NEWS RELEASEUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended 09/30/2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to .
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
| Ohio | 34-1562374 | ||||||||||
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 1947 Briarfield Boulevard | |||||||||||
| Maumee | Ohio | 43537 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(419) 893-5050
(Telephone Number)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||||||||||||
| Common stock, $0.00 par value, $0.01 stated value | ANDE | The NASDAQ Stock Market LLC | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ý | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ý
The registrant had 33,286,202 common shares outstanding at October 22, 2021.
THE ANDERSONS, INC.
INDEX
| Page No. | |||||
| PART I. FINANCIAL INFORMATION | |||||
| PART II. OTHER INFORMATION | |||||
Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| $ | 2,998,824 | $ | 1,885,586 | $ | 8,829,348 | $ | 5,556,317 | ||||||||||||||||
| Cost of sales and merchandising revenues | 2,876,989 | 1,792,349 | 8,430,665 | 5,314,101 | |||||||||||||||||||
| Gross profit | 121,835 | 93,237 | 398,683 | 242,216 | |||||||||||||||||||
| Operating, administrative and general expenses | 110,275 | 92,610 | 312,833 | 277,363 | |||||||||||||||||||
| Interest expense, net | 8,799 | 6,853 | 28,848 | 25,951 | |||||||||||||||||||
| Other income, net: | |||||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | (250) | 20 | 2,389 | 228 | |||||||||||||||||||
| Other income, net | 13,806 | 3,846 | 24,743 | 10,154 | |||||||||||||||||||
| Income (loss) before income taxes from continuing operations | 16,317 | (2,360) | 84,134 | (50,716) | |||||||||||||||||||
| Income tax provision (benefit) from continuing operations | 4,027 | (4,148) | 18,065 | (18,628) | |||||||||||||||||||
| Net income (loss) from continuing operations | 12,290 | 1,788 | 66,069 | (32,088) | |||||||||||||||||||
| Income from discontinued operations, net of income taxes | 1,846 | 427 | 7,453 | 3,224 | |||||||||||||||||||
| Net income (loss) | 14,136 | 2,215 | 73,522 | (28,864) | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | (1,602) | 3,273 | (822) | (20,583) | |||||||||||||||||||
| Net income (loss) attributable to The Andersons, Inc. | $ | 15,738 | $ | (1,058) | $ | 74,344 | $ | (8,281) | |||||||||||||||
| Basic earnings (loss): | |||||||||||||||||||||||
| Continuing operations | $ | 0.42 | $ | (0.04) | $ | 2.01 | $ | (0.35) | |||||||||||||||
| Discontinued operations | 0.06 | 0.01 | 0.22 | 0.10 | |||||||||||||||||||
| $ | 0.48 | $ | (0.03) | $ | 2.23 | $ | (0.25) | ||||||||||||||||
| Diluted earnings (loss): | |||||||||||||||||||||||
| Continuing operations | $ | 0.41 | $ | (0.04) | $ | 1.99 | $ | (0.35) | |||||||||||||||
| Discontinued operations | 0.05 | 0.01 | 0.22 | 0.10 | |||||||||||||||||||
| $ | 0.46 | $ | (0.03) | $ | 2.21 | $ | (0.25) | ||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2021 Form 10-Q | 1
The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) | $ | 14,136 | $ | 2,215 | $ | 73,522 | $ | (28,864) | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in unrecognized actuarial loss and prior service cost | (102) | (119) | (439) | (220) | |||||||||||||||||||
| Foreign currency translation adjustments | (3,004) | 2,351 | (311) | (1,039) | |||||||||||||||||||
| Cash flow hedge activity | 1,537 | 1,783 | 9,420 | (13,740) | |||||||||||||||||||
| Other comprehensive income (loss) | (1,569) | 4,015 | 8,670 | (14,999) | |||||||||||||||||||
| Comprehensive income (loss) | 12,567 | 6,230 | 82,192 | (43,863) | |||||||||||||||||||
| Comprehensive income (loss) attributable to the noncontrolling interests | (1,602) | 3,273 | (822) | (20,583) | |||||||||||||||||||
| Comprehensive income (loss) attributable to The Andersons, Inc. | $ | 14,169 | $ | 2,957 | $ | 83,014 | $ | (23,280) | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2021 Form 10-Q | 2
Balance The Andersons, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 216,874 | $ | 29,123 | $ | 13,693 | |||||||||||
| Accounts receivable, net | 735,349 | 641,326 | 509,964 | ||||||||||||||
| 1,017,804 | 1,293,066 | 747,588 | |||||||||||||||
| 409,647 | 320,706 | 140,065 | |||||||||||||||
| 26,561 | 32,659 | 45,132 | |||||||||||||||
| Other current assets | 92,159 | 99,529 | 83,807 | ||||||||||||||
| Total current assets | 2,498,394 | 2,416,409 | 1,540,249 | ||||||||||||||
| Other assets: | |||||||||||||||||
| Goodwill | 129,342 | 131,542 | 131,542 | ||||||||||||||
| Other intangible assets, net | 118,690 | 140,084 | 148,846 | ||||||||||||||
| Right of use assets, net | 50,270 | 33,387 | 33,547 | ||||||||||||||
| 38,863 | 643,474 | 642,538 | |||||||||||||||
| Other assets, net | 74,923 | 46,914 | 44,738 | ||||||||||||||
| Total other assets | 412,088 | 995,401 | 1,001,211 | ||||||||||||||
| 797,660 | 860,311 | 870,151 | |||||||||||||||
| Total assets | $ | 3,708,142 | $ | 4,272,121 | $ | 3,411,611 | |||||||||||
| Liabilities and equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| $ | 281,199 | $ | 403,703 | $ | 100,405 | ||||||||||||
| Trade and other payables | 825,923 | 954,809 | 635,206 | ||||||||||||||
