10-K 1 ande2013123110-k.htm 10-K ANDE 2013.12.31 10-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013          
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)
Registrant's telephone number, including area code (419) 893-5050
Securities registered pursuant to Section 12(b) of the Act: Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨ No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 




Large accelerated filer
ý
Accelerated Filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of the registrant's voting stock which may be voted by persons other than affiliates of the registrant was $928.9 million as of June 30, 2013, computed by reference to the last sales price for such stock on that date as reported on the Nasdaq Global Select Market.
The registrant had approximately 28.2 million common shares outstanding, no par value, at February 19, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2014, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Commission on or about March 11, 2014.




THE ANDERSONS, INC.
Table of Contents
 
 
Page No.
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
PART III.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Exhibits


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Part I.

Item 1. Business

Company Overview

The Andersons, Inc. (the "Company) is a diversified company rooted in agriculture. Founded in Maumee, Ohio in 1947, the Company conducts business across North America in the grain, ethanol, and plant nutrient sectors, railcar leasing, turf and cob products, and consumer retailing.

Segment Descriptions

The Company's operations are classified into six reportable business segments: Grain, Ethanol, Rail, Plant Nutrient, Turf & Specialty, and Retail. Each of these segments is organized based upon the nature of products and services offered. See Note 7 to the Consolidated Financial Statements in Item 8 for information regarding business segments.

Grain Group

The Grain business operates grain elevators in various states in the U.S. Corn Belt. Income is earned on grain bought and sold or “put thru” the elevator, grain that is purchased and conditioned for resale, and space income. Space income consists of appreciation or depreciation in the basis value of grain held and represents the difference between the cash price of a commodity in one of the Company's facilities and the nearest exchange traded futures price (“basis”); appreciation or depreciation between the future exchange contract months (“spread”); and grain stored for others upon which storage fees are earned. The Grain business also offers a number of unique grain marketing, risk management and corn origination services to its customers and affiliated ethanol facilities for which it collects fees.

In December 2013, the Company renewed the five-year lease agreement and the five-year marketing agreement (“the Agreement”) with Cargill, Incorporated (“Cargill”) for Cargill's Maumee and Toledo, Ohio grain handling and storage facilities. As part of the agreement, Cargill is given the marketing rights to grain in the Cargill-owned facilities as well as the adjacent Company-owned facilities in Maumee and Toledo. The lease of the Cargill-owned facilities covers approximately 6%, or 8.9 million bushels, of the Company's total storage space. Grain sales to Cargill totaled $297.1 million in 2013, and includes grain covered by the Agreement (i.e. grain sold out of the Maumee and Toledo facilities) as well as grain sold to Cargill via normal forward sales from locations not covered by the Agreement.

Grain prices are not predetermined, so sales are negotiated by the Company's merchandising staff. The principal grains sold by the Company are yellow corn, yellow soybeans and soft red and white wheat. Approximately 94% of the grain bushels sold by the Company in 2013 were purchased by U.S. grain processors and feeders, and approximately 6% were exported. Most of the Company's exported grain sales are done through intermediaries while some grain is shipped directly to foreign countries, mainly Canada. Most grain shipments from our facilities are by rail or boat. Rail shipments are made primarily to grain processors and feeders with some rail shipments made to exporters on the Gulf of Mexico or east coast. Boat shipments are from the Port of Toledo. In addition, grain is transported via truck for direct ship transactions where customers sell grain to the Company but have it delivered directly to the end user.

The Company's grain operations rely principally on forward purchase contracts with producers, dealers and commercial elevators to ensure an adequate supply of grain to the Company's facilities throughout the year. The Company makes grain purchases at prices referenced to the Chicago Mercantile Exchange (“the CME”). Bushels contracted for future delivery at January 31, 2013 approximated 201.5 million.

The Company competes in the sale of grain with other public and private grain brokers, elevator operators and farmer owned cooperative elevators. Some of the Company's competitors are also its customers. Competition is based primarily on price, service and reliability. Because the Company generally buys in smaller lots, its competition for the purchase of grain is generally local or regional in scope, although there are some large national and international companies that maintain regional grain purchase and storage facilities. Significant portions of grain bushels purchased and sold are done so using forward contracts.

The grain handling business is seasonal in nature in that the largest portion of the principal grains are harvested and delivered from the farm and commercial elevators in July, October and November although a significant portion of the principal grains are bought, sold and handled throughout the year.

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Fixed price purchase and sale commitments as well as grain held in inventory expose the Company to risks related to adverse changes in market prices. The Company attempts to manage these risks by entering into exchange-traded futures and option contracts with the CME. The contracts are economic hedges of price risk, but are not designated or accounted for as hedging instruments. The CME is a regulated commodity futures exchange that maintains futures markets for the grains merchandised by the Company. Futures prices are determined by worldwide supply and demand.

The Company's grain risk management practices are designed to reduce the risk of changing commodity prices. In that regard, such practices also limit potential gains from further changes in market prices. The Company has policies that provide key controls over its risk management practices. These policies include a description of the objectives of the programs and review of position limits by key management outside of the trading function on a daily basis along with other internal controls. The Company monitors current market conditions and may expand or reduce the purchasing program in response to changes in those conditions. In addition, the Company monitors the parties to its purchase contracts on a regular basis for credit worthiness, defaults and non-delivery.

Purchases of grain can be made the day the grain is delivered to a terminal or via a forward contract made prior to actual delivery. Sales of grain generally are made by contract for delivery in a future period. When the Company purchases grain at a fixed price or at a price where a component of the purchase price is fixed via reference to a futures price on the CME, it also enters into an offsetting sale of a futures contract on the CME. Similarly, when the Company sells grain at a fixed price, the sale is offset with the purchase of a futures contract on the CME. At the close of business each day, inventory and open purchase and sale contracts as well as open futures and option positions are marked-to-market. Gains and losses in the value of the Company's ownership positions due to changing market prices are netted with, and generally offset in the income statement by, losses and gains in the value of the Company's futures positions.

When a futures contract is entered into, an initial margin deposit must be sent to the CME. The amount of the margin deposit is set by the CME and varies by commodity. If the market price of a futures contract moves in a direction that is adverse to the Company's position, an additional margin deposit, called a maintenance margin, is required by the CME. Subsequent price changes could require additional maintenance margin deposits or result in the return of maintenance margin deposits by the CME. Significant increases in market prices, such as those that occur when grain supplies are affected by unfavorable weather conditions and/or when increases in demand occur, can have an effect on the Company's liquidity and, as a result, require it to maintain appropriate short-term lines of credit. The Company may utilize CME option contracts to limit its exposure to potential required margin deposits in the event of a rapidly rising market.

The Company owns 49% of the equity in Lansing Trade Group LLC (“LTG”). LTG is largely focused on the movement of physical commodities, including grain and ethanol and is exposed to the some of the same risks as the Company's grain and ethanol businesses. LTG also trades in commodities that the Company's grain and ethanol businesses do not trade in, some of which are not exchange traded. This investment provides the Company with further opportunity to diversify and complement its income through activity outside of its traditional product and geographic regions. This investment is accounted for under the equity method. The Company periodically enters into transactions with LTG as disclosed in Note 8 of Item 8. Subsequent to year end, the Company entered into an agreement with LTG for a partial redemption of the Company's investment in LTG, reducing its interest to approximately 39% on a fully dilutive basis. See additional discussion in Note 18 of Item 8.

Sales of grain and related service and merchandising revenues totaled $3,617.9 million, $3,293.6 million and $2,849.4 million for the years ended December 31, 2013, 2012 and 2011. Bushels shipped by the Grain Group approximated 462 million bushels in 2013.

The Group continued to strategically grow the business during the year. In the third quarter, the Grain Group, along with LTG established joint ventures and purchased a grain and food-bean handler and agronomy input provider with 12 locations across Ontario and Minnesota. These investments are accounted for under the equity method. The Company periodically enters into transactions with these joint ventures as disclosed in Note 8 of Item 8.

The Company intends to continue to grow its traditional grain business through geographic expansion of its physical operations, pursuit of grain handling agreements, expansion at existing facilities and acquisitions.

Ethanol Group

The Ethanol Group has ownership interests in four Limited Liability Companies (“the ethanol LLCs” or “LLCs”). Each of the LLCs owns an ethanol plant that is operated by the Company's Ethanol Group. The plants are located in Iowa, Indiana,

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Michigan, and Ohio and have combined capacity of 330 million gallons of ethanol. The Group offers facility operations, risk management and marketing services to the LLCs it operates.
The Company holds a majority interest (85%) in The Andersons Denison Ethanol LLC ("TADE"), which is a consolidated entity that was acquired on May 1, 2012. The Company holds a 53% interest in The Andersons Albion Ethanol LLC (“TAAE”) and a 38% interest in The Andersons Clymers Ethanol LLC (“TACE”). The Company holds a 50% interest in The Andersons Marathon Ethanol LLC (“TAME”) through its majority owned subsidiary The Andersons Ethanol Investment LLC (“TAEI”). A third party owns 34% of TAEI. All ethanol LLC investments, except TADE, are accounted for using the equity method of accounting.

The Company has a management agreement with each of the LLCs. As part of these agreements, the Ethanol Group runs the day-to-day operations of the plants and provides all administrative functions. The Company is compensated for these services based on a fixed cost plus an indexed annual increase determined by a consumer price index and is accounted for on a gross basis. Additionally, the Company has entered into agreements with each of the unconsolidated LLCs under which it has the exclusive right to act as supplier for 100% of the corn used by the LLCs in the production of ethanol. For this service, the Company receives a fee for each bushel of corn sold. The Company has entered into marketing agreements with each of the ethanol LLCs. Under the ethanol marketing agreements, the Company purchases 100% of the ethanol produced by TAAE, TACE and TADE and 50% of the ethanol produced by TAME to sell to external customers. The Ethanol Group receives a fee for each gallon of ethanol sold to external customers. Under the DDG marketing agreement, the Grain Group markets the DDG and receives a fee for each ton of DDG sold. Most recently, the Company has entered into corn oil marketing agreements with the LLCs for which a commission is earned on units sold.

Sales of ethanol, co-products and related merchandising and service fee revenues totaled $832.0 million, $742.9 million and $641.5 million in 2013, 2012 and 2011.

Plant Nutrient Group

The Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt, Florida and Puerto Rico. The Group provides warehousing, packaging and manufacturing services to basic nutrient manufacturers and other distributors.

In its plant nutrient businesses, the Company competes with regional and local cooperatives, wholesalers and retailers, predominantly publicly owned manufacturers and privately owned retailers, wholesalers and importers. Some of these competitors are also suppliers and have considerably larger resources than the Company. Competition in the nutrient business is based largely on depth of product offering, price, location and service.

Wholesale Nutrients - The Wholesale Nutrients business manufactures, stores, and distributes nearly 1.4 million tons of dry and liquid agricultural nutrients, and pelleted lime and gypsum products annually. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur.

The Plant Nutrient business also manufactures and distributes a variety of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air pollution control systems used in coal-fired power plants, and water treatment and dust abatement products.
 
Farm Centers - The Farm Centers offer a variety of essential crop nutrients, crop protection chemicals and seed products in addition to application and agronomic services to commercial and family farmers. Soil and tissue sampling along with global satellite assisted services provide for pinpointing crop or soil deficiencies and prescriptive agronomic advice is provided to farmers.

Storage capacity at our wholesale nutrient and farm center facilities was approximately 485,000 tons for dry nutrients and approximately 403,000 tons for liquid nutrients at December 31, 2013. Approximately 497,000 tons of storage capacity is reserved for basic manufacturers and customers use. The agreements for reserved space provide the Company storage and handling fees and are generally for one to three year terms, renewable at the end of each term. The Company also leases approximately 27,000 tons of liquid fertilizer capacity and 7,500 tons of dry fertilizers capacity under arrangements with other distributors, farm supply dealers and public warehouses where the Company does not have facilities. Sales and warehouse shipments of agricultural nutrients are heaviest in the spring and fall.


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For the years ended December 31, 2013, 2012 and 2011, sales and service revenues in the wholesale business totaled $531.6 million, $656.0 million and $577.2 million, respectively. Sales of crop production inputs and service revenues in the farm center business totaled $177.0 million, $141.0 million and $113.4 million in 2013, 2012 and 2011, respectively.

Rail Group

The Company's Rail Group repairs, sells and leases a fleet of over 22,700 railcars and locomotives of various types. There are 19 railcar repair facilities across the country. In addition, fleet management services are offered to private railcar owners. The Rail Group is also an investor in the short-line railroad, Iowa Northern Railway Company (“IANR”).

The Company has a diversified fleet of car types (boxcars, gondolas, covered and open top hopper cars, tank cars and pressure differential cars) and locomotives serving a broad customer base. The Company principally operates in the used car market - purchasing used cars and repairing and refurbishing them for specific markets and customers. The Company plans to continue to diversify its fleet both in terms of car types, industries and age of cars. The Rail Group will execute its strategy through expansion of its fleet of railcars and locomotives through targeted portfolio acquisitions and open market purchases as well as strategic selling or scrapping of railcars. The Company also plans to expand its repair and refurbishment operations by adding fixed and mobile facilities.

