10-Q 1 ande2013093010-q.htm 10-Q ANDE 2013.09.30 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
 
¨
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
 
 
OHIO
 
34-1562374
(State of incorporation
or organization)
 
(I.R.S. Employer
Identification No.)
480 W. Dussel Drive, Maumee, Ohio
 
43537
(Address of principal executive offices)
 
(Zip Code)
(419) 893-5050
(Telephone Number)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
Accelerated Filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The registrant had approximately 18.7 million  common shares outstanding, no par value, at October 31, 2013.



THE ANDERSONS, INC.
INDEX
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
PART II. OTHER INFORMATION
 


2



Part I. Financial Information


Item 1. Financial Statements


The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
134,441

 
$
138,218

 
$
80,370

Restricted cash
164

 
398

 
160

Accounts receivable, net
178,970

 
208,877

 
199,158

Inventories (Note 2)
429,017

 
776,677

 
682,292

Commodity derivative assets – current
105,390

 
103,105

 
166,264

Deferred income taxes
5,254

 
15,862

 
20,627

Other current assets
42,278

 
54,016

 
41,568

Total current assets
895,514

 
1,297,153

 
1,190,439

Other assets:
 
 
 
 
 
Commodity derivative assets – noncurrent
5

 
1,906

 
7,047

Goodwill
58,554

 
51,418

 
19,226

Other assets, net
52,177

 
53,711

 
48,575

Equity method investments
262,643

 
190,908

 
190,057

 
373,379

 
297,943

 
264,905

Railcar assets leased to others, net (Note 3)
233,024

 
228,330

 
252,702

Property, plant and equipment, net (Note 3)
380,374

 
358,878

 
283,394

Total assets
$
1,882,291

 
$
2,182,304

 
$
1,991,440


3


The Andersons, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)(In thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Borrowings under short-term line of credit
$

 
$
24,219

 
$
275,522

Accounts payable for grain
241,575

 
582,653

 
250,066

Other accounts payable
200,664

 
165,201

 
204,347

Customer prepayments and deferred revenue
23,974

 
105,410

 
77,278

Commodity derivative liabilities – current
88,234

 
33,277

 
43,589

Accrued expenses and other current liabilities
63,900

 
66,902

 
53,631

Current maturities of long-term debt (Note 10)
44,232

 
15,145

 
32,655

Total current liabilities
662,579

 
992,807

 
937,088

Other long-term liabilities
17,129

 
18,406

 
14,083

Commodity derivative liabilities – noncurrent
9,636

 
1,134

 
590

Employee benefit plan obligations
49,768

 
53,131

 
49,478

Long-term debt, less current maturities (Note 10)
381,018

 
427,243

 
312,404

Deferred income taxes
91,869

 
78,138

 
75,377

Total liabilities
1,211,999

 
1,570,859

 
1,389,020

Commitments and contingencies (Note 11)

 

 

Shareholders’ equity:
 
 
 
 
 
Common shares, without par value (42,000 shares authorized; 19,198 shares issued)
96

 
96

 
96

Preferred shares, without par value (1,000 shares authorized; none issued)

 

 

Additional paid-in-capital
183,273

 
181,627

 
180,998

Treasury shares at cost (456, 554 and 557 shares at 9/30/13, 12/31/12 and 9/30/12, respectively)
(11,327
)
 
(12,559
)
 
(12,541
)
Accumulated other comprehensive loss
(41,586
)
 
(45,379
)
 
(42,607
)
Retained earnings
520,848

 
470,628

 
458,627

Total shareholders’ equity of The Andersons, Inc.
651,304

 
594,413

 
584,573

Noncontrolling interests
18,988

 
17,032

 
17,847

Total equity
670,292

 
611,445

 
602,420

Total liabilities and equity
$
1,882,291

 
$
2,182,304

 
$
1,991,440

See Notes to Condensed Consolidated Financial Statements


4


The Andersons, Inc.
Condensed Consolidated Statements of Income
(Unaudited)(In thousands, except per share data)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2013
 
2012
 
2013
 
2012
Sales and merchandising revenues
$
1,181,374

 
$
1,138,402

 
$
4,020,308

 
$
3,591,369

Cost of sales and merchandising revenues
1,108,228

 
1,060,086

 
3,764,660

 
3,324,533

Gross profit
73,146

 
78,316

 
255,648

 
266,836

Operating, administrative and general expenses
69,193

 
58,029

 
192,665

 
177,339

Interest expense
5,348

 
5,482

 
16,607

 
16,192

Other income:
 
 
 
 
 
 
 
