10-K 1 ande2015123110-k.htm 10-K 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, 2015          
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 $1,040.1 million as of June 30, 2015, 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 28.0 million common shares outstanding, no par value, at February 18, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2016, 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 16, 2016.




THE ANDERSONS, INC.
Table of Contents
 
 
Page No.
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
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


2




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, plant nutrient and rail sectors. The Company also produces turf and cob products and has a consumer retailing presence.

Segment Descriptions

The Company's operations are classified into five reportable business segments: Grain, Ethanol, Rail, Plant Nutrient, and Retail. Each of these segments is organized based upon the nature of products and services offered. See Note 13 to the Consolidated Financial Statements in Item 8 for information regarding business segments.

Grain Group

The Grain business primarily 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 an 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.

The Company has a lease and marketing 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 5%, or 8.9 million bushels, of the Company's total storage space.

Grain prices are not predetermined, so sales are negotiated by the Company's merchandising staff. The principal grains sold by the Company are corn, soybeans and wheat. Approximately 92% of grain sales by the Company in 2015 were purchased by U.S. grain processors and feeders, and approximately 8% 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 producers 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”).

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.

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

3



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 its counterparties 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 31.9% 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 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, along with LTG, also established joint ventures and purchased a grain and food-bean handler and agronomy input provider with 12 locations across Ontario, Canada 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 12 to the Consolidated Financial Statements in Item 8.

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, Michigan, and Ohio and have combined nameplate capacity of 330 million gallons of ethanol. The Group purchases and sells ethanol, offers facility operations, risk management, and ethanol and corn oil marketing services to the ethanol plants it invests in and operates.
The Company holds an 85% interest 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 operating 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

4



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 at the same price it will resell the ethanol to external customers. The Ethanol Group receives a fee for each gallon of ethanol sold to external customers sourced from these LLCs. Under the distillers dried grains ("DDG") and corn oil marketing agreements, the Company markets the DDG and corn oil and receives a fee on units sold.

Plant Nutrient Group

The Plant Nutrient Group is a leading manufacturer, distributor and retailer of agricultural and related plant nutrients, corncob-based products, 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 producers and other distributors. The Group 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.

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. Sales and warehouse shipments of agricultural nutrients are heaviest in the spring and fall.

Wholesale Nutrients - The Wholesale Nutrients business manufactures, stores, and distributes 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.

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.

Cob Products - Corncob-based products are manufactured for a variety of uses including laboratory animal bedding and private-label cat litter, as well as absorbents, blast cleaners, carriers and polishers. The products are distributed throughout the United States and Canada and into Europe and Asia. The principal sources for corncobs are seed corn producers.

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 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.

Rail Group

The Company's Rail Group leases, repairs, and sells various types of railcars, locomotives and barges. In addition, the Rail Group offers fleet management services 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), locomotives and barges serving a broad customer base. The Company operates in both the new and used car markets, allowing the Company to diversify its fleet both in terms of car types, industries and age of cars, as well as repairing and refurbishing used cars for specific markets and customers.

A significant portion of the railcars, locomotives and barges 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 assets from financial intermediaries and leasing those same assets to the end-users) or non-recourse arrangements (in which the Company is not subject to any lease arrangement related to the assets, but provides management services to the owner of the assets). The Company generally holds purchase options on most assets owned by financial intermediaries. We are under contract to provide maintenance services for many of the Rail Group assets 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, locomotive and barge positions at December 31, 2015.

5




In the case of our off-balance sheet Rail Group assets, the Company's risk management philosophy is to match-fund the lease commitments where possible. Match-funding (in relation to 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 Rail Group assets that are on our balance sheet.

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

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 A Store Like No Other 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.

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, 2015, the Company had 2,464 full-time and 979 part-time or seasonal employees.

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.

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. Compliance with environmental laws and regulations did not materially affect our earnings or competitive position in 2015.


6



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. 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 business, 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 affect our results of operations.

Corn - The principal raw material that the ethanol LLCs use to produce ethanol and co-products is corn. As a result, increase in the price of corn in the absence of a corresponding increase in petroleum based fuel prices will typically 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 an adverse effect on operating results.

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 that 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 local 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, 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 are large movements 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

7



successful and any sudden change in the price of these commodities could have an adverse effect 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 and oil - 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 oil and our future results of operations and financial position may be adversely affected if gasoline and oil 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 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 an adverse effect on our business. We cannot assure that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur 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 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 have imposed additional regulatory tasks which took effect in 2014, although the full burden of the Act is not yet fully-known as regulatory rule making is not yet completed. 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 have come into effect, while other anticipated regulations, studies and reports, including the regulation of swaps and derivatives, are still in the process of being finalized and adopted and we will continue to monitor these developments. Any of these matters could have an adverse effect on our business, financial condition, liquidity, results of operations and prospects.


8



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 railroads' 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.

Similarly, our marine assets and operations are subject to rules and regulations relating to safety, citizenship, emissions, ballast discharges, and other environmental and operational matters enforced by various federal and state agencies, including the Maritime Administration of the U.S. Department of Transportation, the U.S. Coast Guard, and the U.S. Environmental Protection Agency (“EPA”). If we fail to comply with these rules and regulations, we could be prohibited from operating or leasing marine assets in the U.S. market, and under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets.

Plant Nutrient - Our Plant Nutrient business manufactures certain agricultural nutrients and uses potentially hazardous materials. All products containing pesticides, fungicides and herbicides must be registered with the 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 repair business, major design improvements to loading, unloading and transporting of certain products can render existing (especially old) equipment obsolete.

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.


9



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.

Our grain, ethanol, and plant nutrient businesses are geographically concentrated in the Eastern Corn Belt. Localized weather and other market factors may have a disproportionate impact on our business compared to our competitors.

A significant portion of the assets in the Company have exposure to conditions in the Eastern Corn Belt. In this region, adverse weather during the fertilizer application, planting, and harvest seasons can have negative impacts on our Grain and Plant Nutrient businesses. Higher basis levels in the Eastern Corn Belt can increase the input costs of our Ethanol facilities relative to other market participants that do not have the same geographic concentration.

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 control over operating decisions as 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 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 an 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 grain dust were to explode at one of our elevators 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.

10




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, human resources 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. In addition, although the systems has been refreshed periodically, portions of the infrastructure are 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.
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. As a response, the Company requires user names and passwords in order to access its information technology systems. The Company also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Company data or accounts. On an annual basis, these technologies and processes that relate to credit card information are reviewed by a third-party Payment Card Industry qualified security assessor. As with all companies, these security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. We cannot assure our ability to prevent, repel or mitigate the effects of such an attack by outside parties. The Company relies on third parties to maintain and process certain information which could be subject to breach or unauthorized access to Company or employee information. 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.
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 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.

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.



Item 1B. Unresolved Staff Comments

The Company has no unresolved staff comments.

11




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)
Canada
 
110

 

 

Florida
 

 
3

 
22

Illinois
 
13,389

 
58

 
11

Indiana
 
26,351

 
148

 
139

Iowa
 
20,259

 
11

 
22

Michigan
 
34,394

 
70

 
47

Minnesota
 

 

 
52

Nebraska
 
13,107

 

 

Ohio
 
41,623

 
189

 
65

Puerto Rico
 

 

 
23

South Dakota
 

 

 
100

Tennessee
 
13,492

 

 

Texas
 
1,547

 

 

Wisconsin
 

 
29

 
77

 
 
164,272

 
508

 
558


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 89% of the total storage capacity is owned, while the remaining 11% 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 97% of the dry and liquid storage facilities.

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 $1.3 million for 2016. 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 an ethanol facility in Denison, Iowa with a nameplate capacity of 55 million gallons.. 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

12



Illinois. The Company leases a lawn fertilizer warehouse facility in Toledo, Ohio. The Company operates 16 railcar repair facilities and one fabrication shop throughout the country, primarily in the Midwest, South, and West.

