note 5) | 638,357 | | | 410,813 | | | 507,148 | | Commodity derivative assets – current (Note 5) | 347,684 | | | 295,588 | | | 638,357 | |
Current assets held-for-sale (Note 14) | 18,627 | | | 20,885 | | | 28,555 | | |
Current assets held-for-sale | | Current assets held-for-sale | — | | | 2,871 | | | 18,627 | |
Other current assets | Other current assets | 70,367 | | | 74,468 | | | 63,266 | | Other current assets | 72,228 | | | 71,622 | | | 70,367 | |
Total current assets | Total current assets | 3,572,879 | | | 3,372,328 | | | 2,234,300 | | Total current assets | 2,537,265 | | | 3,465,953 | | | 3,572,879 | |
Other assets: | Other assets: | | Other assets: | |
Goodwill | Goodwill | 129,342 | | | 129,342 | | | 131,542 | | Goodwill | 129,342 | | | 129,342 | | | 129,342 | |
Other intangible assets, net | Other intangible assets, net | 105,222 | | | 117,137 | | | 125,731 | | Other intangible assets, net | 89,605 | | | 100,907 | | | 105,222 | |
Right of use assets, net | Right of use assets, net | 50,233 | | | 52,146 | | | 42,330 | | Right of use assets, net | 60,003 | | | 61,890 | | | 50,233 | |
Other assets held-for-sale (Note 14) | 24,298 | | | 43,169 | | | 620,745 | | |
Other assets held-for-sale | | Other assets held-for-sale | — | | | — | | | 24,298 | |
Other assets, net | Other assets, net | 91,758 | | | 69,068 | | | 70,879 | | Other assets, net | 90,390 | | | 87,175 | | | 91,758 | |
Total other assets | Total other assets | 400,853 | | | 410,862 | | | 991,227 | | Total other assets | 369,340 | | | 379,314 | | | 400,853 | |
| Property, plant and equipment, net (Note 3) | Property, plant and equipment, net (Note 3) | 763,443 | | | 786,029 | | | 823,563 | | Property, plant and equipment, net (Note 3) | 663,441 | | | 762,729 | | | 763,443 | |
Total assets | Total assets | $ | 4,737,175 | | | $ | 4,569,219 | | | $ | 4,049,090 | | Total assets | $ | 3,570,046 | | | $ | 4,607,996 | | | $ | 4,737,175 | |
Liabilities and equity | Liabilities and equity | | | | | | Liabilities and equity | | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
| | $ | 1,161,428 | | | $ | 501,792 | | | $ | 757,271 | | | $ | 102,752 | | | $ | 272,575 | | | $ | 1,161,428 | |
Trade and other payables | Trade and other payables | 772,996 | | | 1,199,324 | | | 543,503 | | Trade and other payables | 641,376 | | | 1,423,633 | | | 772,996 | |
Customer prepayments and deferred revenue | Customer prepayments and deferred revenue | 184,154 | | | 358,119 | | | 55,943 | | Customer prepayments and deferred revenue | 189,947 | | | 370,524 | | | 184,154 | |
Commodity derivative liabilities – current (Note 5) | Commodity derivative liabilities – current (Note 5) | 185,903 | | | 128,911 | | | 90,366 | | Commodity derivative liabilities – current (Note 5) | 251,101 | | | 98,519 | | | 185,903 | |
Current maturities of long-term debt (Note 4) | Current maturities of long-term debt (Note 4) | 53,951 | | | 32,256 | | | 50,069 | | Current maturities of long-term debt (Note 4) | 27,511 | | | 110,155 | | | 53,951 | |
Current liabilities held-for-sale (Note 14) | 7,314 | | | 13,379 | | | 25,185 | | |
| Current liabilities held-for-sale | | Current liabilities held-for-sale | — | | | — | | | 7,314 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 211,830 | | | 230,148 | | | 168,221 | | Accrued expenses and other current liabilities | 180,552 | | | 245,916 | | | 211,830 | |
Total current liabilities | Total current liabilities | 2,577,576 | | | 2,463,929 | | | 1,690,558 | | Total current liabilities | 1,393,239 | | | 2,521,322 | | | 2,577,576 | |
Long-term lease liabilities | Long-term lease liabilities | 28,929 | | | 31,322 | | | 27,134 | | Long-term lease liabilities | 34,435 | | | 37,147 | | | 28,929 | |
Long-term debt, less current maturities (Note 4) | Long-term debt, less current maturities (Note 4) | 563,447 | | | 600,487 | | | 837,609 | | Long-term debt, less current maturities (Note 4) | 576,489 | | | 492,518 | | | 563,447 | |
Deferred income taxes | Deferred income taxes | 63,383 | | | 71,127 | | | 173,212 | | Deferred income taxes | 57,030 | | | 64,080 | | | 63,383 | |
Other long-term liabilities held-for-sale (Note 14) | 3,113 | | | 16,119 | | | 43,993 | | |
Other long-term liabilities held-for-sale | | Other long-term liabilities held-for-sale | — | | | — | | | 3,113 | |
Other long-term liabilities | Other long-term liabilities | 83,521 | | | 78,531 | | | 51,620 | | Other long-term liabilities | 70,371 | | | 63,160 | | | 83,521 | |
Total liabilities | Total liabilities | 3,319,969 | | | 3,261,515 | | | 2,824,126 | | Total liabilities | 2,131,564 | | | 3,178,227 | | | 3,319,969 | |
Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | 0 | | 0 | | 0 | Commitments and contingencies (Note 13) | |
Shareholders’ equity: | Shareholders’ equity: | | 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 | | |
Common shares, without par value (63,000 shares authorized and 34,064 shares issued for all periods presented) | | Common shares, without par value (63,000 shares authorized and 34,064 shares issued for all periods presented) | 142 | | | 142 | | | 142 | |
Preferred shares, without par value (1,000 shares authorized; none issued) | Preferred shares, without par value (1,000 shares authorized; none issued) | — | | | — | | | — | | Preferred shares, without par value (1,000 shares authorized; none issued) | — | | | — | | | — | |
Additional paid-in-capital | Additional paid-in-capital | 378,740 | | | 368,595 | | | 357,606 | | Additional paid-in-capital | 380,376 | | | 385,248 | | | 378,740 | |
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) | | |
Treasury shares, at cost (270, 446 and 62 shares at 6/30/2023, 12/31/2022 and 6/30/2022, respectively) | | Treasury shares, at cost (270, 446 and 62 shares at 6/30/2023, 12/31/2022 and 6/30/2022, respectively) | (10,270) | | | (15,043) | | | (2,313) | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 25,482 | | | 20,484 | | | 15,090 | |
Retained earnings | Retained earnings | 775,495 | | | 702,759 | | | 669,241 | | Retained earnings | 835,256 | | | 807,770 | | | 775,495 | |
Total shareholders’ equity of The Andersons, Inc. | Total shareholders’ equity of The Andersons, Inc. | 1,167,154 | | | 1,072,425 | | | 1,022,500 | | Total shareholders’ equity of The Andersons, Inc. | 1,230,986 | | | 1,198,601 | | | 1,167,154 | |
Noncontrolling interests | Noncontrolling interests | 250,052 | | | 235,279 | | | 202,464 | | Noncontrolling interests | 207,496 | | | 231,168 | | | 250,052 | |
Total equity | Total equity | 1,417,206 | | | 1,307,704 | | | 1,224,964 | | Total equity | 1,438,482 | | | 1,429,769 | | | 1,417,206 | |
Total liabilities and equity | Total liabilities and equity | $ | 4,737,175 | | | $ | 4,569,219 | | | $ | 4,049,090 | | Total liabilities and equity | $ | 3,570,046 | | | $ | 4,607,996 | | | $ | 4,737,175 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20222023 Form 10-Q | 3
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| | | Six months ended June 30, | | Six months ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Operating Activities | Operating Activities | | | | Operating Activities | | | |
Net income from continuing operations | Net income from continuing operations | $ | 108,904 | | | $ | 53,780 | | Net income from continuing operations | $ | 23,569 | | | $ | 108,904 | |
Income (loss) from discontinued operations, net of income taxes | (1,294) | | | 5,606 | | |
Loss from discontinued operations, net of income taxes | | Loss from discontinued operations, net of income taxes | — | | | (1,294) | |
Net income | Net income | 107,610 | | | 59,386 | | Net income | 23,569 | | | 107,610 | |
Adjustments to reconcile net income to cash used in operating activities: | | |
Adjustments to reconcile net income to cash provided by (used in) operating activities: | | Adjustments to reconcile net income to cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | 67,945 | | | 95,154 | | Depreciation and amortization | 62,585 | | | 67,945 | |
Bad debt expense, net | Bad debt expense, net | 3,069 | | | (1,156) | | Bad debt expense, net | 3,720 | | | 3,069 | |
Equity in (earnings) losses of affiliates, net of dividends | 6,278 | | | (2,639) | | |
Gain on sales of assets, net | (10,305) | | | (6,253) | | |
Equity in losses of affiliates, net of dividends | | Equity in losses of affiliates, net of dividends | 231 | | | 6,278 | |
| Losses (gains) on sales of assets, net | | Losses (gains) on sales of assets, net | 679 | | | (10,305) | |
Stock-based compensation expense | Stock-based compensation expense | 4,708 | | | 4,112 | | Stock-based compensation expense | 6,000 | | | 4,708 | |
Deferred federal income tax | Deferred federal income tax | (13,755) | | | 170 | | Deferred federal income tax | (7,948) | | | (13,755) | |
| Asset impairment | | Asset impairment | 87,156 | | | — | |
| Other | Other | 8,549 | | | 5,570 | | Other | (1,730) | | | 8,549 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (289,196) | | | (58,338) | | Accounts receivable | 207,867 | | | (289,196) | |
Inventories | Inventories | 186,685 | | | 390,506 | | Inventories | 734,855 | | | 186,685 | |
Commodity derivatives | Commodity derivatives | (189,090) | | | (250,691) | | Commodity derivatives | 102,753 | | | (189,090) | |
Other current and non-current assets | Other current and non-current assets | 5,106 | | | 35,568 | | Other current and non-current assets | (1,247) | | | 5,106 | |
Payables and other current and non-current liabilities | Payables and other current and non-current liabilities | (609,403) | | | (516,883) | | Payables and other current and non-current liabilities | (1,011,086) | | | (609,403) | |
Net cash used in operating activities | (721,799) | | | (245,494) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 207,404 | | | (721,799) | |
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) | | Purchases of property, plant and equipment and capitalized software | (74,991) | | | (43,472) | |
Proceeds from sale of assets | Proceeds from sale of assets | 4,672 | | | 3,794 | | Proceeds from sale of assets | 1,192 | | | 4,672 | |
Purchases of investments | Purchases of investments | (2,105) | | | (4,701) | | Purchases of investments | (544) | | | (2,105) | |
| Purchases of Rail assets | Purchases of Rail assets | (27,276) | | | (4,751) | | Purchases of Rail assets | — | | | (27,276) | |
Proceeds from sale of Rail assets | Proceeds from sale of Rail assets | 36,341 | | | 15,616 | | Proceeds from sale of Rail assets | 2,871 | | | 36,341 | |
Other | Other | 1,746 | | | 832 | | Other | (201) | | | 1,746 | |
Net cash used in investing activities | Net cash used in investing activities | (30,094) | | | (23,474) | | Net cash used in investing activities | (71,673) | | | (30,094) | |
Financing Activities | Financing Activities | | | | Financing Activities | | | |
Net receipts (payments) under short-term lines of credit | Net receipts (payments) under short-term lines of credit | 862,698 | | | (258,157) | | Net receipts (payments) under short-term lines of credit | (173,384) | | | 862,698 | |
Proceeds from issuance of short-term debt | Proceeds from issuance of short-term debt | 350,000 | | | 608,250 | | Proceeds from issuance of short-term debt | — | | | 350,000 | |
Payments of short-term debt | Payments of short-term debt | (550,000) | | | — | | Payments of short-term debt | — | | | (550,000) | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | — | | | 108,300 | | Proceeds from issuance of long-term debt | 100,000 | | | — | |
Payments of long-term debt | Payments of long-term debt | (15,077) | | | (177,586) | | Payments of long-term debt | (35,861) | | | (15,077) | |
Contributions from noncontrolling interest owner | Contributions from noncontrolling interest owner | 2,450 | | | 2,940 | | Contributions from noncontrolling interest owner | — | | | 2,450 | |
Distributions to noncontrolling interest owner | Distributions to noncontrolling interest owner | (9,980) | | | (25) | | Distributions to noncontrolling interest owner | (24,344) | | | (9,980) | |
Payments of debt issuance costs | Payments of debt issuance costs | (7,802) | | | (2,059) | | Payments of debt issuance costs | (767) | | | (7,802) | |
Dividends paid | Dividends paid | (12,245) | | | (11,677) | | Dividends paid | (12,527) | | | (12,245) | |
Proceeds from exercises of stock options | Proceeds from exercises of stock options | 5,024 | | | — | | Proceeds from exercises of stock options | — | | | 5,024 | |
Common stock repurchased | | Common stock repurchased | (1,747) | | | — | |
Value of shares withheld for taxes | | Value of shares withheld for taxes | (6,616) | | | (3,349) | |
Other | Other | (2,955) | | | (2,436) | | Other | 259 | | | 394 | |
Net cash provided by financing activities | 622,113 | | | 267,550 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (154,987) | | | 622,113 | |
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | (629) | | | (167) | | Effect of exchange rates on cash and cash equivalents | 280 | | | (629) | |
Decrease in cash and cash equivalents | Decrease in cash and cash equivalents | (130,409) | | | (1,585) | | Decrease in cash and cash equivalents | (18,976) | | | (130,409) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 216,444 | | | 29,123 | | Cash and cash equivalents at beginning of period | 115,269 | | | 216,444 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 86,035 | | | $ | 27,538 | | Cash and cash equivalents at end of period | $ | 96,293 | | | $ | 86,035 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20222023 Form 10-Q | 4
The Andersons, Inc.