As part of this expansion effort, on August 5, 2013, the Company completed the purchase of substantially all of the assets of Mile Rail, LLC and a sister entity. The operations consist of a railcar repair and cleaning facility headquartered in Kansas City, Missouri and satellite locations in Nebraska and Indiana. The acquired assets give the Rail Group additional connections to several U.S. Class I railroads.

A significant portion of the railcars and locomotives managed by the Company are included on the balance sheet as long-lived assets. The others are either in off-balance sheet operating leases (with the Company leasing railcars from financial intermediaries and leasing those same railcars to the end-users of the railcars) or non-recourse arrangements (where the Company is not subject to any lease arrangement related to the railcars, but provides management services to the owner of the railcars). The Company generally holds purchase options on most railcars owned by financial intermediaries. We are under contract to provide maintenance services for many of the railcars that we own or manage. Refer to the Off-Balance Sheet Transactions section of Management's Discussion and Analysis for a breakdown of our railcar and locomotive positions at December 31, 2013.

In the case of our off-balance sheet railcars and locomotives, the risk management philosophy of the Company is to match-fund the lease commitments where possible. Match-funding (in relation to rail lease transactions) means matching the terms of the financial intermediary funding arrangement with the lease terms of the customer where the Company is both lessee and sublessor. If the Company is unable to match-fund, it will attempt to get an early buyout provision within the funding arrangement to match the underlying customer lease. The Company does not attempt to match-fund lease commitments for railcars that are on our balance sheet.

Competition for railcar marketing and fleet maintenance services is based primarily on price, service ability, and access to both used rail equipment and third party financing. Repair and fabrication facility competition is based primarily on price, quality and location.

For the years ended December 31, 2013, 2012 and 2011, revenues were $164.8 million, $156.4 million and $107.5 million, respectively, which include lease revenues of $84.2 million, $82.2 million and $70.8 million, respectively.

Turf & Specialty Group

The Turf & Specialty Group produces granular fertilizer and control products for the turf and ornamental markets. It also produces private label fertilizer and control products, and corncob-based animal bedding and cat litter for the consumer markets.

Cob Products - The Company is one of a very limited number of processors of corncob-based products in the United States. These products serve the chemical and feed ingredient carrier, animal litter and industrial markets, and are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for corncobs are seed corn producers.

For the years ended December 31, 2013, 2012 and 2011, sales of corncob and related products totaled $31.6 million, $22.5 million and $20.5 million, respectively.

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Turf Products - Proprietary professional turf care products are produced for the golf course and professional turf care markets, serving both U.S. and international customers. These products are sold both directly and through distributors to golf courses (under The Andersons Golf ProductsTM label) and lawn service applicators. The Company also produces and sells fertilizer and control products for “do-it-yourself” application, to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing of fertilizer and control products.

The turf products industry is seasonal with the majority of sales occurring from early spring to early summer. Principal raw materials for the turf care products are nitrogen, phosphate and potash, which are purchased primarily from the Company's Plant Nutrient Group. Competition is based principally on merchandising ability, logistics, service, quality and technology.

The Company attempts to minimize the amount of finished goods inventory it must maintain for customers, however, because demand is highly seasonal and influenced by local weather conditions, it may be required to carry inventory that it has produced into the next season. Also, because a majority of the consumer and industrial businesses use private label packaging, the Company closely manages production to anticipated orders by product and customer.

For the years ended December 31, 2013, 2012 and 2011, sales of granular plant fertilizer and control products totaled $108.9 million, $108.5 million and $109.2 million, respectively.

Retail Group

The Company's Retail Group includes large retail stores operated as “The Andersons,” which are located in the Columbus and Toledo, Ohio markets. The retail concept is More for Your Home® and the stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories as well as specialty foods, wine and indoor and outdoor garden centers. Each store has 100,000 square feet or more of in-store display space plus 40,000 or more square feet of outdoor garden center space, and features do-it-yourself clinics, special promotions and varying merchandise displays. The Company also operates a specialty food store operated as “The Andersons Market”™ located in the Toledo, Ohio market area. The specialty food store concept has product offerings with a strong emphasis on “freshness” that features produce, deli and bakery items, fresh meats, specialty and conventional dry goods and wine. The majority of the Company's non-perishable merchandise is received at a distribution center located in Maumee, Ohio. The Company also operates a sales and service facility for outdoor power equipment near one of its retail stores.

The retail merchandising business is highly competitive. The Company competes with a variety of retail merchandisers, including grocery stores, home centers, department and hardware stores. Many of these competitors have substantially greater financial resources and purchasing power than the Company. The principal competitive factors are location, quality of product, price, service, reputation and breadth of selection. The Company's retail business is affected by seasonal factors with significant sales occurring in the spring and during the holiday season.

For the years ended December 31, 2013, 2012 and 2011, sales of retail merchandise including commissions on third party sales totaled $140.7 million, $151.0 million and $157.6 million, respectively.

Employees

The Andersons offers a broad range of full-time and part-time career opportunities. Each position in the Company is important to our success, and we recognize the worth and dignity of every individual. We strive to treat each person with respect and utilize his or her unique talents. At December 31, 2013, the Company had 2,036 full-time and 1,202 part-time or seasonal employees. One of the companies acquired in 2012 was unionized, which was decertified in 2013.

Government Regulation

Grain sold by the Company must conform to official grade standards imposed under a federal system of grain grading and inspection administered by the United States Department of Agriculture (“USDA”).

The production levels, markets and prices of the grains that the Company merchandises are affected by United States government programs, which include acreage control and price support programs of the USDA. In regards to our investments in ethanol production facilities, the U.S. government has mandated a ten percent blend for motor fuel gasoline sold. Also, under federal law, the President may prohibit the export of any product, the scarcity of which is deemed detrimental to the domestic economy, or under circumstances relating to national security. Because a portion of the Company's grain sales is to exporters, the imposition of such restrictions could have an adverse effect upon the Company's operations.

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The U.S. Food and Drug Administration (“FDA”) has developed bioterrorism prevention regulations for food facilities, which require that we register our grain operations with the FDA, provide prior notice of any imports of food or other agricultural commodities coming into the United States and maintain records to be made available upon request that identifies the immediate previous sources and immediate subsequent recipients of our grain commodities.

The Company, like other companies engaged in similar businesses, is subject to a multitude of federal, state and local environmental protection laws and regulations including, but not limited to, laws and regulations relating to air quality, water quality, pesticides and hazardous materials. The provisions of these various regulations could require modifications of certain of the Company's existing facilities and could restrict the expansion of future facilities or significantly increase the cost of their operations. The Company spent approximately $4.5 million, $4.4 million and $1.7 million in order to comply with these regulations in 2013, 2012, and 2011, respectively.

In addition, the Company continues to assess the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and has concluded that the Company is not a major swap dealer or major swap participant. New federal regulations, studies and reports addressing all of the major areas of the new law, including the regulation of swaps and derivatives, are in the process of being finalized and adopted and we will continue to monitor these developments.

Available Information

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our Company website soon after filing with the Securities and Exchange Commission. Our Company website is http://www.andersonsinc.com. The public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These reports are also available at the SEC's website: http://www.sec.gov.

Item 1A. Risk Factors

Our operations are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this Form 10-K and could have a material adverse impact on our financial results. These risks can be impacted by factors beyond our control as well as by errors and omissions on our part. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained elsewhere in this Form 10-K.

Certain of our business segments are affected by the supply and demand of commodities, and are sensitive to factors outside of our control. Adverse price movements could negatively affect our profitability and results of operations.

Our Grain, Ethanol and Plant Nutrient businesses buy, sell and hold inventories of agricultural input and output commodities, some of which are readily traded on commodity futures exchanges. In addition, our Turf & Specialty business uses some of the same nutrient commodities sourced by the Plant Nutrient business as base raw materials in manufacturing turf products. Unfavorable weather conditions, both local and worldwide, as well as other factors beyond our control, can affect the supply and demand of these commodities and expose us to liquidity pressures to finance hedges in the grain business in rapidly rising markets. In our Plant Nutrient and Turf & Specialty businesses, changes in the supply and demand of these commodities can also affect the value of inventories that we hold, as well as the price of raw materials as we are unable to effectively hedge these commodities. Increased costs of inventory and prices of raw material would decrease our profit margins and adversely effect our results of operations.

Corn - The principal raw material the ethanol LLCs use to produce ethanol and co-products is corn. As a result, changes in the price of corn in the absence of a corresponding increase in petroleum based fuel prices will decrease ethanol margins thus adversely affecting financial results in the ethanol LLCs. At certain levels, corn prices may make ethanol uneconomical to produce for fuel markets. The price of corn is influenced by weather conditions and other factors affecting crop yields, shift in acreage allocated to corn versus other major crops and general economic and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult to predict. Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and potentially harm our share of the ethanol LLCs results. In addition, we may also have difficulty, from time to time, in physically sourcing corn on economical terms due to supply shortages. High costs or shortages could require us to suspend ethanol operations until corn is available on economical terms, which would have a material adverse effect on operating results.


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Grains - While we attempt to manage the risk associated with commodity price changes for our grain inventory positions with derivative instruments, including purchase and sale contracts, we are unable to offset 100% of the price risk of each transaction due to timing, availability of futures and options contracts and third party credit risk. Furthermore, there is a risk that the derivatives we employ will not be effective in offsetting all of the risks we are trying to manage. This can happen when the derivative and the underlying value of grain inventories and purchase and sale contracts are not perfectly matched. Our grain derivatives, for example, do not perfectly correlate with the basis component of our grain inventory and contracts. (Basis is defined as the difference between the cash price of a commodity and the corresponding exchange-traded futures price.) Differences can reflect time periods, locations or product forms. Although the basis component is smaller and generally less volatile than the futures component of our grain market price, significant basis moves on a large grain position can significantly impact the profitability of the Grain business.

Our futures, options and over-the-counter contracts are subject to margin calls. If there is a significant movement in the commodities market, we could be required to post significant levels of margin, which would impact our liquidity. There is no assurance that the efforts we have taken to mitigate the impact of the volatility of the prices of commodities upon which we rely will be successful and any sudden change in the price of these commodities could have an adverse affect on our business and results of operations.

Natural Gas - We rely on third parties for our supply of natural gas, which is consumed in the drying of wet grain, manufacturing of certain turf products, pelleted lime and gypsum, and manufacturing of ethanol within the LLCs. The prices for and availability of natural gas are subject to market conditions. These market conditions often are affected by factors beyond our control such as higher prices resulting from colder than average weather conditions and overall economic conditions. Significant disruptions in the supply of natural gas could impair the operations of the ethanol facilities. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect future results of operations and financial position.

Gasoline - In addition, we market ethanol as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and as a substitute for petroleum based gasoline. As a result, ethanol prices will be influenced by the supply and demand for gasoline and our future results of operations and financial position may be adversely affected if gasoline demand or price changes.

Potash, phosphate and nitrogen - Raw materials used by the Plant Nutrient business include potash, phosphate and nitrogen, for which prices can be volatile driven by global and local supply and demand factors. Significant increases in the price of these commodities may result in lower customer demand and higher than optimal inventory levels. In contrast, reductions in the price of these commodities may create lower-of-cost-or-market inventory adjustments to inventories.

Some of our business segments operate in highly regulated industries. Changes in government regulations or trade association policies could adversely affect our results of operations.

Many of our business segments are subject to government regulation and regulation by certain private sector associations, compliance with which can impose significant costs on our business. Failure to comply with such regulations can result in additional costs, fines or criminal action.

A significant part of our operations is regulated by environmental laws and regulations, including those governing the labeling, use, storage, discharge and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in environmental requirements or an unanticipated significant adverse environmental event could have a material adverse effect on our business. We cannot assure you that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur material costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in our products. We are also exposed to residual risk because some of the facilities and land which we have acquired may have environmental liabilities arising from their prior use. In addition, changes to environmental regulations may require us to modify our existing plant and processing facilities and could significantly increase the cost of those operations.

Grain and Ethanol businesses - In our Grain and Ethanol businesses, agricultural production and trade flows can be affected by government programs and legislation. Production levels, markets and prices of the grains we merchandise can be affected by U.S. government programs, which include acreage controls and price support programs administered by the USDA and required levels of ethanol in gasoline through the Renewable Fuel Standards as administered by the EPA. Other examples of government policies that can have an impact on our business include tariffs, duties, subsidies, import and export restrictions

9



and outright embargoes. Because a portion of our grain sales are to exporters, the imposition of export restrictions and other foreign countries' regulations could limit our sales opportunities.