Equity in earnings of affiliates
22,177

 
6,027

 
39,991

 
15,406

Other income, net
7,605

 
3,492

 
11,623

 
9,409

Income before income taxes
28,387

 
24,324

 
97,990

 
98,120

Income tax provision
10,348

 
9,133

 
36,907

 
36,730

Net income
18,039

 
15,191

 
61,083

 
61,390

Net income (loss) attributable to the noncontrolling interests
878

 
(1,693
)
 
1,805

 
(3,100
)
Net income attributable to The Andersons, Inc.
$
17,161

 
$
16,884

 
$
59,278

 
$
64,490

Per common share:
 
 
 
 
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
0.92

 
$
0.91

 
$
3.17

 
$
3.47

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
0.91

 
$
0.90

 
$
3.15

 
$
3.43

Dividends paid
$
0.16

 
$
0.15

 
$
0.48

 
$
0.45

See Notes to Condensed Consolidated Financial Statements


5


The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)(In thousands)
 
 
Three months ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
18,039

 
$
15,191

 
$
61,083

 
$
61,390

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Increase (decrease) in estimated fair value of investment in debt securities (net of income tax of $0, $0, ($187) and $1,126)

 

 
303

 
(1,884
)
Change in unrecognized actuarial loss and prior service cost (net of income tax of $232, $209, $1,157 and $1,343 - Note 1)
383

 
350

 
3,296

 
2,248

Cash flow hedge activity (net of income tax of $33, $25, $195 and $71)
56

 
41

 
194

 
119

Other comprehensive income (loss)
439

 
391

 
3,793

 
483

Comprehensive income
18,478

 
15,582

 
64,876

 
61,873

Comprehensive income (loss) attributable to the noncontrolling interests
878

 
(1,693
)
 
1,805

 
(3,100
)
Comprehensive income attributable to The Andersons, Inc.
$
17,600

 
$
17,275

 
$
63,071

 
$
64,973

See Notes to Condensed Consolidated Financial Statements


6


The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)


 
Nine months ended
September 30,
 
2013
 
2012
Operating Activities
 
 
 
Net income
$
61,083

 
$
61,390

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Depreciation and amortization
41,635

 
35,330

Bad debt expense
700

 
1,118

Cash distributions (less than) in excess of income of unconsolidated affiliates
(22,486
)
 
8,984

Gains and amortization of deferred gains on sales of railcars and related leases
(17,376
)
 
(22,260
)
Excess tax benefit from share-based payment arrangement
(602
)
 
(39
)
Deferred income taxes
24,185

 
6,893

Stock based compensation expense
2,337

 
3,303

Other
3

 
(106
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
29,468

 
(31,522
)
Inventories
348,172

 
91,035

Commodity derivatives
63,074

 
(60,286
)
Other assets
(263
)
 
(4,211
)
Accounts payable for grain
(341,078
)
 
(141,839
)
Other accounts payable and accrued expenses
(59,891
)
 
13,483

Net cash provided by (used in) operating activities
128,961

 
(38,727
)
Investing Activities
 
 
 
Purchase of investments
(49,249
)
 
(19,996
)
Proceeds from redemption of investment

 
19,998

Acquisition of businesses, net of cash acquired
(11,148
)
 
(92,686
)
Purchases of railcars
(71,554
)
 
(102,853
)
Proceeds from sale of railcars
87,620

 
57,315

Purchases of property, plant and equipment
(31,355
)
 
(51,682
)
Proceeds from sale of property, plant and equipment
351

 
817

Proceeds from minority investor

 
6,100

Change in restricted cash
233

 
18,491

Net cash used in investing activities
(75,102
)
 
(164,496
)
Financing Activities
 
 
 
Net change in short-term borrowings
(24,219
)
 
204,022

Proceeds from issuance of long-term debt
53,794

 
125,076

Payments of long-term debt
(80,473
)
 
(58,820
)
Proceeds from sale of treasury shares to employees and directors
1,687

 
1,366

Payments of debt issuance costs
(46
)
 
(110
)
Dividends paid
(8,981
)
 
(8,370
)
Excess tax benefit from share-based payment arrangement
602

 
39

Net cash provided by (used in) financing activities
(57,636
)
 
263,203

Increase (decrease) in cash and cash equivalents
(3,777
)
 
59,980

Cash and cash equivalents at beginning of period
138,218

 
20,390

Cash and cash equivalents at end of period
$
134,441

 
$
80,370


7


 
Nine months ended
September 30,
 
2013
 
2012
Supplemental disclosure of cash flow information
 
 
 
Capital project costs incurred but not yet paid
$
5,477

 
$
2,635

Purchase of capitalized software through seller-financing
$
10,477

 
$
6,102


See Notes to Condensed Consolidated Financial Statements

8


The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
 
Common
Shares
 
Additional
Paid-in
Capital
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2011
$
96