Condensed Consolidated Statements of Equity (Unaudited)
(In thousands, except per share data)
| | | Three Months Ended | |
| | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests | | Total | | Three Months Ended |
Balance at March 31, 2021 | $ | 140 | | | $ | 355,961 | | | $ | (2,872) | | | $ | (1,214) | | | $ | 631,652 | | | $ | 198,884 | | | $ | 1,182,551 | | |
Net income | | 43,499 | | | 2,625 | | | 46,124 | | |
Other comprehensive loss | | (2,108) | | | (2,108) | | |
Amounts reclassified from accumulated other comprehensive income | | 1,485 | | | 1,485 | | |
Contributions from noncontrolling interests | | 980 | | | 980 | | |
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) | | 1,645 | | | 138 | | | 1,783 | | |
Dividends declared ($0.1750 per common share) | | (5,826) | | | (5,826) | | |
Restricted share award dividend equivalents | | 84 | | | (84) | | | — | | |
Balance at June 30, 2021 | $ | 140 | | | $ | 357,606 | | | $ | (2,650) | | | $ | (1,837) | | | $ | 669,241 | | | $ | 202,464 | | | $ | 1,224,964 | | |
| | | | | | | | | | | | | | | | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at March 31, 2022 | Balance at March 31, 2022 | $ | 142 | | | $ | 375,794 | | | $ | (2,265) | | | $ | 13,555 | | | $ | 701,799 | | | $ | 228,196 | | | $ | 1,317,221 | | 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 | | Net income | | 79,805 | | | 21,856 | | | 101,661 | |
Other comprehensive income | Other comprehensive income | | 750 | | | 750 | | Other comprehensive income | | 750 | | | 750 | |
Amounts reclassified from accumulated other comprehensive income | Amounts reclassified from accumulated other comprehensive income | | 785 | | | 785 | | 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) | | 2,946 | | | (63) | | | 2,883 | | |
Dividends declared ($0.180 per common share) | | (6,094) | | | (6,094) | | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (1 shares) | | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (1 shares) | | 2,946 | | | (63) | | | 2,883 | |
Dividends declared ($0.1800 per common share) | | Dividends declared ($0.1800 per common share) | | (6,094) | | | (6,094) | |
Restricted share award dividend equivalents | Restricted share award dividend equivalents | | 15 | | | (15) | | | — | | 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 | | Balance at June 30, 2022 | $ | 142 | | | $ | 378,740 | | | $ | (2,313) | | | $ | 15,090 | | | $ | 775,495 | | | $ | 250,052 | | | $ | 1,417,206 | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | $ | 142 | | | $ | 377,768 | | | $ | (11,006) | | | $ | 16,267 | | | $ | 786,420 | | | $ | 176,821 | | | 1,346,412 | |
Net income | | Net income | | 55,046 | | | 27,640 | | | 82,686 | |
Other comprehensive income | | Other comprehensive income | | 11,957 | | | 11,957 | |
Amounts reclassified from accumulated other comprehensive income | | Amounts reclassified from accumulated other comprehensive income | | (2,742) | | | (2,742) | |
| Distributions to noncontrolling interests | | Distributions to noncontrolling interests | | (14,364) | | | (14,364) | |
Deconsolidation of joint venture | | Deconsolidation of joint venture | | 17,399 | | | 17,399 | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (21 shares) | | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (21 shares) | | 2,593 | | | 812 | | | 3,405 | |
Purchase of treasury shares (2 shares) | | Purchase of treasury shares (2 shares) | | (76) | | | (76) | |
Dividends declared ($0.185 per common share) | | Dividends declared ($0.185 per common share) | | (6,245) | | | (6,245) | |
Restricted share award dividend equivalents | | Restricted share award dividend equivalents | | 15 | | | 35 | | | 50 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 142 | | | $ | 380,376 | | | $ | (10,270) | | | $ | 25,482 | | | $ | 835,256 | | | $ | 207,496 | | | $ | 1,438,482 | |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 5
| | | Six Months Ended | | 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 | | |
| | | | | | | | | | | | | | | | Common Shares | | Additional Paid-in Capital | | Treasury Shares | | Accumulated Other Comprehensive Income | | Retained Earnings | | Noncontrolling Interests | | Total |
Balance at December 31, 2021 | Balance at December 31, 2021 | $ | 140 | | | $ | 368,595 | | | $ | (263) | | | $ | 1,194 | | | $ | 702,759 | | | $ | 235,279 | | | $ | 1,307,704 | | Balance at December 31, 2021 | $ | 140 | | | $ | 368,595 | | | $ | (263) | | | $ | 1,194 | | | $ | 702,759 | | | $ | 235,279 | | | $ | 1,307,704 | |
Net income | Net income | | 85,307 | | | 22,303 | | | 107,610 | | Net income | | 85,307 | | | 22,303 | | | 107,610 | |
Other comprehensive income | Other comprehensive income | | 11,721 | | | 11,721 | | Other comprehensive income | | 11,721 | | | 11,721 | |
Amounts reclassified from Accumulated other comprehensive income | Amounts reclassified from Accumulated other comprehensive income | | 2,175 | | | 2,175 | | Amounts reclassified from Accumulated other comprehensive income | | 2,175 | | | 2,175 | |
Cash received from noncontrolling interests, net | Cash received from noncontrolling interests, net | | 2,450 | | | 2,450 | | Cash received from noncontrolling interests, net | | 2,450 | | | 2,450 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | (9,980) | | | (9,980) | | 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) | 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 | | 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) | Dividends declared ($0.360 per common share) | | (12,182) | | | (12,182) | | Dividends declared ($0.360 per common share) | | (12,182) | | | (12,182) | |
Restricted share award dividend equivalents | Restricted share award dividend equivalents | | 54 | | | 335 | | | (389) | | | — | | Restricted share award dividend equivalents | | 54 | | | 335 | | | (389) | | | — | |
Balance at June 30, 2022 | Balance at June 30, 2022 | $ | 142 | | | $ | 378,740 | | | $ | (2,313) | | | $ | 15,090 | | | $ | 775,495 | | | $ | 250,052 | | | $ | 1,417,206 | | Balance at June 30, 2022 | $ | 142 | | | $ | 378,740 | | | $ | (2,313) | | | $ | 15,090 | | | $ | 775,495 | | | $ | 250,052 | | | $ | 1,417,206 | |
| Balance at December 31, 2022 | | Balance at December 31, 2022 | $ | 142 | | | $ | 385,248 | | | $ | (15,043) | | | $ | 20,484 | | | $ | 807,770 | | | $ | 231,168 | | | $ | 1,429,769 | |
Net income (loss) | | Net income (loss) | | 40,296 | | | (16,727) | | | 23,569 | |
Other comprehensive income | | Other comprehensive income | | 10,073 | | | 10,073 | |
Amounts reclassified from Accumulated other comprehensive income | | Amounts reclassified from Accumulated other comprehensive income | | (5,075) | | | (5,075) | |
| Distributions to noncontrolling interests | | Distributions to noncontrolling interests | | (24,344) | | | (24,344) | |
Deconsolidation of joint venture | | Deconsolidation of joint venture | | 17,399 | | | 17,399 | |
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (222 shares) | | Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (222 shares) | | (5,494) | | | 6,355 | | | 861 | |
Purchase of treasury shares (51 shares) | | Purchase of treasury shares (51 shares) | | (1,747) | | | (1,747) | |
Dividends declared ($0.370 per common share) | | Dividends declared ($0.370 per common share) | | (12,485) | | | (12,485) | |
Restricted share award dividend equivalents | | Restricted share award dividend equivalents | | 622 | | | 165 | | | (325) | | | 462 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 142 | | | $ | 380,376 | | | $ | (10,270) | | | $ | 25,482 | | | $ | 835,256 | | | $ | 207,496 | | | $ | 1,438,482 | |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 20222023 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. Following the deconsolidation of ELEMENT in the second quarter of 2023, as discussed in Note 15, TAMH is the Company’s only remaining VIE. 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 businesssegment were classified as held-for-sale in the accompanying Condensed Consolidated Balance Sheets. As discussed further in Note 14,Sheets as the Company executed a definitive agreement to sell the Rail Leasing business. In conjunction with the sale of the Rail Leasing business the Companyand announced its intent to divestsell the remainder of theremaining Rail Repair business, which primarily consisted of the Rail Repair business.was subsequently sold in 2022. 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, Condensed Consolidated Statements of Equity 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, 2022.2023. An unaudited Condensed Consolidated Balance Sheet as of June 30, 20212022 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 20212022 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, 20212022 (the “2021“2022 Form 10-K”).
The Andersons, Inc. | Q2 20222023 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,market information, 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, 2022 | | December 31, 2021 | | June 30, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Grain and other agricultural products (a) | Grain and other agricultural products (a) | $ | 1,241,933 | | | $ | 1,427,708 | | | $ | 636,380 | | Grain and other agricultural products (a) | $ | 707,980 | | | $ | 1,326,531 | | | $ | 1,241,933 | |
Propane and frac sand (a) | 19,483 | | | 23,780 | | | 11,265 | | |
Energy inventories (a) | | Energy inventories (a) | 19,564 | | | 21,084 | | | 19,483 | |
Ethanol and co-products (a) | Ethanol and co-products (a) | 179,175 | | | 184,354 | | | 155,993 | | Ethanol and co-products (a) | 142,978 | | | 156,341 | | | 179,175 | |
Plant nutrients and cob products | Plant nutrients and cob products | 177,735 | | | 178,696 | | | 101,286 | | Plant nutrients and cob products | 120,267 | | | 227,769 | | | 177,735 | |
Total Inventories | $ | 1,618,326 | | | $ | 1,814,538 | | | $ | 904,924 | | |
Total inventories | | Total inventories | $ | 990,789 | | | $ | 1,731,725 | | | $ | 1,618,326 | |
(a) Includes RMI of $1,214.4$691.7 million,, $1,410.9 $1,308.8 million and $612.2$1,214.4 million at June 30, 2022,2023, December 31, 20212022 and June 30, 2021,2022, respectively.
Inventories do not include 1.3 million, 3.0 million and 1.2 million bushels of grain held in storage for others as of June 30, 2022, December 31, 2021 and June 30, 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.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Land | Land | $ | 38,630 | | | $ | 39,162 | | | $ | 39,367 | | Land | $ | 31,838 | | | $ | 38,689 | | | $ | 38,630 | |
Land improvements and leasehold improvements | Land improvements and leasehold improvements | 91,542 | | | 91,122 | | | 93,166 | | Land improvements and leasehold improvements | 81,470 | | | 92,084 | | | 91,542 | |
Buildings and storage facilities | Buildings and storage facilities | 370,453 | | | 368,577 | | | 377,946 | | Buildings and storage facilities | 349,773 | | | 364,721 | | | 370,453 | |
Machinery and equipment | Machinery and equipment | 949,142 | | | 936,476 | | | 921,190 | | Machinery and equipment | 891,368 | | | 980,159 | | | 949,142 | |
Construction in progress | Construction in progress | 31,237 | | | 20,676 | | | 19,723 | | Construction in progress | 56,578 | | | 41,429 | | | 31,237 | |
| | 1,481,004 | | | 1,456,013 | | | 1,451,392 | | | 1,411,027 | | | 1,517,082 | | | 1,481,004 | |
Less: accumulated depreciation | Less: accumulated depreciation | 717,561 | | | 669,984 | | | 627,829 | | Less: accumulated depreciation | 747,586 | | | 754,353 | | | 717,561 | |
Property, plant and equipment, net | Property, plant and equipment, net | $ | 763,443 | | | $ | 786,029 | | | $ | 823,563 | | Property, plant and equipment, net | $ | 663,441 | | | $ | 762,729 | | | $ | 763,443 | |
Depreciation expense on property, plant, and equipment used in continuing operations was $55.8$24.4 million and $62.5$27.5 million for the sixthree months ended June 30, 20222023 and 2021,2022, respectively. Additionally, depreciation expense on property, plant and equipment used in continuing operations was $27.5$50.5 million and $31.4$55.8 million for the threesix months ended June 30, 20222023 and 2021,2022, respectively.
DuringIn the secondfirst quarter of 2022,2023, the Company closed onrecorded a $87.2 million impairment charge related to ELEMENT, LLC ("ELEMENT"), the saleCompany's joint venture ethanol plant within the Renewables segment. The plant has faced operational and market-based challenges which were exacerbated by a shift in the California Low Carbon Fuel Standard credit markets and high western corn basis. At the time of the remaining assetsimpairment, the Company owned 51% of ELEMENT and it was a consolidated entity, so 49% of the impairment charge was represented in Net income (loss) attributable to noncontrolling interests in the Company's Frac Sand business for total considerationCondensed Consolidated Statements of $8.4 million resulting in a pre-tax gain of $3.7 million.Operations.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 8
4. Debt
Short-term and long-term debt at June 30, 2022,2023, December 31, 20212022 and June 30, 20212022 consisted of the following:
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Short-term debt – non-recourse | $ | 97,668 | | | $ | 65,485 | | | $ | 120,020 | |
Short-term debt – recourse | 1,063,760 | | | 436,307 | | | 637,251 | |
Total short-term debt | $ | 1,161,428 | | | $ | 501,792 | | | $ | 757,271 | |
| | | | | |
Current maturities of long-term debt – non-recourse | $ | 7,707 | | | $ | 7,601 | | | $ | 3,691 | |
Current maturities of long-term debt – recourse | 46,244 | | | 24,655 | | | 46,378 | |
Total current maturities of long-term debt | $ | 53,951 | | | $ | 32,256 | | | $ | 50,069 | |
| | | | | |
Long-term debt, less: current maturities – non-recourse | $ | 60,396 | | | $ | 64,972 | | | $ | 100,876 | |
Long-term debt, less: current maturities – recourse | 503,051 | | | 535,515 | | | 736,733 | |
Total long-term debt, less: current maturities | $ | 563,447 | | | $ | 600,487 | | | $ | 837,609 | |
On March 2, 2022, the Company completed an incremental term loan amendment to its credit agreement dated January 11, 2019. The amendment provided for a short-term note of $250.0 million in which the entire stated principal was 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 revolving credit agreement will bear interest at variable rates, which are based on SOFR 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. | | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Short-term debt – non-recourse | $ | 33,555 | | | $ | 81,475 | | | $ | 97,668 | |
Short-term debt – recourse | 69,197 | | | 191,100 | | | 1,063,760 | |
Total short-term debt | $ | 102,752 | | | $ | 272,575 | | | $ | 1,161,428 | |
| | | | | |
Current maturities of long-term debt – non-recourse | $ | 62 | | | $ | 63,815 | | | $ | 7,707 | |
Current maturities of long-term debt – recourse | 27,449 | | | 46,340 | | | 46,244 | |
Total current maturities of long-term debt | $ | 27,511 | | | $ | 110,155 | | | $ | 53,951 | |
| | | | | |
Long-term debt, less: current maturities – non-recourse | $ | — | | | $ | 414 | | | $ | 60,396 | |
Long-term debt, less: current maturities – recourse | 576,489 | | | 492,104 | | | 503,051 | |
Total long-term debt, less: current maturities | $ | 576,489 | | | $ | 492,518 | | | $ | 563,447 | |
The total borrowing capacity of the Company's lines of credit at June 30, 20222023, was $2,501.7$1,869.1 million of which the Company had a total of $1,315.2$1,740.7 million available for borrowing under its lines of credit.borrowing. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit.