The compliance burden and impact on our operations and profitability as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations are currently unknown, as the Dodd-Frank Act delegates to various federal agencies the task of implementing its many provisions through regulation. These efforts to change the regulation of financial markets may subject users of derivatives to extensive oversight and regulation by the Commodities Futures Trading Commission (CFTC). Such initiatives could impose significant additional costs on us, including operating and compliance costs, and could materially affect the availability, as well as the cost and terms, of certain transactions. New federal regulations, studies and reports addressing all of the major areas of the new law, including the regulation of swaps and derivatives, are in the process of being finalized and adopted and we will continue to monitor these developments. Any of these matters could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

Rail - Our Rail business is subject to regulation by the American Association of Railroads and the Federal Railroad Administration. These agencies regulate rail operations with respect to health and safety matters. New regulatory rulings could negatively impact financial results through higher maintenance costs or reduced economic value of railcar assets.

The Rail business is also subject to risks associated with the demands and restrictions of the Class I railroads, a group of rail companies owning a high percentage of the existing rail lines. These companies exercise a high degree of control over whether private railcars can be allowed on their lines and may reject certain railcars or require maintenance or improvements to the railcars. This presents risk and uncertainty for our Rail business and it can increase maintenance costs. In addition, a shift in the railroad strategy to investing in new rail cars and improvements to existing railcars, instead of investing in locomotives and infrastructure, could adversely impact our business by causing increased competition and creating an oversupply of railcars. Our rail fleet consists of a range of railcar types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives. However, a large concentration of a particular type of railcar could expose us to risk if demand were to decrease for that railcar type. Failure on our part to identify and assess risks and uncertainties such as these could negatively impact our business.

Plant Nutrient and Turf & Specialty - Our Plant Nutrient and Turf & Specialty businesses manufacture certain agricultural nutrients and use potentially hazardous materials. All products containing pesticides, fungicides and herbicides must be registered with the U.S. Environmental Protection Agency (“EPA”) and state regulatory bodies before they can be sold. The inability to obtain or the cancellation of such registrations could have an adverse impact on our business. In the past, regulations governing the use and registration of these materials have required us to adjust the raw material content of our products and make formulation changes. Future regulatory changes may have similar consequences. Regulatory agencies, such as the EPA, may at any time reassess the safety of our products based on new scientific knowledge or other factors. If it were determined that any of our products were no longer considered to be safe, it could result in the amendment or withdrawal of existing approvals, which, in turn, could result in a loss of revenue, cause our inventory to become obsolete or give rise to potential lawsuits against us. Consequently, changes in existing and future government or trade association polices may restrict our ability to do business and cause our financial results to suffer.

We are required to carry significant amounts of inventory across all of our businesses. If a substantial portion of our inventory becomes damaged or obsolete, its value would decrease and our profit margins would suffer.

We are exposed to the risk of a decrease in the value of our inventories due to a variety of circumstances in all of our businesses. For example, within our Grain and Ethanol businesses, there is the risk that the quality of our grain inventory could deteriorate due to damage, moisture, insects, disease or foreign material. If the quality of our grain were to deteriorate below an acceptable level, the value of our inventory could decrease significantly. In our Plant Nutrient business, planted acreage, and consequently the volume of fertilizer and crop protection products applied, is partially dependent upon government programs and the producer's perception of demand. Technological advances in agriculture, such as genetically engineered seeds that resist disease and insects, or that meet certain nutritional requirements, could also affect the demand for our crop nutrients and crop protection products. Either of these factors could render some of our inventory obsolete or reduce its value. Within our Rail business, major design improvements to loading, unloading and transporting of certain products can render existing (especially old) equipment obsolete. A significant portion of our rail fleet is composed of older railcars. In addition, in our Turf & Specialty business, we build substantial amounts of inventory in advance of the season to prepare for customer demand. If we were to forecast our customer demand incorrectly, we could build up excess inventory which could cause the value of our inventory to decrease.



10



Our substantial indebtedness could negatively affect our financial condition, decrease our liquidity and impair our ability to operate the business.

If cash on hand is insufficient to pay our obligations or margin calls as they come due at a time when we are unable to draw on our credit facility, it could have an adverse effect on our ability to conduct our business. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is dependent on various factors. These factors include general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Certain of our long-term borrowings include provisions that require minimum levels of working capital and equity, and impose limitations on additional debt. Our ability to satisfy these provisions can be affected by events beyond our control, such as the demand for and the fluctuating price of grain. Although we are and have been in compliance with these provisions, noncompliance could result in default and acceleration of long-term debt payments.

Adoption of new accounting rules can affect our financial position and results of operations.

The Company's implementation of and compliance with changes in accounting rules and interpretations could adversely affect its operating results or cause unanticipated fluctuations in its results in future periods.  The accounting rules and regulations that the Company must comply with are complex and continually changing. The Financial Accounting Standards Board has recently introduced several new or proposed accounting standards, or is developing new proposed standards, such as International Financial Reporting Standards convergence projects, which would represent a significant change from current industry practices. Potential changes in accounting for leases, for example, will eliminate the off-balance sheet treatment of operating leases, which would not only impact the way we account for these leases, but may also impact our customers lease-versus-buy decisions and could have a negative impact on demand for our rail leases. The Company cannot predict the impact of future changes to accounting principles or its accounting policies on its financial statements going forward.

We face increasing competition and pricing pressure from other companies in our industries. If we are unable to compete effectively with these companies, our sales and profit margins would decrease, and our earnings and cash flows would be adversely affected.

The markets for our products in each of our business segments are highly competitive. While we have substantial operations in our region, some of our competitors are significantly larger, compete in wider markets, have greater purchasing power, and have considerably larger financial resources. We also may enter into new markets where our brand is not recognized and in which we do not have an established customer base. Competitive pressures in all of our businesses could affect the price of, and customer demand for, our products, thereby negatively impacting our profit margins and resulting in a loss of market share.

Our grain and ethanol businesses use derivative contracts to reduce volatility in the commodity markets. Non-performance by the counter-parties to those contracts could adversely affect our future results of operations and financial position.

A significant amount of our grain and ethanol purchases and sales are done through forward contracting. In addition, the Company uses exchange traded and to a lesser degree over-the-counter contracts to reduce volatility in changing commodity prices. A significant adverse change in commodity prices could cause a counter-party to one or more of our derivative contracts to not perform on their obligation.

We rely on a limited number of suppliers for certain of our raw materials and other products and the loss of one or several of these suppliers could increase our costs and have a material adverse effect on any one of our business segments.

We rely on a limited number of suppliers for certain of our raw materials and other products. If we were unable to obtain these raw materials and products from our current vendors, or if there were significant increases in our supplier's prices, it could significantly increase our costs and reduce our profit margins.

Our investments in limited liability companies and equity method investments are subject to risks beyond our control.

We currently have investments in numerous limited liability companies. By operating a business through this arrangement, we do not have full control over operating decisions like we would if we owned the business outright. Specifically, we cannot act on major business initiatives without the consent of the other investors who may not always be in agreement with our ideas.

The Company may not be able to effectively integrate future businesses it acquires.

We continuously look for opportunities to enhance our existing businesses through strategic acquisitions. The process of integrating an acquired business into our existing business and operations may result in unforeseen operating difficulties and

11



expenditures as well as require a significant amount of management resources. There is also the risk that our due diligence efforts may not uncover significant business flaws or hidden liabilities. In addition, we may not realize the anticipated benefits of an acquisition and they may not generate the anticipated financial results. Additional risks may include the inability to effectively integrate the operations, products, technologies and personnel of the acquired companies. The inability to maintain uniform standards, controls, procedures and policies would also negatively impact operations.

Our business involves considerable safety risks. Significant unexpected costs and liabilities would have a material adverse effect on our profitability and overall financial position.

Due to the nature of some of the businesses in which we operate, we are exposed to significant operational hazards such as grain dust explosions, fires, malfunction of equipment, abnormal pressures, blowouts, pipeline and tank ruptures, chemical spills or run-off, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. If one of our elevators were to experience a grain dust explosion or if one of our pieces of equipment were to fail or malfunction due to an accident or improper maintenance, it could put our employees and others at serious risk.

The Company's information technology systems may impose limitations or failures, or may face external threats, which may affect the Company's ability to conduct its business.

The Company's information technology systems, some of which are dependent on services provided by third-parties, provide critical data connectivity, information and services for internal and external users.  These interactions include, but are not limited to, ordering and managing materials from suppliers, converting raw materials to finished products, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, and other processes necessary to manage the business.  The Company has put in place business continuity plans for its critical systems.  However, if the Company's information technology systems are damaged, or cease to function properly due to any number of causes, such as catastrophic events or power outages, and the Company's business continuity plans do not effectively recover on a timely basis, the Company may suffer interruptions in the ability to manage its operations, which may adversely impact the Company's revenues and operating results. Our security measures may also be breached due to employee error, malfeasance, or otherwise. Additionally, outside parties may attempt to destroy critical information, or fraudulently induce employees, third-party service providers, or users to disclose sensitive information in order to gain access to our data or our users' data. Our ability to prevent, repel or mitigate the effects of such an attack by outside parties cannot be assured. Any such breach or unauthorized access could result in an inability to perform critical functions, significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our services that could potentially have an adverse effect on our business. In addition, although the system has been refreshed periodically, the infrastructure is outdated and may not be adequate to support new business processes, accounting for new transactions, or implementation of new accounting standards if requirements are complex or materially different than what is currently in place.
Unauthorized disclosure of sensitive or confidential customer information could harm the Company's business and standing with our customers.
The protection of our customer, employee and Company data is critical to us. The Company relies on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. Despite the security measures the Company has in place, its facilities and systems, and those of its third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by the Company or its vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations and harm our business.

The Company's design and implementation of a new Enterprise Resource Planning system could face significant difficulties.

In early 2012, the Company began the design and implementation of a new Enterprise Resource Planning system, requiring significant capital and human resources to deploy. The system will be more expensive and take longer to fully implement than originally planned, including increased capital investment, higher fees and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented. The ultimate costs and schedules are not yet known. If for any reason this implementation is not successful, the Company could be required to expense rather than capitalize related amounts. Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the

12



Company's ability to operate successfully and efficiently. These risks include, without limitation, inefficient use of employees, distractions to the Company's core businesses, adverse customer reactions, loss of key information, delays in decision making, as well as unforeseen additional costs due to the inability to integrate vital information processes.

Item 2. Properties

The Company's principal agriculture, rail, retail and other properties are described below.

Agriculture Facilities
 
 
Agricultural Fertilizer
(in thousands)
Grain Storage
Dry Storage
Liquid Storage
Location
(bushels)
(tons)
(tons)
Florida

3

22

Illinois
13,389

55


Indiana
24,635

146

140

Iowa
19,573

11

22

Michigan
16,611

54

29

Minnesota


52

Nebraska
10,918



Ohio
41,623

187

61

Tennessee
12,378



Wisconsin

29

77

 
139,127

485

403


The grain facilities are mostly concrete and steel tanks, with some flat storage, which is primarily cover-on-first temporary storage. The Company also owns grain inspection buildings and dryers, maintenance buildings and truck scales and dumps. Approximately 87% of the total storage capacity is owned, while the remaining 13% of the total capacity is leased from third parties.

The Plant Nutrient Group's wholesale nutrient and farm center properties consist mainly of fertilizer warehouse and formulation and packaging facilities for dry and liquid fertilizers. The Company owns 96% of the dry and liquid storage facilities. The tanks located in Puerto Rico are leased and have been excluded from the table above.

Retail Store Properties
Name
Location
Square Feet
Maumee Store
Maumee, OH
166,000
Toledo Store
Toledo, OH
162,000
Sawmill Store
Columbus, OH
169,000
Brice Store
Columbus, OH
159,000
The Andersons Market (1)
Sylvania, OH
30,000
Distribution Center (1)
Maumee, OH
245,000
 
 
 
(1) Facility leased
 
 

The leases for the retail store and distribution center are operating leases with several renewal options and provide for minimum aggregate annual lease payments approximating $1.4 million for 2013. In addition, the Company owns a service and sales facility for outdoor power equipment adjacent to its Maumee, Ohio retail store.

Other Properties

The Company owns a 55 million gallon capacity ethanol facility in Denison, Iowa. The Company owns lawn fertilizer production facilities in Maumee, Ohio, Bowling Green, Ohio, Montgomery, Alabama, and Mocksville, North Carolina. It also owns a corncob processing and storage facility in Delphi, Indiana and two cob facilities located in Central Illinois. The

13



Company leases a lawn fertilizer warehouse facility in Toledo, Ohio. The Company owns 19 railcar repair facilities and one railcar fabrication shop throughout the country.

The Company also owns an auto service center that is leased to its former venture partner. The Company's administrative office building is leased under a net lease expiring in 2015. The Company owns approximately 1,942 acres of land on which the above properties and facilities are located and approximately 301 acres of farmland and land held for sale or future use.

The Company believes that its properties are adequate for its business, well maintained and utilized, suitable for their intended uses and adequately insured.