 
$
179,463

 
$
(14,997
)
 
$
(43,090
)
 
$
402,523

 
$
14,847

 
$
538,842

Net income (loss)
 
 
 
 
 
 
 
 
64,490

 
(3,100
)
 
61,390

Other comprehensive income
 
 
 
 
 
 
483

 
 
 
 
 
483

Proceeds received from minority investor
 
 
 
 
 
 
 
 
 
 
6,100

 
6,100

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $678 (139 shares)
 
 
1,535

 
2,456

 
 
 
 
 
 
 
3,991

Dividends declared ($0.45 per common share)
 
 
 
 
 
 
 
 
(8,386
)
 
 
 
(8,386
)
Balance at September 30, 2012
$
96

 
$
180,998

 
$
(12,541
)
 
$
(42,607
)
 
$
458,627

 
$
17,847

 
$
602,420

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
96

 
$
181,627

 
$
(12,559
)
 
$
(45,379
)
 
$
470,628

 
$
17,032

 
$
611,445

Net income
 
 
 
 
 
 
 
 
59,278

 
1,805

 
61,083

Other comprehensive income
 
 
 
 
 
 
3,793

 
 
 
 
 
3,793

Noncontrolling interest
 
 
 
 
 
 
 
 
 
 
151

 
151

Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $1,201 (98 shares)
 
 
1,591

 
1,232

 
 
 
 
 
 
 
2,823

Dividends declared ($0.48 per common share)
 
 
 
 
 
 
 
 
(9,003
)
 
 
 
(9,003
)
Performance share unit dividend equivalents
 
 
55

 
 
 
 
 
(55
)
 
 
 

Balance at September 30, 2013
$
96

 
$
183,273

 
$
(11,327
)
 
$
(41,586
)
 
$
520,848

 
$
18,988

 
$
670,292

See Notes to Condensed Consolidated Financial Statements


9


The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)


1. Basis of Presentation and Consolidation
These Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). All significant intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair statement of the results of operations for the periods indicated, have been made. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.
The year-end Condensed Consolidated Balance Sheet data at December 31, 2012 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. A Condensed Consolidated Balance Sheet as of September 30, 2012 has been included as the Company operates in several seasonal industries.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).
Reclassifications Out of Other Comprehensive Income
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, information about reclassification adjustments from accumulated other comprehensive income to net income in the current periods are presented below.
Changes in Accumulated Other Comprehensive Loss by Component (a)
 
 
 
For the three months ended September 30, 2013
 
For the nine months ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
 
Losses on Cash Flow Hedges
 
Investment in Debt Securities
 
Defined Benefit Plan Items
 
Total
Beginning Balance
 
$
(764
)
 
$
2,872

 
$
(44,133
)
 
$
(42,025
)
 
$
(902
)
 
$
2,569

 
$
(47,046
)
 
$
(45,379
)
 
Other comprehensive income before reclassifications
 
56

 

 
468

 
524

 
194

 
303

 
3,551

 
4,048

 
Amounts reclassified from accumulated other comprehensive income
 

 

 
(85
)
 
(85
)
 

 

 
(255
)
 
(255
)
Net current-period other comprehensive income
 
56

 

 
383

 
439

 
194

 
303

 
3,296

 
3,793

Ending balance
 
$
(708
)
 
$
2,872

 
$
(43,750
)
 
$
(41,586
)
 
$
(708
)
 
$
2,872

 
$
(43,750
)
 
$
(41,586
)
(a) All amounts are net of tax. Amounts in parentheses indicates debits

10


Reclassifications Out of Accumulated Other Comprehensive Income (a)
 
 
For the three months ended September 30, 2013
 
For the nine months ended September 30, 2013
 
 
 
 
 
 
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income Is Presented
Defined Benefit Plan Items
 
 
 
 
 
 
 
 
     Amortization of prior-service cost
 
$
(136
)
 
(b)
 
$
(408
)
 
(b)
 
 
(136
)
 
Total before tax
 
(408
)
 
Total before tax
 
 
51

 
Tax expense
 
153

 
Tax expense
 
 
$
(85
)
 
Net of tax
 
$
(255
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
(85
)
 
Net of tax
 
$
(255
)
 
Net of tax
(a) Amounts in parentheses indicate debits to profit/loss
(b) This accumulated other comprehensive income component is included in the computation of net periodic pension cost (see Note 6. Employee Benefit Plans footnote for additional details).