As of June 30, 2022,2023, December 31, 20212022 and June 30, 2021,2022, the estimated fair value of long-term debt, including the current portion, was $617.5$597.6 million, $650.7$595.7 million and $910.5$617.5 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.
On April 3, 2023, the Company entered into a $100 million 8-year term loan with approximately half of the proceeds used to repay current maturities of long-term debt. The remainder of the proceeds will be used to pay down a portion of outstanding line of credit borrowings. Payment of principal and interest will be made on a quarterly basis. The loan will bear interest at variable rates.
On April 18, 2023, ELEMENT was placed into receivership. As the receiver took control of ELEMENT within the quarter, under the VIE consolidation model, the Company was deemed to have lost control of the entity and therefore deconsolidated ELEMENT from its Condensed Consolidated Financial Statements. As a result of the deconsolidation, the $62.8 million of non-recourse debt associated with ELEMENT was removed from Current maturities of long-term debt as of June 30, 2023.
The Company is in compliance with all financial covenants as of June 30, 2022.
2023.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 9
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and Renewables 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 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.
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, 2022,2023, December 31, 20212022 and June 30, 2021,2022, 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, 2022 | | December 31, 2021 | | June 30, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Cash collateral paid | $ | 70,442 | | | $ | 165,250 | | | $ | 219,469 | | |
Cash collateral (received) paid | | Cash collateral (received) paid | $ | (15,290) | | | $ | 64,530 | | | $ | 70,442 | |
Fair value of derivatives | Fair value of derivatives | 165,223 | | | (36,843) | | | (180,842) | | Fair value of derivatives | 85,123 | | | (10,014) | | | 165,223 | |
Net derivative asset position | Net derivative asset position | $ | 235,665 | | | $ | 128,407 | | | $ | 38,627 | | Net derivative asset position | $ | 69,833 | | | $ | 54,516 | | | $ | 235,665 | |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 10
The following table presents, on a gross basis, current and non-current commodity derivative assets and liabilities:
| | | June 30, 2022 | | June 30, 2023 |
(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 | $ | 707,542 | | | $ | 14,257 | | | $ | 29,223 | | | $ | 1,945 | | | $ | 752,967 | | Commodity derivative assets | $ | 438,227 | | | $ | 3,959 | | | $ | 26,312 | | | $ | 59 | | | $ | 468,557 | |
Commodity derivative liabilities | Commodity derivative liabilities | (138,627) | | | (2,132) | | | (216,126) | | | (12,040) | | | (368,925) | | Commodity derivative liabilities | (75,253) | | | (1,029) | | | (277,413) | | | (4,215) | | | (357,910) | |
Cash collateral paid | 69,442 | | | — | | | 1,000 | | | — | | | 70,442 | | |
Cash collateral (received) paid | | Cash collateral (received) paid | (15,290) | | | — | | | — | | | — | | | (15,290) | |
Balance sheet line item totals | Balance sheet line item totals | $ | 638,357 | | | $ | 12,125 | | | $ | (185,903) | | | $ | (10,095) | | | $ | 454,484 | | Balance sheet line item totals | $ | 347,684 | | | $ | 2,930 | | | $ | (251,101) | | | $ | (4,156) | | | $ | 95,357 | |
| | | December 31, 2021 | | December 31, 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 | $ | 339,321 | | | $ | 4,677 | | | $ | 23,762 | | | $ | 1,209 | | | $ | 368,969 | | Commodity derivative assets | $ | 325,762 | | | $ | 1,796 | | | $ | 18,426 | | | $ | 686 | | | $ | 346,670 | |
Commodity derivative liabilities | Commodity derivative liabilities | (93,758) | | | (105) | | | (152,673) | | | (2,578) | | | (249,114) | | Commodity derivative liabilities | (94,704) | | | (149) | | | (116,945) | | | (1,484) | | | (213,282) | |
Cash collateral paid | 165,250 | | | — | | | — | | | — | | | 165,250 | | |
Cash collateral (received) paid | | Cash collateral (received) paid | 64,530 | | | — | | | — | | | — | | | 64,530 | |
Balance sheet line item totals | Balance sheet line item totals | $ | 410,813 | | | $ | 4,572 | | | $ | (128,911) | | | $ | (1,369) | | | $ | 285,105 | | Balance sheet line item totals | $ | 295,588 | | | $ | 1,647 | | | $ | (98,519) | | | $ | (798) | | | $ | 197,918 | |
| | | 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 | 219,469 | | | — | | | — | | | — | | | 219,469 | | |
Cash collateral (received) paid | | Cash collateral (received) 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 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 items in which they are located for the three and six months ended June 30, 20222023 and 20212022 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) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Gains on commodity derivatives included in Cost of sales and merchandising revenues | $ | 230,188 | | | $ | 73,688 | | | $ | 264,186 | | | $ | 240,673 | | |
Gains (losses) on commodity derivatives included in Cost of sales and merchandising revenues | | Gains (losses) on commodity derivatives included in Cost of sales and merchandising revenues | $ | 4,827 | | | $ | 230,188 | | | $ | (22,741) | | | $ | 264,186 | |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 11
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2022,2023, December 31, 20212022 and June 30, 2021:2022:
| | | June 30, 2022 | | June 30, 2023 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | | 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 | 628,471 | | | — | | | | — | | Corn | 547,805 | | | — | | | | — | |
Soybeans | Soybeans | 116,679 | | | — | | | | — | | Soybeans | 42,273 | | | — | | | | — | |
Wheat | Wheat | 97,224 | | | — | | | | — | | Wheat | 236,316 | | | — | | | | — | |
Oats | Oats | 37,355 | | | — | | | | — | | Oats | 27,824 | | | — | | | | — | |
Ethanol | Ethanol | — | | | 200,388 | | | | — | | Ethanol | — | | | 208,251 | | | | — | |
Dried distillers grain | Dried distillers grain | — | | | — | | | | 318 | | Dried distillers grain | — | | | — | | | | 479 | |
Soybean meal | Soybean meal | — | | | — | | | | 421 | | Soybean meal | — | | | — | | | | 290 | |
Other | Other | 8,549 | | | 25,767 | | | | 3,032 | | Other | 11,064 | | | 33,819 | | | | 2,704 | |
Subtotal | Subtotal | 888,278 | | | 226,155 | | | | 3,771 | | Subtotal | 865,282 | | | 242,070 | | | | 3,473 | |
Exchange traded: | Exchange traded: | | | | | | | Exchange traded: | | | | | | |
Corn | Corn | 219,020 | | | — | | | | — | | Corn | 177,425 | | | — | | | | — | |
Soybeans | Soybeans | 69,115 | | | — | | | | — | | Soybeans | 27,555 | | | — | | | | — | |
Wheat | Wheat | 74,418 | | | — | | | | — | | Wheat | 59,262 | | | — | | | | — | |
Oats | Oats | 650 | | | — | | | | — | | Oats | 960 | | | — | | | | — | |
Ethanol | Ethanol | — | | | 94,794 | | | | — | | Ethanol | — | | | 74,760 | | | | — | |
Propane | Propane | — | | | 25,578 | | | | — | | Propane | — | | | 63,630 | | | | — | |
Other | Other | 95 | | | 546 | | | | 360 | | Other | — | | | 1,008 | | | | 393 | |
Subtotal | Subtotal | 363,298 | | | 120,918 | | | | 360 | | Subtotal | 265,202 | | | 139,398 | | | | 393 | |
Total | Total | 1,251,576 | | | 347,073 | | | | 4,131 | | Total | 1,130,484 | | | 381,468 | | | | 3,866 | |
| | | December 31, 2021 | | December 31, 2022 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | | 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 | 685,681 | | | — | | | | — | | | Corn | 567,405 | | | — | | | | — | | |
Soybeans | Soybeans | 77,592 | | | — | | | | — | | | Soybeans | 56,608 | | | — | | | | — | | |
Wheat | Wheat | 109,547 | | | — | | | | — | | | Wheat | 102,716 | | | — | | | | — | | |
Oats | Oats | 31,627 | | | — | | | | — | | | Oats | 24,710 | | | — | | | | — | | |
Ethanol | Ethanol | — | | | 192,447 | | | | — | | | Ethanol | — | | | 178,935 | | | | — | | |
Dried distillers grain | Dried distillers grain | — | | | — | | | | 507 | | | Dried distillers grain | — | | | — | | | | 449 | | |
Soybean meal | Soybean meal | — | | | — | | | | 544 | | | Soybean meal | — | | | — | | | | 570 | | |
Other | Other | 57,268 | | | 16,092 | | | | 1,854 | | | Other | 10,054 | | | 44,547 | | | | 2,029 | | |
Subtotal | Subtotal | 961,715 | | | 208,539 | | | | 2,905 | | | Subtotal | 761,493 | | | 223,482 | | | | 3,048 | | |
Exchange traded: | Exchange traded: | | | | | | | | Exchange traded: | | | | | | | |
Corn | Corn | 226,215 | | | — | | | | — | | | Corn | 170,280 | | | — | | | | — | | |
Soybeans | Soybeans | 64,730 | | | — | | | | — | | | Soybeans | 46,380 | | | — | | | | — | | |
Wheat | Wheat | 65,020 | | | — | | | | — | | | Wheat | 111,567 | | | — | | | | — | | |
Oats | Oats | 1,300 | | | — | | | | — | | | Oats | 365 | | | — | | | | — | | |
Ethanol | Ethanol | — | | | 100,884 | | | | — | | | Ethanol | — | | | 94,206 | | | | — | | |
Propane | Propane | — | | | 31,542 | | | | — | | | Propane | — | | | 47,208 | | | | — | | |
Other | Other | 75 | | | 798 | | | | 353 | | | Other | — | | | 588 | | | | 581 | | |
Subtotal | Subtotal | 357,340 | | | 133,224 | | | | 353 | | | Subtotal | 328,592 | | | 142,002 | | | | 581 | | |
Total | Total | 1,319,055 | | | 341,763 | | | | 3,258 | | | Total | 1,090,085 | | | 365,484 | | | | 3,629 | | |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 12
| | | June 30, 2021 | | June 30, 2022 |
(in thousands) | (in thousands) | Number of Bushels | | Number of Gallons | | | 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 | | | — | | | | — | | Corn | 628,471 | | | — | | | | — | |
Soybeans | Soybeans | 75,507 | | | — | | | | — | | Soybeans | 116,679 | | | — | | | | — | |
Wheat | Wheat | 129,264 | | | — | | | | — | | Wheat | 97,224 | | | — | | | | — | |
Oats | Oats | 45,810 | | | — | | | | — | | Oats | 37,355 | | | — | | | | — | |
Ethanol | Ethanol | — | | | 198,316 | | | | — | | Ethanol | — | | | 200,388 | | | | — | |
Dried distillers grain | Dried distillers grain | — | | | — | | | | 372 | | Dried distillers grain | — | | | — | | | | 318 | |
Soybean meal | Soybean meal | — | | | — | | | | 411 | | Soybean meal | — | | | — | | | | 421 | |
Other | Other | 7,803 | | | 3,957 | | | | 1,191 | | Other | 8,549 | | | 25,767 | | | | 3,032 | |
Subtotal | Subtotal | 955,058 | | | 202,273 | | | | 1,974 | | Subtotal | 888,278 | | | 226,155 | | | | 3,771 | |
Exchange traded: | Exchange traded: | | | | | | | Exchange traded: | | | | | | |
Corn | Corn | 243,190 | | | — | | | | — | | Corn | 219,020 | | | — | | | | — | |
Soybeans | Soybeans | 49,375 | | | — | | | | — | | Soybeans | 69,115 | | | — | | | | — | |
Wheat | Wheat | 80,004 | | | — | | | | — | | Wheat | 74,418 | | | — | | | | — | |
Oats | Oats | 1,430 | | | — | | | | — | | Oats | 650 | | | — | | | | — | |
Ethanol | Ethanol | — | | | 112,812 | | | | — | | Ethanol | — | | | 94,794 | | | | — | |
| Propane | Propane | — | | | 18,480 | | | | — | | Propane | — | | | 25,578 | | | | — | |
Other | Other | — | | | 5 | | | | 198 | | Other | 95 | | | 546 | | | | 360 | |
Subtotal | Subtotal | 373,999 | | | 131,297 | | | | 198 | | Subtotal | 363,298 | | | 120,918 | | | | 360 | |
Total | Total | 1,329,057 | | | 333,570 | | | | 2,172 | | Total | 1,251,576 | | | 347,073 | | | | 4,131 | |
The Andersons, Inc. | Q2 20222023 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) 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, 2022, December 31, 2021 and June 30, 2021, theThe Company had recorded the following amounts for the fair value of the Company's other derivatives: | (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | 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 | | |
| Foreign currency contracts included in Other current assets (liabilities) | | Foreign currency contracts included in Other current assets (liabilities) | $ | 852 | | | $ | (3,124) | | | $ | (1,749) | |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Derivatives designated as hedging instruments | |
Interest rate contracts included in Other current assets | Interest rate contracts included in Other current assets | $ | 3,276 | | | $ | — | | | $ | — | | Interest rate contracts included in Other current assets | $ | 11,107 | | | $ | 8,759 | | | $ | 3,276 | |
Interest rate contracts included in Other assets | Interest rate contracts included in Other assets | 15,047 | | | 4,574 | | | 3,849 | | Interest rate contracts included in Other assets | 22,881 | | | 22,641 | | | 15,047 | |
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) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Derivatives not designated as hedging instruments | | | | | | | | |
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 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 Other comprehensive income (loss) | $ | 8,996 | | | $ | 8,923 | | | $ | 2,590 | | | $ | 25,464 | |
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) | | Interest rate derivative gains (losses) included in Interest expense, net | 2,515 | | | (1,013) | | | 4,619 | | | (2,631) | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 14
Outstanding interest rate derivatives, as of June 30, 2022,2023, 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 | | 2019 | | 2025 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.3% | Swap | | 2019 | | 2025 | | $ | 96.9 | | | Interest rate component of debt - accounted for as a hedge | | 2.3% |
Swap | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% | Swap | | 2019 | | 2025 | | $ | 48.4 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% |
Swap | Swap | | 2019 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% | Swap | | 2019 | | 2025 | | $ | 48.4 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% |