Item 3. Legal Proceedings

The Company has received, and is cooperating fully with, a request for information from the United States Environmental Protection Agency (“U.S. EPA”) regarding the history of its grain and fertilizer facility along the Maumee River in Toledo, Ohio. The U.S. EPA is investigating the possible introduction into the Maumee River of hazardous materials potentially leaching from rouge piles deposited along the riverfront by glass manufacturing operations that existed in the area prior to the Company's initial acquisition of the land in 1960. The Company has on several prior occasions cooperated with local, state and federal regulators to install or improve drainage systems to contain storm water runoff and sewer discharges along its riverfront property to minimize the potential for such leaching. Other area land owners and the successor to the original glass making operations have also been contacted by the U.S. EPA for information. No claim or finding has been asserted thus far.

The Company is also currently subject to various claims and suits arising in the ordinary course of business, which include environmental issues, employment claims, contractual disputes, and defensive counter claims. The Company accrues liabilities where litigation losses are deemed probable and estimable. The Company believes it is unlikely that the results of its current legal proceedings, even if unfavorable, will be materially different from what it currently has accrued. There can be no assurance, however, that any claims or suits arising in the future, whether taken individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations.

Item 4. Mine Safety

Not applicable.

14





Executive Officers of the Registrant

The information is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The executive officers of The Andersons, Inc., their positions and ages (as of February 28, 2014) are presented in the table below.
Name
Position
Age
Year Assumed
 
 
 
 
Dennis J. Addis
President, Grain Group
President, Plant Nutrient Group
61
2012
2000
Daniel T. Anderson
President, Retail Group and Vice President, Corporate Operations Services
President, Retail Group
58
2009
1996
Michael J. Anderson
Chairman and Chief Executive Officer
62
1999
Naran U. Burchinow
Vice President, General Counsel and Secretary
60
2005
Nicholas C. Conrad
Vice President, Finance and Treasurer
Assistant Treasurer
61
2009
1996
Arthur D. DePompei
Vice President, Human Resources
60
2008
John Granato
Chief Financial Officer
Principal - Finance & Operations (Global Infrastructure Partners)
48
2012
2009
Neill McKinstray
President, Ethanol Group
Vice President & General Manager, Ethanol Division
61
2012
2005
Harold M. Reed
Chief Operating Officer
President, Grain & Ethanol Group
57
2012
2000
Anne G. Rex
Vice President, Corporate Controller
Assistant Controller
49
2012
2002
Rasesh H. Shah
President, Rail Group
59
1999
Tamara S. Sparks
Vice President, Corporate Business /Financial Analysis
Internal Audit Manager
45
2007
1999
Thomas L. Waggoner
President, Turf & Specialty Group
59
2005
William J. Wolf
President, Plant Nutrient Group
Vice President of Supply & Merchandising, Plant Nutrient Group
56
2012
2008

15





Part II.


Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

The Common Shares of The Andersons, Inc. trade on the Nasdaq Global Select Market under the symbol “ANDE.” On February 18, 2014, the Company effected a three-for-two stock split to its outstanding shares as of January 21, 2014. All share, dividend and per share information set forth in this 10-K has been retroactively adjusted to reflect the stock split. On February 19, 2014, the first day after the split was effective, the closing price for the Company's Common Shares was $53.49 per share.

Shareholders

At February 7, 2014, there were approximately 28.2 million common shares outstanding, 1,348 shareholders of record and approximately 13,065 shareholders for whom security firms acted as nominees.

The following table sets forth the high and low bid prices for the Company's Common Shares, retroactively effected for the stock split, for the four fiscal quarters in each of 2013 and 2012.

 
2013
2012
 
High
Low
High
Low
Quarter Ended
 
 
 
 
March 31
$35.68
$28.79
$32.66
$26.79
June 30
$36.67
$33.55
$34.33
$26.67
September 30
$47.11
$35.72
$29.26
$23.44
December 31
$61.55
$45.72
$29.83
$23.63

The Company's transfer agent and registrar is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, IL 60602. Telephone: 312-588-4991.

Dividends

The Company has declared and paid consecutive quarterly dividends since the end of 1996, its first year of trading on the Nasdaq market. Dividends paid from January 2012 to January 2014, retroactively effected for the stock split, are as follows:

Payment Date
Amount
1/24/2012
$0.1000
4/23/2012
$0.1000
7/23/2012
$0.1000
10/22/2012
$0.1000
1/23/2013
$0.1067
4/22/2013
$0.1067
7/22/2013
$0.1067
10/22/2013
$0.1067
1/23/2014
$0.1100


While the Company's objective is to pay a quarterly cash dividend, dividends are subject to Board of Director approval.





16



Equity Plans

The following table gives information as of December 31, 2013 about the Company's Common Shares that may be issued upon the exercise of options under all of its existing equity compensation plans.

 
Equity Compensation Plan Information
Plan category
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
710,345 (1)

$
30.70

922,560 (2)

Equity compensation plans not approved by security holders




(1)
This number includes 172,790 Share Only Share Appreciation Rights (“SOSARs”), 348,905 performance share units and 188,651 restricted shares outstanding under The Andersons, Inc. 2005 Long-Term Performance Compensation Plan dated May 6, 2005. This number does not include any shares related to the Employee Share Purchase Plan. The Employee Share Purchase Plan allows employees to purchase common shares at the lower of the market value on the beginning or end of the calendar year through payroll withholdings. These purchases are completed as of December 31.
(2)
This number includes 284,738 Common Shares available to be purchased under the Employee Share Purchase Plan.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In 1996, the Company's Board of Directors began approving the repurchase of shares of common stock for use in employee, officer and director stock purchase and stock compensation plans, which reached 4.2 million authorized shares in 2001. The Company purchased 3.1 million shares under this repurchase program. The original resolution was superseded by the Board in October 2007 with a resolution authorizing the repurchase of 1.5 million shares of common stock. Since the beginning of the current repurchase program, the Company has repurchased 0.3 million shares in the open market. There were no share repurchases in 2013.

Performance Graph

The graph below compares the total shareholder return on the Corporation's Common Shares to the cumulative total return for the Nasdaq U.S. Index and a Peer Group Index. The indices reflect the year-end market value of an investment in the stock of each company in the index, including additional shares assumed to have been acquired with cash dividends, if any. The Peer Group Index, weighted for market capitalization, includes the following companies:
Agrium, Inc.
Lowe's Companies, Inc.
Archer-Daniels-Midland Co.
The Greenbrier Companies, Inc.
GATX Corp.
The Scott's Miracle-Gro Company
Ingredion Incorporated
 

The graph assumes a $100 investment in The Andersons, Inc. Common Shares on December 31, 2008 and also assumes investments of $100 in each of the Nasdaq U.S. and Peer Group indices, respectively, on December 31 of the first year of the graph. The value of these investments as of the following calendar year-ends is shown in the table below the graph.



17





 
Base Period
Cumulative Returns
 
December 31, 2008
2009
2010
2011
2012
2013
The Andersons, Inc.
$
100.00

$
159.14

$
226.46

$
275.15

$
274.28

$
575.99

NASDAQ U.S.
100.00

145.34

171.70

170.34

200.57

281.14

Peer Group Index
100.00

117.03

133.99

129.97

165.34

224.32


18




Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data of the Company. The data for each of the five years in the period ended December 31, 2013 are derived from the Consolidated Financial Statements of the Company. The data presented below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7, and the Consolidated Financial Statements and notes thereto included in Item 8.

(in thousands, except for per share and ratios and other data)
For the years ended December 31,
 
2013
2012
2011
2010
2009
Operating results
 
 
 
 
 
Sales and merchandising revenues (a)
$
5,604,574

$
5,272,010

$
4,576,331

$
3,393,791

$
3,025,304

Gross profit
365,225

358,005

352,852

281,679

255,506

Equity in earnings of affiliates
68,705

16,487

41,450

26,007

17,463

Other income, net (b)
14,876

14,725

7,922

11,652

8,331

Net income
95,702

75,565

96,825

64,881

39,566

Net income attributable to The Andersons, Inc.
89,939

79,480

95,106

64,662

38,351

Financial position
 
 
 
 
 
Total assets
2,273,556

2,182,304

1,734,123

1,699,390

1,284,391

Working capital
229,451

304,346

312,971

301,815

307,702

Long-term debt (c)
371,150

407,176

238,088

263,675

288,756

Long-term debt, non-recourse (c)
4,063

20,067

797

13,150

19,270

Total equity
724,421

611,445

538,842

464,559

406,276

 
 
 
 
 
 
Cash flows / liquidity
 
 
 
 
 
Cash flows from (used in) operations
337,188

328,482

290,265

(239,285
)
180,241

Depreciation and amortization
55,307

48,977

40,837

38,913

36,020

Cash invested in acquisitions (d)
(15,252
)
(220,257
)
(2,365
)
(39,293
)
(30,480
)
Investment in affiliates (e)
(49,251
)

(121
)
(395
)
(1,200
)
Investments in property, plant and equipment
(46,786
)
(69,274
)
(44,162
)
(30,897
)
(16,560
)
Net (investment in) proceeds from railcars (f)
4,648

(20,397
)
(33,763
)
1,748

(16,512
)
EBITDA (g)
219,917

195,180

212,252

162,702

116,989

 
 
 
 
 
 
Per share data (h)
 
 
 
 
 
Net income - basic
3.20

2.85

3.42

2.34

1.40

Net income - diluted
3.18

2.82

3.39

2.32

1.39

Dividends paid
0.430

0.400

0.293

0.238

0.232

Year-end market value
59.45

28.60

29.11

24.23

17.21

 
 
 
 
 
 
Ratios and other data
 
 
 
 
 
Net income attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc.
15.1
%
15.2
%
21.1
%
16.4
%
10.9
%
Funded long-term debt to equity ratio (i)
0.5-to-1

0.7-to-1

0.4-to-1

0.6-to-1

0.8-to-1

Weighted average shares outstanding (000's)
27,986

27,784

27,686

27,534

27,285

Effective tax rate
36.0
%
37.1
%
34.5
%
37.7
%
35.7
%
(a) Includes sales of $1,333.2 million in 2013, $1,359.4 million in 2012, $1,385.4 million in 2011, $982.2 million in 2010 and $806.3 million in 2009 pursuant to marketing and origination agreements between the Company and the unconsolidated ethanol LLCs.
(b) Includes $2.3 million, $2.1 million, $1.7 million and $1.1 million of dividend income from IANR in 2013, 2012, 2011 and 2010, respectively. Includes $4.6 million, $4.5 million and $2.2 million in Rail end-of-lease settlements in 2013, 2012 and 2010, respectively.
(c) Excludes current portion of long-term debt. The increase in non-recourse debt in 2012 is related to the debt held by TADE.
(d) During 2012, the Company acquired the assets of Green Plains Grain, TADE, Mt. Pulaski and 100% of the stock of New Eezy Gro.
(e) During 2013, the Company and LTG established 50/50 joint ventures to acquire 100% of the stock of Thompsons Limited and its related U.S. operating company.
(f) Represents the net of purchases of railcars offset by proceeds on sales of railcars.

19



(g) Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measure. It is one of the measures the Company uses to evaluate its liquidity. The Company believes that EBITDA provides additional information important to investors and others in determining its ability to meet debt service obligations. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles. EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements for debt service obligations or otherwise. Because EBITDA, as determined by the Company, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies.
(h) Earnings per share are calculated based on Income attributable to The Andersons, Inc, retroactively adjusted to consider the three-for-two stock split.
(i) Calculated by dividing long-term debt by total year-end equity as stated under “Financial position.”

The following table sets forth (1) our calculation of EBITDA and (2) a reconciliation of EBITDA to our net cash flow provided by (used in) operations.
 
For the years ended December 31,
(in thousands)
2013
2012
2011
2010
2009
Net income attributable to The Andersons, Inc.
$
89,939

$
79,480

$
95,106

$
64,662

$
38,351

Add:
 
 
 
 
 
Provision for income taxes
53,811

44,568

51,053

39,262

21,930

Interest expense
20,860

22,155

25,256

19,865

20,688

Depreciation and amortization
55,307

48,977

40,837

38,913

36,020

EBITDA
219,917

195,180

212,252

162,702

116,989

Add/(subtract):
 
 
 
 
 
Provision for income taxes
(53,811
)
(44,568
)
(51,053
)
(39,262
)
(21,930
)
Interest expense
(20,860
)
(22,155
)
(25,256
)
(19,865
)
(20,688
)
Realized gains on railcars and related leases
(19,366
)
(23,665
)
(8,417
)
(7,771
)
(1,758
)
Deferred income taxes
40,374

16,503

5,473

12,205

16,430

Excess tax benefit from share-based payment arrangement
(1,001
)
(162
)
(307
)
(876
)
(566
)
Equity in earnings of unconsolidated affiliates, net of distributions received
(50,953
)
8,134

(23,591
)
(17,594
)
(15,105
)
Noncontrolling interest in income (loss) of affiliates
5,763

(3,915
)
1,719

219

1,215

Changes in working capital and other
217,125

203,130

179,445

(329,043
)
105,654

Net cash provided by (used in) operations
$
337,188

$
328,482

$
290,265

$
(239,285
)
$
180,241


The Company has included its Computation of Earnings to Fixed Charges in Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K as Exhibit 12.