| Customer prepayments and deferred revenue | 147,225 | 178,226 | 47,906 | ||||||||||||||
| 78,702 | 146,990 | 79,159 | |||||||||||||||
| 106,255 | 69,366 | 62,499 | |||||||||||||||
| Accrued taxes | 97,215 | 17,465 | 15,178 | ||||||||||||||
| 13,427 | 25,277 | 27,996 | |||||||||||||||
| Accrued expenses and other current liabilities | 173,215 | 135,846 | 128,187 | ||||||||||||||
| Total current liabilities | 1,723,161 | 1,931,682 | 1,096,536 | ||||||||||||||
| Long-term lease liabilities | 31,332 | 19,835 | 19,216 | ||||||||||||||
| 542,821 | 886,453 | 717,198 | |||||||||||||||
| Deferred income taxes | 79,636 | 170,147 | 163,454 | ||||||||||||||
| 13,592 | 48,096 | 221,334 | |||||||||||||||
| Other long-term liabilities | 81,587 | 55,248 | 56,646 | ||||||||||||||
| Total liabilities | 2,472,129 | 3,111,461 | 2,274,384 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||
Common shares, without par value (63,000 shares authorized; 33,786, 33,599 and 33,599 shares issued at 9/30/2021, 12/31/2020 and 9/30/2020, respectively) | 140 | 138 | 138 | ||||||||||||||
Preferred shares, without par value (1,000 shares authorized; none issued) | — | — | — | ||||||||||||||
| Additional paid-in-capital | 360,159 | 348,714 | 346,280 | ||||||||||||||
Treasury shares, at cost (110, 45 and 41 shares at 9/30/2021, 12/31/2020 and 9/30/2020, respectively) | (2,611) | (966) | (879) | ||||||||||||||
| Accumulated other comprehensive loss | (3,406) | (12,076) | (22,230) | ||||||||||||||
| Retained earnings | 679,154 | 626,081 | 615,890 | ||||||||||||||
| Total shareholders’ equity of The Andersons, Inc. | 1,033,436 | 961,891 | 939,199 | ||||||||||||||
| Noncontrolling interests | 202,577 | 198,769 | 198,028 | ||||||||||||||
| Total equity | 1,236,013 | 1,160,660 | 1,137,227 | ||||||||||||||
| Total liabilities and equity | $ | 3,708,142 | $ | 4,272,121 | $ | 3,411,611 | |||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2021 Form 10-Q | 3
The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine months ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Operating Activities | |||||||||||
| Net income (loss) from continuing operations | $ | 66,069 | $ | (32,088) | |||||||
| Income from discontinued operations, net of income taxes | 7,453 | 3,224 | |||||||||
| Net income (loss) | 73,522 | (28,864) | |||||||||
| Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | 142,137 | 141,167 | |||||||||
| Bad debt (recovery) expense, net | (2,182) | 8,049 | |||||||||
| Equity in earnings of affiliates, net of dividends | (2,389) | (228) | |||||||||
| Gain on sale of business from continuing operations | (14,619) | — | |||||||||
| Loss on sale of business from discontinued operations | 1,491 | — | |||||||||
| Gain on sales of assets, net | (6,505) | (1,037) | |||||||||
| Stock-based compensation expense | 6,727 | 7,742 | |||||||||
| Deferred federal income tax | (93,725) | 21,917 | |||||||||
| Inventory write down | 3,399 | 10,933 | |||||||||
| Other | 7,005 | 4,141 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (89,902) | (1,952) | |||||||||
| Inventories | 266,865 | 400,262 | |||||||||
| Commodity derivatives | (158,741) | (2,574) | |||||||||
| Other assets | (3,357) | (34,343) | |||||||||
| Payables and other accrued expenses | (10,659) | (329,422) | |||||||||
| Net cash provided by operating activities | 119,067 | 195,791 | |||||||||
| Investing Activities | |||||||||||
| Purchases of property, plant and equipment and capitalized software | (52,730) | (59,414) | |||||||||
| Proceeds from sale of assets | 3,999 | 8,121 | |||||||||
| Purchases of investments | (5,993) | (2,849) | |||||||||
| Proceeds from sale of business from continuing operations | 18,130 | 2,467 | |||||||||
| Proceeds from sale of business from discontinued operations | 543,102 | — | |||||||||
| Purchases of Rail assets | (6,039) | (26,258) | |||||||||
| Proceeds from sale of Rail assets | 18,705 | 7,774 | |||||||||
| Other | 349 | — | |||||||||
| Net cash provided by (used in) investing activities | 519,523 | (70,159) | |||||||||
| Financing Activities | |||||||||||
| Net payments under lines of credit | (324,279) | (44,183) | |||||||||
| Proceeds from issuance of short-term debt | 608,250 | — | |||||||||
| Payments of short-term debt | (408,250) | — | |||||||||
| Proceeds from issuance of long-term debt | 186,800 | 213,906 | |||||||||
| Payments of long-term debt | (485,527) | (310,694) | |||||||||
| Contributions from noncontrolling interest owner | 4,655 | 6,493 | |||||||||
| Distributions to noncontrolling interest owner | (25) | (10,322) | |||||||||
| Payments of debt issuance costs | (2,059) | (250) | |||||||||
| Dividends paid | (17,503) | (17,234) | |||||||||
| Other | (12,709) | (4,143) | |||||||||
| Net cash used in financing activities | (450,647) | (166,427) | |||||||||
| Effect of exchange rates on cash and cash equivalents | (192) | (407) | |||||||||
| Increase (decrease) in cash and cash equivalents | 187,751 | (41,202) | |||||||||
| Cash and cash equivalents at beginning of period | 29,123 | 54,895 | |||||||||
| Cash and cash equivalents at end of period | $ | 216,874 | $ | 13,693 | |||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2021 Form 10-Q | 4
The Andersons, Inc.