2. Inventories
Major classes of inventories are as follows:
 
(in thousands)
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Grain
$
264,104

 
$
586,983

 
$
504,484

Ethanol and by-products
11,178

 
22,927

 
17,277

Agricultural fertilizer and supplies
94,035

 
100,175

 
101,896

Lawn and garden fertilizer and corncob products
29,364

 
37,292

 
24,709

Retail merchandise
25,716

 
25,368

 
30,767

Railcar repair parts
4,421

 
3,764

 
2,852

Other
199

 
168

 
307

 
$
429,017

 
$
776,677

 
$
682,292


3. Property, Plant and Equipment
The components of property, plant and equipment are as follows:
 
(in thousands)
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Land
$
23,348

 
$
22,258

 
$
19,699

Land improvements and leasehold improvements
67,262

 
63,013

 
59,375

Buildings and storage facilities
224,913

 
214,919

 
178,354

Machinery and equipment
299,874

 
287,896

 
257,926

Software
13,558

 
12,901

 
12,632

Construction in progress
54,713

 
34,965

 
28,582

 
683,668

 
635,952

 
556,568

Less accumulated depreciation and amortization
303,294

 
277,074

 
273,174

 
$
380,374

 
$
358,878

 
$
283,394

Depreciation expense on property, plant and equipment amounted to $27.9 million, $27.4 million and $19.3 million for the year-to-date periods ended September 30, 2013December 31, 2012, and September 30, 2012, respectively.

11


Railcars
The components of Railcar assets leased to others are as follows:
 
(in thousands)
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Railcar assets leased to others
$
309,360

 
$
310,614

 
$
335,037

Less accumulated depreciation
76,336

 
82,284

 
82,335

 
$
233,024

 
$
228,330

 
$
252,702

Depreciation expense on railcar assets leased to others amounted to $11.1 million, $15.9 million and $11.9 million for the year-to-date periods ended September 30, 2013December 31, 2012 and September 30, 2012, respectively.

4. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Grain and Ethanol businesses have established position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward grain and ethanol purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. The exchange traded contracts are primarily transacted via the regulated Chicago Mercantile Exchange. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.

All of these contracts are considered derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company accounts for its commodity derivatives at estimated fair value, the same method it uses to value its grain inventory. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a futures, options 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 Company nets, by counterparty, its futures and over-the-counter positions against the cash collateral provided or received. 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 Company also nets, by counterparty, the derivative asset and liability positions, for non-exchanged traded futures, options and over-the-counter contracts in the Condensed Consolidated Balance Sheets.




12


The following table presents at September 30, 2013December 31, 2012 and September 30, 2012, 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 short-term commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
 
 
September 30, 2013
 
December 31, 2012
 
September 30, 2012
(in thousands)
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
 
Net
derivative
asset
position
 
Net
derivative
liability
position
Collateral paid (received)
$
27,101

 
$

 
$
(13,772
)
 
$

 
$
88,246

 
$

Fair value of derivatives
38,352

 

 
61,247

 

 
(73,424
)
 

Balance at end of period
$
65,453

 
$

 
$
47,475

 
$

 
$
14,822

 
$

Certain of our contracts allow the Company to post items other than cash as collateral. Grain inventory posted as collateral on our derivative contracts are recorded in Inventories on the Condensed Consolidated Balance Sheets and the fair value of such inventory was $0.0 million, $7.7 million, and $0.0 million as of September 30, 2013December 31, 2012, and September 30, 2012, respectively.

The following table presents, on a gross basis, current and noncurrent commodity derivative assets and liabilities:
 
September 30, 2013
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
89,540

 
$
5

 
$
2,933

 
$
41

 
$
92,519

Commodity derivative liabilities
(11,251
)
 

 
(91,167
)
 
(9,677
)
 
(112,095
)
Cash collateral
27,101

 

 

 

 
27,101

Balance sheet line item totals
$
105,390

 
$
5

 
$
(88,234
)
 
$
(9,636
)
 
$
7,525


 
December 31, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
137,119

 
$
2,059

 
$
5,233

 
$
130

 
$
144,541

Commodity derivative liabilities
(20,242
)
 
(153
)
 
(38,510
)
 
(1,264
)
 
(60,169
)
Cash collateral
(13,772
)
 

 

 

 
(13,772
)
Balance sheet line item totals
$
103,105

 
$
1,906

 
$
(33,277
)
 
$
(1,134
)
 
$
70,600


 
September 30, 2012
(in thousands)
Commodity derivative assets - current
 
Commodity derivative assets - noncurrent
 
Commodity derivative liabilities - current
 
Commodity derivative liabilities - noncurrent
 
Total
Commodity derivative assets
$
194,771

 
$
7,383

 
$
3,558

 
$
38

 
$
205,750

Commodity derivative liabilities
(116,753
)
 
(336
)
 
(47,147
)
 
(628
)
 
(164,864
)
Cash collateral
88,246

 

 

 

 
88,246

Balance sheet line item totals
$
166,264

 
$
7,047

 
$
(43,589
)
 