20





Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following “Management's Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. You are urged to carefully consider these risks and factors, including those listed under Item 1A, “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “anticipates,” “believes,” “estimates,” “predicts,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Executive Overview

Our operations are organized, managed and classified into six reportable business segments: Grain, Ethanol, Plant Nutrient, Rail, Turf & Specialty and Retail. Each of these segments is based on the nature of products and services offered.
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income.

Grain Group
Our Grain Group operates grain elevators in various states in the U.S. Corn Belt. In addition to storage, merchandising and grain trading, Grain performs marketing, risk management, and corn origination services for its customers and affiliated ethanol production facilities. The Company is also a significant investor in Lansing Trade Group, LLC (“LTG”), an established commodity trading, grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices.
On July 31, 2013, we, 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 us, $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. 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.

Total grain storage capacity is approximately 139 million bushels as of December 31, 2013 compared to 142 million bushels at December 31, 2012. Grain inventories on hand at December 31, 2013 were 96.9 million bushels, of which 13.3 million bushels were stored for others. This compares to 98 million bushels on hand at December 31, 2012, of which 22.9 million bushels were stored for others.

Nearly 462 million bushels were shipped by our grain facilities during the year, an increase of 22%. The increase in volume primarily relates to a full year of activity at the new locations in Iowa and Tennessee, which were acquired from Green Plains Grain Company in the fourth quarter of last year. Despite the increase in volume, overall performance was down compared to prior year as margins were significantly lower year over year. This drop is exaggerated as grain prices were higher in the prior year due to the 2012 drought, followed by grain price decreases due to record crops in 2013. In addition, the 2012 drought caused record low grain stocks which negatively impacted space income in the first half of 2013. As the current year harvest progressed, lower grain prices and less than anticipated grain movement from producers left our facilities with more empty space at year end which negatively affected our space income.


21



Looking ahead, planted corn acreage is anticipated to be approximately 93 million acres which should benefit our Grain and other agricultural businesses as long as the weather cooperates. In 2014, our Grain Group will continue its focus on purposefully growing the business through acquisitions in existing and new geographies and enhancing new risk management and grain marketing services.

Ethanol Group
Our Ethanol business holds investments in four ethanol production facilities organized as separate limited liability companies, three of which are accounted for under the equity method (the "unconsolidated ethanol LLCs") and one that is consolidated ("The Andersons Denison Ethanol LLC" or "TADE"). The Company holds an 85% interest in TADE. The business purchases and sells ethanol, offers facility operations, risk management, and ethanol, corn oil and distillers dried grains (“DDG”) marketing to the ethanol plants in which it invests and operates.
Ethanol volumes shipped for the year ended December 31, 2013 and 2012 were as follows:
(in thousands)
Twelve months ended December 31,
 
2013
 
2012
Ethanol (gallons shipped) (a)
288,134

 
275,788

E-85 (gallons shipped)
23,719

 
17,019

Corn Oil (pounds shipped)
85,100

 
59,012

DDG (tons shipped)
1,051

 
1,211

(a) The sales volumes are less than the total produced by the LLCs, as a portion is sold directly to one of its other investors

The ethanol LLCs performed well in 2013 as a result of favorable margins due primarily to the significant decrease in corn costs caused by the large 2013 corn crop. Looking ahead, production and required inputs have been contracted for January 2014 at positive margins but there is the potential for volatility in the market beyond then. Another large corn planting in the spring should have positive benefits for our Ethanol Group. Of course, this is dependent on numerous external factors, such as favorable weather during the growing season.

Plant Nutrient Group
Our Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients and pelleted lime and gypsum products in the U.S. Corn Belt, Florida and Puerto Rico. The Plant Nutrient Group provides warehousing, packaging and manufacturing services to basic manufacturers and other distributors. The business also manufactures and distributes a variety of industrial products throughout the U.S. and Puerto Rico including nitrogen reagents for air pollution control systems used in coal-fired power plants and water treatment products. The major nutrient products sold by the business principally contain nitrogen, phosphate, potassium and sulfur.

Storage capacity at our wholesale nutrient and farm center facilities was approximately 485,000 tons for dry nutrients and approximately 403,000 tons for liquid nutrients at December 31, 2013.
Fertilizer tons shipped (including sales and service tons) for the years ended December 31, 2013 and 2012 were 1.9 million tons and 2.1 million tons, respectively.
While the fourth quarter was stronger than prior year in regards to volume, margins were weak due to the effects of world demand on nutrient prices. Looking ahead, corn acres planted in 2014 are anticipated to be around 93 million acres, which should support good nutrient demand moving into the next crop cycle, although prices are uncertain at this time due to uncertainty of corn prices. We plan to monitor the market and take a conservative position going into the spring until we can get a better read on both the nutrient and grain markets.

Rail Group
Our Rail business buys, sells, leases, rebuilds and repairs various types of used railcars and rail equipment. The business also provides fleet management services to fleet owners. Rail has a diversified fleet of car types (boxcars, gondolas, covered and open top hoppers, tank cars and pressure differential cars) and locomotives.


22



Railcars and locomotives under management (owned, leased or managed for financial institutions in non-recourse arrangements) at December 31, 2013 were 22,700 compared to 23,278 at December 31, 2012. The average utilization rate (railcars and locomotives under management that are in lease service, exclusive of railcars managed for third party investors) is 86.1% for the year ended December 31, 2013 which is nearly 2% higher than prior year.

For the year ended December 31, 2013, Rail had gains on sales of railcars and related leases in the amount of $19.4 million compared to $23.7 million of gains on sales of railcars and related leases for the year ended December 31, 2012.

In early 2013, our Rail Group completed construction of a 27,300 square-foot railcar blast and paint facility in Maumee, Ohio. The facility is now class C certified which will generate additional repair business. In addition, on August 5, 2013 we completed the purchase of substantially all of the assets of Mile Rail, LLC and a sister entity for a purchase price of $7.8 million. The operations consist of a railcar repair and cleaning facility headquartered in Kansas City, Missouri, with 2 satellite locations in Nebraska and Indiana. The acquired assets give our Rail Group additional connections to several U.S. Class I railroads, from which we anticipate future growth and capacity to generate gross profit.

A focus of the Group in 2014 will be to strategically grow the rail fleet and continue to look for opportunities to open new repair facilities. We also anticipate future business related to mandated modifications in the tank car industry.

Turf & Specialty Group
Our Turf & Specialty Group is one of a very limited number of processors of corncob-based products in the United States. Corncob-based products are manufactured for a variety of uses including laboratory animal bedding, private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. Corncob-based products are sold throughout the year. Turf & Specialty also produces granular fertilizer products for the professional lawn care and golf course markets. It also sells consumer fertilizer and weed and turf pest control products for “do-it-yourself” application to mass merchandisers, small independent retailers and other lawn fertilizer manufacturers and performs contract manufacturing of fertilizer and weed and turf pest control products. These products are distributed throughout the United States and Canada and into Europe and Asia. The turf products industry is highly seasonal, with the majority of sales occurring from early spring to early summer.

On December 9, 2013, we completed the purchase of the assets of Cycle Group, Inc. for $4.2 million. The operation consists of one granulated products facility in Mocksville, North Carolina. During the year, the Group also invested a significant amount of capital and made improvements at the corncob processing facilities in central Illinois that were acquired from Mt. Pulaski Products in the fourth quarter of 2012. The improvements are anticipated to increase throughput and create other efficiencies for the cob business. In addition, pricing and continuous improvement decisions related to cost savings benefited the Group in 2013.

Our strategy is to grow the lawn and cob businesses by adding new products and technology, as well as looking for opportunities to acquire new businesses.

Retail Business
Our Retail business includes large retail stores operated as “The Andersons” and a specialty food market operated as “The Andersons Market”. It also operates a sales and service facility for outdoor power equipment. The retail concept is More for Your Home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories, as well as specialty foods, wine and indoor and outdoor garden centers.
The retail business is highly competitive. Our stores compete with a variety of retail merchandisers, including home centers, department and hardware stores, as well as local and national grocers. The Retail Group continues to work on new departments and products to maximize the profitability.
In the first quarter of 2013, the Group closed its Woodville, Ohio retail store and in the fourth quarter incurred impairment charges related to certain assets in two stores (see Operating Results discussion for more information).

Other
Our “Other” business segment represents corporate functions that provide support and services to the operating segments. The results contained within this segment include expenses and benefits not allocated back to the operating segments, including our ERP project.

In 2011, the Ohio Tax Credit Authority approved job retention tax credits and job creation tax credits for the Company in relation to in process capital projects. To earn these credits, the Company has committed to invest a minimum amount in new

23



machinery and equipment and property renovations/improvements in the city of Maumee and surrounding areas.  In addition to the capital investment, the Company will retain 636 and create a minimum of 20 full-time equivalent positions. The projected benefit is estimated to be approximately $10 million over 8 to 10 years.

Operating Results

The following discussion focuses on the operating results as shown in the Consolidated Statements of Income with a separate discussion by segment. Additional segment information is included in Note 7 to the Company's Consolidated Financial Statements in Item 8.

 
Year ended December 31,
(in thousands)
2013
 
2012
 
2011
Sales and merchandising revenues
$
5,604,574

 
$
5,272,010

 
$
4,576,331

Cost of sales and merchandising revenues
5,239,349

 
4,914,005

 
4,223,479

Gross profit
365,225

 
358,005

 
352,852

Operating, administrative and general expenses
278,433

 
246,929

 
229,090

Interest expense
20,860

 
22,155

 
25,256

Equity in earnings of affiliates
68,705

 
16,487

 
41,450

Other income, net
14,876

 
14,725

 
7,922

Income before income taxes
149,513

 
120,133

 
147,878

Income (loss) attributable to noncontrolling interests
5,763

 
(3,915
)
 
1,719

Operating income
$
143,750

 
$
124,048

 
$
146,159


Comparison of 2013 with 2012

Grain Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
3,617,943

 
$
3,293,632

Cost of sales and merchandising revenues
3,499,426

 
3,176,452

Gross profit
118,517

 
117,180

Operating, administrative and general expenses
97,398

 
73,037

Interest expense
9,567

 
12,174

Equity in earnings of affiliates
33,122

 
29,080

Other income, net
2,120

 
2,548

Income (loss) before income taxes
46,794

 
63,597

Income (loss) attributable to noncontrolling interests
(11
)
 

Operating income (loss)
$
46,805

 
$
63,597


Operating results for the Grain Group decreased $16.8 million compared to full year 2012 results. Sales and merchandising revenues increased $324.3 million over 2012 as a result of an increase in bushels shipped for all commodities (including newly acquired facilities) and was partially offset by a decrease in the average price per bushel sold for corn, wheat and soybeans. Cost of sales and merchandising revenues increased $323 million due to the higher volume of sales and merchandising revenues. Gross profit increased $1.3 million due to high volumes. As noted earlier, gross profit was negatively impacted by the reduced space income in 2013 as compared to the prior year.

Operating expenses were $24.4 million higher than 2012. A large portion of the increase is higher labor and benefits related to organizational growth (including previously mentioned acquired facilities), depreciation expense due to increased capital investment, and utilities expense due to a wet harvest that required additional drying. Interest expense decreased $2.6 million due to fewer ownership bushels and lower grain prices resulting in lower inventory values. Equity in earnings of affiliates increased $4.0 million due to the continued strong performance of LTG and five months of income from the Thompsons Limited joint venture. Other income did not fluctuate significantly from prior year.


24




Ethanol Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
831,965

 
$
742,929

Cost of sales and merchandising revenues
799,453

 
728,256

Gross profit
32,512

 
14,673

Operating, administrative and general expenses
11,082

 
9,004

Interest expense
1,038

 
759

Equity in earnings (loss) of affiliates
35,583

 
(12,598
)
Other income, net
399

 
53

Income (loss) before income taxes
56,374

 
(7,635
)
Income (loss) attributable to noncontrolling interests
5,774

 
(3,915
)
Operating income (loss)
$
50,600

 
$
(3,720
)

Operating results for the Ethanol Group improved $54.3 million from the full year 2012 results to operating income of $50.6 million. Sales and merchandising and service fee revenues increased $89 million due to an increase in both volume of ethanol gallons shipped (including a full year of the Denison, Iowa plant acquired in May 2012) as well as the higher average price per gallon of ethanol sold. Ethanol co-product (corn oil and DDG) sales also contributed to the significant increase in revenues over the prior year. The increase in cost of sales primarily relates to the increase in volume as corn costs were down considerably during 2013. The increase in gross profit is mostly attributable to improvement in Denison's margins from declining corn costs and higher ethanol demand and price.

Operating expenses increased $2.1 million primarily due to higher labor related expenses, including performance incentives and a full year of Denison plant expenses. Equity in earnings of affiliates increased $48.2 million from prior year and represents income from investments in three unconsolidated ethanol LLCs. Throughout the year, the LLCs performance improved due to higher ethanol margins resulting from the decreased corn costs and higher demand for ethanol. Income attributable to noncontrolling interests was also impacted in a similar manner. There were no significant changes in interest expense or other income.