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 2016. The Company has purchased 63 acres of land on which it is constructing a new administrative office building that it expects to occupy in 2016. The Company owns approximately 2,204 acres of land on which the above properties and facilities are located and approximately 412 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 has investigated 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.


13



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 29, 2016) are presented in the table below.
Name
Position
Age
Year Assumed
 
 
 
 
Daniel T. Anderson
President, Retail Group
President, Retail Group and Vice President, Corporate Operations Services
60
2015
2009
Valerie Blanchett
Vice President, Human Resources
Vice President, Human Resources, Food Ingredients and Systems (Cargill)
54
2016
2010
Patrick E. Bowe
President and Chief Executive Officer
Corporate Vice President, Food Ingredients and Systems (Cargill)
57
2015
2007
Naran U. Burchinow
Senior Vice President, General Counsel and Secretary
62
2005
James C. Burmeister
Vice President, Finance and Treasurer
Vice President of Finance, Roofing and Asphalt Business (Owens-Corning)
Vice President, Internal Audit (Owens-Corning)
48
2015
2013
2011
John Granato
Chief Financial Officer
Principal - Finance & Operations (Global Infrastructure Partners)
50
2012
2009
Corbett Jorgenson
President, Grain Group
Vice President, Transportation and Logistics Americas (Cargill)
Senior Vice President, Commercial Lead, AgHorizons USA (Cargill)
41
2016
2015
2014
Neill McKinstray
President, Ethanol Group
President, Grain & Ethanol Groups
President, Ethanol Group
63
2016
2015
2012
Anne G. Rex
Vice President, Corporate Controller
Assistant Controller
51
2012
2002
Rasesh H. Shah
President, Rail Group
61
1999
Tamara S. Sparks
Vice President, Financial Planning & Analysis
Vice President, Corporate Business /Financial Analysis
47
2015
2007
William J. Wolf
President, Plant Nutrient Group
Vice President of Supply & Merchandising, Plant Nutrient Group
58
2012
2008

14





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.

Shareholders

At February 18, 2016, there were approximately 28.0 million common shares outstanding, 1,292 shareholders of record and approximately 14,964 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 for the four fiscal quarters in each of 2015 and 2014.
 
2015
 
2014
 
High
 
Low
 
High
 
Low
Quarter Ended
 
 
 
 
 
 
 
March 31
$53.33
 
$39.41
 
$59.26
 
$51.63
June 30
$47.10
 
$39.00
 
$64.50
 
$45.18
September 30
$39.22
 
$31.97
 
$69.38
 
$52.47
December 31
$38.49
 
$30.70
 
$63.73
 
$50.15

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 2014 to January 2016 are as follows:
Payment Date
 
Amount
1/23/2014
 
$0.1100
4/22/2014
 
$0.1100
7/22/2014
 
$0.1100
10/22/2014
 
$0.1100
1/23/2015
 
$0.1400
4/22/2015
 
$0.1400
7/22/2015
 
$0.1400
10/22/2015
 
$0.1400
1/25/2016
 
$0.1550

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










15



Equity Plans

The following table gives information as of December 31, 2015 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
787,853 (1)

$
42.43

1,376,077 (2)

Equity compensation plans not approved by security holders



(1)
This number includes 325,000 Non-Qualified Stock Options (“Options”), 311,590 performance share units and 151,263 restricted shares outstanding under The Andersons, Inc. 2014 Long-Term Performance Compensation Plan. 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 189,097 Common Shares available to be purchased under the Employee Share Purchase Plan and 1,186,980 shares available under equity compensation plans.

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. The Company repurchased 0.3 million shares under this repurchase program. This resolution was superseded by the Board in October 2014, with a resolution authorizing the repurchase of shares at a value not to exceed $50.0 million. The Company has repurchased approximately 1.2 million shares, exhausting the October 2014 authorization amount.





























16



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, 2010 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.




 
Base Period
Cumulative Returns
 
December 31, 2010
2011
2012
2013
2014
2015
The Andersons, Inc.
$
100.00

$
121.48

$
121.10

$
254.38

$
229.30

$
138.71

NASDAQ U.S.
100.00

99.17

116.48

163.21

187.27

200.31

Peer Group Index
100.00

97.21

123.36

168.23

216.91

213.71


17



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, 2015 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,
 
2015
 
2014
 
2013
 
2012
 
2011
Operating results
 
 
 
 
 
 
 
 
 
Sales and merchandising revenues (a)
$
4,198,495

 
$
4,540,071

 
$
5,604,574

 
$
5,272,010

 
$
4,576,331

Gross profit
375,838

 
397,139

 
365,225

 
358,005

 
352,852

Equity in earnings of affiliates
31,924

 
96,523

 
68,705

 
16,487

 
41,450

Other income, net (b)
46,472

 
31,125

 
14,876

 
14,725

 
7,922

Net income (loss)
(11,322
)
 
122,645

 
95,702

 
75,565

 
96,825

Net income (loss) attributable to The Andersons, Inc.
(13,067
)
 
109,726

 
89,939

 
79,480

 
95,106

Financial position
 
 
 
 
 
 
 
 
 
Total assets
2,359,101

 
2,364,692

 
2,273,556

 
2,182,304

 
1,734,123

Working capital
241,485

 
226,741

 
229,451

 
304,346

 
312,971

Long-term debt (c)
436,208

 
298,638

 
371,150

 
407,176

 
238,088

Long-term debt, non-recourse (c)

 

 
4,063

 
20,067

 
797

Total equity
783,739

 
824,049

 
724,421

 
611,445

 
538,842

 
 
 
 
 
 
 
 
 
 
Cash flows / liquidity
 
 
 
 
 
 
 
 
 
Cash flows from (used in) operations
154,134

 
(10,071
)
 
337,188

 
328,482

 
290,265

Depreciation and amortization
78,456

 
62,005

 
55,307

 
48,977

 
40,837

Cash invested in acquisitions (d)
(128,549
)
 
(20,037
)
 
(15,252
)
 
(220,257
)
 
(2,365
)
Investment in affiliates (e)
(938
)
 
(238
)
 
(49,251
)
 

 
(121
)
Investments in property, plant and equipment
(72,469
)
 
(59,675
)
 
(46,786
)
 
(69,274
)
 
(44,162
)
Net proceeds from (investment in) Rail Group assets (f)
(38,407
)
 
(57,968
)
 
4,648

 
(20,397
)
 
(33,763
)
EBITDA (g)
85,219

 
254,992

 
219,917

 
195,180

 
212,252

 
 
 
 
 
 
 
 
 
 
Per share data (h)
 
 
 
 
 
 
 
 
 
Net income (loss) - basic
(0.46
)
 
3.85

 
3.20

 
2.85

 
3.42

Net income (loss) - diluted
(0.46
)
 
3.84

 
3.18

 
2.82

 
3.39

Dividends declared
0.5750

 
0.4700

 
0.4300

 
0.4000

 
0.2933

Year-end market value
31.63

 
53.14

 
59.45

 
28.60

 
29.11

 
 
 
 
 
 
 
 
 
 
Ratios and other data
 
 
 
 
 
 
 
 
 
Net income attributable to The Andersons, Inc. return on beginning equity attributable to The Andersons, Inc.
(1.6
)%
 