$
(590
)
 
$
129,132




13


The gains included in the Company’s Condensed Consolidated Statements of Income and the line items in which they are located for the three and nine months ended September 30, 2013 and 2012 are as follows:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Gains (losses) on commodity derivatives included in sales and merchandising revenues
$
30,894

 
$
(51,318
)
 
$
99,896

 
$
(67,875
)
At September 30, 2013, the Company had the following volume of commodity derivative contracts outstanding (on a gross basis):
 
Commodity
Number of bushels
(in thousands)
 
Number of gallons
(in thousands)
 
Number of pounds
(in thousands)
 
Number of tons
(in thousands)
Non-exchange traded:
 
 
 
 
 
 
 
Corn
214,500

 

 

 

Soybeans
46,325

 

 

 

Wheat
8,450

 

 

 

Oats
14,555

 

 

 

Ethanol

 
144,339

 

 

Corn oil

 

 
12,921

 

Other
255

 

 

 
88

Subtotal
284,085

 
144,339

 
12,921

 
88

Exchange traded:
 
 
 
 
 
 
 
Corn
92,120

 

 

 

Soybeans
19,110

 

 

 

Wheat
30,725

 

 

 

Oats
3,890

 

 

 

Ethanol

 
15,540

 

 

Other

 

 

 
1

Subtotal
145,845

 
15,540

 

 
1

Total
429,930

 
159,879

 
12,921

 
89



14


5. Earnings Per Share
Unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Company’s nonvested restricted stock is considered a participating security since the share-based awards contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest.

(in thousands, except per common share data)
Three months ended
September 30,
 
Nine months ended
September 30,
2013
 
2012
 
2013
 
2012
Net income attributable to The Andersons, Inc.
$
17,161

 
$
16,884

 
$
59,278

 
$
64,490

Less: Distributed and undistributed earnings allocated to nonvested restricted stock
56

 
95

 
210

 
309

Earnings available to common shareholders
$
17,105

 
$
16,789

 
$
59,068

 
$
64,181

Earnings per share – basic:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,673

 
18,534

 
18,648

 
18,516

Earnings per common share – basic
$
0.92

 
$
0.91

 
$
3.17

 
$
3.47

Earnings per share – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
18,673

 
18,534

 
18,648

 
18,516

Effect of dilutive awards
150

 
114

 
125

 
171

Weighted average shares outstanding – diluted
18,823

 
18,648

 
18,773

 
18,687

Earnings per common share – diluted
$
0.91

 
$
0.90

 
$
3.15

 
$
3.43

There were no antidilutive stock-based awards outstanding at September 30, 2013 or 2012.

6. Employee Benefit Plans
Included as charges against income for the three and nine months ended September 30, 2013 and 2012 are the following amounts for pension and postretirement benefit plans maintained by the Company:
 
 
Pension Benefits
(in thousands)
Three months ended
September 30,
 
Nine months ended
September 30,
2013
 
2012
 
2013
 
2012
Service cost
$

 
$

 
$

 
$

Interest cost
1,057

 
1,124

 
3,171

 
3,372

Expected return on plan assets
(1,751
)
 
(1,536
)
 
(5,254
)
 
(4,609
)
Recognized net actuarial loss
382

 
374

 
1,147

 
1,123

Benefit income
$
(312
)
 
$
(38
)
 
$
(936
)
 
$
(114
)
 
 
Postretirement Benefits
(in thousands)
Three months ended
September 30,
 
Nine months ended
September 30,
2013
 
2012
 
2013
 
2012
Service cost
$
210

 
$
188

 
$
631

 
$
564

Interest cost
342

 
329

 
1,025

 
989

Amortization of prior service cost
(136
)
 
(135
)
 
(408
)
 
(407
)
Recognized net actuarial loss
368

 
320

 
1,105

 
960

Benefit cost
$
784

 
$
702

 
$
2,353

 
$
2,106




15


7. Segment Information
The Company’s operations include six reportable business segments that are distinguished primarily on the basis of products and services offered. The Grain business includes grain merchandising, the operation of terminal grain elevator facilities and the investments in Lansing Trade Group, LLC (“LTG”) and the Thompsons Limited joint ventures. The Ethanol business purchases and sells ethanol and also manages the ethanol production facilities organized as limited liability companies, one of which is consolidated and three of which are investments accounted for under the equity method, and various service contracts for these investments. Rail operations include the leasing, marketing and fleet management of railcars and locomotives, railcar repair and metal fabrication. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers. Turf & Specialty operations include the production and distribution of turf care and corncob-based products. The Retail business operates large retail stores, a specialty food market, a distribution center and a lawn and garden equipment sales and service facility. Included in “Other” are the corporate level amounts not attributable to an operating 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. Inter-segment sales are made at prices comparable to normal, unaffiliated customer sales.
During the first quarter, approximately $28 million of assets specific to the agronomy business that was included in the purchase of certain assets of Green Plains Grain Company, LLC in the fourth quarter of 2012 were reclassified from the Grain segment to the Plant Nutrient segment. Corresponding items of segment information have been reclassified to conform to current year presentation.
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2013
 