Plant Nutrient Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
708,654

 
$
797,033

Cost of sales and merchandising revenues
621,972

 
698,781

Gross profit
86,682

 
98,252

Operating, administrative and general expenses
57,188

 
58,088

Interest expense
3,312

 
2,832

Equity in earnings (loss) of affiliates

 
5

Other income, net
1,093

 
1,917

Operating income
$
27,275

 
$
39,254


Operating results for the Plant Nutrient Group were $12.0 million lower than 2012 results. Sales were $88.4 million lower due to a decrease in both the average price per ton sold and volume for the year in the wholesale nutrient business. Cost of sales and merchandising revenues decreased $76.8 million due primarily to lower product cost. Gross profit decreased $11.6 million as a result of lower margin per ton sold as well as the decline in volume year over year.

Operating expenses were slightly lower in 2013 primarily due to lower performance incentive expense. Other income was higher in 2012 due to gains recognized on assets that were involuntarily converted. There were no significant changes in equity in earnings of affiliates and interest expense.





25




Rail Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
164,794

 
$
156,426

Cost of sales and merchandising revenues
105,930

 
99,697

Gross profit
58,864

 
56,729

Operating, administrative and general expenses
18,201

 
16,217

Interest expense
5,544

 
4,807

Other income, net
7,666

 
7,136

Operating income
$
42,785

 
$
42,841


Operating results for the Rail Group were relatively consistent year over year. Revenues related to car sales increased $1 million, repairs and fabrication increased $3.9 million and leasing revenues increased $3.5 million. The increase in leasing revenues is attributable to higher lease rates, as well as having more cars in service, while the remaining increases were driven by higher volume of activity. Cost of sales and merchandising revenues increased $6.2 million as a result of higher volume of activity. Rail gross profit increased $2.1 million compared to prior year primarily due to higher gross profit in the leasing business which is attributed to favorable lease rates.

Operating expenses increased by $2.0 million from prior year mainly due to higher labor and benefits related to growth and higher performance incentives. Interest expense was higher due to a greater amount of car financings and debt related to the new blast and paint facility opened in 2013. Other income was slightly higher in 2013 due to income from the settlement of two nonperforming railcar leases.

Turf & Specialty Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
140,512

 
$
131,026

Cost of sales and merchandising revenues
111,223

 
104,000

Gross profit
29,289

 
27,026

Operating, administrative and general expenses
23,998

 
24,361

Interest expense
1,237

 
1,233

Other income, net
690

 
784

Operating income
$
4,744

 
$
2,216


Operating results for the Turf & Specialty Group increased $2.5 million compared to its 2012 results. Sales increased $9.5 million and is due to an increase in sales within the cob business year over year. This increase is primarily attributable to the acquisition of Mt. Pulaski in the fourth quarter of 2012 which more than doubled the Group's cob supply. For the total Group, volume increased over 15% and was partially offset by a decrease in the average price per ton sold. Cost of sales and merchandising revenues increased $7.2 million due to volume as the average cost per ton was lower year over year. Gross profit increased $2.3 million due to favorable product mix.

Operating expenses decreased as a result of continuous improvement efforts that led to greater process efficiencies. Interest expense and other income were fairly stable year over year.











26




Retail Group
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$
140,706

 
$
150,964

Cost of sales and merchandising revenues
101,345

 
106,819

Gross profit
39,361

 
44,145

Operating, administrative and general expenses
46,707

 
47,874

Interest expense
689

 
776

Other income, net
501

 
554

Operating loss
$
(7,534
)
 
$
(3,951
)

The operating loss for the Retail Group was $7.5 million compared to its 2012 loss of $4.0 million. Sales decreased $10.3 million from 2012 due to a decline in both the average sale per customer and customer count, as well as closure of the Woodville store in the first quarter of 2013. Cost of sales decreased $5.5 million due to lower sales volume. As a result of the lower store traffic, gross profit decreased $4.8 million.

Operating expenses for the Group decreased $1.2 million and is primarily due to lower labor and benefits, partly attributable to the closing of the Woodville store. The Group also incurred asset impairment charges in the amount of $3.9 million in the fourth quarter of 2013. There were no significant changes in interest expense or other income.

Other
 
Year ended December 31,
(in thousands)
2013
 
2012
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
23,859

 
18,348

Interest expense
(527
)
 
(426
)
Equity in earnings of affiliates

 

Other income, net
2,407

 
1,733

Operating loss
$
(20,925
)
 
$
(16,189
)

The net corporate operating loss (costs not allocated back to the business units) increased $4.7 million to a loss of $20.9 million for 2013. Operating expenses were higher due to an increase in labor and benefits related expenses (including incentive compensation), community giving, and ongoing expenses incurred related to the phased implementation of an enterprise resource planning system. Other income was higher in 2013 due to earnings on deferred compensation plan assets. Interest income did not change significantly year over year.

Income tax expense of $53.8 million was provided at 36.0%. In 2012, income tax expense of $44.6 million was provided at 37.1%. The decrease in the effective tax rate was due primarily to decreased state and local income taxes and income attributable to the noncontrolling interests that did not impact income tax expense. These were partially offset by a correction made in the first quarter with respect to the accounting for the other comprehensive income portion of the Company’s retiree health care plan liability and the Medicare Part D subsidy.

During the third quarter of 2013, the Company believed its share of foreign joint venture earnings would be considered indefinitely reinvested outside the U.S.  However, after ongoing analysis of additional information related to the third quarter joint venture acquisition together with the impact of expiring tax legislation, the Company is now providing for taxes on foreign earnings, as the earnings are expected to be included in U.S. taxable income.  The effect of this change was not material to the third quarter or full year 2013.





27




Comparison of 2012 with 2011

Grain Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
3,293,632

 
$
2,849,358

Cost of sales and merchandising revenues
3,176,452

 
2,705,745

Gross profit
117,180

 
143,613

Operating, administrative and general expenses
73,037

 
69,258

Interest expense
12,174

 
13,277

Equity in earnings of affiliates
29,080

 
23,748

Other income, net
2,548

 
2,462

Operating income before noncontrolling interest
$
63,597

 
$
87,288


Operating results for the Grain Group decreased $23.7 million compared to full year 2011 results. Sales and merchandising revenues increased $444.3 million over 2011 as a result of higher grain prices (corn and soybeans) and an increase in bushels shipped (soybeans and wheat). Cost of sales and merchandising revenues increased $470.7 million due to higher cost of grain as compared to prior year. Gross profit decreased $26.4 million primarily as a result of significantly lower space income, and more specifically lower basis appreciation. Basis is the difference between the cash price of a commodity in one of the Company's facilities and the nearest exchange traded futures price. The impact of the Green Plains Grain acquisition was not material to the Grain Group's results for 2012 given the timing of the transaction.

Operating expenses were $3.8 million higher than 2011. A large portion of the increase is higher labor and benefits related to organizational growth as well as acquisition costs incurred in the fourth quarter. Interest expense decreased $1.1 million due to fewer ownership bushels in beans and wheat at the end of 2012 versus 2011 upon which short-term interest is calculated. Equity in earnings of affiliates increased $5.3 million due to the strong performance of LTG. Other income did not fluctuate significantly from prior year.

Ethanol Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
742,929

 
$
641,546

Cost of sales and merchandising revenues
728,256

 
626,524

Gross profit
14,673

 
15,022

Operating, administrative and general expenses
9,004

 
6,785

Interest expense
759

 
1,048

Equity in earnings of affiliates
(12,598
)
 
17,715

Other income, net
53

 
159

Income before income taxes
(7,635
)
 
25,063

Income attributable to noncontrolling interest
(3,915
)
 
1,719

Operating income
$
(3,720
)
 
$
23,344


Operating results for the Ethanol Group decreased $27.1 million from full year 2011 results to a loss of $3.7 million. Sales and merchandising and service fee revenues increased $101.4 million and is due to an increase in volume as a result of TADE, as the average price per gallon of ethanol sold decreased significantly during the year. Corn oil sales also contributed to the significant increase over the prior year, as there were no corn oil sales for the Ethanol Group until 2012. The acquisition of TADE in the second quarter of 2012 added $85.6 million of ethanol sales, $25.7 million of DDG sales, $2.7 million of corn oil sales and $1.3 million of syrup sales. The increase in cost of sales primarily relates to an increase in volume as a result of the acquisition of TADE and to a lesser extent, corn costs. The decrease in gross profit is attributable to mark to market losses on certain hedges.


28



Operating expenses increased $2.2 million primarily due to higher labor and benefits and professional service fees related to growth. Equity in earnings of affiliates decreased $30.3 million from prior year and represents operating losses from the investment in three unconsolidated ethanol LLCs. Throughout the year, the LLCs were impacted by lower ethanol margins resulting from the increased corn costs and lower demand for ethanol. There were no significant changes in interest expense or other income.

Plant Nutrient Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
797,033

 
$
690,631

Cost of sales and merchandising revenues
698,781

 
593,437

Gross profit
98,252

 
97,194

Operating, administrative and general expenses
58,088

 
56,101

Interest expense
2,832

 
3,517

Equity in earnings of affiliates
5

 
(13
)
Other income, net
1,917

 
704

Operating income
$
39,254

 
$
38,267


Operating results for the Plant Nutrient Group increased $1.0 million over its 2011 results. Sales were $106.4 million higher due to a 12.7% increase in tons sold and a 2.4% increase in the average price per ton sold for the year. Cost of sales and merchandising revenues increased $105.3 million due primarily to higher product cost. Gross profit increased $1.1 million over prior year as a result of the increase in volume partially offset by a decline in margins compared to prior year.

Operating expenses increased $2.0 million and is due to an increase in labor, benefits and other expenses related to the acquisition of New Eezy Gro, Inc. in the first quarter of 2012. Interest expense was $0.7 million lower in the current year due to lower levels of working capital in use as well as lower interest rates. Other income is higher in 2012 compared to 2011 due to gains recognized on involuntary asset conversions.

Rail Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
156,426

 
$
107,459

Cost of sales and merchandising revenues
99,697

 
82,709

Gross profit
56,729

 
24,750

Operating, administrative and general expenses
16,217

 
12,161

Interest expense
4,807

 
5,677

Other income, net
7,136

 
2,866

Operating income (loss)
$
42,841

 
$
9,778


Operating results for the Rail Group increased $33.1 million over 2011. Revenues related to car sales increased $30.4 million, repairs and fabrication increased $7.2 million and leasing revenues increased $11.4 million. The increase in revenues is attributable to having more cars in service, higher volume of transactions, and favorable lease rates. Cost of sales and merchandising revenues increased $17.0 million as a result of higher volume of car sales. Rail gross profit increased $32.0 million compared to prior year primarily due to higher gross profit on car sales from increase in volume of transactions and in the leasing business which is attributed to favorable lease rates and decreased lease expense driven by a lower average number of cars in leases compared to the same period last year.

Operating expenses increased by $4.1 million from prior year mainly due to higher labor and benefits related to growth and higher performance incentives. Interest expense decreased $0.9 million due to repayment of rail financing debt in the fourth quarter of 2011. Other income was higher in 2012 due to settlements received from customers for railcars returned at the end of a lease that were not in the required operating condition, as well as higher dividend income from the short-line investment.




29





Turf & Specialty Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
131,026

 
$
129,716

Cost of sales and merchandising revenues
104,000

 
103,481

Gross profit
27,026

 
26,235

Operating, administrative and general expenses
24,361

 
23,734

Interest expense
1,233

 
1,381

Other income, net
784

 
880

Operating income
$
2,216

 
$
2,000


Operating results for the Turf & Specialty Group increased $0.2 million compared to its 2011 results. Sales increased $1.3 million and is due to an increase in sales within the cob business year over year, $1.0 million of which is attributable to the acquisition of Mt. Pulaski in the fourth quarter of 2012. For the total Group, the average price per ton sold increased approximately 3.2% and was partially offset by a 2.1% decline in volume. Cost of sales and merchandising revenues increased $0.5 million due to an increase in the average cost per ton due to higher cost of materials purchased. Gross profit increased $0.8 million due to higher margins from price increases.

Operating expenses increased $0.6 million over the prior year due to costs related to the new cob location acquired in the fourth quarter, severance charges incurred in the third quarter as well as a variety of other variable expenses including a workers compensation medical claim, depreciation and maintenance expenses. There were no significant fluctuations in interest expense or other income.

Retail Group
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$
150,964

 
$
157,621

Cost of sales and merchandising revenues
106,819

 
111,583

Gross profit
44,145

 
46,038

Operating, administrative and general expenses
47,874

 
47,297

Interest expense
776

 
899

Other income, net
554

 
638

Operating loss
$
(3,951
)
 
$
(1,520
)

The operating loss for the Retail Group increased $2.4 million compared to its 2011 results. Sales decreased $6.7 million from 2011 due to a decline in both the average sale per customer and customer count. Cost of sales decreased $4.8 million due to lower sales volume. As a result, gross profit decreased $1.9 million.