15.6
%
 
15.1
%
 
15.2
%
 
21.1
%
Funded long-term debt to equity ratio (i)
0.6-to-1

 
0.4-to-1

 
0.5-to-1

 
0.7-to-1

 
0.4-to-1

Weighted average shares outstanding (000's)
28,288

 
28,367

 
27,986

 
27,784

 
27,686

Effective tax rate
2.1
 %
 
33.4
%
 
36.0
%
 
37.1
%
 
34.5
%
(a) Includes sales of $872.1 million in 2015, $1,064.4 million in 2014, $1,333.2 million in 2013, $1,359.4 million in 2012, and $1,385.4 million in 2011 pursuant to marketing and origination agreements between the Company and the unconsolidated ethanol LLCs.
(b) Includes $23.1 million for the gain on dilution and partial share redemption of the LTG investment in 2015 and $17.1 million for the gain on partial share redemption of LTG in 2014.
(c) Excludes current portion of long-term debt. The increase in non-recourse debt in 2012 is related to the debt issued by TADE.
(d) During 2015, the Company acquired 100% of the stock of Kay Flo Industries, Inc. 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 Rail Group assets offset by proceeds on sales of Rail Group assets.
(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

18



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.
(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)
2015
 
2014
 
2013
 
2012
 
2011
Net income (loss) attributable to The Andersons, Inc.
$
(13,067
)
 
$
109,726

 
$
89,939

 
$
79,480

 
$
95,106

Add:
 
 
 
 
 
 
 
 
 
Provision for income taxes
(242
)
 
61,501

 
53,811

 
44,568

 
51,053

Interest expense
20,072

 
21,760

 
20,860

 
22,155

 
25,256

Depreciation and amortization
78,456

 
62,005

 
55,307

 
48,977

 
40,837

EBITDA
85,219

 
254,992

 
219,917

 
195,180

 
212,252

Add/(subtract):
 
 
 
 
 
 
 
 
 
 Benefit (provision) for income taxes
242

 
(61,501
)
 
(53,811
)
 
(44,568
)
 
(51,053
)
Interest expense
(20,072
)
 
(21,760
)
 
(20,860
)
 
(22,155
)
 
(25,256
)
Goodwill impairment
56,166

 

 

 

 

Realized gains on Rail Group assets and related leases
(13,281
)
 
(15,830
)
 
(19,366
)
 
(23,665
)
 
(8,417
)
Gain on sale of investments in affiliates
(22,881
)
 
(17,055
)
 

 

 

Deferred income taxes
27,279

 
21,815

 
40,374

 
16,503

 
5,473

Excess tax benefit from share-based payment arrangement
(1,299
)
 
(1,806
)
 
(1,001
)
 
(162
)
 
(307
)
Equity in earnings of unconsolidated affiliates, net of distributions received
(677
)
 
28,749

 
(50,953
)
 
8,134

 
(23,591
)
Noncontrolling interest in income (loss) of affiliates
1,745

 
12,919

 
5,763

 
(3,915
)
 
1,719

Changes in working capital and other
41,693

 
(210,594
)
 
217,125

 
203,130

 
179,445

Net cash provided by (used in) operations
$
154,134

 
$
(10,071
)
 
$
337,188

 
$
328,482

 
$
290,265


The Company has included its Computation of Earnings to Fixed Charges in Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 10-K as Exhibit 12.


19



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 five reportable business segments: Grain, Ethanol, Plant Nutrient, Rail, 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 gross profit.
In the first quarter of 2015, the Plant Nutrient Group merged with the Turf & Specialty Group, as announced in the fourth quarter of 2014. Management has adjusted its internal reporting structure to reflect this organizational change and the result of this merger is one reportable business segment, referred to as the Plant Nutrient Group. All prior periods have been recast to reflect this change. We believe this merger will allow the groups to operate under a common strategy to better service our customers, boost growth opportunities and improve profitability.

Grain Group
Total grain storage capacity is approximately 164 million bushels as of December 31, 2015 compared to 162 million bushels at December 31, 2014. Grain inventories on hand at December 31, 2015 were 119.8 million bushels, of which 3.4 million bushels were stored for others. This compares to 109.5 million bushels on hand at December 31, 2014, of which 3.1 million bushels were stored for others.
2015 results were adversely impacted by a number of items. Excessive rains during the second quarter in the Eastern Corn Belt resulted in significantly lower crop production. Growers have been reluctant to deliver or contract grain due to the current low price environment, negatively impacting both volumes and margins. 526 million bushels were shipped by our grain facilities during the year, an increase of 12 percent. The increase in volume primarily relates to the addition of the locations acquired in the fourth quarter of 2014.
Corn acres estimated for 2016 are approximately 90 million acres, which is up slightly from 2015. Soybean acres to be planted are estimated at approximately 84 million acres, which is also up slightly compared to 2015. Assuming trend yields in the areas the Company does business, this should create a good base for the Company's Grain Group in late 2016. In 2016, our Grain Group will also continue its focus on integrating recent acquisitions, continued implementation of the new ERP system and enhancing risk management and grain marketing services.
During the fourth quarter of 2015, a new investor in LTG acquired newly issued shares in the company. A portion of the capital raised was then returned to the Company through a partial share redemption of the existing owners. These two transactions lowered our ownership stake in the company to approximately 31 percent and resulted in a pre-tax gain of $23.1 million.

Ethanol Group
The Ethanol Group saw margins lower than the record levels in 2014, primarily due to a decrease in ethanol prices, partly offset by a decrease in corn prices. Additionally, income from the sale of ethanol byproducts decreased compared to the prior year. Other factors impacting current margins include lower crude price and greater ethanol production. Higher gasoline demand, improved demand and prices for DDG in relation to corn price, and an ample corn supply are factors that could potentially improve margins going into 2016.

20



Volumes shipped for the years ended December 31, 2015 and 2014 were as follows:
 
Twelve months ended December 31,
(in thousands)
2015
 
2014
Ethanol (gallons shipped)
301,009

 
293,410

E-85 (gallons shipped)
35,432

 
27,482

Corn Oil (pounds shipped)
15,557

 
85,480

DDG (tons shipped)
168

 
166

The above table shows only shipped volumes that flow through the Company's sales revenues. Total ethanol and DDG production by the unconsolidated LLCs are higher, however, the portion of this volume that is sold directly to their customers is excluded here. Starting in the first quarter of 2015, the unconsolidated LLCs began selling corn oil directly to their customers, rather than using the Company as an agent, and this portion of the volume is excluded here. The Company still receives an economic benefit from these corn oil sales through its share of equity earnings in the unconsoldiated LLCs.

Plant Nutrient Group
While the Plant Nutrient Group experienced a slight increase in volumes for the year, it was primarily due to activity from the acquisition of Kay Flo Industries, Inc. in the second quarter of 2015. Sales volumes from the legacy Plant Nutrient business were flat overall compared to 2014. Results were adversely impacted by excessive rains in the Eastern Corn Belt during the second quarter, reducing rates of fertilizer application.
Our acquisition of Kay Flo Industries provided three additional nutrient storage and production sites which increased liquid fertilizer capacity by 26%. Total storage capacity at our wholesale nutrient and farm center facilities was approximately 508 thousand tons for dry nutrients and approximately 558 thousand tons for liquid nutrients at December 31, 2015.
Fertilizer tons shipped (including sales and service tons) for the years ended December 31, 2015 and 2014 were as follows:
(in thousands)
Twelve months ended December 31,
 
2015
 
2014
Sales tons - Legacy
1,815

 
1,852

Sales tons - Kay Flo and ABG
147

 
16

Service tons
202

 
251

Total tons
2,164

 
2,119

As announced during the fourth quarter of 2014, the Plant Nutrient Group merged with the Turf & Specialty Group in 2015. We believe this merger will allow the groups to operate under a common strategy to better service our customers, boost growth opportunities and improve profitability going forward.