2012
 
2013
 
2012
(in thousands)
 
 
 
 
 
 
 
Revenues from external customers
 
 
 
 
 
 
 
Grain
$
765,833

 
$
677,484

 
$
2,493,678

 
$
2,096,256

Ethanol
213,384

 
209,634

 
634,933

 
528,062

Plant Nutrient
95,681

 
135,144

 
537,922

 
619,301

Rail
47,523

 
59,703

 
132,488

 
127,608

Turf & Specialty
27,624

 
21,509

 
117,955

 
110,481

Retail
31,329

 
34,928

 
103,332

 
109,661

Total
$
1,181,374

 
$
1,138,402

 
$
4,020,308

 
$
3,591,369

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Inter-segment sales
 
 
 
 
 
 
 
Grain
$

 
$

 
$
333

 
$
1

Plant Nutrient
4,243

 
3,481

 
15,955

 
11,898

Rail
109

 
105

 
318

 
516

Turf & Specialty
516

 
521

 
1,869

 
1,994

Total
$
4,868

 
$
4,107

 
$
18,475

 
$
14,409

 

16


 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Interest expense (income)
 
 
 
 
 
 
 
Grain
$
1,391

 
$
3,465

 
$
7,714

 
$
9,404

Ethanol
289

 
284

 
895

 
493

Plant Nutrient
746

 
725

 
2,461

 
2,067

Rail
1,220

 
1,229

 
4,162

 
3,563

Turf & Specialty
203

 
238

 
951

 
906

Retail
152

 
217

 
519

 
570

Other
1,347

 
(676
)
 
(95
)
 
(811
)
Total
$
5,348

 
$
5,482

 
$
16,607

 
$
16,192


 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Equity in earnings (loss) of affiliates
 
 
 
 
 
 
 
Grain
$
12,003

 
$
9,249

 
$
24,940

 
$
22,706

Ethanol
10,174

 
(3,224
)
 
15,051

 
(7,305
)
Plant Nutrient

 
2

 

 
5

Total
$
22,177

 
$
6,027

 
$
39,991

 
$
15,406

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Other income (expense), net
 
 
 
 
 
 
 
Grain
$
1,216

 
$
526

 
$
1,438

 
$
1,842

Ethanol
35

 
1

 
465

 
37

Plant Nutrient
320

 
523

 
459

 
1,651

Rail
5,031

 
1,695

 
6,679

 
3,295

Turf & Specialty
135

 
181

 
585

 
671

Retail
102

 
117

 
316

 
396

Other
766

 
449

 
1,681

 
1,517

Total
$
7,605

 
$
3,492

 
$
11,623

 
$
9,409

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Income (loss) before income taxes
 
 
 
 
 
 
 
Grain
$
14,323

 
$
10,807

 
$
24,675

 
$
45,519

Ethanol
10,904

 
(936
)
 
23,984

 
(2,920
)
Plant Nutrient
(1,643
)
 
759

 
21,035

 
34,540

Rail
12,360

 
19,071

 
36,614

 
34,288

Turf & Specialty
(83
)
 
(1,571
)
 
6,113

 
3,384

Retail
(2,043
)
 
(1,769
)
 
(3,673
)
 
(3,090
)
Other
(6,309
)
 
(344
)
 
(12,563
)
 
(10,501
)
Noncontrolling interests
878

 
(1,693
)
 
1,805

 
(3,100
)
Total
$
28,387

 
$
24,324

 
$
97,990

 
$
98,120



17


(in thousands)
September 30, 2013
 
December 31, 2012
 
September 30, 2012
Identifiable assets
 
 
 
 
 