Condensed Consolidated Statements of Equity (Unaudited)
(In thousands, except per share data)
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Common Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | 138 | $ | 343,730 | $ | (953) | $ | (26,245) | $ | 622,718 | $ | 192,695 | $ | 1,132,083 | |||||||||||||||||||||||||||
| Net income (loss) | (1,058) | 3,273 | 2,215 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 1,868 | 1,868 | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | 2,147 | 2,147 | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 2,083 | 2,083 | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (23) | (23) | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (0 shares) | 2,550 | 74 | 2,624 | ||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.175 per common share) | (5,770) | (5,770) | |||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 138 | $ | 346,280 | $ | (879) | $ | (22,230) | $ | 615,890 | $ | 198,028 | $ | 1,137,227 | |||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 140 | $ | 357,606 | $ | (2,650) | $ | (1,837) | $ | 669,241 | $ | 202,464 | $ | 1,224,964 | |||||||||||||||||||||||||||
| Net income (loss) | 15,738 | (1,602) | 14,136 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (3,081) | (3,081) | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | 1,512 | 1,512 | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 1,715 | 1,715 | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (2 shares) | 2,553 | 39 | 2,592 | ||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.175 per common share) | (5,825) | (5,825) | |||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 140 | $ | 360,159 | $ | (2,611) | $ | (3,406) | $ | 679,154 | $ | 202,577 | $ | 1,236,013 | |||||||||||||||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 5
Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Common Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 137 | $ | 345,359 | $ | (7,342) | $ | (7,231) | $ | 642,687 | $ | 222,045 | $ | 1,195,655 | |||||||||||||||||||||||||||
| Net income (loss) | (8,281) | (20,583) | (28,864) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (19,340) | (19,340) | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | 4,341 | 4,341 | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 6,493 | 6,493 | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (10,322) | (10,322) | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests recognized in connection with business combination | (459) | 395 | (64) | ||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (167 shares) | 1 | 1,380 | 6,072 | (843) | 6,610 | ||||||||||||||||||||||||||||||||||||
Dividends declared ($0.525 per common share) | (17,282) | (17,282) | |||||||||||||||||||||||||||||||||||||||
| Restricted share award dividend equivalents | 391 | (391) | — | ||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 138 | $ | 346,280 | $ | (879) | $ | (22,230) | $ | 615,890 | $ | 198,028 | $ | 1,137,227 | |||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 138 | $ | 348,714 | $ | (966) | $ | (12,076) | $ | 626,081 | $ | 198,769 | $ | 1,160,660 | |||||||||||||||||||||||||||
| Net income (loss) | 74,344 | (822) | 73,522 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 4,230 | 4,230 | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | 4,440 | 4,440 | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 4,655 | 4,655 | |||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (25) | (25) | |||||||||||||||||||||||||||||||||||||||
Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of $0 (65 shares) | 2 | 11,445 | (1,977) | (3,479) | 5,991 | ||||||||||||||||||||||||||||||||||||
Dividends declared ($0.525 per common share) | (17,460) | (17,460) | |||||||||||||||||||||||||||||||||||||||
| Restricted share award dividend equivalents | 332 | (332) | — | ||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 140 | $ | 360,159 | $ | (2,611) | $ | (3,406) | $ | 679,154 | $ | 202,577 | $ | 1,236,013 | |||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q3 2021 Form 10-Q | 6
The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). Controlled subsidiaries include majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as noncontrolling interests. All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
During the third quarter of 2021, substantially all of the assets and liabilities of the Rail business were classified as held-for-sale in the accompanying Condensed Consolidated Balance Sheets. As discussed further in Note 14, the Company executed a definitive agreement to sell the Rail Leasing business. In conjunction with the sale of the Rail Leasing business, the Company announced its intent to divest the remainder of the Rail business, primarily consistent of the Rail Repair business. These transactions effectively constitute the entirety of what has historically been included in the Rail reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. Throughout this Quarterly Report on Form 10-Q, with the exception of the statements of cash flows and unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the Condensed Consolidated Balance Sheet presentation of assets and liabilities as held for sale and Condensed Consolidated Statement of Operations presentation of results classified as discontinued operations in relation to the Rail business transactions noted above.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. An unaudited Condensed Consolidated Balance Sheet as of September 30, 2020 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2020 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
Recently Adopted Accounting Pronouncements
Simplified Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12. The new standard simplifies accounting for income taxes, including guidance relating to the approach for calculating income taxes in an interim period, intraperiod tax allocation, and the recognition of deferred tax liabilities among other items. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The new standard did not have a material impact to the company’s financial statements or disclosures.
The Andersons, Inc. | Q3 2021 Form 10-Q | 7
2. Inventories
Major classes of inventories are presented below. Readily Marketable Inventories ("RMI") are agricultural commodity inventories such as corn, soybeans, wheat, and ethanol co-products, among others, carried at net realizable value which approximates fair value based on their commodity characteristics, widely available markets, and pricing mechanisms. The net realizable value of RMI is calculated as the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. All other inventories are held at lower of cost or net realizable value.