Rail Group
The Rail Group experienced improved results from its base leasing business in 2015. This included the impact of higher than normal lease settlement activity during the year. Rail Group assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at December 31, 2015 were 23,180 compared to 22,716 at December 31, 2014. The average utilization rate (Rail Group assets under management that are in lease service, exclusive of those managed for third-party investors) is 92.4% for the year ended December 31, 2015 which is 2.9% higher than prior year.
For the year ended December 31, 2015, Rail had gains on sales of Rail Group assets and related leases in the amount of $13.3 million compared to $15.8 million of gains on sales of Rail Group assets and related leases for the year ended December 31, 2014.
In 2016, the Group will continue to focus on ways to strategically grow the rail fleet and continue to look for opportunities to open new repair facilities and other adjacent businesses. We also anticipate future repair business related to new U.S. Department of Transportation rules affecting tank cars across the country.

Retail Group
The retail industry 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.



21



Other
Our “Other” represents corporate functions that provide support and services to the operating segments. The results contained within this group include expenses and benefits not allocated back to the operating segments, including the majority of our ERP project and the settlement charges from the termination of our defined benefit pension plan.

Operating Results

The following discussion focuses on the operating results as shown in the Consolidated Statements of Operations with a separate discussion by segment. Additional segment information is included in Note 13 to the Company's Consolidated Financial Statements in Item 8.
 
Year ended December 31,
(in thousands)
2015
 
2014
 
2013
Sales and merchandising revenues
$
4,198,495

 
$
4,540,071

 
$
5,604,574

Cost of sales and merchandising revenues
3,822,657

 
4,142,932

 
5,239,349

Gross profit
375,838

 
397,139

 
365,225

Operating, administrative and general expenses
338,114

 
318,881

 
278,433

Pension settlement
51,446

 

 

Goodwill impairment
56,166

 

 

Interest expense
20,072

 
21,760

 
20,860

Equity in earnings of affiliates
31,924

 
96,523

 
68,705

Other income, net
46,472

 
31,125

 
14,876

Income (loss) before income taxes
(11,564
)
 
184,146

 
149,513

Income attributable to noncontrolling interests
1,745

 
12,919

 
5,763

Operating income (loss)
$
(13,309
)
 
$
171,227

 
$
143,750


Comparison of 2015 with 2014

Grain Group
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$
2,483,643

 
$
2,682,038

Cost of sales and merchandising revenues
2,359,998

 
2,550,909

Gross profit
123,645

 
131,129

Operating, administrative and general expenses
121,833

 
113,311

Goodwill impairment
46,422

 

Interest expense
5,778

 
8,785

Equity in earnings of affiliates
14,703

 
27,643

Other income, net
26,229

 
21,450

Income (loss) before income taxes
(9,456
)
 
58,126

Loss attributable to noncontrolling interests
(10
)
 
(10
)
Operating income (loss)
$
(9,446
)
 
$
58,136


Operating results for the Grain Group decreased $67.6 million compared to full year 2014 results. Sales and merchandising revenues decreased $198 million compared to 2014 due to a decrease in commodity prices which was partially offset by a 12 percent increase in bushels sold as a result of the Auburn Bean & Grain acquisition in late 2014. Average prices for bushels sold during the year decreased by 13 percent for corn and 17 percent for soybeans compared to 2014. Cost of sales and merchandising revenues decreased $191 million following the decrease in average commodity prices and increase in bushels sold noted above. Gross profit decreased $7.5 million due to declines of $1.2 million from blending operations, $7.6 million from space income, and $9.6 million from the negative financial impact on risk management positions resulting from weather-induced market volatility. This was partially offset by gross profit increases of $1.4 million for merchandising fees and $5.4 million in higher margins on contracted sales.


22



Operating, administrative, and general expenses were $8.5 million higher than 2014 almost entirely due to a $7.2 million increase in labor and benefits. The grain group also recognized a goodwill impairment charge of $46.4 million driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets, including oil and ethanol, as well as foreign exchange impacts. Equity in earnings of affiliates decreased $12.9 million due to reduced operating results of LTG and Thompsons Limited. It also includes our share ($2.8 million) of a correction of a prior period accounting error at Lansing Trade Group. Other income increased $4.8 million, which is attributable to a $6.0 million increase in gain from equity ownership transactions in LTG compared to the prior year. During the current year, our ownership interest was reduced from 39% to 31% resulting in a gain of $23.1 million whereas in the prior year out ownership was reduced from 48% to 39% resulting in a gain of $17.1 million.

Ethanol Group
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$
556,188

 
$
765,939

Cost of sales and merchandising revenues
531,864

 
717,882

Gross profit
24,324

 
48,057

Operating, administrative and general expenses
11,594

 
11,719

Interest expense
70

 
255

Equity in earnings of affiliates
17,221

 
68,880

Other income, net
377

 
223

Income before income taxes
30,258

 
105,186

Income attributable to noncontrolling interests
1,755

 
12,929

Operating income
$
28,503

 
$
92,257


Operating results for the Ethanol Group decreased $63.8 million compared to full year 2014 results. Sales and merchandising and service fee revenues decreased $210 million, with over 90 percent of the decrease related to ethanol sales. While ethanol gallons sold increased over two percent, average ethanol prices decreased 27 percent. DDG volumes remained flat but revenues decreased 20 percent compared to the prior year due to a lower price per ton. Cost of sales and merchandising revenues decreased $186 million following the decrease in average corn, ethanol, and DDG prices. Gross profit decreased $23.7 million and is attributed to the decrease in ethanol and DDG prices relative to corn prices which caused margin compression.

Equity in earnings of affiliates decreased $51.7 million from prior year and represents a reduction of income from investments in three unconsolidated ethanol LLCs. Throughout the year, the ethanol facilities' productivity and output remained strong, however earnings declined due to the same factors that caused a decrease in consolidated gross profit. The decrease in income attributable to noncontrolling interests is a direct result of the lower earnings at our consolidated ethanol facility that has noncontrolling interest owners.

Plant Nutrient Group
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$
848,338

 
$
802,333

Cost of sales and merchandising revenues
728,798

 
685,394

Gross profit
119,540

 
116,939

Operating, administrative and general expenses
105,478

 
91,519

Goodwill impairment
9,744

 

Interest expense
7,243

 
5,278

Other income, net
3,046

 
4,372

Operating income
$
121

 
$
24,514


Operating results for the Plant Nutrient Group decreased $24.4 million compared to full year 2014 results. Sales and merchandising revenues increased $46 million due to $51 million in sales at the Kay Flo Industries facilities acquired during 2015. Revenues in the legacy business were flat. Volumes were up five percent, however this was due primarily to tons sold by facilities acquired in recent acquisitions. Cost of sales and merchandising revenues increased $43.4 million, also primarily due

23



to the acquisition activity noted above. The acquired facilities offset by a modest decline in legacy business resulted in a $2.6 million increase to gross profit compared to the prior year.

Operating, administrative, and general expenses increased $14.0 million from the prior year, of which $13.8 million related to the 2015 acquisition of Kay Flo Industries. Of those costs, $4.9 million were non-recurring acquisition related items, including cost of sales increases as a result of inventory purchase accounting adjustments. Goodwill impairment charges of $9.7 million for our Farm Center and Cob businesses were recorded due to reduced volumes over the past several years. Other income decreased $1.3 million in 2015 due to the settlement of a legal claim during the third quarter of 2014 which did not repeat in the current year.

Rail Group
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$
170,848

 
$
148,954

Cost of sales and merchandising revenues
103,161

 
89,192

Gross profit
67,687

 
59,762

Operating, administrative and general expenses
25,935

 
24,164

Interest expense
7,006

 
7,247

Other income, net
15,935

 
3,094

Operating income
$
50,681

 
$
31,445


Operating results for the Rail Group increased $19.2 million compared to the full year 2014 results. Sales and merchandising revenues increased $21.9 million. The increase was driven by an increase in lease revenue of $15.7 million and an increase in repair revenue of $4.8 million due to higher productivity in 2015. Cost of sales and merchandising revenues increased $14.0 million, primarily as a result of higher leasing activity. As a result of these factors, Rail gross profit increased $7.9 million over the prior year.