Swap | 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% |
Swap | 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% |
Swap | Swap | | 2022 | | 2025 | | $ | 20.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.6% | Swap | | 2022 | | 2025 | | $ | 20.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.6% |
Swap | Swap | | 2022 | | 2029 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.0% | Swap | | 2022 | | 2029 | | $ | 100.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.0% |
Swap | | Swap | | 2022 | | 2029 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.4% |
Swap | | Swap | | 2023 | | 2024 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 3.7% |
Swap | | Swap | | 2023 | | 2025 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 3.7% |
Swap | | Swap | | 2023 | | 2031 | | $ | 50.0 | | | Interest rate component of debt - accounted for as a hedge | | 2.9% |
|
The Andersons, Inc. | Q2 20222023 Form 10-Q | 1514
6. Revenue
Many of the Company’s sales and merchandising revenues are generated from contracts that are outside the scope of Accounting Standard Codification ("ASC")ASC 606, and thus are accounted for under other accounting standards.Revenue from Contracts with Customers. Specifically, many of the Company's Trade and Renewables sales contracts are derivatives under ASC 815, Derivatives and Hedging. Hedging. The breakdown of revenues between the two standards areASC 606 and ASC 815 is 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) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Revenues under ASC 606 | Revenues under ASC 606 | $ | 956,013 | | | $ | 623,813 | | | $ | 1,633,869 | | | $ | 1,110,908 | | Revenues under ASC 606 | $ | 975,269 | | | $ | 956,013 | | | $ | 1,714,247 | | | $ | 1,633,869 | |
Revenues under ASC 815 | Revenues under ASC 815 | 3,494,604 | | | 2,611,992 | | | 6,794,702 | | | 4,719,616 | | Revenues under ASC 815 | 3,044,914 | | | 3,494,604 | | | 6,187,174 | | | 6,794,702 | |
Total revenues | Total revenues | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | | Total revenues | $ | 4,020,183 | | | $ | 4,450,617 | | | $ | 7,901,421 | | | $ | 8,428,571 | |
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, 20222023 and 2021,2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2022 |
(in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 104,357 | | | $ | 104,357 | |
Primary nutrients | — | | | — | | | 336,487 | | | 336,487 | |
Products and co-products | 101,195 | | | 329,224 | | | — | | | 430,419 | |
Propane and frac sand | 46,935 | | | — | | | — | | | 46,935 | |
Other | 6,997 | | | 1,378 | | | 29,440 | | | 37,815 | |
Total | $ | 155,127 | | | $ | 330,602 | | | $ | 470,284 | | | $ | 956,013 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 |
(in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 84,915 | | | $ | 84,915 | |
Primary nutrients | — | | | — | | | 213,604 | | | 213,604 | |
Products and co-products | 74,948 | | | 184,263 | | | — | | | 259,211 | |
Propane and frac sand | 36,649 | | | — | | | — | | | 36,649 | |
Other | 6,151 | | | 394 | | | 22,889 | | | 29,434 | |
Total | $ | 117,748 | | | $ | 184,657 | | | $ | 321,408 | | | $ | 623,813 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2022 |
(in thousands) | Trade | | Renewables | | Plant Nutrient | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 197,625 | | | $ | 197,625 | |
Primary nutrients | — | | | — | | | 426,369 | | | 426,369 | |
Products and co-products | 209,066 | | | 561,918 | | | — | | | 770,984 | |
Propane and frac sand | 166,727 | | | — | | | — | | | 166,727 | |
Other | 13,239 | | | 2,593 | | | 56,332 | | | 72,164 | |
Total | $ | 389,032 | | | $ | 564,511 | | | $ | 680,326 | | | $ | 1,633,869 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three months ended June 30, 2023 |
(in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 98,335 | | | $ | 98,335 | |
Primary nutrients | — | | | — | | | 315,101 | | | 315,101 | |
Products and co-products | 114,289 | | | 368,646 | | | — | | | 482,935 | |
Propane | 30,155 | | | — | | | — | | | 30,155 | |
Other | 14,782 | | | 1,804 | | | 32,157 | | | 48,743 | |
Total | $ | 159,226 | | | $ | 370,450 | | | $ | 445,593 | | | $ | 975,269 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three months ended June 30, 2022 |
(in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 104,357 | | | $ | 104,357 | |
Primary nutrients | — | | | — | | | 336,487 | | | 336,487 | |
Products and co-products | 101,195 | | | 329,224 | | | — | | | 430,419 | |
Propane | 41,088 | | | — | | | — | | | 41,088 | |
Other | 12,844 | | | 1,378 | | | 29,440 | | | 43,662 | |
Total | $ | 155,127 | | | $ | 330,602 | | | $ | 470,284 | | | $ | 956,013 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2023 |
(in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Total |
Specialty nutrients | $ | — | | | $ | — | | | $ | 168,332 | | | $ | 168,332 | |
Primary nutrients | — | | | — | | | 379,851 | | | 379,851 | |
Products and co-products | 203,256 | | | 763,255 | | | — | | | 966,511 | |
Propane | 106,678 | | | — | | | — | | | 106,678 | |
Other | 27,372 | | | 4,152 | | | 61,351 | | | 92,875 | |
Total | $ | 337,306 | | | $ | 767,407 | | | $ | 609,534 | | | $ | 1,714,247 | |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 1615
| | | Six months ended June 30, 2021 | | Six months ended June 30, 2022 |
(in thousands) | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Total | (in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Total |
Specialty nutrients | Specialty nutrients | $ | — | | | $ | — | | | $ | 161,721 | | | $ | 161,721 | | Specialty nutrients | $ | — | | | $ | — | | | $ | 197,625 | | | $ | 197,625 | |
Primary nutrients | Primary nutrients | — | | | — | | | 285,263 | | | 285,263 | | Primary nutrients | — | | | — | | | 426,369 | | | 426,369 | |
Products and co-products | Products and co-products | 146,936 | | | 329,907 | | | — | | | 476,843 | | Products and co-products | 209,066 | | | 561,918 | | | — | | | 770,984 | |
Propane and frac sand | 128,714 | | | — | | | — | | | 128,714 | | |
Propane | | Propane | 155,591 | | | — | | | — | | | 155,591 | |
Other | Other | 10,538 | | | 4,153 | | | 43,676 | | | 58,367 | | Other | 24,375 | | | 2,593 | | | 56,332 | | | 83,300 | |
Total | Total | $ | 286,188 | | | $ | 334,060 | | | $ | 490,660 | | | $ | 1,110,908 | | Total | $ | 389,032 | | | $ | 564,511 | | | $ | 680,326 | | | $ | 1,633,869 | |
Substantially all of the Company's revenues accounted for under ASC 606 during the three and six months ended June 30, 20222023 and 2021,2022, respectively, are recorded at a point in time instead of over time.
Contract balances
The balances of the Company’s contract liabilities were $21.7$15.9 million and $100.8$55.4 million as of June 30, 20222023 and December 31, 2021,2022, 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, isare 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 wereare 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 for our Plant Nutrient & Industrial segment.
The Andersons, Inc. | Q2 2023 Form 10-Q | 16
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 three months ended June 30, 2022,2023, the Company recorded income tax expense from continuing operations of $15.8$21.7 million. The Company's effective tax rate was 13.3%20.8% on income before income taxes from continuing operations of $118.2$104.4 million. The difference between the 13.3%20.8% effective tax rate and the U.S. federal statutory tax rate of 21.0% 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. During the three months ended June 30, 2023, discrete tax expense of $1.4 million was recorded on income before taxes of $6.5 million related to gain on deconsolidation of the ELEMENT joint venture.
For the three months ended June 30, 2021, the Company recorded income tax expense from continuing operations of $9.7 million. The Company’s effective tax rate was 18.0% on income from continuing operations of $53.7 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21.0% due to the tax impact of certain discrete derivatives and hedging activities offset by state and local taxes and nondeductible compensation.
For the six months ended June 30, 2022, the Company recorded income tax expense from continuing operations of $19.9$15.8 million. The Company'sCompany’s effective tax rate was 15.4%13.3% on income before income taxes from continuing operations of $128.8$118.2 million. The difference between the 15.4% effective tax rate anddiffers from the U.S. federal statutory tax rate of 21.0% is primarily attributabledue 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, 2021,2023, the Company recorded an income tax expense from continuing operations of $15.8 million. The Company's effective tax rate was 40.2% on income before income taxes from continuing operations of $39.4 million. The difference between the 40.2% effective tax rate and the U.S. federal statutory tax rate of 21.0% is primarily attributable to the tax impact of non-controlling interest, state and local income taxes and nondeductible compensation. During the six months ended June 30, 2023, a net discrete income tax benefit of $10.6 million was recorded on a net loss before taxes of $88.8 million related to the current year operations, impairment charge, and gain on deconsolidation associated with ELEMENT.
For the six months ended June 30, 2022, the Company recorded income tax expense from continuing operations of $14.0$19.9 million. The Company’s effective tax rate was 20.7%15.4% on income before income taxes from continuing operations of $67.8$128.8 million. The effective tax rate differs from the U.S. federal statutory tax rate of 21.0% due 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.
The Andersons, Inc. | Q2 20222023 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, 20222023 and 2021:2022:
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Currency Translation Adjustment | Currency Translation Adjustment | | | | | | | | | Currency Translation Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | 5,729 | | | $ | 6,963 | | | $ | 5,631 | | | $ | 5,739 | | Beginning balance | | $ | (7,436) | | | $ | 5,729 | | | $ | (8,203) | | | $ | 5,631 | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | | Other comprehensive income (loss) before reclassifications | | 2,669 | | | (5,679) | | | 3,436 | | | (5,581) | |
| Tax effect | Tax effect | | — | | | — | | | — | | | — | | Tax effect | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (5,679) | | | 1,469 | | | (5,581) | | | 2,693 | | Other comprehensive income (loss), net of tax | | 2,669 | | | (5,679) | | | 3,436 | | | (5,581) | |
Ending balance | Ending balance | | $ | 50 | | | $ | 8,432 | | | $ | 50 | | | $ | 8,432 | | Ending balance | | $ | (4,767) | | | $ | 50 | | | $ | (4,767) | | | $ | 50 | |
Hedging Adjustment | Hedging Adjustment | | | | | | | | | Hedging Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | 7,087 | | | $ | (8,365) | | | $ | (5,335) | | | $ | (18,106) | | Beginning balance | | $ | 18,750 | | | $ | 7,087 | | | $ | 23,546 | | | $ | (5,335) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | 7,910 | | | (3,514) | | | 22,833 | | | 4,613 | | Other comprehensive income (loss) before reclassifications | | 11,511 | | | 7,910 | | | 7,209 | | | 22,833 | |
Amounts reclassified from AOCI (a) | Amounts reclassified from AOCI (a) | | 1,013 | | | 2,208 | | | 2,631 | | | 4,360 | | Amounts reclassified from AOCI (a) | | (2,514) | | | 1,013 | | | (4,619) | | | 2,631 | |
Tax effect | Tax effect | | (2,226) | | | (552) | | | (6,345) | | | (1,090) | | Tax effect | | (2,262) | | | (2,226) | | | (651) | | | (6,345) | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | 6,697 | | | (1,858) | | | 19,119 | | | 7,883 | | Other comprehensive income (loss), net of tax | | 6,735 | | | 6,697 | | | 1,939 | | | 19,119 | |
Ending balance | Ending balance | | $ | 13,784 | | | $ | (10,223) | | | $ | 13,784 | | | $ | (10,223) | | Ending balance | | $ | 25,485 | | | $ | 13,784 | | | $ | 25,485 | | | $ | 13,784 | |
Pension and Other Postretirement Adjustment | Pension and Other Postretirement Adjustment | | | | | | | | | Pension and Other Postretirement Adjustment | | | | | | | | |
Beginning balance | Beginning balance | | $ | 481 | | | $ | (70) | | | $ | 640 | | | $ | 33 | | Beginning balance | | $ | 4,695 | | | $ | 481 | | | $ | 4,883 | | | $ | 640 | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | 845 | | | (63) | | | 914 | | | 5 | | Other comprehensive income (loss) before reclassifications | | (15) | | | 845 | | | (29) | | | 914 | |
Amounts reclassified from AOCI (b) | Amounts reclassified from AOCI (b) | | (228) | | | (228) | | | (456) | | | (456) | | Amounts reclassified from AOCI (b) | | (228) | | | (228) | | | (456) | | | (456) | |
Tax effect | Tax effect | | (100) | | | 57 | | | (100) | | | 114 | | Tax effect | | 54 | | | (100) | | | 108 | | | (100) | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | 517 | | | (234) | | | 358 | | | (337) | | Other comprehensive income (loss), net of tax | | (189) | | | 517 | | | (377) | | | 358 | |
Ending balance | Ending balance | | $ | 998 | | | $ | (304) | | | $ | 998 | | | $ | (304) | | Ending balance | | $ | 4,506 | | | $ | 998 | | | $ | 4,506 | | | $ | 998 | |
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 | | — | | | — | | | — | | | — | | 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 | | $ | 15,090 | | | $ | (1,837) | | | $ | 15,090 | | | $ | (1,837) | | Total AOCI Ending Balance | | $ | 25,482 | | | $ | 15,090 | | | $ | 25,482 | | | $ | 15,090 | |
(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.