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Grain and other agricultural products (a) | $ | 732,512 | $ | 1,025,809 | $ | 557,808 | |||||||||||
| Frac sand and propane (a) | 18,481 | 12,477 | 10,064 | ||||||||||||||
| Ethanol and co-products (a) | 105,052 | 114,895 | 59,543 | ||||||||||||||
| Plant nutrients and cob products | 161,759 | 139,885 | 120,173 | ||||||||||||||
| Total Inventories | $ | 1,017,804 | $ | 1,293,066 | $ | 747,588 | |||||||||||
(a) Includes RMI of $700.3 million, $983.2 million and $523.3 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively.
Inventories do not include 2.0 million, 3.0 million and 2.3 million bushels of grain held in storage for others as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
Lower of cost or net realizable value charges were $3.4 million and $10.9 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The current year charge primarily relates to certain fertilizer values decreasing after the spring application season. The charge in the prior year was a result of lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.
3. Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Land | $ | 39,159 | $ | 39,704 | $ | 39,705 | |||||||||||
| Land improvements and leasehold improvements | 89,941 | 92,455 | 92,138 | ||||||||||||||
| Buildings and storage facilities | 368,678 | 379,195 | 375,715 | ||||||||||||||
| Machinery and equipment | 920,232 | 898,557 | 881,617 | ||||||||||||||
| Construction in progress | 24,556 | 19,473 | 20,936 | ||||||||||||||
| 1,442,566 | 1,429,384 | 1,410,111 | |||||||||||||||
| Less: accumulated depreciation | 644,906 | 569,073 | 539,960 | ||||||||||||||
| Property, plant and equipment, net | $ | 797,660 | $ | 860,311 | $ | 870,151 | |||||||||||
Depreciation expense on property, plant and equipment used in continuing operations was $97.7 million and $91.4 million for the nine months ended September 30, 2021 and 2020, respectively. Additionally, depreciation expense on property, plant and equipment used in continuing operations was $35.2 million and $30.8 million for the three months ended September 30, 2021 and 2020, respectively.
During the quarter ended September 30, 2021, the Company sold its grain assets in Champaign, Illinois plus working capital for $23.3 million which resulted in a $14.6 million gain.
The Andersons, Inc. | Q3 2021 Form 10-Q | 8
4. Debt
Short-term and long-term debt at September 30, 2021, December 31, 2020 and September 30, 2020 consisted of the following:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Short-term debt – non-recourse | $ | 81,494 | $ | 93,192 | $ | 40,985 | |||||||||||
| Short-term debt – recourse | 199,705 | 310,511 | 59,420 | ||||||||||||||
| Total short-term debt | $ | 281,199 | $ | 403,703 | $ | 100,405 | |||||||||||
| Current maturities of long-term debt – non-recourse | $ | 69,932 | $ | 678 | $ | 211 | |||||||||||
| Current maturities of long-term debt – recourse | 36,323 | 68,688 | 62,288 | ||||||||||||||
| Total current maturities of long-term debt | $ | 106,255 | $ | 69,366 | $ | 62,499 | |||||||||||
| Long-term debt, less: current maturities – non-recourse | $ | — | $ | 127,192 | $ | 89,419 | |||||||||||
| Long-term debt, less: current maturities – recourse | 542,821 | 759,261 | 627,779 | ||||||||||||||
| Total long-term debt, less: current maturities | $ | 542,821 | $ | 886,453 | $ | 717,198 | |||||||||||
On February 4, 2021, the Company completed the second amendment to its credit agreement dated January 11, 2019. The amendment, which replaced an underwritten bridge loan received on January 21, 2021, provided for a short-term $250 million term note in which the entire stated principal is due on December 31, 2021. The entire principal balance was repaid as of September 30, 2021.
On May 6, 2021, the Company completed the third amendment to its credit agreement dated January 11, 2019. The amendment provides for a short-term note of approximately $358 million in which the entire stated principal is due on March 31, 2022. The term note will bear interest at variable rates, which are based on LIBOR plus an applicable spread. As of September 30, 2021 $200 million of principal remains outstanding.
The total borrowing capacity of the Company's lines of credit at September 30, 2021 was $1,297.5 million of which the Company had a total of $1,169.9 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit.
As of September 30, 2021, December 31, 2020 and September 30, 2020, the estimated fair value of long-term debt, including the current portion, was $667.9 million, $1,003.1 million and $831.3 million, respectively. The Company estimates the fair value of its long-term debt based upon the Company’s credit standing and current interest rates offered to the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities.
As part of the Company's ongoing covenant monitoring process, the Company determined that it was virtually certain that ELEMENT will be out of compliance with its debt service coverage ratio covenant of no less than 1.4 to be initially measured on December 31, 2021. If ELEMENT is not in compliance with the debt service coverage ratio at December 31, 2021, it would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the ELEMENT’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement. Because it was determined that it was virtually certain that ELEMENT would violate this covenant in the future and has not yet received a waiver, the $70 million of non-recourse debt associated with ELEMENT has been classified as current maturity of long-term debt.
The Company is in compliance with all other financial covenants as of September 30, 2021.