Operating expenses for the Group increased $0.6 million and is attributable to $1.1 million of severance costs which have been accrued in relation to the announcement to close the Group’s Woodville, Ohio retail store in the first quarter of 2013. There were no significant changes in interest expense or other income.












30




Other
 
Year ended December 31,
(in thousands)
2012
 
2011
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
18,348

 
13,754

Interest expense
(426
)
 
(543
)
Equity in earnings of affiliates

 

Other income, net
1,733

 
213

Operating loss
$
(16,189
)
 
$
(12,998
)

The Corporate operating loss (costs not allocated back to the business units) increased $3.2 million over 2011 and relates primarily to an increase in labor and benefits and professional services related to implementation of an enterprise resource planning system.

As a result of the operating performances noted above, income attributable to The Andersons, Inc. of $79.5 million for 2012 was 16% lower than the income attributable to The Andersons, Inc. of $95.1 million in 2011. Income tax expense of $44.6 million was provided at 37.1%. In 2011, income tax expense of $51.1 million was provided at 34.5%. The increase in the effective tax rate was due primarily to lower benefits related to domestic production activities and the 2012 loss and the 2011 income attributable to the noncontrolling interests that did not impact income tax expense.

31



Liquidity and Capital Resources

Working Capital

At December 31, 2013, the Company had working capital of $229.5 million, a decrease of $74.9 million from the prior year. This decrease was attributable to changes in the following components of current assets and current liabilities:
 
(in thousands)
December 31,
2013
 
December 31,
2012
 
Variance
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
309,085

 
$
138,218

 
$
170,867

Restricted cash
408

 
398

 
10

Accounts receivables, net
173,930

 
208,877

 
(34,947
)
Inventories
614,923

 
776,677

 
(161,754
)
Commodity derivative assets – current
71,319

 
103,105

 
(31,786
)
Deferred income taxes
4,931

 
15,862

 
(10,931
)
Other current assets
47,188

 
54,016

 
(6,828
)
Total current assets
1,221,784

 
1,297,153

 
(75,369
)
Current Liabilities:
 
 
 
 
 
Borrowing under short-term line of credit

 
24,219

 
(24,219
)
Accounts payable for grain
592,183

 
582,653

 
9,530

Other accounts payable
154,599

 
165,201

 
(10,602
)
Customer prepayments and deferred revenue
59,304

 
105,410

 
(46,106
)
Commodity derivative liabilities – current
63,954

 
33,277

 
30,677

Accrued expenses and other current liabilities
70,295

 
66,902

 
3,393

Current maturities of long-term debt
51,998

 
15,145

 
36,853

Total current liabilities
992,333

 
992,807

 
(474
)
Working capital
$
229,451

 
$
304,346

 
$
(74,895
)

In comparison to the prior year, current assets decreased primarily as a result of lower inventory levels driven by a decrease in grain inventories caused by lower corn and wheat prices and fewer wheat bushels owned compared to fourth quarter last year. See the discussion below on sources and uses of cash for an understanding of the change in cash from prior year. Accounts receivable decreased largely due to a decrease in grain trade receivables which fluctuate with the timing of shipments along with variations in the prices of commodities. While shipments were higher year over year, grain prices were considerably lower. Commodity derivative assets have also decreased due to a decline in grain prices which were triggered by a record corn crop. Deferred income tax assets are lower due to changes in accrual and reserve accounts that are not currently deductible for tax purposes. Other current assets have decreased primarily due to fewer railcars classified as available for sale, lower prepaid income taxes and lower advanced inventory purchases for our wholesale nutrient business. Current liabilities decreased primarily as a result of having no borrowings under our short-term line of credit at year end, as well as lower customer prepayments and deferred revenue. The large balance in customer prepayments and deferred revenue in the prior year was related to amounts due to Cargill under a marketing agreement that were paid in May 2013. The decrease in other accounts payable is due to a decrease in delayed price grain payables caused by the lower grain prices previously mentioned. These reductions were partially offset by significant increases in grain payables, commodity derivative liabilities and current maturities of long-term debt. The increase in grain payables is attributed to higher hold pay (grain we have purchased but not yet paid for), caused by higher receipts during harvest compared to last year. Commodity derivative liabilities represent the long-term net liability by customer position. Current maturities of long-term debt increased due to reclassification of certain notes that are due within the next year (see note 10 for more information).








32



Sources and Uses of Cash

Operating Activities and Liquidity

Our operating activities provided cash of $337.2 million in 2013 compared to cash provided by operations of $328.5 million in 2012. The significant amount of operating cash flows in 2013 relates primarily to the changes in working capital (before short-term borrowings) discussed above along with strong earnings.

In 2013, the Company paid income taxes, net of refunds received, of $5.3 million compared to $36.3 million in 2012. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The decrease in income taxes paid in 2013 from 2012 is primarily due to decreased current income tax expense and overpayments related to 2012 taxes that were applied to 2013 estimated tax payments or were refunded in 2013.

Investing Activities

Investing activities used $106.3 million in 2013 compared to $290.6 million used in 2012. There were significant additions to property, plant and equipment and business acquisitions in 2012 compared to 2013. In total, we spent approximately $205 million less on business acquisitions (net of cash acquired) in 2013. A large portion of the 2013 spending relates to purchases of railcars in the amount of $92.6 million. Purchases of railcars was more than offset by proceeds from the sale of railcars in the amount of $97.2 million. Another large portion of the 2013 spend was for the investment of $49.3 million, in the joint venture entities that purchased Thompsons Limited and its related U.S. operating company. Capital spending for 2013 on property, plant and equipment includes: Grain - $8.5 million; Ethanol - $4.1 million; Plant Nutrient - $17.1 million; Rail - $4.1 million; Turf & Specialty - $6.6 million; Retail - $2.9 million and $3.5 million in corporate / enterprise resource planning project spending.
  
We expect to spend approximately $85 million in 2014 on conventional property, plant and equipment which includes estimated 2014 capital spending for the project to replace current technology with an enterprise resource planning system. An additional $110 million is estimated to be spent on the purchase and capitalized modifications of railcars with related sales or financings of $85 million.

The change in restricted cash was minimal in 2013. In 2012, restricted cash decreased as a result of reimbursement of spending related to an industrial development revenue bond.

Financing Arrangements

Net cash used in financing activities was $60.1 million in 2013, compared to $79.9 million of cash provided by financing activities in 2012. The cash used in 2013 was primarily driven by payments of long-term debt during the year partially offset by proceeds from issuance of long-term debt. This is in contrast to the 2012 activity where there were significant proceeds from issuance of long-term debt, much of it relating to acquisitions during the year. There was also a significant change in short-term borrowings as there was no balance outstanding on our short-term line of credit at year end compared to $24.2 million last year.

We have significant amounts of committed short-term lines of credit available to finance working capital, primarily inventories, margin calls on commodity contracts and accounts receivable. We are party to a borrowing arrangement with a syndicate of banks that provides a total of $878.1 million in borrowing capacity, including $28.1 million in non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $847.7 million remaining available for borrowing at December 31, 2013. Peak short-term borrowings to date were $315.0 million on January 22, 2013. Typically, the Company's highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses.

We paid $12.0 million in dividends in 2013 compared to $11.2 million in 2012. We paid $0.100 per common share for the dividends paid in January, April, July and October 2012, and $0.107 per common share for the dividends paid in January, April, July and October 2013. The dividends paid in January 2014 were $0.110 per common share.

Proceeds from the sale of treasury shares to employees and directors were $1.9 million and $1.3 million for 2013 and 2012, respectively. During 2013, we issued approximately 500,000 shares to employees and directors under our equity-based compensation plans.

Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. We are in compliance with all such covenants as of December 31, 2013. In addition, certain of

33



our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by railcar and ethanol plant assets.

Because we are a significant consumer of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and / or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, we receive a return of cash.

We believe our sources of liquidity will be adequate to fund our operations, capital expenditures and payments of dividends through the next twelve months.

Contractual Obligations

Future payments due under contractual obligations at December 31, 2013 are as follows:

 
Payments Due by Period

(in thousands)
Less than 1 year
1-3 years
3-5 years
After 5 years
Total
Long-term debt (a)
$
45,986

$
112,474

$
98,693

$
159,984

$
417,137

Long-term debt non-recourse (a)
6,012

4,063



10,075

Interest obligations (b)
16,902

23,942

15,913

32,709

89,466

Uncertain tax positions
202

489

145


836

Operating leases (c)
20,093

34,183

20,123

10,751

85,150

Purchase commitments (d)
1,027,742

126,556



1,154,298

Other long-term liabilities (e)
1,244

2,739

3,045

8,851

15,879

Total contractual cash obligations
$
1,118,181

$
304,446

$
137,919

$
212,295

$
1,772,841


(a) The Company is subject to various loan covenants. Although the Company is in compliance with its covenants, noncompliance could result in default and acceleration of long-term debt payments. The Company does not anticipate noncompliance with its covenants.
(b) Future interest obligations are calculated based on interest rates in effect as of December 31, 2013 for the Company's variable rate debt and do not include any assumptions on expected borrowings, if any, under the short-term line of credit.
(c) Approximately 85% of the operating lease commitments above relate to railcars and locomotives that the Company leases from financial intermediaries. See “Off-Balance Sheet Transactions” below.
(d) Includes the amounts related to purchase obligations in the Company's operating units, including $919 million for the purchase of grain from producers and $188 million for the purchase of ethanol from the ethanol joint ventures. There are also forward grain and ethanol sales contracts to consumers and traders and the net of these forward contracts are offset by exchange-traded futures and options contracts or over-the-counter contracts. See the narrative description of businesses for the Grain and Ethanol Groups in Item 1 of this Annual Report on Form 10-K for further discussion.
(e) Other long-term liabilities include estimated obligations under our retiree healthcare programs. Obligations under the retiree healthcare programs are not fixed commitments and will vary depending on various factors, including the level of participant utilization and inflation. Our estimates of postretirement payments through 2018 have considered recent payment trends and actuarial assumptions. We have not estimated pension contributions starting in 2014 due to the significant impact that return on plan assets and changes in discount rates might have on such amounts.

The Company had standby letters of credit outstanding of $29.9 million at December 31, 2013 as well as $0.5 million that was outstanding on a non-recourse basis.

Off-Balance Sheet Transactions

The Company's Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. The Company leases railcars from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. Railcars owned by the Company, or leased by the Company from a financial intermediary, are generally leased to a customer under an operating lease. The Company also arranges non-recourse lease transactions under which it sells railcars or locomotives to a financial intermediary, and assigns the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, the Company generally provides ongoing railcar maintenance and management

34



services for the financial intermediary, and receives a fee for such services. On most of the railcars and locomotives, the Company holds an option to purchase these assets at the end of the lease.

The following table describes the Company's railcar and locomotive positions at December 31, 2013.

Method of Control
Financial Statement
Units
Owned-railcars available for sale
On balance sheet – current
130

Owned-railcar assets leased to others
On balance sheet – non-current
14,940

Railcars leased from financial intermediaries
Off balance sheet
3,942

Railcars – non-recourse arrangements
Off balance sheet
3,596

Total Railcars
 
22,608

Locomotive assets leased to others
On balance sheet – non-current
49

Locomotives leased from financial intermediaries
Off balance sheet
4

Locomotives – non-recourse arrangements
Off balance sheet
39

Total Locomotives
 
92


In addition, the Company manages approximately 377 railcars for third-party customers or owners for which it receives a fee.

The Company has future lease payment commitments aggregating $72.1 million for the railcars leased by the Company from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding fifteen years. The Company utilizes non-recourse arrangements where possible in order to minimize its credit risk. Refer to Note 11 to the Company's Consolidated Financial Statements in Item 8 for more information on the Company's leasing activities.

Critical Accounting Estimates

The process of preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Management evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical experience and management's knowledge and understanding of current facts and circumstances. Actual results, under conditions and circumstances different from those assumed, may change from estimates.

Certain of our accounting estimates are considered critical, as they are important to the depiction of the Company's financial statements and / or require significant or complex judgment by management. There are other items within our financial statements that require estimation, however, they are not deemed critical as defined above. Note 1 to the Consolidated Financial Statements in Item 8 describes our significant accounting policies which should be read in conjunction with our critical accounting estimates.

Management believes that the accounting for grain inventories and commodity derivative contracts, including adjustments for counterparty risk, and impairment of long-lived assets and equity method investments involve significant estimates and assumptions in the preparation of the Consolidated Financial Statements.

Grain Inventories and Commodity Derivative Contracts

The Company marks to market all grain inventory, forward purchase and sale contracts for grain and ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options contracts. The overall market for grain inventories is very liquid and active; market value is determined by reference to prices for identical commodities on the CME (adjusted primarily for transportation costs); and the Company's grain inventories may be sold without significant additional processing. The Company uses forward purchase and sale contracts and both exchange traded and over-the-counter contracts (such as derivatives generally used by the International Swap Dealers Association). Management estimates fair value based on exchange-quoted prices, adjusted for differences in local markets, as well as counter-party non-performance risk in the case of forward and over-the-counter contracts. The amount of risk, and therefore the impact to the fair value of the contracts, varies by type of contract and type of counter-party. With the exception of specific customers thought to be at higher risk, the Company looks at the contracts in total, segregated by contract type, in its quarterly assessment of non-performance risk. For those customers that are thought to be at higher risk, the Company makes assumptions as to performance based on past history and facts about the current situation. Changes in fair value are recorded as a component of sales and merchandising revenues in the statement of income.