(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 20222023 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, |
2022 | | 2021 | | 2022 | | 2021 | 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income from continuing operations | Net income from continuing operations | $ | 102,400 | | | $ | 44,025 | | | $ | 108,904 | | | $ | 53,780 | | Net income from continuing operations | $ | 82,686 | | | $ | 102,400 | | | $ | 23,569 | | | $ | 108,904 | |
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 | $ | 80,544 | | | $ | 41,400 | | | $ | 86,601 | | | $ | 53,000 | | |
Net income (loss) attributable to noncontrolling interests (a) | | Net income (loss) attributable to noncontrolling interests (a) | 27,640 | | | 21,856 | | | (16,727) | | | 22,303 | |
Net income attributable to The Andersons, Inc. common shareholders from continuing operations | | Net income attributable to The Andersons, Inc. common shareholders from continuing operations | $ | 55,046 | | | $ | 80,544 | | | $ | 40,296 | | | $ | 86,601 | |
| Income (loss) from discontinued operations, net of income taxes | $ | (739) | | | $ | 2,099 | | | $ | (1,294) | | | $ | 5,606 | | |
Loss from discontinued operations, net of income taxes | | Loss from discontinued operations, net of income taxes | $ | — | | | $ | (739) | | | $ | — | | | $ | (1,294) | |
| Denominator: | Denominator: | | Denominator: | |
Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | 33,850 | | | 33,263 | | | 33,795 | | | 33,226 | | Weighted average shares outstanding – basic | 33,744 | | | 33,850 | | | 33,683 | | | 33,795 | |
Effect of dilutive awards | Effect of dilutive awards | 566 | | | 316 | | | 621 | | | 391 | | Effect of dilutive awards | 421 | | | 566 | | | 510 | | | 621 | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | 34,416 | | | 33,579 | | | 34,416 | | | 33,617 | | Weighted average shares outstanding – diluted | 34,165 | | | 34,416 | | | 34,193 | | | 34,416 | |
| Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | 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): | | Basic earnings (loss): | |
Continuing operations | Continuing operations | $ | 2.38 | | | $ | 1.25 | | | $ | 2.56 | | | $ | 1.60 | | Continuing operations | $ | 1.63 | | | $ | 2.38 | | | $ | 1.20 | | | $ | 2.56 | |
Discontinued operations | Discontinued operations | (0.02) | | | 0.06 | | | (0.04) | | | 0.16 | | Discontinued operations | — | | | (0.02) | | | — | | | (0.04) | |
| | $ | 2.36 | | | $ | 1.31 | | | $ | 2.52 | | | $ | 1.76 | | | $ | 1.63 | | | $ | 2.36 | | | $ | 1.20 | | | $ | 2.52 | |
Diluted earnings (loss): | Diluted earnings (loss): | | | | | | | | Diluted earnings (loss): | | | | | | | |
Continuing operations | Continuing operations | $ | 2.34 | | | $ | 1.23 | | | $ | 2.52 | | | $ | 1.58 | | Continuing operations | $ | 1.61 | | | $ | 2.34 | | | $ | 1.18 | | | $ | 2.52 | |
Discontinued operations | Discontinued operations | (0.02) | | | 0.07 | | | (0.04) | | | 0.16 | | Discontinued operations | — | | | (0.02) | | | — | | | (0.04) | |
| | $ | 2.32 | | | $ | 1.30 | | | $ | 2.48 | | | $ | 1.74 | | | $ | 1.61 | | | $ | 2.32 | | | $ | 1.18 | | | $ | 2.48 | |
(a) All net income (loss) attributable to noncontrolling interests is within continuing operations of the Company.
The Andersons, Inc. | Q2 20222023 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, 2022,2023, December 31, 20212022 and June 30, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2023 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
Commodity derivatives, net (a) | $ | 69,833 | | | $ | 25,524 | | | $ | — | | | $ | 95,357 | |
Provisionally priced contracts (b) | (19,061) | | | (16,529) | | | — | | | (35,590) | |
Convertible preferred securities (c) | — | | | — | | | 15,424 | | | 15,424 | |
Other assets and liabilities (d) | 5,018 | | | 33,988 | | | — | | | 39,006 | |
Total | $ | 55,790 | | | $ | 42,983 | | | $ | 15,424 | | | $ | 114,197 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2022 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Commodity derivatives, net (a) | $ | 54,516 | | | $ | 143,402 | | | $ | — | | | $ | 197,918 | |
Provisionally priced contracts (b) | (20,960) | | | (115,377) | | | — | | | (136,337) | |
Convertible preferred securities (c) | — | | | — | | | 16,278 | | | 16,278 | |
Other assets and liabilities (d) | (209) | | | 31,400 | | | — | | | 31,191 | |
Total | $ | 33,347 | | | $ | 59,425 | | | $ | 16,278 | | | $ | 109,050 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2022 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
| | | | | | | |
Commodity derivatives, net (a) | $ | 235,665 | | | $ | 218,819 | | | $ | — | | | $ | 454,484 | |
Provisionally priced contracts (b) | 38,061 | | | (27,945) | | | — | | | 10,116 | |
Convertible preferred securities (c) | — | | | — | | | 16,803 | | | 16,803 | |
Other assets and liabilities (d) | 1,097 | | | 18,323 | | | — | | | 19,420 | |
Total | $ | 274,823 | | | $ | 209,197 | | | $ | 16,803 | | | $ | 500,823 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2021 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Commodity derivatives, net (a) | $ | 128,407 | | | $ | 156,698 | | | $ | — | | | $ | 285,105 | |
Provisionally priced contracts (b) | 43,944 | | | (89,797) | | | — | | | (45,853) | |
Convertible preferred securities (c) | — | | | — | | | 11,618 | | | 11,618 | |
Other assets and liabilities (d) | 2,784 | | | (7,361) | | | — | | | (4,577) | |
Total | $ | 175,135 | | | $ | 59,540 | | | $ | 11,618 | | | $ | 246,293 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 |
Assets (liabilities) | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
| | | | | | | |
Commodity derivatives, net (a) | $ | 38,627 | | | $ | 390,311 | | | $ | — | | | $ | 428,938 | |
Provisionally priced contracts (b) | 32,710 | | | (25,210) | | | — | | | 7,500 | |
Convertible preferred securities (c) | — | | | — | | | 13,550 | | | 13,550 | |
Other assets and liabilities (d) | 5,373 | | | (14,909) | | | — | | | (9,536) | |
Total | $ | 76,710 | | | $ | 350,192 | | | $ | 13,550 | | | $ | 440,452 | |
(a)Includes associated cash posted/received as collateralcollateral.
(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).
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 20222023 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) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 |
Assets at January 1, | Assets at January 1, | $ | 11,618 | | | $ | 8,849 | | Assets at January 1, | $ | 16,278 | | | $ | 11,618 | |
Additional investments | 3,883 | | | 2,800 | | |
Purchases of additional investments | | Purchases of additional investments | — | | | 3,883 | |
Gains included in Other income, net | Gains included in Other income, net | 404 | | | — | | Gains included in Other income, net | 802 | | | 404 | |
Proceeds from investments | | Proceeds from investments | (1,670) | | | — | |
Assets at March 31, | Assets at March 31, | $ | 15,905 | | | $ | 11,649 | | Assets at March 31, | $ | 15,410 | | | $ | 15,905 | |
Additional Investments | 772 | | | 1,901 | | |
Gains included in Other income, net | 126 | | | — | | |
Purchases of additional investments | | Purchases of additional investments | 235 | | | 772 | |
Gains (losses) included in Other income, net | | Gains (losses) included in Other income, net | (221) | | | 126 | |
| Assets at June 30, | Assets at June 30, | $ | 16,803 | | | $ | 13,550 | | Assets at June 30, | $ | 15,424 | | | $ | 16,803 | |
|
The Andersons, Inc. | Q2 2022 Form 10-Q | 21
The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2022,2023, December 31, 20212022 and June 30, 2021:2022:
| | | 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, 2022 | | December 31, 2021 | | June 30, 2021 | | Valuation Method | | Unobservable Input | | Weighted Average | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 | | Valuation Method | | Unobservable Input | | Weighted Average |
Convertible preferred securities (a) | Convertible preferred securities (a) | $ | 16,803 | | | $ | 11,618 | | | $ | 13,550 | | | Implied based on market prices | | N/A | | N/A | Convertible preferred securities (a) | $ | 15,424 | | | $ | 16,278 | | | $ | 16,803 | | | 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/ | | | | | | |
(in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 | | Valuation Method | | Unobservable Input | | Weighted Average |
Grain Assets (a) | $ | — | | | $ | 9,000 | | | $ | — | | | Third party appraisal | | Various | | N/A |
| | | | | | | | | | | |
Equity method investment (a)(b) | $ | — | | | $ | — | | | $ | 11,538 | | | Discounted cash flow analysis | | Various | | N/A |
(a) The Company recognized impairment charges on a Nebraska grain asset. The fair value of the asset was determined using third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.
(b) 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.
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
The Andersons, Inc. | Q2 2023 Form 10-Q | 21
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 Renewables 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, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Sales revenues | $ | 103,106 | | | $ | 85,294 | | | $ | 189,255 | | | $ | 151,940 | |
Purchases of product and capital assets | 11,983 | | | 8,662 | | | 38,409 | | | 20,336 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Sales of products | $ | 97,099 | | | $ | 103,106 | | | $ | 172,050 | | | $ | 189,255 | |
Purchases of products | 14,524 | | | 11,983 | | | 30,226 | | | 38,409 | |
| | | | | | | |
| (in thousands) | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 | (in thousands) | June 30, 2023 | | December 31, 2022 | | June 30, 2022 |
Accounts receivable | Accounts receivable | $ | 17,560 | | | $ | 9,984 | | | $ | 11,835 | | Accounts receivable | $ | 15,218 | | | $ | 12,272 | | | $ | 17,560 | |
Accounts payable | Accounts payable | 3,060 | | | 6,034 | | | 2,287 | | Accounts payable | 2,503 | | | 7,070 | | | 3,060 | |
The Andersons, Inc. | Q2 2022 Form 10-Q | 22
12. Segment Information
The Company’s operations include 3three 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 Renewables business produces ethanol and co-products through its fivefour co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. The Nutrient & Industrial (formerly Plant NutrientNutrient) business manufactures and distributes plant nutrient products such as agricultural inputs, primarily fertilizer, to dealersfertilizers and farmers,turf care products along with turf careindustrial products such as deicers, dust abatement solutions and corncob-based products. The segment was rebranded in 2023 to reflect the portfolio of market offerings in the segment. 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.
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Revenues from external customers | Revenues from external customers | | | | | | | | Revenues from external customers | | | | | | | |
Trade | Trade | $ | 3,097,767 | | | $ | 2,297,869 | | | $ | 6,182,448 | | | $ | 4,280,377 | | Trade | $ | 2,696,810 | | | $ | 3,097,767 | | | $ | 5,574,590 | | | $ | 6,182,448 | |
Renewables | Renewables | 882,567 | | | 616,527 | | | 1,565,798 | | | 1,059,486 | | Renewables | 877,781 | | | 882,567 | | | 1,717,297 | | | 1,565,798 | |
Plant Nutrient | 470,283 | | | 321,409 | | | 680,325 | | | 490,661 | | |
Nutrient & Industrial | | Nutrient & Industrial | 445,592 | | | 470,283 | | | 609,534 | | | 680,325 | |
Total | Total | $ | 4,450,617 | | | $ | 3,235,805 | | | $ | 8,428,571 | | | $ | 5,830,524 | | Total | $ | 4,020,183 | | | $ | 4,450,617 | | | $ | 7,901,421 | | | $ | 8,428,571 | |
| | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Income (loss) before income taxes from continuing operations | | | | | | | | |
Income before income taxes from continuing operations | | Income before income taxes from continuing operations | | | | | | | |
Trade | Trade | $ | 23,666 | | | $ | 13,777 | | | $ | 27,335 | | | $ | 27,632 | | Trade | $ | 4,990 | | | $ | 23,666 | | | $ | 44,354 | | | $ | 27,335 | |
Renewables1 | 67,776 | | | 26,156 | | | 73,738 | | | 27,237 | | |
Plant Nutrient | 38,311 | | | 23,995 | | | 49,054 | | | 32,518 | | |
Renewables (a) | | Renewables (a) | 66,604 | | | 67,776 | | | (15,909) | | | 73,738 | |
Nutrient & Industrial | | Nutrient & Industrial | 42,565 | | | 38,311 | | | 32,127 | | | 49,054 | |
Other | Other | (11,600) | | | (10,226) | | | (21,367) | | | (19,569) | | Other | (9,741) | | | (11,600) | | | (21,155) | | | (21,367) | |
Income before income taxes from continuing operations | $ | 118,153 | | | $ | 53,702 | | | $ | 128,760 | | | $ | 67,818 | | |
Total | | Total | $ | 104,418 | | | $ | 118,153 | | | $ | 39,417 | | | $ | 128,760 | |
1(a) Includes income (loss) attributable to noncontrolling interests of $21.9$27.6 million and $2.6$21.9 million for the three months ended June 30, 20222023 and 2021,2022, respectively, and $22.3$(16.7) million and $0.8$22.3 million for the six months ended June 30, 20222023 and 2021,2022, respectively.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 2322
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 status of the claim, the Company does not believe the excess, net of the acquisition-related indemnity, is 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 2023 Form 10-Q | 23
14. Other Income
The following table sets forth the items in Other income, net within the Condensed Consolidated Statements of Operations for the periods presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Gain on deconsolidation of joint venture | $ | 6,544 | | | $ | — | | | $ | 6,544 | | | $ | — | |
Property insurance recoveries | 2,180 | | | 1,851 | | | 3,183 | | | 3,106 | |
Interest income | 1,708 | | | 819 | | | 3,175 | | | 1,293 | |
Patronage income | 78 | | | 936 | | | 2,094 | | | 2,399 | |
Gain on sale of frac sand assets | — | | | 3,979 | | | — | | | 3,979 | |
Biofuel Producer Program funds | — | | | 17,643 | | | — | | | 17,643 | |
Equity earnings (losses) in affiliates | (417) | | | (6,034) | | | (231) | | | (6,278) | |
Other | 2,348 | | | (2,402) | | | 5,680 | | | (1,432) | |
Total | $ | 12,441 | | | $ | 16,792 | | | $ | 20,445 | | | $ | 20,710 | |
Individually significant items included in the table above are:
Gain on deconsolidation of joint venture- On April 18, 2023, ELEMENT was placed into receivership. As the receiver took control of ELEMENT within the quarter, under the VIE consolidation model, the Company was deemed to have lost control of the entity and therefore deconsolidated ELEMENT from its Condensed Consolidated Financial Statements. As a result of these activities, the Company recognized a gain on deconsolidation. See footnote 15 for additional information.