Operating expenses increased modestly by $1.8 million which was largely due to higher maintenance charges from moving additional railcars into service. Interest expense remained flat compared to the prior year. Other income increased $12.8 million due to higher than normal lease settlement activity in 2015.

Retail Group
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$
139,478

 
$
140,807

Cost of sales and merchandising revenues
98,836

 
99,555

Gross profit
40,642

 
41,252

Operating, administrative and general expenses
41,298

 
42,161

Interest expense
356

 
666

Other income, net
557

 
955

Operating loss
$
(455
)
 
$
(620
)

Operating results for the Retail Group improved slightly from the same period last year with a 1.3 percent decrease in customer count and 1.5 percent decrease in margins offset by effective cost controls and a modest increase in sales volume per customer.











24



Other
 
Year ended December 31,
(in thousands)
2015
 
2014
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
31,976

 
36,007

Pension settlement
51,446

 

Interest expense (income)
(381
)
 
(471
)
Equity in earnings of affiliates

 

Other income, net
328

 
1,031

Operating loss
$
(82,713
)
 
$
(34,505
)

The net corporate operating loss (costs not allocated back to the business units) increased $48.2 million to a loss of $82.7 million for 2015. The most significant increase was a $51.4 million settlement charge for the termination of the defined benefit pension plan. Excluding this item, corporate expenses were down $3.2 million primarily due to the impact of lower corporate incentive compensation.

Income Taxes
Income tax benefit of $0.2 million was provided at 2.1%. In 2014, income tax expense of $61.5 million was provided at 33.4%. The decrease in the effective tax rate was due primarily to $11.8 million of the goodwill write-off that did not provide a corresponding tax benefit.


25



Comparison of 2014 with 2013

Grain Group
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$
2,682,038

 
$
3,617,943

Cost of sales and merchandising revenues
2,550,909

 
3,499,426

Gross profit
131,129

 
118,517

Operating, administrative and general expenses
113,311

 
97,398

Interest expense
8,785

 
9,567

Equity in earnings of affiliates
27,643

 
33,122

Other income, net
21,450

 
2,120

Income before income taxes
58,126

 
46,794

Loss attributable to noncontrolling interests
(10
)
 
(11
)
Operating income
$
58,136

 
$
46,805


Operating results for the Grain Group increased $11.3 million compared to full year 2013 results. Sales and merchandising revenues decreased $936 million over 2013 and are largely a result of a decrease in commodity prices. Total bushels shipped increased by one percent, but average commodity prices decreased almost 30 percent, including corn prices down 34 percent and soybean prices down 16 percent during the year. Cost of sales and merchandising revenues decreased $949 million following the decrease in average commodity prices. Gross profit increased $12.6 million due to increased space income. Most of the increase relates to wheat, but corn and beans also contributed to the increase.

Operating expenses were $15.9 million higher than 2013. Approximately half of the increase in operating expenses relates to labor and benefit costs, including growth and incentive compensation expense. A significant portion of the remaining increase relates to the three acquisitions completed in the fourth quarter and approximately $6.6 million of one-time items, primarily asset write-downs and impairments. Equity in earnings of affiliates decreased $5.5 million due to a decreased ownership percentage of the investment in LTG and lower 2014 operating results of LTG. This decrease was partially offset by an additional $5.0 million in earnings from our Thompsons Limited investment. Other income increased $19.3 million, of which is almost entirely due to the gain recognized from the partial share redemption in our investment of LTG.


Ethanol Group
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$
765,939

 
$
831,965

Cost of sales and merchandising revenues
717,882

 
799,453

Gross profit
48,057

 
32,512

Operating, administrative and general expenses
11,719

 
11,082

Interest expense
255

 
1,038

Equity in earnings (loss) of affiliates
68,880

 
35,583

Other income, net
223

 
399

Income (loss) before income taxes
105,186

 
56,374

Income (loss) attributable to noncontrolling interests
12,929

 
5,774

Operating income (loss)
$
92,257

 
$
50,600


Operating results for the Ethanol Group increased $41.7 million compared to full year 2013 results. Sales and merchandising and service fee revenues decreased $66 million, with 60 percent of the decrease related to ethanol sales. While ethanol gallons sold increased almost two percent, average ethanol prices decreased eight percent. DDG volumes remained flat but average price per ton decreased greater than 25 percent compared to the prior year. Cost of sales and merchandising revenues decreased $82 million following the decrease in average corn, ethanol, and DDG prices. Gross profit increased $15.5 million and is attributed to the increase in ethanol demand and the prices of ethanol and DDG relative to corn prices which contributed to more favorable margins.

26




Equity in earnings of affiliates increased $33.3 million from prior year and represents income from investments in three unconsolidated ethanol LLCs. Throughout the year, the ethanol facilities' performance improved due to higher ethanol margins resulting from the decreased corn costs and higher demand for ethanol. The increase in income attributable to noncontrolling interests increased due to stronger earnings at the ethanol facilities that have noncontrolling interest owners.


Plant Nutrient Group
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$
802,333

 
$
849,166

Cost of sales and merchandising revenues
685,394

 
733,195

Gross profit
116,939

 
115,971

Operating, administrative and general expenses
91,519

 
81,186

Interest expense
5,278

 
4,549

Equity in earnings of affiliates

 

Other income, net
4,372

 
1,783

Operating income
$
24,514

 
$
32,019


Operating results for the Plant Nutrient Group decreased $7.5 million compared to full year 2013 results. Sales and merchandising revenues decreased $46.8 million due to a nine percent decrease in the average price per ton sold, which followed the price of nutrients in the market. Volumes were up less than two percent during the year, having little impact on the change in revenues. Cost of sales and merchandising revenues decreased $47.8 million, also primarily due to lower costs per ton sold, comparable with the selling price decrease and reflective of the market. This resulted in a marginal increase in gross profit for the year.

Operating expenses increased $10.3 million from the prior year, due to increases in labor expense and additional depreciation from the current year acquisition and other recent capital projects. Other income increased $2.6 million in 2014 and is due to the settlement of a legal claim during the third quarter of 2014.


Rail Group
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$
148,954

 
$
164,794

Cost of sales and merchandising revenues
89,192

 
105,930

Gross profit
59,762

 
58,864

Operating, administrative and general expenses
24,164

 
18,201

Interest expense
7,247

 
5,544

Other income, net
3,094

 
7,666

Operating income
$
31,445

 
$
42,785


Operating results for the Rail Group decreased $11.3 million compared to the full year 2013 results. Sales and merchandising revenues decreased $15.8 million. The decrease was driven by a decrease in car sales of $23.0 million, offset by a repairs and fabrication sales increase of $3.3 million and leasing revenues increase of $3.5 million. Cost of sales and merchandising revenues decreased $16.7 million, primarily as a result of lower car sales. As a result, Rail gross profit increased only slightly over the prior year.

Operating expenses increased by $6.0 million from prior year mainly due to higher labor and benefits costs, depreciation, and maintenance expense from recent expansion in the repair business. This increase includes $3.2 million of additional freight and maintenance expense incurred to move idle railcars into service. Interest expense increased $1.7 million due to the increase in financing costs for our increase in railcars owned. Other income decreased $4.6 million due to income from the settlement of two nonperforming railcar leases in 2013.