35




Impairment of Long-Lived Assets and Equity Method Investments

The Company's business segments are each highly capital intensive and require significant investment in facilities and / or railcars. Fixed assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This is done by evaluating the recoverability based on undiscounted projected cash flows, excluding interest. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group's carrying amount exceeds its fair value.

We also annually review the balance of goodwill for impairment in the fourth quarter. Historically, these reviews for impairment have taken into account our quantitative estimates of future cash flows. Our estimates of future cash flows are based upon a number of assumptions including lease rates, lease terms, operating costs, life of the assets, potential disposition proceeds, budgets and long-range plans. Based on the strength of performance in groups with goodwill balances, a qualitative goodwill impairment assessment was performed in the current year versus the traditional quantitative assessment. Key factors considered in the qualitative assessment included, but were not limited to industry and market specific factors, the competitive environment, comparison of the prior-year actual results relative to budgeted performance, current financial performance, and managements forecast for future financial performance. These factors are discussed in more detail in Note 12, Goodwill and Intangible Assets.

In addition, the Company holds investments in limited liability companies that are accounted for using the equity method of accounting. The Company reviews its investments to determine whether there has been a decline in the estimated fair value of the investment that is below the Company's carrying value which is other than temporary. Other than consideration of past and current performance, these reviews take into account forecasted earnings which are based on management's estimates of future performance.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in the Company's market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest rates as discussed below.

Commodity Prices

The Company's daily net commodity position consists of inventories, related purchase and sale contracts and exchange-traded futures and over-the-counter contracts. The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. The Company has established controls to manage and limit risk exposure, which consists of daily review of position limits and effects of potential market prices moves on those positions.

A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its net commodity position. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices. The result of this analysis, which may differ from actual results, is as follows:

 
December 31,
(in thousands)
2013
 
2012
Net commodity position
$
(455
)
 
$
2,941

Market risk
(46
)
 
294













36





Interest Rates

The fair value of the Company's long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company's current incremental borrowing rates and credit ratings for similar types of borrowing arrangements. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:

 
December 31,
(in thousands)
2013
2012
Fair value of long-term debt, including current maturities
$
426,246

$
459,433

Fair value in excess of carrying value
2,494

17,046

Market risk
6,298

7,447


Actual results may differ. The estimated fair value and market risk will vary from year to year depending on the total amount of long-term debt and the mix of variable and fixed rate debt.

37




Item 8. Financial Statements and Supplementary Data

The Andersons, Inc.
Index to Financial Statements

Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Consolidated Financial Statements of Lansing Trade Group, LLC and Subsidiaries
Schedule II - Consolidated Valuation and Qualifying Accounts


38




Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
of The Andersons, Inc.

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Andersons, Inc. and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We did not audit the financial statements of Lansing Trade Group, LLC, an entity in which The Andersons, Inc. accounts for under the equity method of accounting, for which The Andersons’ financial statements reflects an investment in of $106.0 million and $92.1 million as of December 31, 2013 and 2012, respectively, and equity in earnings of affiliates of $31.2 million, $28.6 million, and $23.6 million for the years ended December 31, 2013, 2012, and 2011, respectively. The financial statements of Lansing Trade Group, LLC were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements expressed herein, insofar as it relates to the amounts included for Lansing Trade Group, LLC, is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
February 28, 2014



39




The Andersons, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
 
 
Year ended December 31,
 
2013
 
2012
 
2011
Sales and merchandising revenues
$
5,604,574

 
$
5,272,010

 
$
4,576,331

Cost of sales and merchandising revenues
5,239,349

 
4,914,005

 
4,223,479

Gross profit
365,225

 
358,005

 
352,852

Operating, administrative and general expenses
278,433

 
246,929

 
229,090

Interest expense
20,860

 
22,155

 
25,256

Other income:
 
 
 
 
 
Equity in earnings of affiliates, net
68,705

 
16,487

 
41,450

Other income, net
14,876

 
14,725

 
7,922

Income before income taxes
149,513

 
120,133

 
147,878

Income tax provision
53,811

 
44,568

 
51,053

Net income
95,702

 
75,565

 
96,825

Net income (loss) attributable to the noncontrolling interests
5,763

 
(3,915
)
 
1,719

Net income attributable to The Andersons, Inc.
$
89,939

 
$
79,480

 
$
95,106

Per common share:
 
 
 
 
 
Basic earnings attributable to The Andersons, Inc. common shareholders
$
3.20

 
$
2.85

 
$
3.42

Diluted earnings attributable to The Andersons, Inc. common shareholders
$
3.18

 
$
2.82

 
$
3.39

Dividends paid
$
0.4300

 
$
0.4000

 
$
0.2933

The Notes to Consolidated Financial Statements are an integral part of these statements.


40





The Andersons, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Year ended December 31,
 
2013
 
2012
 
2011
Net income
$
95,702

 
$
75,565

 
$
96,825

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Increase (decrease) in estimated fair value of investment in debt securities (net of income tax of $3,208, ($1,162) and $1,710)
5,292

 
(1,978
)
 
2,860

Change in unrecognized actuarial loss and prior service cost (net of income tax of ($10,439), $699 and $10,293)
18,641

 
(563
)
 
(17,120
)
Cash flow hedge activity (net of income tax of ($238), ($66) and $21)
265

 
252

 
(31
)
Other comprehensive income (loss)
24,198

 
(2,289
)
 
(14,291
)
Comprehensive income
119,900

 
73,276

 
82,534

Comprehensive income (loss) attributable to the noncontrolling interests
5,763

 
(3,915
)
 
1,719

Comprehensive income attributable to The Andersons, Inc.
$
114,137

 
$
77,191

 
$
80,815

The Notes to Consolidated Financial Statements are an integral part of these statements.


41




The Andersons, Inc.
Consolidated Balance Sheets
(In thousands)
 
December 31,
2013
 
December 31,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
309,085

 
$
138,218

Restricted cash
408

 
398

Accounts receivable, less allowance for doubtful accounts of $4,992 in 2013; $4,883 in 2012
173,930

 
208,877

Inventories (Note 2)
614,923

 
776,677

Commodity derivative assets – current
71,319

 
103,105

Deferred income taxes
4,931

 
15,862

Other current assets
47,188

 
54,016

Total current assets
1,221,784

 
1,297,153

Other assets:
 
 
 
Commodity derivative assets – noncurrent
246

 
1,906

Goodwill
58,554

 
54,387

Other assets, net
59,456

 
50,742

Pension assets
14,328

 

Equity method investments
291,109

 
190,908

 
423,693

 
297,943

Railcar assets leased to others, net (Note 3)
240,621

 
228,330

Property, plant and equipment, net (Note 3)
387,458

 
358,878

Total assets
$
2,273,556

 
$
2,182,304


42



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

 
$
24,219

Accounts payable for grain
592,183

 
582,653

Other accounts payable
154,599

 
165,201

Customer prepayments and deferred revenue
59,304

 
105,410

Commodity derivative liabilities – current
63,954

 
33,277

Accrued expenses and other current liabilities
70,295

 
66,902

Current maturities of long-term debt (Note 10)
51,998

 
15,145

Total current liabilities
992,333

 
992,807

Other long-term liabilities
15,386

 
18,406

Commodity derivative liabilities – noncurrent
6,644

 
1,134

Employee benefit plan obligations
39,477

 
53,131

Long-term debt, less current maturities (Note 10)
375,213

 
427,243

Deferred income taxes
120,082

 
78,138

Total liabilities
1,549,135

 
1,570,859

Commitments and contingencies (Note 11)

 

Shareholders’ equity:
 
 
 
Common shares, without par value (42,000 shares authorized; 28,797 shares issued)
96

 
96

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

 

Additional paid-in-capital
184,380

 
181,627

Treasury shares, at cost (607 in 2013; 831 in 2012)
(10,222
)
 
(12,559
)
Accumulated other comprehensive loss
(21,181
)
 
(45,379
)
Retained earnings
548,401

 
470,628

Total shareholders’ equity of The Andersons, Inc.
701,474

 
594,413

Noncontrolling interests
22,947

 
17,032

Total equity
724,421

 
611,445

Total liabilities and equity
$
2,273,556

 
$
2,182,304

The Notes to Consolidated Financial Statements are an integral part of these statements.


43



The Andersons, Inc.
Consolidated Statements of Cash Flows
(In thousands)
 
Year ended December 31,
 
2013
 
2012
 
2011
Operating Activities
 
 
 
 
 
Net income
$
95,702

 
$
75,565

 
96,825

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
55,307

 
48,977

 
40,837

Bad debt expense
1,187

 
1,129

 
187

Cash distributions (less than) in excess of income of unconsolidated affiliates
(50,953
)
 
8,134

 
(23,591
)
Gains on sales of railcars and related leases
(19,366
)
 
(23,665
)
 
(8,417
)
Excess tax benefit from share-based payment arrangement
(1,001
)
 
(162
)
 
(307
)
Deferred income taxes
40,374

 
16,503

 
5,473

Stock based compensation expense
4,339

 
3,990

 
4,071

Lower of cost or market inventory and contract adjustment

 
262

 
3,142

Impairment of property, plant and equipment
4,439

 
531

 
1,704

Other
498

 
(672
)
 
254

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
35,446

 
(21,737
)
 
(15,708
)
Inventories
162,443

 
122,428

 
(114,427
)
Commodity derivatives
69,633

 
2,947

 
134,309

Other assets
(4,926
)
 
(12,927
)
 
(1,104
)
Accounts payable for grain
9,530

 
101,265

 
117,309

Other accounts payable and accrued expenses
(65,464
)
 
5,914

 
49,708

Net cash provided by operating activities
337,188

 
328,482

 
290,265

Investing Activities
 
 
 
 
 
Purchase of investments

 
(19,996
)
 

Proceeds from redemption of investment

 
19,998

 

Acquisition of businesses, net of cash acquired
(15,252
)
 
(220,257
)
 
(2,365
)
Purchases of railcars
(92,584
)
 
(111,224
)
 
(64,161
)
Proceeds from sale of railcars
97,232

 
90,827

 
30,398

Purchases of property, plant and equipment
(46,786
)
 
(69,274
)
 
(44,162
)
Proceeds from sale of property, plant and equipment
390

 
1,116

 
931

Investments in affiliates
(49,251
)
 

 
(121
)
Change in restricted cash
(10
)
 
18,253

 
(6,517
)
Net cash used in investing activities
(106,261
)
 
(290,557
)
 
(85,997
)
Financing Activities
 
 
 
 
 
Net change in short-term borrowings
(24,219
)
 
(47,281
)
 
(169,600
)
Proceeds from issuance of long-term debt
68,003

 
275,346

 
73,752

Payments of long-term debt
(94,752
)
 
(143,943
)
 
(104,008
)
Proceeds from minority investor

 
6,100

 

Proceeds from sale of treasury shares to employees and directors
1,939

 
1,322

 
815

Payments of debt issuance costs
(46
)
 
(637
)
 
(3,170
)
Purchase of treasury stock

 

 
(3,040
)
Dividends paid
(11,986
)
 
(11,166
)
 
(8,153
)
Excess tax benefit from share-based payment arrangement
1,001

 
162

 
307

Net cash provided by (used in) financing activities
(60,060
)
 
79,903

 
(213,097
)
Increase (decrease) in cash and cash equivalents
170,867

 
117,828

 
(8,829
)
Cash and cash equivalents at beginning of year
138,218

 
20,390

 
29,219

Cash and cash equivalents at end of year
$
309,085

 
$
138,218

 
$
20,390



44



 
Year ended December 31,
 
2013
 
2012
 
2011
Supplemental disclosure of cash flow information
 
 
 
 
 
Capital projects incurred but not yet paid
$
3,870

 
2,876

 

Purchase of a productive asset through seller-financing
14,694

 
10,498

 

Outstanding payment for acquisition of business
128

 
3,345

 


The Notes to Consolidated Financial Statements are an integral part of these statements.


45



The Andersons, Inc.
Consolidated Statements of Equity
(In thousands, except per share data)
 
 
The Andersons, Inc. Shareholders’ Equity
 
Common
Shares
 
Additional
Paid-in
Capital
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at January 1, 2011
$
96

 
$
177,875

 
$
(14,058
)
 
$
(28,799
)
 
$
316,317

 
$
13,128

 
$
464,559

Net income
 
 
 
 
 
 
 
 
95,106

 
1,719

 
96,825

Other comprehensive loss
 
 
 
 
 
 
(14,291
)
 
 
 
 
 
(14,291
)
Purchase of treasury shares (128 shares)
 
 
 
 
(3,039
)