The Andersons, Inc. | Q3 2021 Form 10-Q | 9
5. Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” futures position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract). To reduce the exposure to market price risk on commodities owned and forward purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated commodity exchanges. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
Most of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company primarily accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and commodity inventories are included in cost of sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at September 30, 2021, December 31, 2020 and September 30, 2020, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or non-current commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Cash collateral paid | $ | 136,977 | $ | 208,670 | $ | 70,446 | |||||||||||
| Fair value of derivatives | (14,100) | (157,301) | (58,495) | ||||||||||||||
| Net derivative asset position | $ | 122,877 | $ | 51,369 | $ | 11,951 | |||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 10
The following table presents, on a gross basis, current and non-current commodity derivative assets and liabilities:
| September 30, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | ||||||||||||||||||||||||
| Commodity derivative assets | $ | 380,391 | $ | 11,704 | $ | 27,035 | $ | 461 | $ | 419,591 | |||||||||||||||||||
| Commodity derivative liabilities | (107,721) | (370) | (105,737) | (7,645) | (221,473) | ||||||||||||||||||||||||
| Cash collateral paid | 136,977 | — | — | — | 136,977 | ||||||||||||||||||||||||
| Balance sheet line item totals | $ | 409,647 | $ | 11,334 | $ | (78,702) | $ | (7,184) | $ | 335,095 | |||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | ||||||||||||||||||||||||
| Commodity derivative assets | $ | 304,533 | $ | 4,328 | $ | 19,386 | $ | 14 | $ | 328,261 | |||||||||||||||||||
| Commodity derivative liabilities | (192,023) | (348) | (166,850) | (243) | (359,464) | ||||||||||||||||||||||||
| Cash collateral paid | 208,196 | — | 474 | — | 208,670 | ||||||||||||||||||||||||
| Balance sheet line item totals | $ | 320,706 | $ | 3,980 | $ | (146,990) | $ | (229) | $ | 177,467 | |||||||||||||||||||
| September 30, 2020 | |||||||||||||||||||||||||||||
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | ||||||||||||||||||||||||
| Commodity derivative assets | $ | 159,553 | $ | 3,565 | $ | 7,323 | $ | 42 | $ | 170,483 | |||||||||||||||||||
| Commodity derivative liabilities | (89,933) | (508) | (86,482) | (490) | (177,413) | ||||||||||||||||||||||||
| Cash collateral paid | 70,446 | — | — | — | 70,446 | ||||||||||||||||||||||||
| Balance sheet line item totals | $ | 140,066 | $ | 3,057 | $ | (79,159) | $ | (448) | $ | 63,516 | |||||||||||||||||||
The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments are included in the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Gains (losses) on commodity derivatives included in cost of sales and merchandising revenues | $ | (11,353) | $ | (52,047) | $ | 229,320 | $ | (12,290) | |||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 11
The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at September 30, 2021, December 31, 2020 and September 30, 2020:
| September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons | |||||||||||||||||||
| Non-exchange traded: | |||||||||||||||||||||||
| Corn | 687,177 | — | — | — | |||||||||||||||||||
| Soybeans | 96,061 | — | — | — | |||||||||||||||||||
| Wheat | 94,132 | — | — | — | |||||||||||||||||||
| Oats | 35,460 | — | — | — | |||||||||||||||||||
| Ethanol | — | 174,381 | — | — | |||||||||||||||||||
| Corn oil | — | — | 92,709 | — | |||||||||||||||||||
| Soybean Oil | — | — | 41,322 | — | |||||||||||||||||||
| Other | 31,086 | 2,264 | 1,959 | 2,324 | |||||||||||||||||||
| Subtotal | 943,916 | 176,645 | 135,990 | 2,324 | |||||||||||||||||||
| Exchange traded: | |||||||||||||||||||||||
| Corn | 236,395 | — | — | — | |||||||||||||||||||
| Soybeans | 60,660 | — | — | — | |||||||||||||||||||
| Wheat | 101,087 | — | — | — | |||||||||||||||||||
| Oats | 1,290 | — | — | — | |||||||||||||||||||
| Ethanol | — | 96,894 | — | — | |||||||||||||||||||
| Propane | — | 24,402 | — | — | |||||||||||||||||||
| Other | — | 8 | 1,890 | 240 | |||||||||||||||||||
| Subtotal | 399,432 | 121,304 | 1,890 | 240 | |||||||||||||||||||
| Total | 1,343,348 | 297,949 | 137,880 | 2,564 | |||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons | |||||||||||||||||||
| Non-exchange traded: | |||||||||||||||||||||||
| Corn | 684,654 | — | — | — | |||||||||||||||||||
| Soybeans | 73,521 | — | — | — | |||||||||||||||||||
| Wheat | 109,661 | — | — | — | |||||||||||||||||||
| Oats | 27,482 | — | — | — | |||||||||||||||||||
| Ethanol | — | 124,795 | — | — | |||||||||||||||||||
| Corn oil | — | — | 36,015 | — | |||||||||||||||||||
| Soybean oil | — | — | 26,510 | — | |||||||||||||||||||
| Other | 4,371 | 2,058 | 740 | 1,859 | |||||||||||||||||||
| Subtotal | 899,689 | 126,853 | 63,265 | 1,859 | |||||||||||||||||||
| Exchange traded: | |||||||||||||||||||||||
| Corn | 267,792 | — | — | — | |||||||||||||||||||
| Soybeans | 53,730 | — | — | — | |||||||||||||||||||
| Wheat | 80,733 | — | — | — | |||||||||||||||||||
| Oats | 1,800 | — | — | — | |||||||||||||||||||
| Ethanol | — | 73,584 | — | — | |||||||||||||||||||
| Propane | — | 17,094 | — | — | |||||||||||||||||||
| Other | — | 2,898 | 14 | 149 | |||||||||||||||||||
| Subtotal | 404,055 | 93,576 | 14 | 149 | |||||||||||||||||||