27








Retail Group
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$
140,807

 
$
140,706

Cost of sales and merchandising revenues
99,555

 
101,345

Gross profit
41,252

 
39,361

Operating, administrative and general expenses
42,161

 
46,707

Interest expense
666

 
689

Other income, net
955

 
501

Operating loss
$
(620
)
 
$
(7,534
)

The operating results for the Retail Group improved $6.9 million compared to full year 2013 results. Sales and merchandising revenues remained flat, while cost of sales and merchandising revenues decreased $1.8 million due to favorable product mix. Despite lower volumes, gross profit increased $1.9 million primarily due to stronger margins realized in the workwear, deli, and seafood departments.

Operating expenses for the Group decreased $4.5 million due to lower costs attributable to the closing of the Woodville store in 2013 and the asset impairment charges in the amount of $3.9 million in the fourth quarter of 2013.


Other
 
Year ended December 31,
(in thousands)
2014
 
2013
Sales and merchandising revenues
$

 
$

Cost of sales and merchandising revenues

 

Gross profit

 

Operating, administrative and general expenses
36,007

 
23,859

Interest income
(471
)
 
(527
)
Equity in earnings of affiliates

 

Other income, net
1,031

 
2,407

Operating loss
$
(34,505
)
 
$
(20,925
)

The net corporate operating loss (costs not allocated back to the business units) increased $13.6 million to a loss of $34.5 million for 2014. Within operating expenses, the most significant increase was spending on the implementation of an ERP system, as the first phase of implementation began in the second quarter of 2014. As such, much of the post-implementation spend in the current year is expense in nature, while the prior year spend was dedicated to software development and was capital in nature. Stock compensation expense was higher in 2014 due to the 2013 grants not being granted until the fourth quarter. Labor and benefit costs were also higher in 2014 due to increased headcount.

Income Taxes
Income tax expense of $61.5 million was provided at 33.4%. In 2013, income tax expense of $53.8 million was provided at 36.0%. The decrease in the effective tax rate was due primarily to a $1.9 million increase in 2014 tax benefits related to the Domestic Production Activities Deduction, a $2.5 million increase in tax benefits related to income attributable to the noncontrolling interests that did not impact income tax expense, and the $1.4 million tax charge recorded in the first quarter of 2013 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.



28



Liquidity and Capital Resources

Working Capital

At December 31, 2015, the Company had working capital of $241.5 million, an increase of $14.7 million from the prior year. This increase was attributable to changes in the following components of current assets and current liabilities:
(in thousands)
December 31,
2015
 
December 31,
2014
 
Variance
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
63,750

 
$
114,704

 
$
(50,954
)
Restricted cash
451

 
429

 
22

Accounts receivables, net
170,912

 
183,059

 
(12,147
)
Inventories
747,399

 
795,655

 
(48,256
)
Commodity derivative assets – current
49,826

 
92,771

 
(42,945
)
Deferred income taxes
6,772

 
7,337

 
(565
)
Other current assets
90,412

 
60,492

 
29,920

Total current assets
1,129,522

 
1,254,447

 
(124,925
)
Current Liabilities:
 
 
 
 
 
Short-term debt
16,990

 
2,166

 
14,824

Trade and other payables
668,788

 
706,823

 
(38,035
)
Customer prepayments and deferred revenue
66,762

 
99,617

 
(32,855
)
Commodity derivative liabilities – current
37,387

 
64,075

 
(26,688
)
Accrued expenses and other current liabilities
70,324

 
78,610

 
(8,286
)
Current maturities of long-term debt
27,786

 
76,415

 
(48,629
)
Total current liabilities
888,037

 
1,027,706

 
(139,669
)
Working capital
$
241,485

 
$
226,741

 
$
14,744


In comparison to the prior year, current assets slightly decreased primarily as a result of lower inventory levels, commodity derivative assets, and cash, offset by an increase in other assets. Much of the decrease in cash relates to lower earnings in the fourth quarter of 2015 and lower distributions from equity method investments compared to the prior year. See the discussion below on additional sources and uses of cash for an understanding of the change in cash from prior year. Current commodity derivative assets and liabilities have decreased which reflects the customer net asset or liability based on the value of forward contracts as compared to market prices at the end of the period. Other current assets increased primarily due to the reclassification of our investment and accrued dividends in Iowa Northern Railway to current assets due to a planned sale of our current ownership interest.

Current liabilities decreased primarily as a result of lower payables related to declining commodity prices and a reduction in the current maturities of long-term debt due to refinancing our currently maturing borrowings.

Sources and Uses of Cash 2015 compared to 2014

Operating Activities and Liquidity

Our operating activities provided cash of $154.1 million in 2015 compared to cash used by operations of $10.1 million in 2014. The significant change in operating cash flows in 2015 relates primarily to the changes in working capital, particularly inventory, discussed above, partially offset by lower operating results.

In 2015, the Company paid income taxes, net of refunds received, of $4.9 million compared to $36.8 million in 2014. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The decrease in income taxes paid in 2015 from 2014 is primarily due to decreased current income tax expense and overpayments related to 2014 taxes that were applied to 2015 estimated tax payments.




29



Investing Activities

Investing activities used $238.5 million in 2015 compared to $89.7 million used in 2014. The increase in cash used for investing activities is primarily driven by the 2015 acquisition of Kay Flo Industries, Inc. for $128.5 million. In addition, a large portion of the remaining 2015 spending relates to purchases of Rail Group assets in the amount of $115.0 million. Purchases of Rail Group assets was only partially offset in the current year by proceeds from the sale of Rail Group assets in the amount of $76.6 million. Capital spending for 2015 on property, plant and equipment includes: Grain - $26.9 million; Ethanol - $7.2 million; Plant Nutrient - $14.4 million; Rail - $3.0 million; Retail - $1.0 million and $20.0 million in corporate / enterprise resource planning project spending.
  
We expect to spend approximately $122 million in 2016 on conventional property, plant and equipment which includes estimated 2016 capital spending for the continuing project to replace current technology with an enterprise resource planning system and completing construction on a new corporate headquarters building. An additional $140 million is estimated to be spent on the purchase and capitalized modifications of railcars and barges with related sales or financings of $116 million.

Financing Arrangements

Net cash provided by financing activities was $33.4 million in 2015, compared to $94.6 million used in 2014. The cash provided in 2015 was primarily driven by the issuance of long-term debt associated with our acquisition activity during the year, partly offset by the completion of our $50 million share repurchase program.

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 $873.8 million in borrowing capacity, including $23.8 million in non-recourse debt of The Andersons Denison Ethanol LLC. Of that total, we had $721.7 million remaining available for borrowing at December 31, 2015. Peak short-term borrowings to date were $308.5 million on March 31, 2015. Typically, the Company's highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses.

We paid $15.9 million in dividends in 2015 compared to $12.5 million in 2014. We paid $0.14 per common share for the dividends paid in January, April, July and October 2015, and $0.11 per common share for the dividends paid in January, April, July and October 2014. On October 30, 2015, we declared a cash dividend of $0.155 per common share, payable on January 25, 2016 to shareholders of record on January 4, 2016.

Proceeds from the sale of treasury shares to employees and directors were $0.5 million and $1.5 million for 2015 and 2014, respectively. During 2015, we issued approximately 174 thousand shares and share units and 325 thousand options 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, 2015. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets.

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 in the foreseeable future.

Sources and Uses of Cash 2014 compared to 2013

Operating Activities and Liquidity

Our operating activities used cash of $10.1 million in 2014 compared to cash provided by operations of $337.2 million in 2013. The significant change in operating cash flows in 2014 relates primarily to the changes in working capital, including inventory, commodity derivatives and accounts payable for grain, discussed above.


30



In 2014, the Company paid income taxes, net of refunds received, of $36.8 million compared to $5.3 million in 2013. The Company makes quarterly estimated tax payments based on year to date annualized taxable income. The increase in income taxes paid in 2014 from 2013 is primarily due to increased current income tax expense and reduced overpayments when compared to the prior year.