Property insurance recoveries - In 2023, property insurance recoveries consisted of proceeds of $2.2 million relating to a conveyor collapse in Delhi, Louisiana in the prior year, the remaining proceeds consists of several individually insignificant amounts in the ordinary course of business. In 2022, property insurance recoveries consisted of proceeds of approximately $3.0 million relating to a prior period incident at the Company’s Galena Park, Texas facility, the remaining proceeds consists of several individually insignificant amounts in the ordinary course of business.
Interest income - The Company earns interest income on cash and cash equivalents held in money market accounts at TAMH along with inventory financing programs provided by the Company. For the six months ended June 30, 2023, the money market account at TAMH earned $1.0 million and the inventory financing program earned $1.1 million , the remaining interest income consists of several individually insignificant amounts in the ordinary course of business. Interest income for the year ended June 30, 2022 consisted of individually insignificant amounts in the ordinary course of business.
Patronage income - As a part of the Company’s normal operations it relies heavily on short-term lines of credit in order to support working capital needs in addition to long-term debt presented on the balance sheet. As part of these programs the Company receives patronage income annually from its lenders.
Gain on sale of frac sand assets - Gains on sale of frac sand assets for the year ended June 30, 2022, consisted of gains on the sale of the Company’s remaining frac sand facilities and assets in Oklahoma City, Oklahoma and North Branch, Minnesota of $4.0 million.
Biofuel Producer Program funds - In 2022, the USDA as a part of the Biofuel Producer Program, created under the CARES Act, provided funding to support biofuel producers who faced unexpected market losses due to the COVID-19 pandemic. Under this program TAMH and ELEMENT received proceeds of $13.3 million and $4.3 million, respectively. Of these proceeds $8.9 million was attributable to the Company and the remaining $8.7 million attributable to the noncontrolling interest.
Equity earnings (losses) in affiliates - In 2022, the Company recorded an impairment charge on a Canadian equity method investment for $4.5 million, the remaining equity earnings (losses) in affiliates consists of individually insignificant activity in the ordinary course of business.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 24
14. Discontinued Operations
15. ELEMENT
OnELEMENT was structured as a limited liability company established for the primary purpose of producing ethanol and additional co-products such as distiller’s dried grain and corn oil. The facility located in Colwich, Kansas was designed to produce 70 million gallons of ethanol per year and began operations in 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.2019.
StartingThe Company holds 51% of the membership units and ICM Holdings, Inc. (“ICM”) owns the remaining 49% of the membership units. The Company acted as the manager of the facility, responsibilities which were assumed per the Management Services Agreement dated January 1, 2021, and it was concluded to be a variable interest entity (“VIE”) and consolidated ELEMENT within the Company’s Consolidated Financial Statements.
The plant has faced operational and market-based challenges. These challenges have been exacerbated by a shift in the third quarter of 2021, substantially allCalifornia Low Carbon Fuel Standard credit markets and high western corn basis. In early 2023, ELEMENT was unable to make its scheduled debt payments and was placed into default. The default led to an impairment triggering event, concluding in an $87.2 million impairment charge in the first quarter.
On April 18, 2023, ELEMENT was placed into receivership and was appointed a receiver, which took possession and control of the assetsrights and liabilitiesinterests of our Rail business were classified as discontinued operationsELEMENT. The facility is being marketed for sale. With this appointment, while retaining its investment in ELEMENT, the Company ceased to have a controlling financial interest and was no longer deemed to be the primary beneficiary in the accompanyingsubsidiary. Accordingly, the Company deconsolidated ELEMENT at that time and began accounting for the subsidiary as an equity method investment which resulted in a pretax gain of $18.1 million. Additionally, the Company had a $9.6 million balance in raw material and fee receivables as well as $2.0 million in loans and interest due from ELEMENT that were previously eliminated in consolidation. Upon deconsolidation, the fair values of these receivables and loans from ELEMENT to the Company were ascertained to have no value and were fully reserved for resulting in a pretax loss of $11.6 million. The combination of this activity triggered by the ELEMENT deconsolidation resulted in a cumulative net pretax gain of $6.5 million which was recorded in Other income, net in the Condensed Consolidated Balance Sheets.Statements of Operations.
As of June 30, 2023, ELEMENT has continued to incur losses and there have been no payments on the outstanding receivables or loan mentioned previously. No equity method losses related to ELEMENT have been recorded since deconsolidation as the investment is in a negative position as of June 30, 2023.
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.16. Subsequent Events
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
On July 10, 2023, the Company closed on the purchase of the assets of ACJ International LLC ("ACJ"), an ingredient, logistics, and supply chain management company in the pet food industry, headquartered in St. Louis, Missouri. The Company purchased ACJ for $41.4 million, of which, $24.4 million was paid at closing and the remaining estimated amount will be paid over three years based on certain earn-out provisions.
The Andersons, Inc. | Q2 20222023 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 pandemicof economic, weather and the pace of recovery from the pandemic, economic and politicalagricultural conditions, regulatory conditions, competition globally and in the markets we serve includingthe Company serves, the ongoing economic impacts from the conflictwar in Ukraine, fluctuations in cost and availability of commodities, weather and agricultural conditions, governmental regulations, the effectiveness of ourthe Company's 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 the 20212022 Form 10-K and under Item 1A in this report.10-K. 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 20212022 Form 10-K, have not materially changed through the second quarter of 2022.2023.
Executive Overview
Our operations are organized, managed and classified into three reportable business segments: Trade, Renewables and Plant Nutrient.Nutrient & Industrial. 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 merchandising revenues and a much less significant impact on Gross profit. As a result, changes in Sales and merchandising revenues between periods may not necessarily be indicative of the overall performance of the business and greater emphasis should be placed on changes in Gross profit.
The Company has considered the potential impact that the book value of the Company’s total shareholders’ equity briefly exceeded the Company’s market capitalization during the quarter for impairment indicators. Management ultimately concluded that an impairment triggering event had not occurred. The Company believes that the share price is not an accurate reflection of its current value as conditions are currently strong in the agriculture space with a positive long-term outlook. Management believes that the market’s impact on the Company’s equity value does not actually 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, the Company concluded that no impairment trigger existed as of June 30, 2022.
The Andersons, Inc. | Q2 2022 Form 10-Q | 28
Trade
The Trade segment’s second quarter operating results improvedwere mixed as overall gross profit declined despite strong earnings from certain well-positioned merchandising businesses. Throughput of agricultural inventories declined from the prior year assecond quarter of 2022. When combined with the segment enteredstrong first quarter, income before income taxes and gross profit remain ahead of 2022 even without $16.1 million of inventory insurance recoveries recorded thus far in 2023. The first half of 2022 included certain margin impacts from the quarter withRussian invasion of Ukraine that were not repeated in the first half of 2023. Recent investments in food and pet food ingredients also contributed to earnings in the quarter. Winter wheat volume accumulated from the just-completed harvest was higher than expected and at good ownership positions and, as expected, benefited from basis improvements. Wheat ownershipqualities 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.
core geography.
Agricultural inventories on hand were 107.074.5 million and 85.8107.0 million bushels at June 30, 20222023 and June 30, 2021,2022, respectively. These bushels consist of 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 184175 million bushels at June 30, 2022 compared2023, which was comparable to 202 million bushels at June 30, 2021.the prior year.
CurrentWith the strong South American harvest, combined with improving U.S. crop conditions, vary by geography, but despite initial delaysthe outlook for global grain stocks has improved. With the mix of assets and merchandising capabilities across key geographies, Trade is well-positioned. While there continues to be geopolitical risks in planting, crop conditions are goodareas in our key draw areas. Continued merchandising opportunities and strong elevation margins are also expected to continue throughwhich we do business, including certain countries that have controlled currencies, the remainderunrest surrounding Black Sea grain shipments could result in continued volatility in commodity markets.
The Andersons, Inc. | Q2 2023 Form 10-Q | 26
Renewables
The Renewables segment's second quarter operating results increased fromwere good on rallying crush margins and strong co-product values. While the results decreased year over year, the prior year due to higher production margins and yields. Also contributing to the increased results wasincluded approximately $24.4 million of positivein additional 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 receivedgains and $17.6 million of proceeds received as a part of the USDA BiofuelsBiofuel Producer COVID relief funds,Program enacted as a part of the CARES Act, of which $8.9 million is included in pre-tax incomewas attributable to the Company.
Higher export demand has helped keep ethanol prices firm, When the impact of these items is removed from prior year results, the current year operating results are well ahead of the prior year. Ethanol crush margins strengthened over the quarter and the current margin outlook, despite lower than anticipated seasonal domestic demand being impacted by the overall high gasoline prices. High corn costs for ethanol productionvolatility, remains strong. Production facilities operated efficiently in the western US may negatively impactquarter with improved ethanol production there, whileand corn oil yield and lower costs than the Company'scomparable quarter in 2022. The merchandising businesses, including renewable diesel feedstocks, continue to deliver solid earnings on higher volumes and strong co-product values, and exceeded our second quarter 2022 results. Our eastern corn belt production facilities are better positionedremain well-positioned for corn supply.
Ethanol and related co-products volumes for the three and six months ended June 30, 20222023 and 20212022 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Ethanol (gallons shipped) | 198,633 | | | 196,536 | | | 385,200 | | | 391,547 | |
E-85 (gallons shipped) | 9,562 | | | 10,600 | | | 19,081 | | | 17,315 | |
Vegetable oils (pounds shipped) (a) | 303,701 | | | 184,644 | | | 565,357 | | | 348,564 | |
DDG (tons shipped) (b) | 508 | | | 450 | | | 1,031 | | | 950 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Ethanol (gallons shipped) | 196,536 | | | 186,396 | | | 391,547 | | | 358,608 | |
E-85 (gallons shipped) | 10,600 | | | 11,914 | | | 17,315 | | | 19,805 | |
Corn oil (pounds shipped) | 122,223 | | | 56,760 | | | 232,544 | | | 104,708 | |
DDG (tons shipped)* | 450 | | | 454 | | | 950 | | | 931 | |
(a) Includes corn oil, soybean oil, and other fats, oils, and greases.*(b) DDG tons shipped converts wet tons to a dry ton equivalent amount.
Plant
The Andersons, Inc. | Q2 2023 Form 10-Q | 27
Nutrient & Industrial
The Plant Nutrient & Industrial segment's second quarter operating results increasedimproved from the prior period. Tonsyear. After a slow first quarter of 2023 when reduced sales reflected delayed purchasing in a falling price environment, customers returned during the 2023 spring application season driving increased tons sold across all product lines were down period over period, however,from the lowersecond quarter of 2022. Gross profit improved by $4 million, and reflects these higher volumes were more thanpartially offset by significant margin increasescompression from well-positioned inventory. The most significant margin improvements came fromoverall market price declines. Strong corn prices are expected to drive demand on specialty liquid products with fall conditions and market dynamics influencing second half volumes as we transition to the Ag Supply Chain and Specialty Liquids product lines. While we have seen some lowering of base nutrient prices, continued strong global demand and disruption should keep prices higher than historical averages. Strong farm income may drive purchasing decisions while overall price levels could cause customers to delay fertilizer purchases.off season.
Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 448 thousand tons for dry nutrients and approximately 511510 thousand tons for liquid nutrients at June 30, 2022,2023, which is similar to the prior year.
The Andersons, Inc. | Q2 2022 Form 10-Q | 29
Tons of product sold for the three and six months ended June 30, 20222023 and 20212022 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) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Ag Supply Chain | Ag Supply Chain | 492 | | | 661 | | | 649 | | | 1,008 | | Ag Supply Chain | 674 | | | 525 | | | 844 | | | 709 | |
Specialty Liquids | Specialty Liquids | 98 | | | 133 | | | 190 | | | 233 | | Specialty Liquids | 141 | | | 129 | | | 222 | | | 238 | |
Engineered Granules | Engineered Granules | 121 | | | 165 | | | 228 | | | 323 | | Engineered Granules | 46 | | | 56 | | | 109 | | | 120 | |
Total tons | Total tons | 711 | | | 959 | | | 1,067 | | | 1,564 | | Total tons | 861 | | | 710 | | | 1,175 | | | 1,067 | |
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. Prior year volumes have been reclassified for the three and six months ended June 30, 2022, to conform with current year presentation as the product mix in certain facilities has evolved.