| Total | 1,303,744 | 220,429 | 63,279 | 2,008 | |||||||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 12
| September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons | |||||||||||||||||||
| Non-exchange traded: | |||||||||||||||||||||||
| Corn | 527,924 | — | — | — | |||||||||||||||||||
| Soybeans | 121,248 | — | — | — | |||||||||||||||||||
| Wheat | 80,546 | — | — | — | |||||||||||||||||||
| Oats | 40,004 | — | — | — | |||||||||||||||||||
| Ethanol | — | 96,470 | — | — | |||||||||||||||||||
| Corn oil | — | — | 45,144 | — | |||||||||||||||||||
| Soybean oil | — | — | 17,262 | — | |||||||||||||||||||
| Other | 42,235 | 3,655 | 350 | 2,237 | |||||||||||||||||||
| Subtotal | 811,957 | 100,125 | 62,756 | 2,237 | |||||||||||||||||||
| Exchange traded: | |||||||||||||||||||||||
| Corn | 250,445 | — | — | — | |||||||||||||||||||
| Soybeans | 62,785 | — | — | — | |||||||||||||||||||
| Wheat | 108,805 | — | — | — | |||||||||||||||||||
| Oats | 715 | — | — | — | |||||||||||||||||||
| Ethanol | — | 19,488 | — | — | |||||||||||||||||||
| Propane | — | 31,962 | — | — | |||||||||||||||||||
| Other | — | 7,140 | 16 | 183 | |||||||||||||||||||
| Subtotal | 422,750 | 58,590 | 16 | 183 | |||||||||||||||||||
| Total | 1,234,707 | 158,715 | 62,772 | 2,420 | |||||||||||||||||||
Interest Rate and Other Derivatives
The Company’s objectives for using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The gains or losses on the derivatives designated as hedging instruments are recorded in Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
At September 30, 2021, December 31, 2020 and September 30, 2020, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||
| Interest rate contracts included in Accrued expenses and other current liabilities | $ | — | $ | (589) | $ | (879) | |||||||||||
| Interest rate contracts included in Other long-term liabilities | (258) | (430) | (491) | ||||||||||||||
| Foreign currency contracts included in Other assets | 491 | 2,753 | 326 | ||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||
| Interest rate contracts included in Other assets | $ | 4,431 | $ | 164 | $ | — | |||||||||||
| Interest rate contracts included in Accrued expenses and other current liabilities | (6,892) | (6,664) | (8,431) | ||||||||||||||
| Interest rate contracts included in Other long-term liabilities | (9,146) | (18,539) | (22,409) | ||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 13
The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||
| Interest rate derivative gains (losses) included in Interest income (expense), net | $ | 51 | $ | 357 | $ | 760 | $ | (363) | |||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| Interest rate derivative losses included in Other comprehensive income (loss) | $ | (2,044) | $ | 2,373 | $ | (12,520) | $ | (18,284) | |||||||||||||||
| Interest rate derivatives losses included in Interest income (expense), net | (1,746) | (2,345) | (5,020) | (5,045) | |||||||||||||||||||
Outstanding interest rate derivatives, as of September 30, 2021, are as follows:
| Interest Rate Hedging Instrument | Year Entered | Year of Maturity | Initial Notional Amount (in millions) | Description | Interest Rate | |||||||||||||||||||||||||||
| Long-term | ||||||||||||||||||||||||||||||||
| Swap | 2014 | 2023 | $ | 23.0 | Interest rate component of debt - not accounted for as a hedge | 1.9% | ||||||||||||||||||||||||||
| Swap | 2017 | 2022 | $ | 20.0 | Interest rate component of debt - accounted for as a hedge | 1.8% | ||||||||||||||||||||||||||
| Swap | 2018 | 2023 | $ | 10.0 | Interest rate component of debt - accounted for as a hedge | 2.6% | ||||||||||||||||||||||||||
| Swap | 2018 | 2025 | $ | 20.0 | Interest rate component of debt - accounted for as a hedge | 2.7% | ||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | 100.0 | Interest rate component of debt - accounted for as a hedge | 2.5% | ||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 2.5% | ||||||||||||||||||||||||||
| Swap | 2019 | 2025 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 2.5% | ||||||||||||||||||||||||||
| Swap | 2020 | 2030 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.8% | ||||||||||||||||||||||||||
| Swap | 2020 | 2030 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.8% | ||||||||||||||||||||||||||
6. Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of Accounting Standard Codification ("ASC") 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenues under ASC 606 | $ | 457,621 | $ | 282,258 | $ | 1,568,529 | $ | 1,066,620 | |||||||||||||||
| Revenues under ASC 815 | 2,541,203 | 1,603,328 | 7,260,819 | 4,489,697 | |||||||||||||||||||
| Total revenues | $ | 2,998,824 | $ | 1,885,586 | $ | 8,829,348 | $ | 5,556,317 | |||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 14
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line for the three and nine months ended September 30, 2021 and 2020, respectively:
| Three months ended September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 49,249 | $ | 49,249 | |||||||||||||||
| Primary nutrients | — | — | 69,835 | 69,835 | |||||||||||||||||||
| Services | 8,828 | — | 2,233 | 11,061 | |||||||||||||||||||
| Products and co-products | 70,924 | 183,225 | — | 254,149 | |||||||||||||||||||
Frac sand and propane | 49,379 | — | — | 49,379 | |||||||||||||||||||
| Other | 2,163 | 1,046 | 20,739 | 23,948 | |||||||||||||||||||
| Total | $ | 131,294 | $ | 184,271 | $ | 142,056 | $ | 457,621 | |||||||||||||||