Investing Activities

Investing activities used $89.7 million in 2014 compared to $106.3 million used in 2013. The decrease in cash used for investing activities is driven by a decrease in cash paid (net of cash acquired) for acquisitions and investments, as well as significant amounts of investing proceeds from return of capital transactions. A large portion of the 2014 spending relates to purchases of Rail Group assets in the amount of $90.1 million. Purchases of Rail Group assets was only partially offset in the current year by proceeds from the sale of Rail Group assets in the amount of $32.1 million. Capital spending for 2014 on property, plant and equipment includes: Grain - $21.0 million; Ethanol - $2.3 million; Plant Nutrient - $18.4 million; Rail - $2.3 million; Turf & Specialty - $6.1 million; Retail - $1.2 million and $8.4 million in corporate / enterprise resource planning project spending.  

We expect to spend approximately $120 million in 2015 on conventional property, plant and equipment which includes estimated 2015 capital spending for the project to replace current technology with an enterprise resource planning system and beginning construction on a new corporate headquarters building. An additional $132 million is estimated to be spent on the purchase and capitalized modifications of railcars and barges with related sales or financings of $107 million.

Financing Arrangements
Net cash used in financing activities was $94.6 million in 2014, compared to $60.1 million in 2013. The increase in cash used in 2014 was primarily driven by distributions made to noncontrolling interest owners and a decrease in proceeds from issuance of long-term debt.

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 $847.0 million remaining available for borrowing at December 31, 2014. Peak short-term borrowings to date were $270.6 million on April 2, 2014. Typically, the Company's highest borrowing occurs in the spring due to seasonal inventory requirements in the fertilizer and retail businesses.

We paid $12.5 million in dividends in 2014 compared to $12.0 million in 2013. We paid $0.1100 per common share for the dividends paid in January, April, July and October 2014, and $0.1067 per common share for the dividends paid in January, April, July and October 2013. On December 17, 2014, we declared a cash dividend of $0.1400 per common share, payable on January 23, 2015 to shareholders of record on January 2, 2015.

Proceeds from the sale of treasury shares to employees and directors were $1.5 million and $1.9 million for 2014 and 2013, respectively. During 2014, we issued approximately 156 thousand shares and share units 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, 2014. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized 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 in the foreseeable future.





31



Contractual Obligations

Future payments due under contractual obligations at December 31, 2015 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
$
27,461

 
$
103,188

 
$
137,342

 
$
194,549

 
$
462,540

Interest obligations (a)
15,263

 
27,470

 
17,103

 
46,394

 
106,230

Operating leases (b)
29,388

 
39,362

 
16,155

 
7,720

 
92,625

Purchase commitments (c)
777,727

 
40,396

 

 

 
818,123

Other long-term liabilities (d)
1,247

 
2,745

 
3,076

 
9,039

 
16,107

Total contractual cash obligations
$
851,086

 
$
213,161

 
$
173,676

 
$
257,702

 
$
1,495,625

(a) Future interest obligations are calculated based on interest rates in effect as of December 31, 2015 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.
(b) Approximately 90% of the operating lease commitments above relate to Rail Group assets that the Company leases from financial intermediaries. See “Off-Balance Sheet Transactions” below.
(c) Includes the amounts related to purchase obligations in the Company's operating units, including $656 million for the purchase of grain from producers and $89 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.
(d) 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 2020 have considered recent payment trends and actuarial assumptions. We have not included pension contributions; see Note 7 for discussion of the 2015 pension termination.

At December 31, 2015, we had standby letters of credit outstanding of $31.9 million, as well as $0.2 million that was outstanding on a non-recourse basis.


32



Off-Balance Sheet Transactions

Our Rail Group utilizes leasing arrangements that provide off-balance sheet financing for its activities. We lease assets from financial intermediaries through sale-leaseback transactions, the majority of which involve operating leasebacks. Rail Group assets we own or lease from a financial intermediary are generally leased to a customer under an operating lease. We also arrange non-recourse lease transactions under which we sell assets to a financial intermediary, and assign the related operating lease to the financial intermediary on a non-recourse basis. In such arrangements, we generally provide ongoing maintenance and management services for the financial intermediary, and receive a fee for such services. On most of the assets, we hold an option to purchase the assets at the end of the lease.

The following table describes our Rail Group asset positions at December 31, 2015.
Method of Control
Financial Statement
 
Units
Owned-railcars available for sale
On balance sheet – current
 
34

Owned-railcar assets leased to others
On balance sheet – non-current
 
16,078

Railcars leased from financial intermediaries
Off balance sheet
 
4,141

Railcars – non-recourse arrangements
Off balance sheet
 
2,843

Total Railcars
 
 
23,096

Locomotive assets leased to others
On balance sheet – non-current
 
40

Locomotives leased from financial intermediaries
Off balance sheet
 
4

Total Locomotives
 
 
44

Barge assets leased to others
On balance sheet – non-current
 

Barge assets leased from financial intermediaries
Off balance sheet
 
40

Total Barges
 
 
40


In addition, we manage approximately 409 railcars for third-party customers or owners for which we receive a fee.

We have future lease payment commitments aggregating $63.0 million for the Rail Group assets we lease from financial intermediaries under various operating leases. Remaining lease terms vary with none exceeding fifteen years. We utilize non-recourse arrangements where possible in order to minimize credit risk. Refer to Note 14 to the Company's Consolidated Financial Statements in Item 8 for more information on our 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

Grain inventories are stated at their net realizable value, which approximates fair value less disposal costs. The Company marks to market all 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

33



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.

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 Rail Group assets. 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, using quantitative analyses. Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below the operating segment. The quantitative review for impairment takes into account our 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. These factors are discussed in more detail in Note 4, 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.


34



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, 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 price 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)
2015
 
2014
Net commodity position
$
(7,406
)
 
$
(4,752
)
Market risk
(741
)
 
(475
)

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)
2015
 
2014
Fair value of long-term debt, including current maturities
$
467,703

 
$
382,139

Fair value in excess of carrying value
3,708

 
7,086

Market risk
7,678

 
5,809


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.

35



Item 8. Financial Statements and Supplementary Data

The Andersons, Inc.
Index to Financial Statements

Report of Independent Registered Public Accounting Firms - Deloitte & Touche LLP / PricewaterhouseCoopers LLP
Consolidated Statements of Operations
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


36




Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of The Andersons, Inc.
We have audited the accompanying consolidated balance sheet of The Andersons, Inc. and subsidiaries (the "Company") as of December 31, 2015, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit. We did not audit the financial statements of Lansing Trade Group, LLC, the Company’s investment in which is accounted for by use of the equity method. The accompanying consolidated statements of the Company includes its equity investment in Lansing Trade Group, LLC of $102 million as of December 31, 2015, and its equity in earnings in Lansing Trade Group, LLC of $12 million for the year ended December 31, 2015. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of The Andersons, Inc. and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audit and (as to the amounts included for The Lansing Trade Group, LLC) the report of the other auditors, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting based on our audit.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 29, 2016


37






Report of Independent Registered Public Accounting Firm


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


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


In our opinion, based on our audits and the reports of other auditors, the consolidated balance sheet as of December 31, 2014 and the related consolidated statements of income and comprehensive income, of shareholders’ equity and of cash flows for each of two years in the period ended December 31, 2014 present fairly, in all material respects, the financial position of The Andersons, Inc. and its subsidiaries at December 31, 2014, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the each of the two years in the period ended December 31, 2014 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our 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, Inc. financial statements reflects an investment of $78.7 million as of December 31, 2014 and equity in earnings of affiliates of $23.3 million and $31.2 million for the years ended December 31, 2014 and 2013, respectively. The consolidated 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 consolidated 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP
Toledo, OH
March 2, 2015, except for the effects of the change in the composition of reportable segments discussed in Note 13 to the consolidated financial statements, as to which the date is February 29, 2016