Grain
$
784,869

 
$
1,076,986

 
$
942,629

Ethanol
207,530

 
206,975

 
214,858

Plant Nutrient
258,772

 
257,980

 
268,982

Rail
294,528

 
289,467

 
309,847

Turf & Specialty
71,600

 
82,683

 
55,638

Retail
51,465

 
51,772

 
56,795

Other
213,527

 
216,441

 
142,691

Total
$
1,882,291

 
$
2,182,304

 
$
1,991,440


8. Related Party Transactions
Equity Method Investments
The Company, directly or indirectly, holds investments in companies that are accounted for under the equity method. The Company’s equity in these entities is presented at cost plus its accumulated proportional share of income or loss, less any distributions it has received.
On July 31, 2013, the Company, along with Lansing Trade Group, LLC established joint ventures that acquired 100% of the stock of Thompsons Limited, including its investment in the related U.S. operating company, for a purchase price of $152 million, which includes an adjustment for excess working capital. The purchase price includes $48 million cash paid by the Company, $40 million cash paid by LTG, and $64 million of external debt at Thompsons Limited. As part of the purchase LTG also contributed a Canadian branch of its business to Thompsons Limited. LTG is currently performing a valuation of its contributed business, which could potentially result in a gain for book purposes to be recorded in the fourth quarter by LTG. While the valuation is still being performed, the Company's portion of the gain could be approximately $3 million. Each Company owns 50% of the investment. Thompsons Limited is a grain and food-grade bean handler and agronomy input provider, headquartered in Blenheim, Ontario, and operates 12 locations across Ontario and Minnesota.
The following table presents the Company’s investment balance in each of its equity method investees by entity:
 
(in thousands)
September 30, 2013
 
December 31, 2012
 
September 30, 2012
The Andersons Albion Ethanol LLC
$
35,643

 
$
30,227

 
$
30,625

The Andersons Clymers Ethanol LLC
37,695

 
33,119

 
34,962

The Andersons Marathon Ethanol LLC
37,844

 
32,996

 
36,153

Lansing Trade Group, LLC
100,071

 
92,094

 
86,007

Thompsons Limited (a)
47,477

 

 

Other
3,913

 
2,472

 
2,310

Total
$
262,643

 
$
190,908

 
$
190,057

 (a) Thompsons Limited and related U.S. operating company held by joint ventures
The Company holds a majority interest (66%) in The Andersons Ethanol Investment LLC (“TAEI”). This consolidated entity holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”). The noncontrolling interest in TAEI is attributed 34% of the gains and losses of TAME recorded by the Company.






18


The following table summarizes income (losses) earned from the Company’s equity method investments by entity:
 
 
% ownership at
September 30, 2013
 
Three months ended
September 30,
Nine months ended
September 30,
(in thousands)
 
 
2013
 
2012
 
2013
 
2012
The Andersons Albion Ethanol LLC
50%
 
$
3,711

 
$
(622
)
 
$
5,627

 
$
(204
)
The Andersons Clymers Ethanol LLC
38%
 
3,437

 
(972
)
 
4,576

 
(1,985
)
The Andersons Marathon Ethanol LLC
50%
 
3,026

 
(1,629
)
 
4,848

 
(5,116
)
Lansing Trade Group, LLC
49% (a)
 
12,391

 
9,187

 
25,255

 
22,347

Thompsons Limited (b)
50%
 
(722
)
 

 
(722
)
 

Other
5%-23%
 
334

 
63

 
407

 
364

Total
 
 
$
22,177

 
$
6,027

 
$
39,991

 
$
15,406

 (a) This does not consider restricted management units which once vested will reduce the ownership percentage by approximately 2%.
 (b) Thompsons Limited and related U.S. operating company held by joint ventures

Total distributions received from unconsolidated affiliates were $4.1 million and $17.5 million for the three and nine months ended September 30, 2013, respectively.
The Company does not hold a majority of the outstanding shares of LTG. All major operating decisions of LTG are made by LTG’s Board of Directors and the Company does not have a majority of the board seats. In addition, based on the terms of the operating agreement between LTG and its owners, the minority shareholders have substantive participating rights that allow them to effectively participate in the decisions made in the ordinary course of business that are significant to LTG. Due to these factors, the Company does not have control over LTG and therefore accounts for this investment under the equity method.
The Company does not hold a majority of the outstanding shares of Thompsons Limited joint ventures. All major operating decisions of these joint ventures are made by their Board of Directors and the Company does not have a majority of the board seats. Due to these factors, the Company does not have control over these joint ventures and therefore accounts for these investments under the equity method.
In the third quarter of 2013, LTG qualified as a significant subsidiary of the Company under the income test. The following table presents the required summarized unaudited financial information of this investment for the three and nine months ended September 30, 2013 and 2012:
(in thousands)
Three months ended
September 30,
 