| Three months ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 31,835 | $ | 31,835 | |||||||||||||||
| Primary nutrients | — | — | 62,094 | 62,094 | |||||||||||||||||||
| Service | 2,010 | — | 975 | 2,985 | |||||||||||||||||||
| Products and co-products | 55,235 | 97,703 | — | 152,938 | |||||||||||||||||||
| Frac sand and propane | 21,676 | — | — | 21,676 | |||||||||||||||||||
| Other | 2,414 | 513 | 7,803 | 10,730 | |||||||||||||||||||
| Total | $ | 81,335 | $ | 98,216 | $ | 102,707 | $ | 282,258 | |||||||||||||||
| Nine months ended September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 210,971 | $ | 210,971 | |||||||||||||||
| Primary nutrients | — | — | 355,098 | 355,098 | |||||||||||||||||||
| Service | 12,396 | — | 7,391 | 19,787 | |||||||||||||||||||
| Products and co-products | 217,859 | 513,132 | — | 730,991 | |||||||||||||||||||
| Frac sand and propane | 178,094 | — | — | 178,094 | |||||||||||||||||||
| Other | 9,132 | 5,199 | 59,257 | 73,588 | |||||||||||||||||||
| Total | $ | 417,481 | $ | 518,331 | $ | 632,717 | $ | 1,568,529 | |||||||||||||||
| Nine months ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Total | |||||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 187,700 | $ | 187,700 | |||||||||||||||
| Primary nutrients | — | — | 296,247 | 296,247 | |||||||||||||||||||
| Service | 6,053 | — | 3,753 | 9,806 | |||||||||||||||||||
| Products and co-products | 171,744 | 275,175 | — | 446,919 | |||||||||||||||||||
| Frac sand and propane | 92,990 | — | — | 92,990 | |||||||||||||||||||
| Other | 11,732 | 1,481 | 19,745 | 32,958 | |||||||||||||||||||
| Total | $ | 282,519 | $ | 276,656 | $ | 507,445 | $ | 1,066,620 | |||||||||||||||
Substantially all of the Company's revenues accounted for under ASC 606 during both three and nine months periods ended September 30, 2021 and 2020, respectively, are recorded at a point in time instead of over time.
The Andersons, Inc. | Q3 2021 Form 10-Q | 15
Contract balances
The balances of the Company’s contract liabilities were $31.2 million and $45.6 million as of September 30, 2021 and December 31, 2020, respectively. The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The main driver of the contract liabilities balance is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. Due to seasonality of this business, contract liabilities were built up at year-end in preparation for the spring application season. As expected, the revenue recognized through the first nine months of 2021 satisfied the contract liabilities throughout the application season.
7. Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the nine months ended September 30, 2021, the Company estimated its annual effective tax rate utilizing the annualized effective tax rate method under ASC 740, Income Taxes, to calculate its interim income tax provision. For the nine months ended September 30, 2020, the Company utilized the discrete effective tax rate method, as allowed under ASC 740, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. At the time, it was not possible to reliably estimate the annual effective tax rate for the year due to uncertainty created by the COVID-19 pandemic. As a result, relatively small changes in the provision for income taxes in 2020 caused disproportionate changes in the effective tax rate, as compared to 2021.
For the three months ended September 30, 2021, the Company recorded income tax expense from continuing operations of $4.0 million at an effective income tax rate of 24.7%. The effective tax rate differs from the statutory U.S. Federal tax rate of 21% due to the impacts of state and local taxes, non-deductible compensation and the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The rate impacts were further offset by the portion of income owned by noncontrolling interests that do not result in a tax expense. The change in effective tax rate for the three months ended September 30, 2021 as compared to the same period last year was primarily attributed to additional tax benefits from net operating loss carry backs as a result of the CARES Act in the prior year, offset by the portion of income owned by noncontrolling interests that do not result in a tax expense. For the three months ended September 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit from continuing operations of $4.1 million at an effective income tax rate of 175.8%.
For the nine months ended September 30, 2021, the Company recorded an income tax expense from continuing operations of $18.1 million at an effective income tax rate of 21.5%. The effective tax rate differs from the statutory U.S. Federal tax rate of 21% due to the impacts of state and local taxes and non-deductible compensation. The rate impacts were further offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment and the portion of income owned by noncontrolling interests that do not result in a tax expense. The change in effective tax rate for the nine months ended September 30, 2021, as compared to the same period last year was primarily attributed to additional tax benefits from net operating loss carry backs as a result of the CARES Act in the prior year, offset by the favorable impact of the mark-to-market activity on the contracts within the ethanol segment and the portion of income owned by noncontrolling interests that do not result in a tax expense. For the nine months ended September 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit from continuing operations of $18.6 million at an effective income tax rate of 36.7%.