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 20222023 Form 10-Q | 3028
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, 20222023 with the three months ended June 30, 20212022 including a reconciliation of GAAP to non-GAAP measures:
| | | Three months ended June 30, 2022 | | Three months ended June 30, 2023 |
(in thousands) | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total | (in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Other | | Total |
Sales and merchandising revenues | Sales and merchandising revenues | $ | 3,097,767 | | | $ | 882,567 | | | $ | 470,283 | | | $ | — | | | $ | 4,450,617 | | Sales and merchandising revenues | $ | 2,696,810 | | | $ | 877,781 | | | $ | 445,592 | | | $ | — | | | $ | 4,020,183 | |
Cost of sales and merchandising revenues | Cost of sales and merchandising revenues | 2,995,773 | | | 822,679 | | | 401,324 | | | — | | | 4,219,776 | | Cost of sales and merchandising revenues | 2,616,099 | | | 809,489 | | | 372,658 | | | — | | | 3,798,246 | |
Gross profit | Gross profit | 101,994 | | | 59,888 | | | 68,959 | | | — | | | 230,841 | | Gross profit | 80,711 | | | 68,292 | | | 72,934 | | | — | | | 221,937 | |
Operating, administrative and general expenses | Operating, administrative and general expenses | 62,977 | | | 8,590 | | | 29,591 | | | 11,401 | | | 112,559 | | Operating, administrative and general expenses | 69,146 | | | 7,568 | | | 28,886 | | | 10,407 | | | 116,007 | |
| Interest expense (income), net | Interest expense (income), net | 13,300 | | | 2,012 | | | 1,923 | | | (314) | | | 16,921 | | Interest expense (income), net | 10,903 | | | 1,588 | | | 1,983 | | | (521) | | | 13,953 | |
Equity in earnings (losses) of affiliates, net | (6,034) | | | — | | | — | | | — | | | (6,034) | | |
Other income (expense), net | 3,983 | | | 18,490 | | | 866 | | | (513) | | | 22,826 | | |
| Other income, net | | Other income, net | 4,328 | | | 7,468 | | | 500 | | | 145 | | | 12,441 | |
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 from continuing operations | $ | 4,990 | | | $ | 66,604 | | | $ | 42,565 | | | $ | (9,741) | | | $ | 104,418 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 21,856 | | | — | | | — | | | 21,856 | | |
Income before income taxes attributable to the noncontrolling interests | | Income before income taxes attributable to the noncontrolling interests | — | | | 27,640 | | | — | | | — | | | 27,640 | |
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 | | Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 4,990 | | | $ | 38,964 | | | $ | 42,565 | | | $ | (9,741) | | | $ | 76,778 | |
| | | Three months ended June 30, 2021 | | Three months ended June 30, 2022 |
(in thousands) | (in thousands) | Trade | | Renewables | | Plant Nutrient | | Other | | Total | (in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Other | | Total |
Sales and merchandising revenues | Sales and merchandising revenues | $ | 2,297,869 | | | $ | 616,527 | | | $ | 321,409 | | | $ | — | | | $ | 3,235,805 | | 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 | | | — | | | 3,072,398 | | 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 | | | — | | | 163,407 | | 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 | | | 10,901 | | | 105,560 | | 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 | | | (559) | | | 10,060 | | Interest expense (income), net | 13,300 | | | 2,012 | | | 1,923 | | | (314) | | | 16,921 | |
Equity in earnings (losses) of affiliates, net | 845 | | | — | | | — | | | — | | | 845 | | |
Other income (expense), net | Other income (expense), net | 4,067 | | | 38 | | | 849 | | | 116 | | | 5,070 | | Other income (expense), net | (2,051) | | | 18,490 | | | 866 | | | (513) | | | 16,792 | |
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 from continuing operations | $ | 23,666 | | | $ | 67,776 | | | $ | 38,311 | | | $ | (11,600) | | | $ | 118,153 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | 2,625 | | | — | | | — | | | 2,625 | | |
Income before income taxes attributable to the noncontrolling interests | | Income before income taxes attributable to the noncontrolling interests | — | | | 21,856 | | | — | | | — | | | 21,856 | |
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 | | Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 23,666 | | | $ | 45,920 | | | $ | 38,311 | | | $ | (11,600) | | | $ | 96,297 | |
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 an alternative to Income (loss) before income taxes from continuing operations, the most directly comparable amounts reported under GAAP.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 3129
Trade
Operating results for the Trade segment increaseddecreased by $9.9$18.7 million compared to the results offrom the same period lastof the prior year. Sales and merchandising revenues increaseddecreased by $799.9$401.0 million and cost of sales and merchandising revenues increaseddecreased by $775.7$379.7 million for a favorable netthat resulted in decreased gross profit impact of $24.2$21.3 million. The increase tovast majority of the decrease in sales and merchandising revenues and cost of sales and merchandising revenues is attributable to sharp commodity price decreases from the result of increasedprior year as the war in Ukraine created uncertainty around global supply which drove commodity prices and volumes. Much of the volume increase is related to the opening of the international merchandising officehigher in the second half of prior year.2022. The increasedecrease in gross profit was driven by a strong performanceresult of a $13.1 million decline from lower elevation margins in our domestic assets, particularly around our core footprintasset-based business and a $10.2 million decline in the eastern grain belt, along with well-positioned inventory in our in our feedpremium ingredients business, that led to strong margins.as the exceptional prior year results benefited from the significant rise in commodity prices.
Operating, administrative and general expenses increased by $1.5$6.2 million. The increase from the prior year is primarily related to higher labor$3.3 million in additional bad debt expense, $1.7 million in additional clean-up costs asfrom a result of new locations openedprior year fire at a Michigan grain asset and $1.1 million in the second half of 2021.additional insurance expenses.
Interest expense increaseddecreased by $5.8$2.4 million due to both higherreduced short-term borrowings and interest rates on the Company's short-term line of credit comparedfrom lower commodity prices in addition to the prior year.business managing working capital usage in the higher interest rate environment in 2023.
Equity in earningsOther income, net increased by $6.4 million from the same quarter of affiliates decreased by $6.9 million mainly as2022. This increase was a result of an impairment of one of the Company's equity method investments of approximately $4.5 million.million in the prior year in addition to $2.0 million from insurance recoveries in the current year.
Renewables
Operating results for the Renewables segment increaseddeclined by $22.4$7.0 million from the same period last year. Sales and merchandising revenues increaseddecreased by $266.0$4.8 million and cost of sales and merchandising revenues increaseddecreased by $240.9$13.2 million compared to prior year results. As a result, gross profit increased by $25.2$8.4 million compared to 20212022 results. MostThe deconsolidation of ELEMENT in the increase tosecond quarter resulted in a reduction of both sales and merchandising revenues and cost of sales isand merchandising revenues of approximately $60 million. The reduction of both sales and merchandising revenues and cost of sales and merchandising revenues were partially offset by increased third-party trading volumes mainly in the result of increased corn and ethanol commodity prices.renewable diesel feedstocks merchandising business. The increase to gross profit in the current period results reflect stronger productiona $27.7 million margin improvement at the ethanol plants, primarily from improved ethanol margins and yields. Included in pre-tax income in the quarter is $24.4increased co-product values which was partially offset by unfavorable unrealized mark-to-market adjustments of $21.8 million of positive mark-to-market impact of which nearly $18 million are reversals of prior mark-to-market losses. Thiswhen compared to positive mark-to-market impacts of $13.5 million in the second quarter of 2021.prior year.
Operating, administrative and general expenses increaseddecreased by $2.0$1.0 million primarily due to higher labor and utility costs from the prior year.year, of which, the majority was due to the deconsolidation of ELEMENT operations early in the second quarter.
Other income, increased by $18.5 million, and almost all of the increasenet decreased from the prior year was a result ofby $11.0 million due to $17.6 million in proceeds received in the proceeds receivedprior year as a part of the USDA Biofuel Producer Relief Program that was enacted asProgram. In 2023, the Company recorded a part$6.5 million gain on the deconsolidation of the CARES Act, of which approximately half of these proceeds were attributable to the noncontrolling interest.ELEMENT joint venture.
Plant Nutrient & Industrial
Operating results for the Plant Nutrient & Industrial segment increased by $14.3$4.3 million compared to the same period in the prior year. Sales and merchandising revenues increaseddecreased by $148.9$24.7 million and cost of sales and merchandising revenues increaseddecreased by $130.8$28.7 million resulting in an $18.1$4.0 million increase in gross profit. The decrease in sales and merchandising revenues and cost of sales and merchandising revenues was due to fertilizer prices decreasing approximately 50% from the prior year. This decrease in fertilizer prices from the prior year was partially offset by increased demand as volumes sold increased by approximately 21% in the second quarter of the current year. The increase in gross profit was mainly driven by very stronga $12.4 million favorable impact from the increased volumes sold which was partially offset by an $8.4 million decrease in sales 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 resultsResults for the quarter declinedimproved by $1.4$1.9 million compared to the same period in the prior year. The increaseimprovement in operating lossesresults was primarily driven by higher operating, administrative and general expenses duea $1.0 million reduction of incentive compensation expense when compared to increased variable incentive-based compensation as a resultthe same quarter of improved company-wide performance year-over-year.
prior year.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 3230
Income Taxes
For the three months ended June 30, 2023, the Company recorded income tax expense from continuing operations of $21.7 million. The Company's effective tax rate was 20.8% on income before taxes from continuing operations of $104.4 million. The difference between the 20.8% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to the tax impact of non-controlling interest offset by state and local income taxes and nondeductible compensation. During the three months ended June 30, 2023, discrete tax expense of $1.4 million was recorded on income before taxes of $6.5 million related to a gain on the deconsolidation of a joint venture.
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 effective tax rate differs from the U.S. federal statutory tax rate of 21.0% 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 2023 Form 10-Q | 31
Comparison of the six months ended June 30, 2023 with the six months ended June 30, 2022 including a reconciliation of GAAP to non-GAAP measures:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2023 |
(in thousands) | Trade | | Renewables | | Nutrient & Industrial | | Other | | Total |
Sales and merchandising revenues | $ | 5,574,590 | | | $ | 1,717,297 | | | $ | 609,534 | | | $ | — | | | $ | 7,901,421 | |
Cost of sales and merchandising revenues | 5,376,701 | | | 1,633,202 | | | 521,570 | | | — | | | 7,531,473 | |
Gross profit | 197,889 | | | 84,095 | | | 87,964 | | | — | | | 369,948 | |
Operating, administrative and general expenses | 141,126 | | | 16,472 | | | 53,018 | | | 22,626 | | | 233,242 | |
Asset impairment | — | | | 87,156 | | | — | | | — | | | 87,156 | |
Interest expense (income), net | 22,720 | | | 4,685 | | | 4,165 | | | (992) | | | 30,578 | |
| | | | | | | | | |
Other income, net | 10,311 | | | 8,309 | | | 1,346 | | | 479 | | | 20,445 | |
Income (loss) before income taxes from continuing operations | $ | 44,354 | | | $ | (15,909) | | | $ | 32,127 | | | $ | (21,155) | | | $ | 39,417 | |
Income (loss) before income taxes attributable to the noncontrolling interests | — | | | (16,727) | | | — | | | — | | | (16,727) | |
Non-GAAP Income (loss) before income taxes attributable to the Company from continuing operations | $ | 44,354 | | | $ | 818 | | | $ | 32,127 | | | $ | (21,155) | | | $ | 56,144 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2022 |
(in thousands) | Trade | | Renewables | | Nutrient & Industrial | | 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 | |
| | | | | | | | | |
Other income (expense), net | 1,729 | | | 18,918 | | | 1,670 | | | (1,607) | | | 20,710 | |
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 | |
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 an alternative to Income (loss) before income taxes from continuing operations, the most directly comparable amounts reported under GAAP.
The Andersons, Inc. | Q2 2023 Form 10-Q | 32
Trade
Operating results for the Trade segment increased by $17.0 million from the prior year. Sales and merchandising revenues decreased by $607.9 million and cost of sales and merchandising revenues decreased by $636.1 million for an increased gross profit impact of $28.3 million. The vast majority of the decrease in sales and merchandising revenues and cost of sales and merchandising revenues is attributable to sharp commodity price decreases from the prior year as the war in Ukraine created uncertainty around global supply which drove commodity prices higher in 2022. The $28.3 million increase in gross profit was mainly related to the performance of both the assets and merchandising businesses. The asset-based business contributed approximately $10.4 million to gross profit as it recorded approximately $16.1 million worth of inventory insurance recoveries, which were partially offset by lower elevation margins when compared to the prior year. The merchandising business contributed approximately $19.7 million to gross profit as well-positioned inventories generated strong margins, with a $9.4 million decline in the premium ingredients business that couldn't repeat exceptional prior year results from the significant rise in commodity prices that occurred during that period.
Operating, administrative and general expenses increased by $18.6 million from the same period of prior year. The main drivers of the increase relate to an additional $5.2 million in insurable clean-up costs in the current quarter related to a fire at a Michigan grain asset, $5.0 million from new merchandising locations, $3.3 million in additional bad debt expense, and $2.0 million in increased insurance expenses.
Interest expense increased by $1.2 million due to rising interest rates which were partially offset by lower short-term borrowings as the Company continues to manage working capital.
Other income, net increased by $8.6 million from the same period of 2022. The increase was primarily attributable to favorable changes in foreign currency of $5.4 million when compared to the prior year along with approximately $2.0 million of property insurance recoveries in the current year.
Renewables
Operating results for Renewables decreased by $50.6 million from the same period of prior year, primarily due to the asset impairment charge discussed below. Sales and merchandising revenues increased by $151.5 million and cost of sales and merchandising revenues increased by $142.5 million compared to prior year. As a result, gross profit increased by $9.0 million to the prior year. The increase in sales and merchandising revenues and cost of sales and merchandising revenues are mainly due to increased third-party trading volumes mainly in the renewable diesel feedstocks as that business has grown significantly from the prior year. The increase in volumes was partially offset from the tapering down of operations at the ELEMENT facility and the ultimate deconsolidation of the entity that occurred in April of 2023 resulting in a reduction from the prior period of approximately $65 million in sales and merchandising revenues and cost of sales and merchandising revenues, respectively. The remainder of the decrease is associated to decreased commodity prices that were partially offset by higher volumes in the third-party trading of renewable diesel feedstocks. The gross profit associated with the ethanol plants was $23.8 million higher than the prior year from improved ethanol crush margins and increased co-product values which was partially offset by unfavorable unrealized mark-to-market adjustments of $14.0 million when compared to the prior year.
An asset impairment charge of $87.2 million related to the ELEMENT ethanol plant in Colwich, Kansas was recorded in the current year. As ELEMENT was a consolidated subsidiary of the Company at the time, the entire impairment charge is represented in Asset impairment.
Interest expense increased by $0.9 million due to rising interest rates on the Company's short-term line of credit compared to the prior year.
Other income, net decreased from the prior year by $10.6 million due to $17.6 million in proceeds received in the prior year as a part of the USDA Biofuel Producer Program that was enacted as a part of the CARES Act. In 2023, the Company recorded a $6.5 million gain on the deconsolidation of the ELEMENT joint venture.
The Andersons, Inc. | Q2 2023 Form 10-Q | 33
Nutrient & Industrial
Operating results for the Nutrient & Industrial segment decreased by $16.9 million compared to record results through the second quarter of prior year. Sales and merchandising revenues decreased $70.8 million and cost of sales and merchandising revenues decreased by $53.1 million resulting in decreased gross profit of $17.7 million. The decrease in sales and merchandising revenues and cost of sales and merchandising revenues was mainly due to the reset of fertilizer prices from the record high prices resulting from an already tight supply market and exaggerated by the war in Ukraine in the first half of 2022. Although fertilizer prices decreased approximately 50% from the prior year, the Company experienced a significant increase in volumes in the later stages of the first half of 2023 as demand shifted from first quarter to the second which partially offset the impact of decreased fertilizer prices when compared to the prior year. Gross profit decreased from the prior year by approximately $24.8 million due to margin decreases and was partially offset by increased sales volumes of $7.1 million.