Nine months ended
September 30,
2013
 
2012
 
2013
 
2012
Sales
$
2,206,433

 
$
1,680,170

 
$
6,828,076

 
$
4,874,347

Gross profit
64,095

 
50,412

 
143,608

 
126,330

Income before income taxes
27,321

 
20,108

 
54,122

 
49,014

Net income
25,496

 
18,545

 
52,490

 
47,486

Net income attributable to LTG
25,211

 
17,927

 
51,823

 
44,518

Investment in Debt Securities
The Company owns 100% of the cumulative convertible preferred shares of Iowa Northern Railway Corporation (“IANR”), which operates a short-line railroad in Iowa. As a result of this investment, the Company has a 49.9% voting interest in IANR, with the remaining 50.1% voting interest held by the common shareholders. The preferred shares have certain rights associated with them, including voting, dividends, liquidation, redemption and conversion. Dividends accrue to the Company at a rate of 14% annually whether or not declared by IANR and are cumulative in nature. The Company can convert its preferred shares into common shares of IANR at any time, but the shares cannot be redeemed until May 2015. This investment is accounted for as “available-for-sale” debt securities in accordance with ASC 320 and is carried at estimated fair value in “Other noncurrent assets” on the Company’s Condensed Consolidated Balance Sheet. The estimated fair value of the Company’s investment in IANR as of September 30, 2013 was $17.7 million.

19


Based on the Company’s assessment, IANR is considered a variable interest entity (“VIE”). Since the Company does not possess the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, it is not considered to be the primary beneficiary of IANR and therefore does not consolidate IANR. The decisions that most significantly impact the economic performance of IANR are made by IANR’s Board of Directors. The Board of Directors has five directors; two directors from the Company, two directors from the common shareholders and one independent director who is elected by unanimous decision of the other four directors. The vote of four of the five directors is required for all key decisions.
The Company’s current maximum exposure to loss related to IANR is $23.0 million, which represents the Company’s investment at fair value plus unpaid accrued dividends to date of $5.3 million. The Company does not have any obligation or commitments to provide additional financial support to IANR.
Related Party Transactions
In the ordinary course of business, the Company will enter into related party transactions with each of the investments described above, along with other related parties. The following table sets forth the related party transactions entered into for the time periods presented:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in thousands)
2013
 
2012
 
2013
 
2012
Sales revenues
$
316,154

 
$
234,258

 
$
985,618

 
$
654,308

Service fee revenues (a)
5,746

 
5,329

 
17,360

 
16,201

Purchases of product
190,009

 
173,519

 
535,068

 
467,841

Lease income (b)
1,590

 
1,695

 
4,661

 
5,428

Labor and benefits reimbursement (c)
2,682

 
3,192

 
7,948

 
8,943

Other expenses (d)
325

 
279

 
1,078

 
615

Accounts receivable at September 30 (e)
19,736

 
27,548

 
 
 
 
Accounts payable at September 30 (f)
16,163

 
18,474

 
 
 
 
 
(a)
Service fee revenues include management fee, corn origination fee, ethanol and DDG marketing fees, and other commissions.
(b)
Lease income includes the lease of the Company’s Albion, Michigan and Clymers, Indiana grain facilities as well as certain railcars to the various ethanol LLCs and IANR.
(c)
The Company provides all operational labor to the unconsolidated ethanol LLCs and charges them an amount equal to the Company’s costs of the related services.
(d)
Other expenses include payments to IANR for repair facility rent and use of their railroad reporting mark, payment to LTG for the lease of railcars and other various expenses.
(e)
Accounts receivable represents amounts due from related parties for sales of corn, leasing revenue and service fees.
(f)
Accounts payable represents amounts due to related parties for purchases of ethanol.

For the quarters ended September 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $155.9 million and $192.8 million, respectively. For the nine months ended September 30, 2013 and 2012, revenues recognized for the sale of ethanol that the Company purchased from the unconsolidated ethanol LLCs were $464.5 million and $489.0 million, respectively. For the quarters ended September 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs under these agreements were $179.1 million and $143.4 million, respectively. For the nine months ended September 30, 2013 and 2012, revenues recognized for the sale of corn to the unconsolidated ethanol LLCs were $584.3 million and $487.8 million, respectively.
From time to time, the Company enters into derivative contracts with certain of its related parties for the purchase and sale of corn and ethanol, for similar price risk mitigation purposes and on similar terms as the purchase and sale derivative contracts it enters into with unrelated parties. The fair value of derivative contract assets with related parties for the periods ended September 30, 2013December 31, 2012 and September 30, 2012 was $14.2 million, $3.2 million, and $1.7 million, respectively. The fair value of derivative contract liabilities with related parties for the periods ended September 30, 2013, December 31, 2012 and September 30, 2012 was $3.3 million, $0.3 million, and $4.5 million, respectively.



20


9. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2013, December 31, 2012 and September 30, 2012:
 
(in thousands)
September 30, 2013
Assets (liabilities)
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
$
90,093

 
$

 
$

 
$
90,093

Restricted cash
164

 

 

 
164

Commodity derivatives, net (c)
62,560

 
(55,035
)
 

 
7,525

Convertible preferred securities (b)

 

 
17,710

 
17,710

Other assets and liabilities (a)
9,539

 
(1,045