38




The Andersons, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
 
 
Year ended December 31,
 
2015
 
2014
 
2013
Sales and merchandising revenues
$
4,198,495

 
$
4,540,071

 
$
5,604,574

Cost of sales and merchandising revenues
3,822,657

 
4,142,932

 
5,239,349

Gross profit
375,838

 
397,139

 
365,225

Operating, administrative and general expenses
338,114

 
318,881

 
278,433

Pension settlement
51,446

 

 

Goodwill impairment
56,166

 

 

Interest expense
20,072

 
21,760

 
20,860

Other income:
 
 
 
 
 
Equity in earnings of affiliates, net
31,924

 
96,523

 
68,705

Other income, net
46,472

 
31,125

 
14,876

Income (loss) before income taxes
(11,564
)
 
184,146

 
149,513

Income tax provision (benefit)
(242
)
 
61,501

 
53,811

Net income (loss)
(11,322
)
 
122,645

 
95,702

Net income attributable to the noncontrolling interests
1,745

 
12,919

 
5,763

Net income (loss) attributable to The Andersons, Inc.
$
(13,067
)
 
$
109,726

 
$
89,939

Per common share:
 
 
 
 
 
Basic earnings (loss) attributable to The Andersons, Inc. common shareholders
$
(0.46
)
 
$
3.85

 
$
3.20

Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders
$
(0.46
)
 
$
3.84

 
$
3.18

Dividends declared
$
0.5750

 
$
0.4700

 
$
0.4300

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


39





The Andersons, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Year ended December 31,
 
2015
 
2014
 
2013
Net income (loss)
$
(11,322
)
 
$
122,645

 
$
95,702

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in estimated fair value of investment in debt securities (net of income tax of $0, $4,685 and $(3,208))

 
(7,735
)
 
5,292

Change in unrecognized actuarial loss and prior service cost (net of income tax of $(24,746), $12,866 and $(10,439))
40,736

 
(21,243
)
 
18,641

Foreign currency translation adjustments (net of income tax of $82, $947 and $0)
(7,333
)
 
(4,709
)
 

Cash flow hedge activity (net of income tax of $(154), $(166) and $(238))
253

 
273

 
265

Other comprehensive income (loss)
33,656

 
(33,414
)
 
24,198

Comprehensive income
22,334

 
89,231

 
119,900

Comprehensive income attributable to the noncontrolling interests
1,745

 
12,919

 
5,763

Comprehensive income attributable to The Andersons, Inc.
$
20,589

 
$
76,312

 
$
114,137

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


40




The Andersons, Inc.
Consolidated Balance Sheets
(In thousands)
 
December 31,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
63,750

 
$
114,704

Restricted cash
451

 
429

Accounts receivable, less allowance for doubtful accounts of $6,938 in 2015; $4,644 in 2014
170,912

 
183,059

Inventories (Note 2)
747,399

 
795,655

Commodity derivative assets – current (Note 6)
49,826

 
92,771

Deferred income taxes (Note 8)
6,772

 
7,337

Other current assets
90,412

 
60,492

Total current assets
1,129,522

 
1,254,447

Other assets:
 
 
 
Commodity derivative assets – noncurrent (Note 6)
412

 
507

Goodwill (Note 4)
63,934

 
72,365

Other intangible assets, net (Note 4)
120,240

 
66,542

Other assets, net
9,515

 
34,751

Equity method investments
242,107

 
226,857

 
436,208

 
401,022

Rail Group assets leased to others, net (Note 3)
338,111

 
297,747

Property, plant and equipment, net (Note 3)
455,260

 
411,476

Total assets
$
2,359,101

 
$
2,364,692


41



The Andersons, Inc.
Consolidated Balance Sheets (continued)
(In thousands)
 
December 31,
2015
 
December 31,
2014
Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Short-term debt (Note 5)
$
16,990

 
$
2,166

Trade and other payables
668,788

 
706,823

Customer prepayments and deferred revenue
66,762

 
99,617

Commodity derivative liabilities – current (Note 6)
37,387

 
64,075

Accrued expenses and other current liabilities
70,324

 
78,610

Current maturities of long-term debt (Note 5)
27,786

 
76,415

Total current liabilities
888,037

 
1,027,706

Other long-term liabilities
18,176

 
15,507

Commodity derivative liabilities – noncurrent (Note 6)
1,063

 
3,318

Employee benefit plan obligations (Note 7)
45,805

 
59,308

Long-term debt, less current maturities (Note 5)
436,208

 
298,638

Deferred income taxes (Note 8)
186,073

 
136,166

Total liabilities
1,575,362

 
1,540,643

Commitments and contingencies (Note 14)

 

Shareholders’ equity:
 
 
 
Common shares, without par value (63,000 shares authorized; 29,353 shares issued in 2015; 29,353 shares issued in 2014)
96

 
96

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

 

Additional paid-in-capital
222,848

 
222,789

Treasury shares, at cost (1,397 in 2015; 390 in 2014)
(52,902
)
 
(9,743
)
Accumulated other comprehensive loss
(20,939
)
 
(54,595
)
Retained earnings
615,151

 
644,556

Total shareholders’ equity of The Andersons, Inc.
764,254

 
803,103

Noncontrolling interests
19,485

 
20,946

Total equity
783,739

 
824,049

Total liabilities and equity
$
2,359,101

 
$
2,364,692

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


42



The Andersons, Inc.
Consolidated Statements of Cash Flows
(In thousands)
 
Year ended December 31,
 
2015
 
2014
 
2013
Operating Activities
 
 
 
 
 
Net income (loss)
$
(11,322
)
 
$
122,645

 
95,702

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
78,456

 
62,005

 
55,307

Bad debt expense
3,302

 
1,183

 
1,187

Equity in earnings of affiliates, net of dividends
(677
)
 
28,749

 
(50,953
)
Gain on sale of investments in affiliates
(22,881
)
 
(17,055
)
 

Gains on sales of Rail Group assets and related leases
(13,281
)
 
(15,830
)
 
(19,366
)
Loss on sales of property, plant and equipment
2,079

 
2,079

 
633

Excess tax benefit from share-based payment arrangement
(1,299
)
 
(1,806
)
 
(1,001
)
Deferred income taxes
27,279

 
21,815

 
40,374

Stock based compensation expense
1,899

 
8,581

 
4,339

Pension settlement charge, net of cash contributed
48,344

 

 

Goodwill impairment charge
56,166

 

 

Asset impairment charge
285

 
3,090

 
4,439

Other
(140
)
 
(296
)
 
(135
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
45,058

 
(1,703
)
 
35,446

Inventories
73,350

 
(172,040
)
 
162,443

Commodity derivatives
14,098

 
(27,652
)
 
69,633

Other assets
(26,315
)
 
(11,407
)
 
(4,926
)
Accounts payable and accrued expenses
(120,267
)
 
(12,429
)
 
(55,934
)
Net cash (used in) provided by operating activities
154,134

 
(10,071
)
 
337,188

Investing Activities
 
 
 
 
 
Acquisition of businesses, net of cash acquired
(128,549
)
 
(20,037
)
 
(15,252
)
Purchases of Rail Group assets
(115,032
)
 
(90,067
)
 
(92,584
)
Proceeds from sale of Rail Group assets
76,625

 
32,099

 
97,232

Purchases of property, plant and equipment
(72,469
)
 
(59,675
)
 
(46,786
)
Proceeds from sale of property, plant and equipment
284

 
1,401

 
390

Proceeds from returns of investments in affiliates
1,620

 
46,800