Operating, administrative and general expenses decreased by $1.9 million due to reduced incentive compensation when compared to results in the prior year.
Interest expense increased by $0.8 million due to rising interest rates on the Company's short-term line of credit compared to the prior year.
Other
Other expenses were consistent with the same period last year as higher health insurance claims from the Company's self-funded medical insurance plan in the current year were largely offset by a modest gain on a cost method investment.
Income Taxes
For the six months ended June 30, 2023, the Company recorded an income tax expense from continuing operations of $15.8 million. The Company's effective tax rate was 40.2% on income before taxes from continuing operations of $39.4 million. The difference between the 13.3%40.2% effective tax rate and the U.S. federal statutory tax rate of 21%21.0% is primarily attributable to the tax impact of noncontrolling interest, state and local income taxes and nondeductible compensation. During the six months ended June 30, 2023, a net discrete income tax benefit of $10.6 million was recorded on a net loss before taxes of $88.8 million related to the current year operations, impairment charge, and gain on the deconsolidation of a joint venture.
For the six months ended June 30, 2022, the Company recorded income tax expense from continuing operations of $19.9 million. The Company’s effective tax rate was 15.4% on income from continuing operations of $128.8 million. The effective tax rate differs from the U.S. federal statutory rate of 21.0% due 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.
ForThe Company’s subsidiary partnership returns are under federal tax examination by the three months ended June 30, 2021,Internal Revenue Service (“IRS”) for the Company recordedtax years 2015 through 2018, respectively. The Company’s subsidiary is under federal tax examination by the Mexican tax authorities for tax year 2015. The IRS and Mexican tax authorities’ examinations could potentially be resolved within the next 12 months. The resolution of these examinations could change our unrecognized tax benefits and favorably impact income tax expense from continuing operationsby a range of $9.7$2.9 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.
$8.1 million.
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 labor costs as a result of new locations opened in the second half of 2021.
Interest expense increased by $7.0 million due to both higher borrowings and interest rates on the Company's short-term line of credit compared to the prior year.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 34
Equity in earnings of affiliates decreased by $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 that didn't recur in 2022.
Renewables
Operating results for Renewables increased by $25.0 million from the same period last year. Sales and merchandising revenues increased by $506.3 million and cost of sales and merchandising revenues increased by $474.4 million compared to prior year. As a result, gross profit increased by $31.9 million compared to prior 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 plants, improved co-product values and strong merchandising margins. Unrealized mark-to-market adjustments improved approximately $3.7 million from the prior year.
Operating, administrative and general expenses increased by $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 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 $16.5 million compared to the same period in the prior year. Sales and merchandising revenues increased $189.7 million and cost of sales and merchandising revenues increased by $167.2 million resulting in increased gross profit of $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 from well-positioned inventory in a tight supply market. The most significant margin improvements came from Ag Supply Chain and Specialty Liquids product lines.
Operating, administrative and general expenses increased by $4.9 million due to increased labor costs from the prior year.
Interest expense increased by $1.2 million due to higher interest rates and borrowings.
Other
Operating results declined by $1.8 million from the same period last year. The decrease in other income, net from the prior year was due to 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, 2022, the Company recorded income tax expense from continuing operations of $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% 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, 2021, the Company recorded income tax expense from continuing operations of $14.0 million at an effective tax rate of 20.7%. The difference between the 20.7% effective tax rate and the U.S. federal statutory tax rate of 21% 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 | 35
Liquidity and Capital Resources
Working Capital
At June 30, 2022,2023, the Company had working capital from continuing operations of $984.0$1,144.0 million, an increase of $443.6$160.0 million from the prior year. This increase was attributable to changes in the following components of current assets from continuing operations and current liabilities from continuing operations:
| (in thousands) | (in thousands) | June 30, 2022 | | June 30, 2021 | | Variance | (in thousands) | June 30, 2023 | | June 30, 2022 | | Variance |
Current Assets from Continuing Operations: | Current Assets from Continuing Operations: | | | | | | Current Assets from Continuing Operations: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 86,035 | | | $ | 27,538 | | | $ | 58,497 | | Cash and cash equivalents | $ | 96,293 | | | $ | 86,035 | | | $ | 10,258 | |
Accounts receivable, net | Accounts receivable, net | 1,141,167 | | | 702,869 | | | 438,298 | | Accounts receivable, net | 1,030,271 | | | 1,141,167 | | | (110,896) | |
Inventories | Inventories | 1,618,326 | | | 904,924 | | | 713,402 | | Inventories | 990,789 | | | 1,618,326 | | | (627,537) | |
Commodity derivative assets – current | Commodity derivative assets – current | 638,357 | | | 507,148 | | | 131,209 | | Commodity derivative assets – current | 347,684 | | | 638,357 | | | (290,673) | |
Other current assets | Other current assets | 70,367 | | | 63,266 | | | 7,101 | | Other current assets | 72,228 | | | 70,367 | | | 1,861 | |
Total current assets from continuing operations | Total current assets from continuing operations | $ | 3,554,252 | | | $ | 2,205,745 | | | $ | 1,348,507 | | Total current assets from continuing operations | $ | 2,537,265 | | | $ | 3,554,252 | | | $ | (1,016,987) | |
Current Liabilities from Continuing Operations: | Current Liabilities from Continuing Operations: | | | | | | Current Liabilities from Continuing Operations: | | | | | |
Short-term debt | Short-term debt | 1,161,428 | | | 757,271 | | | 404,157 | | Short-term debt | 102,752 | | | 1,161,428 | | | (1,058,676) | |
Trade and other payables | Trade and other payables | 772,996 | | | 543,503 | | | 229,493 | | Trade and other payables | 641,376 | | | 772,996 | | | (131,620) | |
Customer prepayments and deferred revenue | Customer prepayments and deferred revenue | 184,154 | | | 55,943 | | | 128,211 | | Customer prepayments and deferred revenue | 189,947 | | | 184,154 | | | 5,793 | |
Commodity derivative liabilities – current | Commodity derivative liabilities – current | 185,903 | | | 90,366 | | | 95,537 | | Commodity derivative liabilities – current | 251,101 | | | 185,903 | | | 65,198 | |
Current maturities of long-term debt | Current maturities of long-term debt | 53,951 | | | 50,069 | | | 3,882 | | Current maturities of long-term debt | 27,511 | | | 53,951 | | | (26,440) | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 211,830 | | | 168,221 | | | 43,609 | | Accrued expenses and other current liabilities | 180,552 | | | 211,830 | | | (31,278) | |
Total current liabilities from continuing operations | Total current liabilities from continuing operations | $ | 2,570,262 | | | $ | 1,665,373 | | | $ | 904,889 | | Total current liabilities from continuing operations | $ | 1,393,239 | | | $ | 2,570,262 | | | $ | (1,177,023) | |
Working Capital from Continuing Operations | Working Capital from Continuing Operations | $ | 983,990 | | | $ | 540,372 | | | $ | 443,618 | | Working Capital from Continuing Operations | $ | 1,144,026 | | | $ | 983,990 | | | $ | 160,036 | |
Current assets from continuing operations as of June 30, 2022 increased $1,348.52023 decreased $1,017.0 million in comparison to those as of June 30, 2021.2022. This increasedecrease was notedprimarily related to the change in mainly accounts receivable, inventories and current commodity derivative assets. The increasesdecreases in those accounts can largely be attributed to the stabilization of agricultural commodity prices in the current year in comparison to the significant increases in the prices of agricultural commodities, including fertilizer, that the Company transacts in the ordinary course of business fromin the same period of the prior year. The Company also opened an international merchandising office in the third quarter of the prior year which is contributing to the increase in working capital as there is a substantial volume of commodities held in that business in 2022.
Current liabilities from continuing operations increased $904.9decreased $1,177.0 million across all financial statementfrom the prior year mainly due to the decreased utilization of the Company's short-term revolving credit line. The decreased use of the short-term revolving credit line items whenis a result of the stabilization of commodity prices in the year compared to the prior year. Thesevere increase in commodity prices in the same period of the prior year, as well as a strategic focus on managing short-term debt isin light of the result of higher working capital needs and driven by the significant increase in agricultural commodity prices from the prior year. The increase in trade and other payables, customer prepayments and deferred revenue, and current commodity derivative liabilities are also the result of increasing agricultural commodity prices.rising interest rate environment.
Sources and Uses of Cash
| | | Six Months Ended | | Six Months Ended |
(in thousands) | (in thousands) | | June 30, 2022 | | June 30, 2021 | (in thousands) | | June 30, 2023 | | June 30, 2022 |
Net cash used in operating activities | | $ | (721,799) | | | $ | (245,494) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | | $ | 207,404 | | | $ | (721,799) | |
Net cash used in investing activities | Net cash used in investing activities | | (30,094) | | | (23,474) | | Net cash used in investing activities | | (71,673) | | | (30,094) | |
Net cash provided by financing activities | | 622,113 | | | 267,550 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | | (154,987) | | | 622,113 | |
Operating Activities
Our operating activities provided cash of $207.4 million and used cash of $721.8 million and $245.5 million in the first six months of 20222023 and 2021,2022, respectively. The increase in cash usedprovided was primarily due to the increaseddecreased working capital needs as discussed above, driven by significant increasesdecreases in agricultural commodity prices andwhen compared to the new international merchandising locations being includedsame period in the currentprior year. When the changes in operating assets and liabilities are removed and excluding inventory insurance recoveries, cash provided by operating activities was slightly lower than prior year due to the timing of tax refunds and credits in the first quarter of 2021.
year.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 3635
Investing Activities
Investing activities used cash of $30.1$71.7 million through the first six months of 20222023 compared to cash used of $23.5$30.1 million in the prior period. The increaseSpending for purchases of property, plant and equipment increased by approximately $31.5 million from the prior period was a resultyear from increased investments across all segments. The prior year also includes approximately $6.2 million of a modest increase in capital spending on continuing operationsadditional net proceeds from the prior year.Company's exit of the Rail business.
We expect to invest approximately $100$125 million to $150 million in property, plant and equipment in 2022 related to continuing operations.2023, with spending split evenly between growth projects and maintenance.
Financing Activities
Financing activities used cash of $155.0 million and provided cash of $622.1 million and $267.6 million for the six months ended June 30, 20222023 and 2021,2022, respectively. This increasedecrease from the prior year was due to the significant increase in agricultural commodity prices fromin the prior period and the related need for short-term borrowings. TheAgricultural commodity prices have decreased in the current year and the Company is operating in a much more stable pricing environment in 2023 which requires much less borrowing on the Company's short-term debt balance of $1,161.4 million is closely aligned to the balance of readily marketable inventories of $1,214.4 million as of June 30, 2022.credit facilities.
The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $2,501.7$1,869.1 million in borrowing capacity. Of the total capacity, $395.7$265.4 million is non-recourse to the Company. As of June 30, 2022,2023, the Company had $1,315.2$1,740.7 million available for borrowing with $277.5$231.1 million of that total being non-recourse to the Company.
The Company paid $12.2$12.5 million in dividends in the first six months of 20222023 compared to $11.7$12.2 million paid in the prior period. The Company paid dividends of $0.180$0.185 and $0.175$0.18 per common share in January and April of 20222023 and 2021,2022, respectively. On June 16, 2022,23, 2023, the Company declared a cash dividend of $0.180$0.185 per common share payable on July 22, 202224, 2023, to shareholders of record on July 1, 2022.3, 2023.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of working capital and various debt leverage ratios. The Company is in compliance with all covenants as of June 30, 2023. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities.
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 ourthe Company's sources of liquidity will be adequate to fund our operations, capital expenditures and service our indebtedness.
At June 30, 2022,2023, the Company had standby letters of credit outstanding of $5.1$25.8 million.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 3736
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, 2021.2022. There were no material changes in market risk, specifically commodity and interest rate risk during the six months ended June 30, 2022.2023.
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, 20222023 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 2022,2023, 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 20222023 Form 10-Q | 3837
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 inRefer to Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and Contingencies,” inIn 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 20212022 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.
The 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 other significant changes in the Company’s risk factors during the 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
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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) |
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April 2022 | | — | | | $ | — | | | — | | | $ | — | |
May 2022 | | 588 | | | 50.26 | | | — | | | — | |
June 2022 | | — | | | — | | | — | | | — | |
Total | | 588 | | | $ | 50.26 | | | — | | | $ | 100,000,000 | |
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Periods | | Total Number of Shares Purchased | | 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 (a) |
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April 2023 | | — | | | $ | — | | | — | | | $ | 85,608,170 | |
May 2023 | | 2,113 | | | 35.95 | | | 2,113 | | | 85,532,211 | |
June 2023 | | — | | | — | | | — | | | 85,532,211 | |
Total | | 2,113 | | | $ | 35.95 | | | 2,113 | | | $ | 85,532,211 | |
(1) During the three months ended June 30, 2022, the Company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2)(a) As 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, none2023, $14.5 million of the $100 million available to repurchase shares had been utilized. The Repurchase Plan does not obligate the Company to acquire any specific number of shares. Under the Repurchase Plan, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
Item 5. Other Information
Based on the previously reported voting results at the Company’s annual meeting of shareholders on the advisory proposal on the frequency of say-on-pay votes, the Company will continue to include an advisory vote on named executive officer compensation every one (1) year until the next required vote on the frequency of shareholder advisory votes on the compensation of named executive officers.
On May 24, 2023, Brian K. Walz, Treasurer, entered into a Rule 105b-1 plan to sell up to 3,414 shares of the Company's common stock, based on certain price parameters, from August 25, 2023, to August 30, 2024.
The Andersons, Inc. | Q2 2023 Form 10-Q | 38
Item 6. Exhibits
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Exhibit Number | | Description |
| | |
10.1 | | |
| | |
10.2* | | |
| | |
10.3 | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1** | | |
| | |
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 54 are not applicable and have been omitted.
The Andersons, Inc. | Q2 20222023 Form 10-Q | 4039
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 8, 20223, 2023 | | /s/ Patrick E. Bowe |
| | Patrick E. Bowe |
| | President and Chief Executive Officer |
| | |
Date: August 8, 20223, 2023 | | /s/ Brian A. Valentine |
| | Brian A. Valentine |
| | Executive Vice President and Chief Financial Officer |
| |
The Andersons, Inc. | Q2 20222023 Form 10-Q | 4140