The Andersons, Inc. | Q3 2021 Form 10-Q | 16
8. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) attributable to the Company for the three and nine months ended September 30, 2021 and 2020:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Currency Translation Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | 8,432 | $ | (2,325) | $ | 5,739 | $ | 1,065 | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (3,004) | 2,351 | (311) | (1,039) | ||||||||||||||||||||||
| Tax effect | — | — | — | — | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (3,004) | 2,351 | (311) | (1,039) | ||||||||||||||||||||||
| Ending balance | $ | 5,428 | $ | 26 | $ | 5,428 | $ | 26 | ||||||||||||||||||
| Hedging Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | (10,223) | $ | (24,966) | $ | (18,106) | $ | (9,443) | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (146) | (535) | 4,467 | (18,594) | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss)(a) | 2,244 | 3,090 | 6,604 | 6,471 | ||||||||||||||||||||||
| Tax effect | (561) | (772) | (1,651) | (1,617) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 1,537 | 1,783 | 9,420 | (13,740) | ||||||||||||||||||||||
| Ending balance | $ | (8,686) | $ | (23,183) | $ | (8,686) | $ | (23,183) | ||||||||||||||||||
| Pension and Other Postretirement Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | (304) | $ | 788 | $ | 33 | $ | 889 | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 69 | 52 | 74 | 293 | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss)(b) | (228) | (228) | (684) | (684) | ||||||||||||||||||||||
| Tax effect | 57 | 57 | 171 | 171 | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (102) | (119) | (439) | (220) | ||||||||||||||||||||||
| Ending balance | $ | (406) | $ | 669 | $ | (406) | $ | 669 | ||||||||||||||||||
| Investments in Convertible Preferred Securities Adjustment | ||||||||||||||||||||||||||
| Beginning balance | $ | 258 | $ | 258 | $ | 258 | $ | 258 | ||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | ||||||||||||||||||||||
| Ending balance | $ | 258 | $ | 258 | $ | 258 | $ | 258 | ||||||||||||||||||
| Total AOCI Ending Balance | $ | (3,406) | $ | (22,230) | $ | (3,406) | $ | (22,230) | ||||||||||||||||||
(a) Amounts reclassified from gain (loss) on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in Interest expense, net. See Note 5 for additional information.
(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost recorded in Operating, administrative and general expenses.
The Andersons, Inc. | Q3 2021 Form 10-Q | 17
9. Earnings Per Share
| (in thousands, except per common share data) | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 12,290 | $ | 1,788 | $ | 66,069 | $ | (32,088) | |||||||||||||||
Net income (loss) attributable to noncontrolling interests(a) | (1,602) | 3,273 | (822) | (20,583) | |||||||||||||||||||
| Net income (loss) available to The Andersons Inc. common shareholders from continuing operations | $ | 13,892 | $ | (1,485) | $ | 66,891 | $ | (11,505) | |||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | 1,846 | $ | 427 | $ | 7,453 | $ | 3,224 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding – basic | 33,284 | 32,962 | 33,246 | 32,905 | |||||||||||||||||||
| Effect of dilutive awards | 350 | — | 424 | — | |||||||||||||||||||
| Weighted average shares outstanding – diluted | 33,634 | 32,962 | 33,670 | 32,905 | |||||||||||||||||||
| Earnings (loss) per share attributable to The Andersons, Inc. common shareholders: | |||||||||||||||||||||||
| Basic earnings (loss): | |||||||||||||||||||||||
| Continuing operations | $ | 0.42 | $ | (0.04) | $ | 2.01 | $ | (0.35) | |||||||||||||||
| Discontinued operations | 0.06 | 0.01 | 0.22 | 0.10 | |||||||||||||||||||
| $ | 0.48 | $ | (0.03) | $ | 2.23 | $ | (0.25) | ||||||||||||||||
| Diluted earnings (loss): | |||||||||||||||||||||||
| Continuing operations | $ | 0.41 | $ | (0.04) | $ | 1.99 | $ | (0.35) | |||||||||||||||
| Discontinued operations | 0.05 | 0.01 | 0.22 | 0.10 | |||||||||||||||||||
| $ | 0.46 | $ | (0.03) | $ | 2.21 | $ | (0.25) | ||||||||||||||||
(a) All net income (loss) attributable to noncontrolling interests is within the continuing operations of the Company.
There were 80 thousand antidilutive share awards outstanding for both the three and nine months ended September 30, 2021, respectively. All awards were antidilutive for the three and nine months ended September 30, 2020 as the Company incurred a net loss in both periods.
10. Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2021, December 31, 2020 and September 30, 2020:
| (in thousands) | September 30, 2021 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | 122,877 | $ | 212,218 | $ | — | $ | 335,095 | |||||||||||||||
Provisionally priced contracts (b) | 28,469 | (25,134) | — | 3,335 | |||||||||||||||||||
Convertible preferred securities (c) | — | — | 11,066 | 11,066 | |||||||||||||||||||
Other assets and liabilities (d) | 4,171 | (11,865) | — | (7,694) | |||||||||||||||||||
| Total | $ | 155,517 | $ | 175,219 | $ | 11,066 | $ | 341,802 | |||||||||||||||
The Andersons, Inc. | Q3 2021 Form 10-Q | 18
| (in thousands) | December 31, 2020 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | 51,369 | $ | 126,098 | $ | — | $ | 177,467 | |||||||||||||||
Provisionally priced contracts (b) | 19,793 | (48,818) | — | (29,025) | |||||||||||||||||||
Convertible preferred securities (c) | — | — | 8,849 | 8,849 | |||||||||||||||||||
Other assets and liabilities (d) | 7,972 | (26,058) | — | (18,086) | |||||||||||||||||||
| Total | $ | 79,134 | $ | 51,222 | $ | 8,849 | $ | 139,205 | |||||||||||||||
| (in thousands) | September 30, 2020 | ||||||||||||||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Commodity derivatives, net (a) | $ | 11,951 | $ | 51,565 | $ | — | $ | 63,516 | |||||||||||||||
Provisionally priced contracts (b) | (5,190) | (22,541) | — | (27,731) | |||||||||||||||||||
Convertible preferred securities (c) | — | — | 8,654 | 8,654 | |||||||||||||||||||
Other assets and liabilities (d) | 4,998 | (32,210) | — | (27,212) | |||||||||||||||||||
| Total | $ | 11,759 | $ | (3,186) | $ | 8,654 | $ | ||||||||||||||||